TMI Blog2015 (10) TMI 1524X X X X Extracts X X X X X X X X Extracts X X X X ..... f the HTA would be called for as the Petitioner himself shown the WPP (Manutius) holding 74% shares of HTA and 24% shares held by KTA employees - Petition u/s 397 & 398 not maintainable as petitioner fails to answer the requirement of Section 399 – In case of conflict between an agreement amongst shareholders placing restriction on their right of transfer and Articles of Association of a Company then latter prevails – Petition dismissed with costs – Decided in favour of the Respondent. - C.P. No.1/2012 - - - Dated:- 7-8-2015 - M.M. KUMAR, J. For The Petitioner : Shri Manoj K. Srivastava and Shri P.C. Patanik, Advs. For The Petitioner : Pramood B. Agarwala and Aman Kalra, Advs. ORDER Petitioner is a retired employee of Respondent No. 1 Company (for brevity 'HTA') and ex officio was its shareholder. He has invoked the provisions of sections 247, 250, 397,398, 399 (4), 400, 401, 402, 403,404 and 405 of the Companies Act, 1956 (for brevity 'the Act') for issuance of directions to HTA to prevent oppression and mismanagement. In para 8 of the petition the principal reliefs claimed are that inspectors be appointed to Investigate affairs of HTA from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio of 65:35, It is alleged that the percentage of the non-management employees in shareholding was reduced to 17.15%. The matter was taken up by HTA employees union by letter dated 12.11.1997 which requested the HTA to maintain 65:35 ratio as stipulated in MOU entered in the year 1974. In reply the HTA promised and eventually transferred the balance 6430 shares to non-management staff in order to maintain 35% share of non-management staff as per stipulation in MOU executed in 1974. The petitioner has further alleged that on 6.4.1998 HTA sent communication to the shareholders illegally connecting the employability to the right of shareholder and proposed the surrender of shares by retiring employees which obviously includes the petitioner. The Petitioner has asserted that 40% shares were fraudulently transferred to newly floated company known as Emstock Holding Ltd. on 1.6.1998 and M/s JWT also transferred 49% shares to WPP Holdings (Mauritius) Ltd. M/s WPP Holdings (Mauritius) Ltd. became the owner of 60% of HTA while purchasing its 11% shares further @ ₹ 5538 per share against the face value of shares of ₹ 10 per share. The value of the share was deliberately incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of HTA @ ₹ 1590 per share but the petitioner claimed that as per the certificate issued by Chartered Accountant the book value of the share was not less than ₹ 3000/- The petitioner filed Civil Suit No. 339 of 2004 before Civil Judge which was transferred to High Court of Delhi on 3.11.2010 for want of pecuniary jurisdiction. The suit was registered as Civil Suit No. 2452/2010. On 9.4.2013 the petitioner withdrew the suit from the High Court of Delhi. Respondent No. 2 has filed a detailed reply and various averments made by the petitioner have been effectively controverted. According to the respondent the petitioner was allotted share from time to time. Thus the allotment of shares as such has not been disputed. It has however been highlighted that in EOGM held on 24.11.1978 a new Articles of Association of HTA was adopted in substitution for and to the exclusion of all the then existing Articles of Association. Articles 10 to 18 of tine amended Articles of Association clearly stipulated that a member when ceased to be an employee of HTA either by termination/dismissal/superannuation etc. he would loose his right to transfer the share held or owned by him. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainable because the petition indulged in forum hunting. Firstly he filed civil suit against HTA as early as in 2004 being suit No. 339/2004 before the Civil Judge which was returned to the petitioner on the ground of want of pecuniary jurisdiction. Accordingly the plaint was returned to him which he presented before Delhi High Court and it was registered as suit No. 2452/2010. In the suit similar reliefs were claimed. The suit was withdrawn by the petitioner unconditionally on 9.4.2014 without seeking any permission to avail the remedy before Company Law Board which is clearly barred by provision of order II rule 2 of CPC. Therefore it has been submitted that the petition is liable to be dismissed. Respondent No. 1 in its written statement has also unfolded the whole background facts showing various phases covered by HTA. This company was incorporated in India on 23.3.1938 but was then known as J Walter Thompson (Eastern) Pvt. Ltd. It took over that business of advertising agencies in India which was associated with company then known as J. Walter Thompson. After its incorporation in India with the aforesaid name it was renamed as Hindustan Thompson Associates Ltd. on 18.5.1968 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice. All the shareholders of HTA including the petitioner signed and returned to HTA two letters in the format as were referred in the circular dated 6.4.1998. With the object of acquiring share in HTA the company in the name of Emstock Holding Pvt. Ltd. was incorporated on 1.6.1998. Special resolution was passed at EOGM of Emstock to adopt new Articles of Association in substitution of the earlier one. In the new Articles of Association no provision was kept for maintaining ratio of shareholding of 35:65 between the management staff of HTA and its non-management staff. On 29.6.1998 EOGM of HTA was held which was attended by 130 members and proxies of 497 persons were also received. It included proxies of 175 shareholder of HTA who were non-management employees. The amendment of Articles Association was carried by special resolution unanimously. The existing provision for maintaining ratio of 65:35 in the shareholding between the management and non-management staff was deleted and no provision was left in the Articles of Association of HTA for maintaining any such ratio. As a consequence the ratio of the management and non-management staff stood at 84:16. The object of settin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght against the company which may contravene of any of the stipulation made in the Articles of Association of the company. Mr. Aggarwal further argued that the petition is not maintainable u/s 397 to 405 of the Companies Act because the petition fails to answer the prescription of s.399 of the Companies Act. The petitioner held less than 10% of shareholding and the petition has been filed by a member who does not even 2% of shareholding. He has remained unable to associate with him adequate number of members/employees representing 10% or 100 members of the company. Mr. Aggarwal then argued that no inspector for investigating the affairs of the company u/s 247 and 250 of the Act could be appointed as it is a pleaded case of the Petitioner that WPP (Mauritius) held 74% shares of HTA and its employees held 24% shares. There is no dispute for the aforesaid proposition. Reliance has been placed on the judgement rendered by this Board in the case Bakhtawar Constructions Co. (P.) Ltd. v. Blossom Breweries Ltd. decided on 16.1.1997 and Gauri Sankar Kayan v. East India Investment Co. (P.) Ltd. and Ors (2005) 128 Comp case 145(CLB)decided on 25.4.2005. It has also been highlighted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. In the present case admittedly the petitioner does not satisfy any of the aforesaid requirements. Therefore the petition u/s 397 398 of the Act is liable to be dismissed on this short ground. The petition would also not be maintainable u/s 247 and 250 of the Act because no investigation in the affairs of the HTA would be called for as the petitioner has himself shown the WPP (Manutius) holding 74% shares of HTA and 24% shares have been held by KTA employees. There is thus no dispute with regard to persons having financial interest in the success or failure of the HTA or the persons who have been in control of or materially in position to influence the policy of the HTA. Therefore it has been rightly contended that no case is made out for interference. Reliance on the judgement rendered by this Board is well merited and warrants acceptance. The aforesaid decision on two preliminary objections would have been sufficient to dismiss the petition. However I find that even on merit no case is made out for interference. A minute perusal of the Articles of Association would reveal that on ceasing to become an employee of HTA its shares have to be surrendered which may be allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shall value the same on the basis of an average of the value determined per earnings basis by reference to the last three years profit (net of income tax) of the Company and net asset value as per the last audited accounts of the Company. The value of the share fixed by the Board of Directors as hereinabove provided shall be binding on all parties concerned. The Directors or the Auditors or other Valuer as the case may be shall not be bound to state how the value of shares has been arrived at. It is well settled that Articles of Association constitutes a contract between the company and its members in respect of their rights. Section 36 of the Companies Act unambiguously provided that Articles of Association bind the company and the members to the same extent as if they respectively had been signed by the company and by each member. Some observations made by Hon'ble Supreme Court in para 7 of the Judgement in case of Hanuman Parsad Gupta (supra) duly support the aforesaid view which needs thus: Section 36 of the Act, which is in the same terms as section 20 of the English Companies Act, 1948, provides that subject to the provisions of the Act the Memorandum and Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on transfer of shares but which is not stipulated in the Articles of Association of the Company is not binding, neither on the shareholders nor on the Company. 13. It is not in dispute that the transfer of shares of the Company to which inter alia challenge was made in the suit from which this appeal arises was on a date after the amendment dated 29th June, 1998 of the Articles of Association of the Company. No fault, in accordance with the judgment supra of the Supreme Court, can be found with the said transfer on the basis of settlement/arrangement/assurances not incorporated in the Articles of Association of the Company. The Judgement has attained finality and is binding on CLB. The Judgement of the High Court in V.B. Rangaraj v. Gopal Krishanan [1992] 1 SCC 160 that wherever there is a conflict between an agreement amongst shareholders placing restriction on their right of transfer and Articles of Association of a Company then the latter has to prevail. Viewed thus the arguments raised before me must also be rejected which I hereby do. Therefore even in that account also there is no escape for the petitioner to avoid obligation incurred by Articles of Association ..... X X X X Extracts X X X X X X X X Extracts X X X X
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