Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

Girdharlal Nathubhai Dalal Versus Star Grain & Shipping (P.) Ltd. and Others

2015 (9) TMI 1069 - COMPANY LAW BOARD MUMBAI

Oppression and mismanagement - illegal removal of the Petitioner as a Director of the Company - illegal increase in the authorized share capital - Respondent No. 3 has been illegally appointed with a view to gain control over the management of the Company by the Respondent No.2 alone - siphoning off funds and non-payment of dividend - Held that:- 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 w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d not be present at the said meeting as he was not a shareholder then. The said meeting was not held at the registered office of the company. All these reasons clearly go to prove that the purported meeting held on 18/6/2007 for Increasing the authorized share capital of the company was not held in accordance with law. The decisions taken at the said meeting smack mala fide intention on the part of the Respondents. - the resolutions deserves to be set aside.

Regarding illegal allotmen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aside and it is immaterial that the issue is made in bona fide belief that it is in the interest of the Company. - allotment of shares was mala fide and purpose was to gain control and management of the Company - allotments are bad in law and deserves to be set aside.

Removal of the Petitioner as a Director of the company - Held that:- The Petitioner is admittedly has been primary director of the company ever since his induction as the shareholder since 1996 and 1976 and has also been .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Respondents are burdensome, harsh and wrongful and lack in probity and fair deal to the Petitioner. The effect of acts complained of is continuous in nature. The petition, therefore, deserves to be allowed. To bring an end to the acts complained of and to do substantial justice between the parties. - Respondent No.2 has siphoned off the Company's funds, and the company has suffered loss, the same shall same shall be reimbursed by the Respondent No.2. - Special Auditor Appointed - Decided in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Act, 1956 (hereinafter referred to mismanagement purportedly committed by the Respondents in the conduct and affairs of the Respondent No. 1 Company. The Petitioner has sought various reliefs, as set out, in the petition. 2. The facts in brief leading to filing the present petition are as follows:- 2.1 That since 1951 the Petitioner along with his brother, Late Kantilal Dalai, carried on businesses principally through a partnership firm styled "Kantilal & Co.". With the increasing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng 1969-71. 2.3 That in February, 1976, the Company was incorporated. At about the same time, the Respondent No. 2 had also incorporated a partnership firm with the same name, being Star Grain & Shipping Co., having Its registered office at Janmabhoomi Bhavan, Janmabhoomi Marg, Fort, Mumbai 400 001. 2.4 That both the said Kantilal and Surendra Dalai decided to retire from the Indian businesses and the Petitioner and the Respondent No. 2 continued as partners/joint holders in the Indian partn .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the Company with effect from 1/10/1997. 2.5 In or about 1997-98, the Petitioner was informed by the Respondent No. 2 that Deutsche Group, Singapore, was looking for an Indian partner to form a Joint venture company to enter the securities market in India. Such joint venture required an initial investment of about ₹ 15,00,00,000/- by the Indian entity, for which the Company would have a 25% shareholding in the resultant joint venture company. The Petitioner lent to the Company about  .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eholder in DSIPL, with a capital investment of ₹ 15,00,00,000/-, The Company till date continues to be 25% stakeholder in DSIPL. 2.7 Till about 2004-05, the Petitioner continued to preside as the Chairman at the official meetings of the Company and all decisions were routed through him. DSIPL also recognized the Petitioner as the Chairman of the Company. 2.8 That the disputes and differences seeped up between the parties in between 2005-2007 on account of rude and rough behaviour of the Re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

did not proceed further, 2.10 Then in or about June 2007, the Respondent No.2 came to Petitioner's room and demanded in an abusive and grossly insulting manner that the Petitioner should not ever again step in the office of the Company or even in the Khushnuma house, which is now the registered office of the Company, The Respondent No. 2 threatened the Petitioner that if the Petitioner ever attempted to step into the offices of the said Kantilai & Co., or any of the affiliated companies .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er from the house, the joint businesses and the Company, 2.11 Though deeply aggrieved, the Petitioner in the hope that wiser counsel will prevail on the Respondent No.2 and that the said Kantilal will intervene to set things right, refrained from taking any legal action against his nephew, the Respondent No.2. Several attempts were made by the relatives and common friends to reconcile the issues but to no avail. 2.12 The Petitioner then wrote a letter dated 9/8/2011 to DSIPL to get information a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d the said Kantilal Dalai. The Petitioner was never served with a copy of the said Award but came to know of the same in some garnishee proceedings in Singapore. Further, the said Award though dealing with issues allegedly relating offshore settlement between the Respondent No. 2 and said Kantilal, also dealt with the rights, title, interest and share of the Petitioner in various immovable properties situated in India and standing In the names of the joint business entities without making the Pe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r the said Award dated 10/7/2010. Petitioner then pointed out the illegality and unenforceability of the Award and that the same infringes upon the rights and interests of the Petitioner. The Petitioner thus filed appropriate proceedings in the Hon'ble Bombay High Court inter alia for setting aside the said Award and incidental reliefs, being Suit No. 470 of 2013. 2.15 The Petitioner then, apprehending that the Respondent No. 2 may have misused the Award, and being in illegal control of thes .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

en issued a comprehensive notice dated 11/9/2013 to the Respondents pointing out the various acts of oppression and mismanagement by the Respondent No.2, and called upon the Respondent No. 2 to inter alia rectify the same within the time period stipulated therein. Vide the said Notice the Petitioner called upon the Respondents to provide to the Petitioner with inspection of entire records of the Company since 2004 within seven days of receipt of the said Notice, which the Petitioner was entitled .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed a letter from the advocates of the Respondents seeking time to reply to the said Notice. Therefore, it became clear that the Respondents were merely buying time to fudge and fabricate the records of the Company to cover their tracks and defeat the rights of the Petitioner. 2.19 In backdrop of the aforesaid events, the Petitioner has filed the instant petition complaining therein the acts of oppression and mismanagement in the conduct of affairs of the Company. In a nutshell, the grievances of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e being the only shareholder with the Respondent No.2 and holder of 30% shareholding in the company without following due process of law. iv. Illegal appointment of the Respondent No. 3 as a Director, only with a view to gain control over the Company's affairs, by the Respondents. v. No service of notices or statutory documents on the Petitioners since 2007. vi. Illegal transfer of shares by the Respondent No.2 to the Respondent Nos.3 to 12 in a purported meeting dated 1/9/2007, which was In .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Company by the Respondent No.2 for his personal benefits. ix. Non-payment of dividends etc. 3. On behalf of the Respondents, a reply has been filed denying all the aforesaid acts of oppression and mismanagement. It is contended that the shares held by the Petitioner, were purely in his capacity as a custodian of the Respondent Nos.3 and 4 and do not belong to the petitioner and as such he has no locus to file the instant petition. The next plea taken by the Respondents is that the present p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

4. I have heard the ld. Counsels appearing for the parties. I have also gone through the documents submitted by the parties, as well as, various citations referred to and relied upon by them, in support of their respective contentions. Now, I proceed to consider the rival contentions on merits. 5. Dealing with the first complaint as to the illegal increase in the authorized share capital of the Company, with a mala fide intention to dilute the shareholding of the Petitioner, it was submitted on .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat in the notice, it is mentioned that the meeting was to be held at the Company's Registered Office, which is situated at Janmabhoomi Bhavan, whereas in the minutes of the meeting the Registered Office of the Company has been shown as Khushnuma Apartments. c. No authority was given by the Petitioner to the Respondent No.2. d. The meeting was held in violation of the Articles of Association. e. There was no valid quorum for holding the said meeting. 6. Elaborating the aforesaid grounds it i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that as per the Notice dated 15/5/2007, (Exhibit W) an extraordinary general meeting was to be held at the registered office at "Janmabhoomi Bhavan" on 18/6/2007 at 11 a.m. However, in the minutes of the meeting (Exhibit V) the registered office of the Company has been shown as "Khushnuma Apartments". Pertinently, the registered office of the Company was changed from "Janmabhoomi Bhavan" address to the aforesaid "Khushnuma Apartments" address only with ef .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in his favour. 9. It is further submitted on behalf of the Petitioner that even assuming that the shares were held jointly, the Company ought not to have recognized the Respondent No. 2 as a joint shareholder as it is in violation of the articles of association. Article 6 of the AOA of the Company clearly states that the Company shall not recognize any person holding any partial interest in the shares. 10. It is further contended that the only person present at the purported meetings were the R .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing appropriate quorum for conduct of the meeting. 11. Now, I proceed to consider the next accusation made by the Petitioner upon the Respondents as regards the illegal allotment of the additional shares to the Respondent Nos. 2 and 3 with mala fide intention of diluting the shareholding of the Petitioner from 30% to 0.03%. In this connection, it has been argued on behalf of the Petitioner, that as per the ROC records, the Respondent No. 2 was allotted 2,40,000 shares on 15/6/2007 and 7,50,000/- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ital signature of the Petitioner whilst uploading Form 2 showing allotment of 2,40,000 shares to the Respondent No. 2, whereas the list of allottees attached therewith bears the signature of the Respondent No. 3 (Exhibit Z). 13. Mr. Jagtiani, the ld. Sr. Counsel for the Petitioner further argued that the allotment in question is also in violation to the peremptory clause as contemplated in Article 4 of the Articles of Association of the Company, which mandates that the additional shares have to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e entire exercise of increasing the authorized share capital of the Company and allotment of the increased shares to the Respondent No. 2 and Respondent No. 3 was done by the Respondent No, 2 in furtherance of their oblique motive to gain control over the Company and to oust the Petitioner by reducing his shareholding to a negligible 0.03 % as compared to the original 30%. 16. Dealing with the letter dated 12/11/2005 of the Petitioner, upon which the Respondents have placed strong reliance to co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

bject to complying with the requisite formalities, which have not been complied with by the Respondent No.2 and therefore, the question of relinquishment does not arise. 17. The ld. Sr. Counsel pointed out that even according to Respondent No. 2, the letter was issued not because the Petitioner intended to give up his share and interests in Company, but because the Petitioner wanted to protect his capital as he was risk averse and did not approve the unconventional methods of DSIPL's directo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

12/11/2005 stating it was never given effect to officially in three years and claimed his proportionate share in dividends, profits etc. The Respondent No. 2 in his response letter dated 1/10/2008 (Exhibit M) did not say that the letter dated 12/11/2005 has already been given effect to and he made no reference to the alleged meeting of 30/9/2006. 19. Taking me through the Minutes of the 30/9/2006, the ld, Sr. Counsel argued that the Respondents have fabricated these Minutes as the Petitioner was .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ments" which, as stated above, became the registered office of the Company on 1/9/2009. In the year 2006, the registered office of the company was at "Janmabhoomi Bhavan". b. The said minutes though falsely records that the Petitioner and the Respondent No, 2 were present at the said meeting, the said minutes have been signed only by the Respondent No. 2. c. The Petitioner had sought inspection of the said minutes. However, the Respondent No. 2 has only provided a photocopy of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of in the AGM of 30/9/2006, then the Respondent No. 2 would have mentioned the same in the correspondence especially when the subject issue of the correspondence was demand of share of the Petitioner. The Petitioner in his letter dated 11/9/2008 revokes his letter dated 12/11/2005 and demands share in profit. The Respondent No. 2 does not in his response in letter dated 1/10/2008 state that the same is given effect to in the AGM of 30/9/2006, and calls upon the Petitioner to transfer shares to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g him from getting profits the Respondent No. 2 did not make any mention of the AGM of 30/9/2006. f. The Respondents at the time of the hearing came up with a new case, though not pleaded in the petition, that the Annual Returns of 31/3/2006 were signed by the Petitioner in the meeting of 30/9/2006. The purported minutes of the meeting held on 30/9/2006 do not record that the annual returns of 31/3/2006 was signed by the Petitioner on that date. Further, the annual return of 31/3/2006 makes no m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

een from the letters dated 5/4/1999 (Exhibit F) and letter dated 16/8/2011 (Exhibit O). The Respondent No. 2 in his letter dated 1/10/2008 (Exhibit M) addressed to the Petitioner has also admitted that the Petitioner was a director and a chairman of the Company. 21. It is further submitted on behalf of the Petitioner that from the search of record of the ROC, it may be seen that the Petitioner was shown as a director till 2007-2008 as reflected in the Annual Return for the year 2007-2008 (Exhibi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

unsel appearing for the Petitioner that the Respondents have annexed documents to their reply such as notice to call for EOGM dated 2/5/2008 (Exhibit H), minutes of the board meeting dated 6/5/2006 (Exhibit I), Form 32 (Exhibit J) Form 61 (Exhibit K) and Form 62 (Exhibit L) showing the alleged removal of the Petitioner as a director. The ld. Sr. Counsel submits that these documents are fabricated for the following reasons:- a. The Petitioner carried out a repeat search on the ROC website, (Exhib .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

her forms are computerized, which casts serious doubts on the genuineness of the document. c. The documents shown during inspection as copy of the purported Forms 32, 61 and 62, were not even, web printouts from the ROC website. The Respondent No. 2 was called upon to produce the challan to show that these documents were actually filed with the ROC which has not been produced. d. The purported notice of the Board Meeting dated 2/5/2008 is neither issued on the letterhead of the Respondent No. 1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t Respondent No.3 was also present as Director of the Respondent No. 1 Company. f. The Respondent No.2 was called upon to produce the proof of service of the notice dated 2/5/2008 and also of the notice of EOGM allegedly held on 30/5/2008 on the Petitioner. The same has not been produced on record by the Respondent No .2 nor has he produced the Minutes of the EOGM dated 30/5/2008. g. The documents annexed as Exhibit "H" and "I" to the Reply are described as Notice for conveni .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

but has instead, recognized the Petitioner as a director and stated that the said letter is in the nature of a Show-Cause Notice to show cause why the Petitioner should not be expelled from the Respondent No.1 Company in his capacity either as a shareholder or a director of the Company. 23. Refuting the contention of the Respondents that the Petitioner was removed as a director on account of non-procurement of DIN, it is submitted that Non-procurement of DIN is not a disqualification from being .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. approx 2 years, to remove the Petitioner as a Director of the Company. 25. The next allegation made by the Petitioner Is that the Respondent No. 3 has been illegally appointed with a view to gain control over the management of the Company by the Respondent No.2 alone. In this connection, it was argued that the Respondent No.3 was first appointed as an additional director of the Company vide a resolution purportedly passed at the board of directors meeting dated 1st October 2006 and then was ap .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ctor at any Annual General Meeting of the Company subsequently held. 26. The next point argued on behalf of the Petitioner is that the Respondent No. 3 was appointed as a Director with an ulterior motive to gain control of the company and oust the Petitioner as after the appointment of Respondent No. 3 as a director, the Respondents 2 and 3 illegally increased the authorized capital and allotted shares to Respondent No. 2 thereby reducing the shareholding of the Petitioner from 30% to 0.03%. 27. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

OA. 28. The next charge relating to the act of the mismanagement made by the Petitioner is that the Respondents did not serve notice or statutory documents on the Petitioner since 2007. In this regard, it is argued that since 2007, no notices of board meetings, AGM, and other meetings have ever been served on the Petitioner. The ROC records reveal that, as per the compliance certificate dated 20/8/2008 filed with the Registrar of Companies, in the financial year 2007-08, the board of directors m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ht to have been served on the Petitioner at the Pondicherry address and not at "Khushnuma Apartments" which is the residential address of the Respondent No.2 and in his exclusive possession, The ld. Sr. Counsel pointed out that the Respondent No. 2 had addressed letters to the Petitioner at his Pondicherry address with respect to Company. In fact, in the letter dated 1/10/2008 in paragraph 3C the Respondent No, 2 requests the Petitioner to update the company records with respect to his .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt Nos. 3 to 12 in violation of right of pre-emption as provided in the Articles of Association of the Company. Dealing with this Issue, it was argued that on 1/9/2007 the Respondent Mo. 2 transferred 100 of his 7000 paid-up equity shares to the Respondent No. 3. The Petitioner was not aware of any such transfer nor was his permission sought for the same and hence is illegal (Exhibit C). 31. It is further submitted by the Petitioner's counsel that in the year 2013, the Respondents 2 vide res .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of these shares, that too only 13 in number and to only 9 persons. Further, the said transfer has been done behind the back of the Petitioner without serving any notice of the meeting in which the said transfer took place Exhibit P and Q (share transfer forms). 32. Apart from the above, it was argued that the said transfers of shares are in violation of Article 10 of the ADA as the shares ought to have been offered to the Petitioner before transferring the same to outsiders as the Petitioner had .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nsfer of shares in favour of Respondent Nos. 4 to 12, it was contended that the transfer of the shares is the violation of the provisions contained in the Articles of Association of the Company with respect to the pre-emptive rights of the Petitioner. In this connection, it is the contention of the Petitioner that the transfer of the shares are in violation of Article 10 of the AOA of the Company, as the shares ought to have been offered to the Petitioner before its transfer to the outsiders, an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ner in this regard. According to the ld, Counsel for the petitioner, these additional transfers of shares were made illegally with a view to debar the Petitioner from filing the present petition by illegally increasing the members of the Company up to 12. Moreover, the Respondents have not provided any cogent and convincing reason for transfer of these shares and that too only 13 in number and to only 9 persons. 34. The next grievance ventilated by the Petitioner is that he has been denied his r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by them in their Affidavit. In Reply, which has been recorded in the Minutes of the Inspection letter dated 19/11/2013. 35. Dealing with the last complaint as to the siphoning off funds and non-payment of dividend, it was argued on behalf of the Petitioner that the initial investment of ₹ 15,00,00,000/- in D5IPL was done through internal borrowings i.e. through loans received from the shareholders and not by raising any monies from any financial institutes or otherwise. The Petitioner had .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

behalf of the Petitioner that he has not received his share of the income/profits/dividend earned from the investment made in DSIPL, According to the Petitioner, the Company in the year 2008 had received a cheque of ₹ 9 crore as dividend from DSIPL which has been recorded in the letter dated 2/10/2008 addressed by the Petitioner to the Respondent No.2, which has not been denied by the Respondent No. 2. The ld. Sr. Counsel alleged that the Petitioner did not receive any share in the divide .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Petitioner of ₹ 4.5 crore was not towards his 30% share in the investment made by Company in DSIPL, as Petitioner himself has signed the balance sheets of 2004 - 2005 and 2005 - 2006 wherein the loan given by him is reduced to ₹ 2 crore. The ld. Sr. Counsel in order to prove the Petitioner's allegation has cited the following facts and figures available on record :- a. The Respondents have not given any explanation for what purpose did the Company take the loan from the Petition .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y of ₹ 4.5 crore was only towards the investment made by it in DSIPL. c. If the case of the Respondents that the Petitioner did not invest a penny is true, then the Respondent No, 2 would not have signed the Balance Sheet of 2005-2006 showing investments made by the Petitioner in the Company. d. The Respondent No. 2 has not produced anything on record to show that the Balance Sheet of 2002 showing investment of ₹ 4.5 crore of the Petitioner is fabricated. Except for bare denial that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, his nephew, would dupe him. However, with the passage of many years, the Petitioner is now unable to recall as to how and in what circumstances he has affixed his signatures on the said Balance Sheets. 38. Replying to the Petitioner's contention, the ld. Sr. Counsel appearing for the Respondents raised a preliminary point as to delay and latches in filing the instant petition and submitted that on this ground alone the Petition deserves to be dismissed. In this regard, taking me through th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n contention that he was ousted from the Respondent No.1 Company from the year 2007, however, even after his alleged forceful removal from the Respondent No.1 Company and the Khushnuma flat, the Petitioner failed to take any action. According to the Ld. Sr. Counsel, in such circumstances, the least a prudent person would do is, to file a FIR against such forceful removal, which the Petitioner neglected to do. 40. It is further submitted that the grievances with regard to the alleged illegal incr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to him, if the Petitioner had bona fide apprehensions that the affairs of the Company were being mismanaged, being a prudent shareholder, the feast that he could have done is to check the documents filed by the Company with the Registrar of Companies ('ROC') from time to time, for which he was not even required to visit the office of the Company and/or ROC as the same can be accessed through the website of the Ministry of Corporate Affairs by making a minimal payment of ₹ 50/-, Th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Counsel pointed out that the Petitioner has sought to explain the delay in filing the present Petition inter alia, contending that the Petitioner was under a belief that Kantilal Dalal would prevail upon the Respondent No.2 to pay to the Petitioner his alleged dues. In addition, the Petitioner has further sought to contend that on the demise of Mr. Kantilal Dalal on 8/3/2013, the Petitioner sought to take legal advice and look into the records of the Respondent No.1 Company in April, 2013. Acco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

7 of the Petition that no resolution could be arrived at by Kantilal Dalal in 2007. iii. In paragraph III (viii) at page 17 of the Petition, the Petitioner has sought to contend that on several occasions, the Petitioner called upon the Respondent No. 2 to give details relating to the Respondent No.1 Company. iv. It is further contended by the Petitioner that the Respondent No.2 continues to "oppress the Petitioner by denying him his legal rights and interest in the Company." v. In para .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d out about the affairs the Respondent No.1 Company, Furthermore, according to the Respondents' Counsel, it is impossible to believe that for more than 6 years the Petitioner, who claims to be aggrieved by the conduct of the Respondent No.2,would not have taken legal advice or taken search of the records of the Respondent No.1 Company which are accessible on the website of the Ministry of Corporate Affairs on payment of a nominal fee of ₹ 50/-. 44. The ld. Sr. Counsel further contended .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

th any notices for meeting(s) or financial statements since 2004 but also in the Advocate's Notice dated 11/9/2013 (Exhibit "S"), he sought inspection inter alia , of the Annual Returns and the financial accounts "since 2004". 45. Apart from the above, the ld. Sr. Counsel submits that the averments in the Petition read with the subsequent explanation sought to be given in the Rejoinder, makes it abundantly clear that the Petitioner intended to separate from the various fi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or of Respondent No.1 Company, it has been submitted on behalf of the Respondents that though the Petitioner has sought to allege that his removal from the post of Director as well as the increase in Share Capital is allegedly illegal, the fact that the Petitioner intended to separate from various firms/entities. In which inter alia he and Respondent No.2 were associated, is evident from the letter dated 12/11/2005 (Exhibit I), which reads as under:- "1. As a Director and Shareholder of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ondents then invited my attention to the Minutes of the AGM held on 30/9/2006, which state as follows:- "It was further proposed that Paid-Up Capital of the Company must be raised to it fully authorized capital of Rs, 25,00,000/-. In view of the letter dated 12th November, 2005 issued by its share holder Mr. Girdharlal Nathubhai Dalal, to the other Principle Share Holder Mr. Bharat K. Dalal, was also decided that, the letter be accepted and the Company will have all the rights in respect of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ie. Mr. Bharat Dalal." 48. Referring to the said Minutes, it was submitted on behalf of the Respondents that the very fact that the Petitioner himself has signed the document itself proves that he was himself a part of the Respondent No.1 Company and had also attended the meeting dated 30/9/2006. Further, the Petitioner has nowhere in his petition nor in his rejoinder stated that he had not attended the meeting dated 30/9/2006. On the contrary, the Petitioner has expressly stated that he ha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nvestment made by the Petitioner has been paid back by the Respondent No.1 Company to him. The audited report of the Respondent No.1 Company reflects the signature of the Petitioner and this audited report was further filed by the Respondent No.1 Company with the ROC in the year 2006, hence, it was argued that the Petitioner had attended and consented to the contents of the minutes of the meeting dated 30/9/2006. According to the Respondents' Counsel, this falsifies all the allegations raise .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

part from the above, since the business of the Company was highly speculative in nature, its sole activity being the partnership with Deutsche Securities (India) Pvt. Ltd., the Petitioner was not comfortable being exposed to a high possibility of unlimited losses or gains and therefore, sought to relinquish his shares. It is submitted that even if these shares were issued at par, as contended by the Petitioner, he has failed to provide any proof to demonstrate that any consideration was paid by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Petitioner. 51. It is the contention of the Respondent's Counsel that the letter dated 12/11/2005 was issued and submitted by the Petitioner to the Respondent No.2 reiterating that he does not want any share in the dividends and/or profits and/or losses of the Company that have accrued in the past and will accrue in the future. According to the Respondents, from a reading of this letter, it is clear that the Petitioner has given up/relinquished his share in dividends, profit and losses f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ought to contend, inter alia, that his involvement in the business of the Respondent No.1 Company is evident from the purported loan of ₹ 4.5 crore which was allegedly granted by the Petitioner to Respondent No.1 Company. The ld. Sr. Counsel submitted that the fact that the Petitioner had relinquished or given up his purported right, title and interest in the shares/business of the various entities, is also evident from the annual accounts for the FY 2005-06 which have been signed by the P .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Petitioner sought to tender the annual accounts for the FY 2007-08, by which he sought to contend that the Respondents have siphoned off the money lent by him to Respondent No.1 Company. The ld. Sr. Counsel pointed out that the issue of ₹ 2,27,89,874/- that is raised by the Petitioner during the course of oral arguments, was never a subject-matter of the Petition and is merely being raised by him as an afterthought with a view to create prejudice. 53. It is further submitted that at no p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. According to the Respondents Counsel, despite the Petitioner raising such a contention in the letter dated 2/10/2008, in the Advocate's notice dated 11/9/2013, at Exhibit 5, the Petitioner has still sought production of the minutes of Board Meeting from 2004. 54. It is further contended on behalf of the Respondents that the Petitioner has failed to apply for and obtain a Director Identification Number ("DIN") under Section 266-A of the Act and has not shown any interest in doing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

attachment to Form No. 61. Further, though the Petitioner has sought to contend that Form No. 32, which is produced at Exhibit-J, is fabricated on account of the fact that the same is handwritten and is at variance with the procedure of online Filing, it is submitted that on account of the Petitioner's failure to obtain the DIN, it was not possible to upload Form No. 32 directly on the online system and it was, therefore, necessary for Form No. 32 to be uploaded as an attachment to Form 61. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

4, the ld. Sr. Counsel appearing for the Respondents submitted that this arguments is not tenable because under Section 3(b) of the said Act, where any property, including shares, is held by a person as a trustee or in fiduciary capacity, the same is excluded from the purview of the said Act. It was, therefore, argued that the said Act does not bar the Respondent No. 2 from giving the shares of the Respondent No.1 Company to the Petitioner as a trustee. Further, the letter dated 19/5/2007 state .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

failed to demonstrate that any consideration was paid by him for the said shares. According to the ld. Sr. Counsel for the Respondents, the denial of the fact that the shares were transferred by Mrs. Jyoti Dalal to the Petitioner, is not only mala fide but also a complete afterthought. 57. Dealing with the charge as to the alleged failure to provide Notices and Minutes of Meetings by the Respondents to the Petitioner, it was argued on behalf of the Respondents that it is amply clear from the doc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re of board meetings etc." 58. Assailing the conduct of the Petitioner, the ld. Sr. Counsel appearing for the Respondents submitted that the Petitioner wrongly tried to sell the Respondent No.2's flat in his absence, and this displays the misconduct of the Petitioner. In this connection, it is submitted that while the Respondent No.2 was away from home and the Petitioner was at that point of time staying with the Respondent No.2 in his house, the Petitioner taking advantage of the fact .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r were legal and sole owners of the said Flats Nos. 51 and 52 in spite of the fact that the said Flats had been transferred to the Respondent No.2 and were solely owned by the Respondent No.2 under the Gift Deed dated 26/12/1994, as has been stated hereinabove. 59. It was further submitted that the Respondent No.2 was utterly shocked to learn of the letter dated 6/10/2007, which was brought to his notice only in a meeting with the managing committee on 7/5/2009, The learned Counsel submitted tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed to stay with him in the house and that he would move out of the house and expressed that he will stay in another relative's house. 60. It is next submitted that it was the Petitioner's responsibility to get the records of the Company rectified so that all the communications that are to be sent to him could be sent to his new address of communication. However, the Petitioner did not take any steps to rectify the records of the Company or to request that the address for communication of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he Respondents. Further, according to the Ld. Counsel, the provision of Article 11 of the AOA, permits transfer of shares in favour of the third parties without approval of the Board of Directors. It is, therefore, contended that the Petitioner, who was no longer a Director on the Board of Directors of the Company, has no legal right to object to any transfer of shares inter se the Respondents. In the alternative, it was submitted that if it is assumed that the contention of the Petitioner is co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

4 to 12 is contrary to the provisions of Articles 10 and 11 of the Articles of Association of Respondent No.1 Company. In this regard, it is submitted that the Respondent Nos. 4 to 12 are the family members of Respondent Nos. 2 and 3. It is also submitted that the provisions of Article 11 of the Articles of Association clearly provide for transfer of shares by a member of the Company to his family members without any approval by the Board of Directors. 63. Based on the above contentions, the ld .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the record. I have also perused the Written Submissions filed by both the sides and the decisions cited by them in support of their respective contentions. 65. On the basis of the pleadings and submissions, the first question that arises for my consideration is as to whether the Petitioner is eligible to file the present petition in terms of the provisions contained in Section 399 of the Act. In this regard, it has to be noted that the Petitioner claims to be 30% shareholder in the total-paid u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y, prior to the alleged allotment of the shares, the Petitioner was 30% shareholder in the total paid-up capital of the company. I, therefore, hold that the Petitioner is eligible to file the present petition in terms of Section 399 of the Act. In support of my finding I would like to rely on the following decisions :- (i) Vijayan Rajes v. Plantations (P.) Ltd. [2009] 151 Comp Cas 413 (Kar) wherein the Division Bench of the Karnataka High Court has held as follows: "32. The reasoning given .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of examining as to whether the petitioning members qualify for maintaining a petition under Section 399 of the Act, the question to be looked into is as to whether the petitioners constitute the requisite number of members or they had the requisite shareholding in the company prior to the acts complained of. If the date of presentation of the petition should be looked into in a technical way, it could defeat the very purpose of the legislative enactment of Sections 397 and 398 of the Act, as the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd interpretation to be given to Section 399 is only so as to Author the object of relief to be given in a situation governed by Sections 397 and 398 of the Act and not to foreclose the options to an aggrieved person and to deny the very relief sought to be extended to a complaining minority shareholder/s envisaged under Sections 397 and 398 of the Act." [Emphasis Supplied] (ii) In the case of Raajratna Metal Industries Ltd. v. K & S Consulting Group (P.) Ltd. [2009] 148 Comp Cas 756 (C .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n Dinesh Sharma v. Vardaan Agrotech P. Ltd. [2007] 135 Comp Cas 133. Accordingly, the maintainability issue is answered in favour of the Petitioner." (iii) Further, in the case of T.N.K. Govindaraju Chetty & Co. v. Kadri Mills (CBE) Ltd. (1999) 96 Comp Cas 871 (CLB, it has been held hereunder: "14..... Allotment of shares to the exclusion of some shareholders has been held, by many High Courts and the Company Law Board itself, as an issue which could be agitated as an act of oppres .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

case of Prabhjit Singh Johar v. Johar Hotels (P.) Ltd. [2010] 157 Comp Cas 98 (CLB)wherein it was held that: "56.... It has been rightly contended by the petitioners that the Company Law Board in the case of T.N.K. Govindaraju Chetty and Co. v. Kadri Mills (CBE) Ltd. : [1998] 3 Comp. LJ 329 : [1999] 96 Comp Cas 871, has held that the transfer and allotment of shares which has been done with mala fide motive cannot be impugned a petition under Section 111 and they have to be agitated as an a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

een held that in family companies any reduction in the percentage of shareholding irrespective of quantum of percentage, the affected parties can always allege oppression as his position vis-a-vis other family members gets altered due to non-allotment of shares and in this case the petitioners have alleged that their 50 per cent, shareholding has been reduced to 26.6 per cent, besides that the transfer shown is fraudulent showing their 50 per cent, shareholding as reduced to nil. Thus the respon .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

maintainability of the company petition in terms of the requisite qualification under Section 399 is not tenable. The petition cannot be thrown out at the threshold." (Emphasis Supplied) 67. Apart from the above, it is the case of the Respondents that the Petitioner was holding shares in his capacity as a trustee of the minor sons of the Respondent No.2, and therefore, the Petitioner was not the actual owner of the shares-in-question. Hence, he has no locus standi to file the present petiti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ohibition) Act, 1988 are not attracted to the present case as the impugned shares held by the Petitioner were in the capacity of a trustee for the Respondent Nos.3 and 4, and hence, covered by the Exception of Section 4(3)(b) of the said Act, in my opinion, is also not tenable. The Hon'ble Supreme Court and Hon'ble High Courts have clearly held that the defence of the trustee to get out of the rigours of the Benami Transaction Act is available only when the property is purchased by a per .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

areholder and director of the company and issued a show-cause notice as to why he should not be expelled from the company in his capacity as a shareholder and director, and thus, the Respondents have admitted in their correspondence that the shares held by the Petitioner were in his individual capacity. In addition to the above, the Respondent No.2 in his letter dated 19/5/2007 and 1/10/2008, addressed to the Petitioner, admitted the fact that the shares were purchased by the Petitioner from Mrs .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n overwriting on the folio numbers mentioned in the share certificates showing the Respondent No.2 as a joint shareholder along with the Petitioner. It is pertinent to mention here that, the Respondent No.2 has not offered inspection of the original share certificates, as can be seen from the Minutes of inspection dated 29/11/2013. There appears sufficient force in the submission of the Petitioner that the failure to produce the Register of Members by the Respondents in spite of repeated request .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o file the present petition. 71. The next issue which arises for my consideration is as to whether the present petition is barred on account of delay and laches as well as principles of "estoppel" and "acquiescence" as the Petitioner did not take any action since 2007. 72. It is an established proposition of law that the provisions of Limitation Act, 1963 do not apply to the proceedings under Section 397/398 of the Companies Act. Therefore, the contention of the Respondents t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y owned companies of the Petitioner and the Respondent No.2. The Respondent No.2 is the nephew i.e. the real brother's son, of the Petitioner. The Petitioner and the Respondent No.2 were the only members and directors acting on mutual trust It is further matter of record that the Petitioner had shifted from Mumbai and was staying in "Arbindo Ashram" at Pondicherry for the last few years. There is nothing on record to show that the Respondent No.2 did disclose to the Petitioner that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

address. Needless to say that the real uncle i.e. the Petitioner was having utmost faith and trust in his nephew i.e. the Respondent No.2, who was solely in-charge of the affairs of the Company and at whose representation the Petitioner was induced to invest in the Company, was in entire control of the affairs of the company. In these circumstances, if the Petitioner did not bother to keep on regularly checking filings of the company and/or making enquiries from the company as to its shareholdi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es, the Petitioner made searches into the records of the Company. I do not find any reason to disbelieve the contention of the Petitioner that on an online search of the records of the company, as available with the ROC, carried out on 23/4/2013, he discovered the various acts of oppression and mismanagement committed by the Respondent No.2 in collusion with the Respondent No.3. On discovery of these gross acts of oppression and mismanagement, the Petitioner in order to safeguard his interest, o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is relevant to note here that in the case of Sangramsina P. Gaekwad & Ors. v. Shantadevi P. Gaekwad (dead) through L.Rs & Ors. (2005) 11 SCC 314 it has been held 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/s. Perntice Hall India (P) Ltd. & Ors. (2006) DLT 450, it was held that if the act complained off amounting to oppression has a continuing effect, in the case, the question of l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lay. 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 given up (waived) his right by acquiescence or by his conduct of neglect. Further, this Board has consistently taken the view that in case of allotment of shares, even if it is a single act, since it has continuous effect allegations relat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the above proposition of law and having regard to the facts of the case in hand, I hold that the present petition is not barred by delay and laches, It is also not barred by the principles of doctrine of "waiver" and "acquiescence". 76. The next preliminary objection that falls for my consideration is whether the Petitioner has suppressed material facts and documents and thus has approached this Bench with unclean hands, and hence the petition deserves to be dismissed. 77. I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rise unless it is demonstrated that (i) firstly, the fact was "vital and material" to the issue to be decided in relation to the reliefs claimed; (ii) secondly, that such vital fact was not to the knowledge of the Respondents or that the document could not have been in the knowledge of the Respondents, or that the document was not a public document, and (iii) lastly, that by suppression of such fact, orders were obtained which would not have been granted if the correct and true facts w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion of suppression of material documents to apply the decision of the Supreme Court, does not arise. . . ." (ii) Dhanraj Mills (P.) Ltd. v. Global Trust Bank Ltd. [2003] 105 BOMLR 609, wherein it has been held as follows: "But it is not the law that if particular document is not filed court should immediately draw an inference that there is intention to suppress. This document is before the Court. No order interest or otherwise was even sought nor obtained by the Respondent Nos.1 G.T.B .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

recent judgment of the Hon'ble Supreme Court in the case of Dalip Singh v. State of U.P. [2010] 2 SCC 114, wherein it is inter alia held as follows:- "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." 78. In light of the above proposition of law, I have examined the facts of this case. I do not find that the Petitioner .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ny was effected in the EOGM purportedly held on 18/6/2007. The Petitioner was the shareholder on that date holding 30% in the total paid-up capital of the company. There is nothing on record to show that any notice was issued to the Petitioner inviting him to participate in the said meeting. There is also nothing to show that the Petitioner had ever issued any authority to the Respondent No.2, as shown in the minutes of the meeting, to represent the petitioner as a shareholder. The contention of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

esent at the purported meeting were the Respondent No. 2 as the representative of the Petitioner, the wife of the Respondent No.2 as the representative of the Respondent No.2 and the Respondent No.3. Undisputedly, the Respondent No.3 became a shareholder only on 1/9/2007 and could not be present at the said meeting as he was not a shareholder then. The said meeting was not held at the registered office of the company. All these reasons clearly go to prove that the purported meeting held on 18/6/ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s declared as invalid, unlawful and so the resolutions passed thereat, and, therefore, I am of the view that the resolutions deserves to be set aside. 80. Now, I enter into adjudication of other complaints made by the Petitioner as to the illegal allotment of additional shares to the Respondent Nos. 2 and 3 in the meetings purportedly held on 15/6/2007, 17/7/2007 and 1/9/2007. In the meeting held on 15/6/2007, the Respondent No.2 was allotted 2,40,000 shares, and in the meeting dated 17/7/2007 h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dents have failed to prove the service of notice. No proof has been filed in this regard by them. There is no reason to disbelieve the Petitioner's case that he was not served any notice with respect to these meetings wherein such decisions to allot additional shares to the Respondent Nos.2 and 3 were taken. There is also nothing to disbelieve that the Respondent No.2 has illegally used the digital signature of the Petitioner while uploading Form No. 2 showing allotment of 2,40,000 shares to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion of the pre-emption clause of the AOA. 81. Apart from the above, it is the matter of record that the Respondent No. 2 has not provided the minutes of the meeting dated 15/6/2007, 17/7/2007 and 1/9/2007, nor any resolutions passed in those meetings. The resolutions and the minutes of the meetings have also been uploaded on the website of the ROC, Ex facie, it appears that the entire excise of increasing the authorized share capital of the company and then further allotment of the shares to the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of my own accord giveup/relinquish my share of profit in the above Partnership Business. 2. I also hereby willingly and of my own accord assign/transfer my share of profit and all other benefits in the above Partnership Business to Mr. Bharat K. Dalal. 3. In order to formalize my above decision, if any legal formality is to be done or any documents are to be prepared the same may be forwarded to me for my signature." 83. On a careful perusal of the said letter, the Respondents' content .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ties, which were never done. It appears that the Petitioner wanted to protect his capital as he was not in favour of such amount of investment on account of risk involved therein. This does not exonerate the obligation on the part of the company and the Respondent No.2 as a director of the company, having entire control over the affairs of it, not to comply with the requirement of mandatory law by issuing notices at the correct address of the petitioner, informing him and making disclosure as re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

izement and to the detriment of the company, the court will interfere and prevent the directors from doing so. The very basis of the Court's interference in such cases is the existence of the relationship of a trustee and of cestui que trust between the directors and the company." [(See pr 109 of Needle)] (ii) BMJ & Sons V. BCC Co. (2002)108 CompCas 91 (pg 104), the Court observed: "It is a settled position of law that further shares can be issued only for the benefit/interest .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

primarily to enable capital to be raised when it is required for the purposes of the company but it can be used for other purpose also as, for example, to create a sufficient number of shareholders to enable the company to exercise statutory powers, or to enable it to comply with legal requirement. Hence, if the shares are issued in the larger interest of the company, the decision cannot be struck down, on the ground that it has incidentally benefited the Directors is their capacity as sharehold .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

m exercising control of the Company, they will not be held to have failed in their fiduciary duty to the Company if they act in good faith In what they believe, on reasonable grounds, to be the interests of the Company, but if the power to issue shares is exercised from an improper motive, the issue is liable to be set aside and it is immaterial that the issue is made in bona fide belief that it is in the interest of the Company. 85. It is well-settled that the directors may exercise their power .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e and in their own interest and not in the interest of the company, will be invalid even though the allotment may result incidentally in some benefit to the company. 86. In light of the aforesaid proposition of law, having critically examined the facts of this case, in my opinion, the contention of the Respondents for allotment of shares was mala fide and purpose was to gain control and management of the Company. I, therefore, hold that the allotments of further shares purportedly done at the me .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

minutes of the said meeting. (ii) No attendance register has been produced to prove that the petitioner was present in the said meeting. (iii) No proof of despatch of notice has been produced to show that any notice was served on the Petitioner inviting him to attend the said meeting. (iv) The Petitioner sought inspection of the original minutes of the meeting, but neither he was given inspection of the original minutes of the said meeting nor a certified copy thereof was provided to him. Simply .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r, the said minutes are recorded. Had the letter dated 12/11/2005 ever been taken note of it in the AGM dated 30/9/2005, then the Respondent No.2 would have mentioned the same in the correspondences especially when subject issue of the correspondence was demand of shares of the Petitioner. In addition, the Petitioner vide his letter dated 11/9/2008 revoked his letter dated 12/11/2005 and demanded share in profits, The Respondent No.2 in his response by letter dated 1/10/2008 did not state that t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ow-cause notice in 2008. In addition to the above, the purported minutes of the meeting held on 30/9/2006 do not record that the annual returns of the year ended on 31/3/2006 was signed by the Petitioner on that date. Further, the annual return of 31/3/2006 makes no mention of letter dated 12/11/2005 of the Petitioner. The Respondents, therefore, at the time of hearing, have come up with anew case although not pleaded earlier that the annual return of 31/3/2006 was signed by the Petitioner in th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

be subject-matter of such Petitioner and removal/termination can be held as an oppressive act towards a shareholder/director of the Company, Undisputedly, the Company is closely held family company and the Respondent No.2 is a real nephew of the Petitioner. The Petitioner is admittedly has been primary director of the company ever since his induction as the shareholder since 1996 and 1976 and has also been the chairman of the company. In a family company, undisputedly, the principles of quasi-pa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ated that. In a quasi-partnership type company, the Court may take account of legitimate expectations of members." In Re Elgindata Ltd. : [1991] 8CLC 9S9 it has been held that "In general members of a company have no legitimate expectations going beyond the legal rights conferred on them by the constitution of the Company, i.e., to say its Memorandum and Articles of Association. Nonetheless legitimate expectations superimposed on a member's legal rights may arise from agreements or .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a High Court also, in Synchron Machine Tools Pvt. Ltd. case, has recognized application of legitimate expectation in a petition under Sections 307/398. . . . . . As held by this Board in Thirthram Ahuja's case (supra), when certain groups of shareholders who have formed a company and have been participating in the affairs of a company for a long time with remuneration, then there can be a presumption of legitimate expectation and exclusion of one from the management could be an act of oppres .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

quot;As a principle, directorial complaints cannot be a ground in a petition under Section 397/398 as the complaints in such a petition should be relating to the rights qua a member. While, as a proposition, it is so in normal circumstances, yet, in cases of family companies or companies in the nature of partnership, depending on the facts of the case, directorial complaints have been adjudicated by this Board in Section 397/398 proceedings. In any view of the matter, in the present case, the pe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

claim of quasi-partnership and by denying the petitioners a representation on the Board, they are being oppressed by the majority shareholders. In case of dissolution of a partnership, the just and equitable grounds are wider than the just and equitable grounds applicable in the case of winding up of a company." (ii) Dale Carrington Invt. P. Ltd. & Anr. vs. P.K. Parthapan & Ors. (2005) 1 SCC 212 the Hon'ble Supreme Court has held as follows :- "Private limited companies are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2/5/2008 and Board Meeting dated 6/5/2008, Form Nos. 61 and 62, etc. showing the alleged removal of the petitioner as a director, are fabricated documents. Moreover, the said meetings are invalid for want of valid service of notice on the Petitioner. I hold that the minutes of the said meetings are fabricated since the same are corroborated by the following facts :- (i) The Petitioner failed to trace any such form No. 32 allegedly filed by the respondents with the ROC for removal of the petition .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(s) 32, 61 and 62 were not even web printouts from the ROC website. The Respondent No. 2 was called upon to produce the challan to show that these documents were actually filed with the ROC which has not been produced. (iv) The purported notice of the Board meeting dated 2/5/2008 is neither issued on the letterhead of the Company nor does it bear any company stamp. (v) The notice as well as the Agenda of the alleged notice described the registered office of the company as "Khushnuma Apartme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

also of the notice of EOGM allegedly held on 30/5/2008. The same has not been produced on record by the Respondent No.2 nor has the Respondent No.2 produced the Minutes of the EGM dated 30/5/2008. (vii) The Respondent No.2 in his letter dated 1/10/2008 written to the Petitioner (which is post his removal) does not make any mention of removal of the petitioner as a director but has Instead recognized the petitioner as a director and stated that the said letter is in the nature of a show-cause no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

1. Insofar as the issue as to illegal appointment of the Respondent No.3 as Director is concerned, in the facts and circumstances of the case, it is well proved that he has been inducted as a Director only with a view to gain control of the Company and oust the Petitioner from the Company, It is, therefore, held that the appointment of the Respondent No.3 as a Director is also bad in law. Having held the appointment of the Respondent No.3 as illegal, I would not prefer to remove him as a Directo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ding. Therefore, despite the fact that the due procedure was not adopted in the appointment of Respondent No.3 as a Director, I do not feel it appropriate to remove him as a Director of the Company. 92. I have also considered the impugned transfer of 13 shares by the Respondent No.2 in favour of the Respondent Nos.4 to 12. In my opinion, the said transfer is bad in law for two reasons, The first reason is that It is in violation of Article 10 of the AOA of the Company which provides that before .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

being contrary to the AOA of the Company is Illegal and, therefore, the transfer of shares in favour of the Respondent Nos.4 to 12 is liable to be cancelled. This issue is decided accordingly. 93. The next point that falls for my consideration is with respect to the alleged act of mismanagement in the affairs of the Company. In this regard, the first instance cited by the Petitioner is as to the non-service of notices and statutory documents on the Petitioner by the Respondents since 2007. It i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ounsel appearing for the Respondents could not convince this Bench as to whether any notice has been served with respect to these meetings and meetings held thereafter. No record has been produced to show that the notices were sent to the Petitioner either at his Pondicherry address or his address registered with the Company i.e. "Khushnuma Apartments", Mumbai. There is ample evidence available on record to prove the fact that the respondents knew that the Petitioner most of time resid .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nspection of documents and record of the company to which he is entitled to as a shareholder and director of the company. In my opinion, all these further acts amount to oppression. Further, the Petitioner time and again sought inspection of original documents, to which he is entitled to as a shareholder and permanent director of the Company. He even also kept on insisting for inspection of the documents from the respondents in the course of final hearing. However, inspite of repeated demands, n .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e taken into consideration the rival submissions. I find that the accounts of the company are also not transparent. It has not been disputed by the respondents that the initial investment of ₹ 15 crore in DSIPL was done through internal borrowings i.e. through loans received from the shareholders and not by raising any monies from any financial institutes or otherwise. The Petitioner had invested approximately ₹ 4.50 crore in proportion to his 30% shareholding in the Company. The Aud .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

om the investment made in DSIPL. In the year 2008, the Company had received a cheque of ₹ 9 crores as Dividend from DSIPL, as can be seen from the Letter dated 2/10/2008 addressed by the Petitioner to the Respondent No.2, which has not been denied by the Respondent No.2. However, the fact remains that the Petitioner, despite contributing 30% of the investment, did not receive any share in the Dividend paid by DSIPL. It is difficult to believe the Respondents' version that the Petitione .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

himself has signed the balance sheets for the years 2004-205 and 2005-2006, wherein the loan given by him is reduced to ₹ 2 crore. Except for a bare denial that the Petitioner lent money for making investment in DSIPL, the Respondents have not given any explanation for what purpose did the Company take the loan from the Petitioner if not for making investment in DSIPL. Further, the Respondents have not provided any proof/bank statements to show that the loan given by the Petitioner has be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

.2 would not have signed the balance sheet for the year 2005-2006 showing investments made by the petitioner in the company. In my opinion, all these acts fall within the category of "mismanagement" as defined in Section 398 of the Act. 97. It is a well-established law that to maintain a petition under Section 397/398 of the Act, it must be established that the oppression complained of affected a person in his capacity or character as a member of the company as harsh and unfair treatme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

be said that it is burdensome, harsh and wrongful and the oppression involves at least elements of lack of probity and fair dealing to a member in matters of proprietary right as a shareholder." 98. A careful analysis of Section 397 would show that the winding up on just and equitable grounds would be automatic and this Board has to only form an opinion that such winding up would not be in the interests of the Company/shareholders and, accordingly, to mould relief with a view to put an end .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s, but that otherwise the facts would justify the making of a winding up order on the ground that it was just an equitable that the company should be wound up; also stands proved. 100. On a overall analysis of the facts of the case discussed hereinabove, in my opinion, the Petitioner has succeeded to prove that the acts of the Respondents are burdensome, harsh and wrongful and lack in probity and fair deal to the Petitioner. The effect of acts complained of is continuous in nature. The petition, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t the allotments of further shares made on 15/6/2007 and 17/7/2007 of 2,40,000 and 7,50,000 equity shares, respectively, in favour of the Respondent No.2 are illegal, bad in law, null and void and the same are hereby cancelled. c. It is declared that the transfer of 100 equity shares on 1/9/2007 made by the Respondent No.2 in favour of the Respondent No.3 is illegal bad in law null and void and the same is hereby cancelled. d. It is ordered that the Register of Members of the Respondent No.1 Com .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t No.2 in favour of the Respondent No. 4 to 12, is illegal, bad in law, void and the same is hereby cancelled. It is further ordered that the Register of Members of the Respondent No.1 Company be rectified by deleting the names of Respondent Nos.4 and 12 to the extent, of 13 shares allotted to them on the basis of the resolution dated 11/7/2013. g. The removal of the Petitioner as a director of the Respondent No.1 Company is hereby set aside and the Petitioner is reinstated as a director of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version