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2015 (6) TMI 428 - COMPANY LAW BOARD MUMBAI

2015 (6) TMI 428 - COMPANY LAW BOARD, MUMBAI - TMI - Charges of oppression and mismanagement - Sections 397, 398 read with Section 402 of the Indian Companies Act, 1956 - Reduction in shareholding from 50% to 30% fraudulently - No communication for AGM - Non payment of bonus or dividents - Illegally sale of property belong to company - Diversion / siphoned of company funds - Held that:- As per own admission by the Company, by way of showing the Petitioner's shareholding in the Annual Returns fil .....

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provided in Section 108(1) of the Act, is a must, as held in the case of Manalal Khetan v. Kedar Nath Khetan [1976 (11) TMI 135 - SUPREME COURT OF INDIA]. As regards the limitation, it is an established proposition of law as held in the cases of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (dead) through L.Rs [2005 (1) TMI 409 - SUPREME COURT OF INDIA] that an act of oppression is a continuous wrong until it is brought to end by passing an appropriate order. The causes of action lastly arose .....

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s further admitted that the Petitioner was holding 1950 shares constituting 26.7% shareholding in the Company. However, as discussed hereinbefore, the Respondents have failed to prove the factum of gift of the said number of shares in favour of the Respondent No. 2. Their plea that these shares were gifted by the Petitioner thus has not been proved by the Respondents. Therefore, depriving the Petitioner from his shares with mala fide motive and for no valid reason, in my opinion, amounts to grav .....

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ct, yet looking to the seriousness of gravity the said act of oppression, the effect of which is still persisting, in my view, the Petitioner is entitled to the relief with respect to the impugned shares. The petition, therefore, is disposed. - C.P. NO. 22 OF2014 - Dated:- 31-3-2015 - SHRI. ASHOK KUMAR TRIPATHI, J. Mr. K. Padmashri, Advocate for the Appellant Mr. Peter Lobo, Advocate for the Respondent JUDGMENT 1. The above captioned Company Petition has been filed by the Petitioner under Sectio .....

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ompany was incorporated on 26/5/1969 under the provisions of the Act. The Petitioner is the former director and currently the shareholder of the Company and the brother of Respondent No. 2. The Respondent No. 3 is the son of the Respondent No. 2. 2.2 It is the case of the Petitioner that he being a non-resident Indian retired as the director of the Company in view of the applicable laws in or around 1978. However, the Petitioner, though retired as the director, continues to hold 50% of the equit .....

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n the following acts of oppression and mismanagement purportedly committed by the Respondent Nos. 2 and 3 in the affairs of the Respondent No. 1 Company. 2.4 The main grievances ventilated by the Petitioner are that at his behind, the Respondent No. 2 unilaterally, in contravention of the provisions of the Companies Act, and the Articles of Association of the Company and without convening a valid shareholders' meeting and without notice to the Petitioner with mala fide purpose to gain contro .....

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that the Respondent No. 2 has appointed his son, the Respondent No. 3 herein, as director of the Company in the year 2010 without consent of the Petitioner and without following due course of law. c. The Petitioner has further alleged that the Respondents never issued any communication to him regarding the AGM of the Company nor paid the bonus nor dividends to him. d. It is further alleged that the Respondent No. 2 has illegally sold off the property belonging to the Company at F/6, Shreeniketa .....

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firm namely, M/s Aquarius Impex, who carries a similar business to that of the Respondent No. l Company. In addition, the office premises, plant, machinery as well as staff of the Respondent No. l is also being used by the Respondent No. 2's wife for her business without paying any compensation and/or rent to the Petitioner. It is, therefore, alleged that the affairs of the company are being mismanaged by the Respondent No. 2. 2.6 Based on the aforesaid complaints the Petitioner has sought t .....

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. To direct the Respondent No. l not to issue any cheques or any other instrument towards remuneration and/or other financial benefits to the Respondent Nos. 2 and 3. e. To restrain the Respondent Nos. 2 and 3 from acting as the Directors of the Respondent No. l and/or from participating in any manner whatsoever in the affairs of the Respondent No. l. f. To restrain the Respondent Nos. 2 and 3 from drawing any further remuneration/commission from the Respondent No. 1. g. To restrain the Responde .....

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h bank account on such terms and conditions as this Board may deem fit. i. To restrain the Respondent Nos. 2 and 3, the Respondent No. l, its officers, servants, agents etc. from allotting any further equity shares of the Respondent No. l and to further restrain from appointing any further Directors of the Respondent No. 1. j. To appoint an independent Chartered Accountant to prepare afresh the books of account of the Respondent No. l and to place the report before this Board. k. To appoint a Co .....

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To direct the Respondent Nos. 2 and 3 not to alienate, mortgage, encumber, transfer or deal with or dispense with the assets and stocks of the Respondent No. 1 in any manner whatsoever. m. To direct the Respondent No. l and the Respondent Nos. 2 and 3 to give to the petitioner all necessary supporting documents/details in respect of the payments made and/or received by the Respondent No. 1 with effect from the incorporation till date and further to direct the Respondent No. l and the Respondent .....

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olding any Board Meetings or any General Meetings without prior permission of this Board. 3. Pursuant to the notice, the Respondents appeared and filed their reply. In their reply, they raised preliminary objections thereby assailing the maintainability of the petition and seeking its dismissal, inter alia, on the grounds, firstly, that the Petitioner has no locus to file the petition, secondly, the petition is hit by the provisions of law of limitation and thus it is barred by time, thirdly, th .....

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leged that the Petitioner's own actions have been detriment to the interest of the Company. Therefore, the petition deserves to be dismissed on this ground also. 4. To the reply, a Rejoinder was filed by the Petitioner on 17/10/2014. The Respondents filed their Sur- Rejoinder on 24/11/2014. 5. I have heard the Ld. Counsel appearing for the parties and perused the record. 6. Before I proceed to consider the rival submissions, it is pertinent to mention here that the Respondents had filed a Co .....

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the Hon'ble High Court, being Company Appeal No. 87 of 2014 in which the Hon'ble High Court passed the following order :- "2. I. Heard the ld. Advocates for the parties and by consent, the following order is passed:- (i)The Appellants shall be at liberty to file a suit claiming that the disputed shares have been gifted to them by the Respondent No. l herein and to also seek ad-interim/interim reliefs therein. (ii)In the event of such suit being filed by the Appellants, the parties s .....

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pany Appeal is accordingly disposed of." 7. It is further pertinent to mention here that, at the request of the parties, the Hon'ble High Court has extended the date of disposal of the C.P. up to 7/4/2015. 8. Now, firstly, I proceed to deal with the preliminary objections raised by the Respondents. The first preliminary objection raised by the Respondent is that the Petitioner is not eligible to file the present petition in terms of Section 399 of the Act, and therefore, on this ground .....

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nstituting 26.7% of the total paid-up capital of the Company and thus, the Petitioner being eligible under Section 399 of the Act is entitled to file the present petition. The Ld. Counsel for the Respondents pointed out that they preferred an appeal against the said order dated 25/09/2014 before the Hon'ble High Court of Bombay. According to him, although the said Appeal was dismissed, the Hon'ble High Court of Bombay kept the contentions of the parties open, including the one raised by .....

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d proposition of law, this Board has power to record oral evidence, and the principles of natural justice also require that an opportunity be given to the Respondents to prove their case by documentary as well as oral evidence. Therefore, the Respondents submitted that they may be granted liberty to prove the fact by giving an opportunity to lead evidence to this effect and permitting them to cross examine the Petitioner that he had gifted his shares to the Respondent No. 2. The Ld. Counsel furt .....

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id in the eye of law. According to the Ld. Counsel, this cannot destroy the effect of transfer of shares as a result of gift and despite procedural requirement of Section 108 of the Act, which is directed towards the Company, the act of gift is binding on the Petitioner and the Respondent No.2, and the Petitioner, as a donor, is estopped from taking any action now as a shareholder after he gifted the shares to the Respondent No. 2. 9. On the other side, the Ld. Counsel appearing for the Petition .....

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led a civil suit, in which he has failed to get any interim order. However, having now filed a suit he has no right to lead oral evidence or right to cross examination in this petition as contended by the Petitioner. It was further urged that in view of the said civil suit, the Respondents impliedly admitted that the Petitioner is owner of 1950 shares as on the date and therefore their preliminary objection as to the maintainability of the petition deserves to be rejected. 10. Having considered .....

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ransferred in favour of the Respondent No. 2 in 1976-77 by way of gift. In addition to the above, it is a well settled law that for a lawful transfer of shares the execution of transfer deeds, as provided in Section 108(1) of the Act, is a must, as held in the case of Manalal Khetan v. Kedar Nath Khetan [1977] 185 SCC 47. In the present case, the Respondents have failed to produce any transfer deeds to show that the Petitioner has transferred the shares in favour of the Respondent No. 2, as alle .....

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titioner was holding 1950 shares in the total paid-up capital of the Company which constitutes 26.7% shareholding of the Company. I, therefore, hold that the Petitioner is competent under Section 399 of the Act to file the petition under Section 397/398 of the Act. This preliminary objection is rejected accordingly. 11. The second preliminary objection raised by the Respondents is that the petition is barred by law of limitation and therefore, it deserves to be dismissed on this ground also. Acc .....

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ng not taken any action since 1993, now cannot challenge the appointment on the ground that it was bad and/or illegal, particularly, when such act is not of a continuing one. The Ld. Counsel further contended that another complaint of the Petitioner is that the Respondent No. 2 has appointed his son, the Respondent No. 3,herein as the director of the Respondent No. l company in the year 2010 without consent of the Petitioner and without following due course of law. The Ld. Counsel submitted that .....

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e aforesaid cases it has been held that if the events that have been complained of happened more than 3 years prior to the filing of the petition, the same could not be looked into. It was further held in the said decision that Article 137 of the Limitation Act, 1963 which prescribes limitation of 3 years applies to the petition under Section 397/393 of the Act. Therefore, the present petition, being time barred, deserves to be dismissed on this ground alone. 13. Responding to the above contenti .....

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s meeting and without notice to the Petitioner, issued further equity shares thereby reducing his shareholding from 50% to 26.7%, The Ld. Counsel submitted that this reduction in the shareholding of the Petitioner was made by the Respondents with oblique and mala fide motive to gain control over the affairs of the Company, It is further submitted that the Petitioner, thereafter, came to know recently that the Respondents have, in collusion with each other, now transferred his entire shareholding .....

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d for issuance of duplicate share certificates and the same were issued to him by the Company. According to the Ld. Counsel, until 2012 he was being shown as a shareholder of the Company. When the Petitioner found that his name is missing in the latest Annual Return, he immediately, tried to know as to why his name is not being shown in the annual returns of the Company, On enquiry, he was shocked to know that the Respondent No. 2 and his family members claimed that the Petitioner had gifted his .....

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the shares. According to him, in this case, there is no compliance of Section 108 (1) of the Companies Act, and hence, for the said reason, there is no valid transfer. The Ld. Counsel, therefore, submitted that depriving the Petitioner from his shares on a false pretext and claiming the ownership of the impugned shares by the Respondent No. 2, is an act of oppression and this being a continuous cause of action, the Petitioner's petition is within the period of limitation. Further, according .....

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ve considered the submission and perused the record. As regards the limitation, it is an established proposition of law as held in the cases of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (dead) through L.Rs [2005] 11 SCC 314 that an act of oppression is a continuous wrong until it is brought to end by passing an appropriate order. In the case of Pearson Education Inc. v. Perntice Halt India (P.) Ltd. [2006] DLT 450, it was held that if the act complained off amounting to oppression has a co .....

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nds on general principles of justice and fair play. There is no presumption that delay is deliberate. To be the laches delay should be such that it could be said that the petitioner is not entitled to relief on account of gross negligence or inaction or for want of bona fide imputable to him or that he has give up (waived) his right by acquiescence or by his conduct or neglect. Further, this Board has consistently taken the view that in case of allotment of shares, even if it is a single act, si .....

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limitation, delay and laches and its effect on this petition is a mixed question of facts and law which requires consideration and appreciation of evidence led by the parties. It is, therefore necessary to examine the facts and circumstances of this case, to determine the question as to whether the delay is of such nature that the petitioner is not entitled to the reliefs sought for, on account of gross negligence or inaction or want of bona fides on his part or he has give up/waived his rights .....

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he period of limitation, and hold that it also does not suffer from any delay and laches as contended by the Respondents. 17. The next preliminary objection raised by the Respondents is that the petitioner has not approached this Bench with clean hands and he has suppressed material and vital facts and the documents which disentitle him for grant of any reliefs sought for from this Bench. It is further submitted that the petition is filed as an abuse of process of law with mala fide intention, u .....

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e, no notices of the meetings and/or Annual Reports were forwarded to him from 1977. This proves and supports the Respondent No. 2's case of the gift, because if the Petitioner has not received any notices of AGM so many years he was not supposed to sleep over the matter for all those years and ignored the same from 1977, but on the contrary, he ought to have protested against the same from 1977, and taken some actions against the Respondents which he did not do so, but instead he filed the .....

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he tried to stake a claim on the flat of the Respondents in Sonawala Building, Marine Drive in May 2013 by filing a suit in City Civil Court and as a consequence whereof the Respondent have to file a declaratory suit in the Small Causes Court in November 2013, and it is in pursuance of the Petitioner's said ulterior motive of claiming the share in the flat that he as any by way of pressurizing tactics, filed the present Petition. The Ld. Counsel submitted that it has been held in the case o .....

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erprises (P.) Ltd. [1991] 72 Comp. Cas. 211 (Kar.) wherein it is held that the Petition under Sections 397 and 398 should be filed in good faith and there must be honest intention on the part of the Petitioner to get the reliefs. It was argued that the conduct of the Petitioner should be tested, not only with regard to his conduct in the Petition that has been filed by the Petitioner, but also taking into consideration the other parallel legal proceedings adopted by the Petitioner. It has been s .....

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he Petitioner has adopted in the civil court to claim share in the Sonawala flat. According to the Ld. Counsel, this establishes his motive and that he has filed the Petition to exert pressure on the Respondent No. 2 to submit to the Petitioner's wrongful demand or claim in the flat at Sonawala building. Further, except making bald allegations, the Petitioner has not produced any documentary or other evidence satisfying the ingredients of Sections 397 and 398 under Companies Act, and this as .....

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rein from this Bench under Section 402 of the Act, which are well within the power of the CLB. 22. I have considered the rival submission. In my view, the contentions of the Respondents are misplaced. On a bare perusal of the petition, it is evident that the Petitioner has invoked his right as a shareholder. He has expressed various grievances and has made complaints in the capacity of he being a shareholder of the Company. There may be certain family disputes, but 1 am not inclined to accept th .....

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petition under Section 397/398 of the Act with mala fide, ulterior motive and collateral purposes, it deserves to be dismissed. But, in my opinion, the decisions cited by the Respondents do not apply to the present case having regard to its facts. Each case has to be examined on its own merits and the law applies depending upon the facts of the given case. In the present case, the laws cited by the Respondents do not apply. I, therefore, reject their contention that the petition is filed with m .....

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. Counsel for the Respondents, therefore, contended that the petition deserves to be dismissed on this ground. 24. It is a well settled proposition of law that if a party approaches a court for redressal of his grievances under equitable jurisdiction, he must come with clean hands and, in case, such party conceals any material facts or suppresses the relevant documents, he is not entitled to the discretionary reliefs from the court. However, elaborating the aforesaid proposition of law, it has b .....

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btained which would not have been granted if the correct and true facts were pleaded. In this regard, the following decisions and the relevant observations therein are relevant to be cited :- (i)Enercon Gmbh v. Enercon (India) Ltd. [2008] 143 Comp Cas 687 (CLB). ''In the present case, no relief has been granted as yet and whether the documents which are alleged to have been not been disclosed are material documents is a matter yet to be determined. Once the other side has produced all th .....

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on of this document." (iii)Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 11 SCC 314 where the Supreme Court has held: "196. The Court in an application under Sections 397 and 398 may also look to the conduct of the parties. While enunciating the doctrine of prejudice and unfairness borne in Section 459 of the English Companies Act, the Court stressed the existence of prejudice to the minority which is unfair and not just prejudice per se. 197 The Court may also refuse to grant .....

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documentary. (See In re Bengal Luxmi Cotton Mills Ltd. [1965] 35 Comp. Cas. 187 (Cal))." (iv)P.L.G. Manu v. Shashi Distilleries (P.) Ltd. [2010] 160 Comp Cas 236 (CLB) Pg. 266 the Company Law Board, Additional Principal Bench at Chennai held: "It is well-settled principle that when the petitioners approach this Bench for grant of discretionary reliefs under section 397/398 of the Act, they should come with clean hands. The very fact that the petitioners have filed the present petition .....

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plied.) (vi)The above principle has been reiterated in a recent judgment of the Supreme Court in the case of Dalip Singh v. State of U.P. [2010] 2 SCC 114 wherein it is inter alia held; "1. ... it is now well established that a litigant, who attempts to pollute the stream of justice or who touches the pure fountain of justice with tainted hands, is not entitled to any relief, interim or final." 25. In light of the above proposition of law, I have examined the facts referred to by the R .....

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the Petitioner by suppression of the said fact in order to obtain an interim order/ protection in this case. Furthermore, the insolvency proceedings filed by the Petitioner before the USA court have no bearing on the outcome of this petition. This objection as to suppression of vital facts and documents, therefore, rejected accordingly. 27. Now, I enter into adjudication of the issues arising out of the pleadings of the parties in respect of the acts of oppression and mismanagement. Inviting my .....

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hown as a shareholder. According to the Ld. Counsel for the Petitioner, this act of the Respondent No. 2 amounts to a gross act of oppression. 28. The case of the Respondents is that the company was established in the year 1969 by the Respondent No. 2 and Petitioner, both having 1 share each. Thereafter, further shares were issued within the limits of the authorised capital on 5/7/1972 by Issued and Paid-up 500 shares to the Respondent No. 2 and the Petitioner each. On 23/10/1973, further shares .....

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d therefore, he came within purview of Section 29 of the FERA. Further, according to the Respondent's Counsel, need arose to issue further capital and on 6/11/1974, with the consent of the Petitioner, further 1000 shares were issued to the Respondent No. 2 and no shares at that time were issued to the Petitioner as the same could not be done in view of the provisions of Section 29 of FERA and this issue of 1000 shares to the Respondent No. 2 was with the consent, knowledge and approval of th .....

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e, resulting that in 1974 the Respondent No. 2 held total 3450 shares working out to 63.9% shareholding of the Company and 1950 shares by the Petitioner which worked out to 36.1% shareholding of the Company within the permissive limits of the FERA provisions. 30. It is further submitted on behalf of the Respondents that the further shares were issued on 17/3/1975, 22/9/1975, 21/1/1977 and 18/2/1977 as tabulated here under, within the knowledge, approval and consent of the Petitioner and this is .....

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isions of the Section 29 of the FERA, no further capital could be issued to the Petitioner. The Petitioner was very well aware of the same. It is further submitted that since 1957 the Petitioner has permanently shifted from Bombay and he had no intention to return to Bombay when he first shifted to Kolkata in 1952-1953 and then to USA in 1957, and today also he is residing In U.S. and even the business of the Company was also in trouble and he could not take part in the management of the Company .....

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original shares are lying with the Respondent No.2 and by physical delivery of share certificates which represent the title to his shares, the said gift came to be completed and thereafter as from the said date, the Respondent No. 2 become the sole owner of all the shares of the Petitioner and as on the date of the said gift, with a view to maintain minimum 2 persons membership to the limited Company, two shares of the Company were issued to HL Financial Consultants and since then, i.e. 1976-77 .....

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wherein he has dearly stated that he did not hold any property. 32. It is next submitted on behalf of the Respondents that if the Petitioner had held the shares of Respondent No. l Company, he would have stated so in his Declaration. However, his statement of holding no property was only made by him in view of his gift of the said shares of the Company to Respondent No. 2. In as much as if the Petitioner was the shareholder, as on that date, he ought to have declared the said shares as his prope .....

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h August 2009 filed by him before the Superior Court, Guilford County-North Carolina, in which he has clearly and unambiguously stated that the Company belongs to Respondent No. 2 and the Petitioner was permitted to stay in the Apartment belonging Company because of his old age and difficult financial circumstances faced by the Respondent No. 2. This statement of his own on solemn affirmation even on 28/8/2009 reiterates that he has no shareholding in the Company and he was not a shareholder. It .....

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t No. l Company. According to the Respondent's Counsel, the aforesaid statements were deliberately made by the Petitioner being conscious of the fact that he had already gifted the said shares to Respondent No. 2 in 1975, and thereafter he had no shareholding in the Respondent No. l Company. This fact is even borne out by his own conduct in-as-much-as after the said gift, he had not bothered to inquire about or take part in the business and of the company and he had not done any act with reg .....

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s by the Respondents as stated in the preceding paras, it is evident that the Respondents have not disputed that the Petitioner initially was holding 50% shares. Subsequently, his shareholding was reduced to 36.1% for the reason that he had become an NR1. It is further admitted that the Petitioner was holding 1950 shares constituting 26.7% shareholding in the Company. However, as discussed hereinbefore, the Respondents have failed to prove the factum of gift of the said number of shares in favou .....

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lleged by the Petitioner. In this regard, the Petitioner has alleged that the Respondent No 2 diverted the siphoned funds and the Business of the Company to the sole proprietary firm M/s Aquarius Impex, owned by the wife of Respondent No. 2. The business carried out by the said Company is also similar to that of the Respondent No. l, whereby the Company started incurring huge losses. The Respondents in their reply to the Company Petition have admitted the fact that the firm, M/s Aquarius Impex, .....

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in their Reply to the Company Petition admitted that the Company premises is used by M/s Aquarius Impex since 1983. 37. It was submitted on behalf of the Petitioner that the Respondent no 2 has sold the property belonging to the Respondent No. l Company situated at F/6 Shreeniketan, Shiv Sagar Estate, Worli, Mumbai-18 to one M/s Millennium Developers Pvt. Ltd for an estimated sum of ₹ 66 lacs in or around the year 2000 when the market value of the said property was already more than twice .....

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ame was reported by the auditor as advances payable and not as revenue earned nor was any tax paid on the consideration received, which the Petitioner suspects was done deliberately to defraud the tax authorities. The Ld. Counsel added that this transaction was effected at a time when there were DRT proceedings already initiated against the Company. Hence, the Company also cheated the banks which rightfully should have received the consideration as setoff towards its loans outstanding. 38. It is .....

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r's report that the amount received from M/s Millennium Developers is payable back since the suit filed by the Petitioner is still pending, whereas immediately on dismissal of the Appeal No. 136 of 2001, the Respondent No. l ought to have accounted for the consideration amount and hence the profitability of the company ought to have gone up and dividends ought to have been declared. 39. The Petitioner's Counsel next alleged that the Respondent No. 2 has also misappropriated/ siphoned off .....

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r who mismanaged the assets of the company and he was privy to the act for the sale of properties of the company for his own benefits. 41. I have considered the submissions. Since the Petitioner has not impleaded M/s Aquaries Impex and the purchaser of the property i.e. M/s Millennium Developers Pvt. Ltd., the allegation with respect to siphoning off the funds, in my opinion, cannot be looked into at this stage. This issue is answered accordingly. 42. Lastly, it was alleged on the behalf of the .....

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reholder is denied his most valuable rights in utter disregard of the statutory provisions, the making of a winding of order, on the ground that it is just and equitable would be justified. Therefore, having regard to the facts of the case in hand, the necessary ingredients of the provision contained in Section 397 which provides that: "to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the g .....

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