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Ram Saroop Versus Hindustan Thompson Associates (P.) Ltd.

Petition under Sections 247, 250, 397 to 405 of the Companies Act, 1956 – Prevention of oppression and mismanagement – Petitioner contends that HTA had illegally linked the shares with the employability and compelled to surrender his share owned by him on ceasing to be its employee – Further contends that prohibition be imposed concerning transfer of shares under provision of Section 250 of the Act and directing 'HTA' to pay to the Petitioner price of the share at current rate prevalent in the m .....

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d That:- Petition not maintainable u/s 247 and 250 of the Act as no investigation in the affairs of 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 the .....

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3,404 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 the year 1995 till date and prohibition be imposed concerning transfer of shares as in accordance with the provision of section 250 of the Act. A further prayer has been made directing 'HTA' to pay to the Petitioner pric .....

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as appointed as an artist to work with HTA on 14.1.1971. It is the case of the petitioner that in 1973 HTA incurred colossal loss of ₹ 26 lakhs and was trapped in a financial crisis. Then efforts were made to salvage HTA from the financial crises by requesting the management or non-management staff to purchase the shares of the HTA. On 10.6.1974 an MOU was signed between the HTA and its employees which stipulated that 35% shares of HTA would be owned by non-management staff and the remaini .....

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h on 21.11.74 and he received the due dividends against the shares in 1984. The company allotted another 8 shares to the petitioner on 16.2.1987. This process continued till the date of his superannuation. It has been pointed out by the Petitioner that trouble started simmering in 1993 when erstwhile company known as J Wallet Thomson Ltd. entered into an agreement with HTA to purchase equity shares of 49% @ ₹ 5350/- per share. The face value of such share was ₹ 100. It is alleged tha .....

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sferred 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 .....

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.P. Kulshrestha, the representative of the HTA employees Union of non-management staff on the Board of Directors in order to further transfer shares from non-management to the management with the object to dilute 35% shares of non-management which are required to be maintained as per binding stipulation in MOU in 1974. The Petitioner has also asserted that on 29.6.1998 with an oblique motive and mala fide intention to usurp 35% share quota of the employee union the HTA amended Articles of Associ .....

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ed by the Board of directors. It was further stipulated that if the employees refuse to surrender original share then duplicate shares could be issued negating the original shares. A VRS scheme was also floated on 2.8.2000 for non-management staff with the age of 40 years having service of 10 years. According to the Petitioner all this was done to compel HTA staff to surrender their shares at the time of their retirement and to transfer the same to the management by disturbing the ratio of 65:35 .....

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ondent company dated 7.8.2004 was also sent protesting compulsory surrender of shares. It was further alleged that it amounted to oppression and mismanagement of the company. The HTA paid a sum of ₹ 6,39,180/- to the petitioner against 402 equity share 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 J .....

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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 was also provided that such retired employees/emplo .....

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e by the provision of articles 10 to 14 which provided that on ceasing to be employee of the HTA he was not to have any right to transfer the shares held or owned by him. He was to cease to be a shareholder of the HTA. As per the provision of Article 13(b) the value of the shares would be fixed by the Board of Directors which would be binding. These shares were not to be credited to HTA and were required to be distributed to the staff as per the stipulations made in Articles of Association. The .....

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the total members or 100 members of HTA. It has further been asserted that (b) no investigation in the affairs of HTA is not called for because the petitioner had himself shown WPP Mauritius (erstwhile US company J. Thompson Ltd.) holding 74% shares of HTA and 24% shares have been held by the employees of HTA in the various forms. Consequently there is 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 ma .....

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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 bee .....

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ndustan Thompson Associates Ltd. on 18.5.1968. A reference has been made to various events in para 6 sub para (i) to (xxxvi) Proceeding of various AGM of HTA have been highlighted in these para. In the 48th AGM of HTA held on 23.12.1985 the definition of employee was changed to include employee of HTA and also its subsidiary companies; and employees of all those companies in which HTA held 10% or more than 10% of equity share capital. As a result some of the employee who were transferred to Cont .....

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sed to amend Articles of Association and clauses 9 to 18 of HTA's Articles of Association were replaced by new clauses 8A to 18. Thereafter a scheme was prepared by the Board of Directors in which all shareholders of HTA were given opportunity to sell shares to WPP in proportion to their total shareholding in HTA. On 14.1.1994 the scheme was placed before the shareholder of HTA in which the non-management staff and other shareholders of HTA participated and transferred maximum number of shar .....

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ty share which had face value of ₹ 10/- each, A circular was issued on 6.4.1998 to all the shareholder of HTA along with with proposed scheme. The remaining 40% equity share in HTA were transferred to a new company in the name of HTA-Holding Ltd. or any other name. The letter clearly specified in the penultimate para that the shareholders may sell their shares to WPP and transfer share to HTA-HL and the convening of EOGM at a short notice. All the shareholders of HTA including the petition .....

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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 .....

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averment to the contrary in the petition have been effectively countered. In any case there is no denial of these averment by filing any rejoinder. I have heard learned counsel for the parties at a considerable length and have perused the record minutely with their able assistant. On behalf of the petitioner it has been urged that HTA had illegally linked the shares with the employability. In other words the petitioner has been compelled to surrender his share owned by him on ceasing to be its e .....

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ismanagement and oppression. Mr Aggarwal on behalf of the respondent submitted that once there was amendment in Articles of Association of HTA carried at EOGM held on 24.11.1978 and 29.6.1998 with notice to the petitioner then he cannot avoid its application in amended form. The petitioner and all other persons connected with the company are bound by Articles of Association which constitutes a contract between the company and its members. In that regard Mr. Aggarwal placed reliance on para 7 of .....

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n employees cannot enforce any right 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 .....

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nstructions 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 principle governing order II Rule 2 of CPC would attracted to the facts of the case as the petitioner has filed the suit which was withdrawn from Delhi High Court without seeking any specific permission to approach any other forum for redressal of his grievance. The petit .....

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te number of shareholders with himself to prove representation of 10% of the members. On a bare perusal of section 399 it becomes evident that the petitioner is not eligible to invoke jurisdiction u/s 397 & 398 of the Act. Thus the petition is liable to be dismissed as not maintainable. It would be profitable to read section 399(1) which set out below:- "399 Right to apply under sections 397 and 398. (1) The following members of a company shall have the right to apply under section 397 .....

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members." A bare perusal of the aforesaid provision would make an evident that a member or members of the company who has shares capital of 10% or more could file a petition under s.397, 398 and 402 of the Act,. It also provides for filing of a petition by not less than hundred members or not less than one tenth of the total number of its members whichever is less. Any individual member or along with members may also file a petition if he alone or along with others hold not less than one te .....

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f 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 afores .....

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r the aforesaid course to be adopted. Article 14 of Articles of Association as on 24.11.1998 stipulated as under:- A member ceasing to be an employee of the Company either by reason of termination of his services or dismissal or resignation or retirement or from any other cause whatsoever shall not have right to transfer the shares held or owned by him and shall thereupon cease to be the shareholder of the Company and the Chairman of the Company or any other person appointed by the Directors sha .....

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ompany as aforesaid shall be removed as the member of the company from the register of members. A perusal of article 14 of Articles of Association makes its patently clear that on the retirement of an employee he loses, the right to transfer shares as held or owned by him and his name is liable to be removed as the member of the company from the register of members. According to the provision of Article 16 such an employee on surrender his shares at the time of retirement becomes entitled to an .....

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In doing so they shall have regard to the value of the shares in the Company determined by the Auditors of the Company or by any other Valuer. The Auditor or such other Valuer who values the Company's shares 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 Dir .....

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tively 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 Articles of Association, when registered, bind the company and the members thereof to the same ex .....

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anner in which the promise is to be performed, the promisor can perform the promise in the manner so prescribed, (see s. 50 of the Contract Act)..." Apart from the above the HTA Employees union had raised all these issues in a suit filed before the learned Additional Division Judge Delhi (Suit No. 222/2003) which was dismissed on 25.3.2004. An appeal against the judgment and decree (RFA No. 247/2004) was also dismissed on 5.8.2013. All arguments advanced on behalf of the Petitioner herein w .....

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shares maintain the ratio of 65:35, the appellant/plaintiff cannot in my view enforce any right, at least against the Company, in contravention thereof. Reliance by the learned Addl. District Judge in this regard on V.B. Rangaraj is apposite. 12. A two Judge Bench of the Supreme Court in the said judgment held that the only restriction on the transfer of the shares of a Company is as laid down in its Articles, if any and a restriction which is not specified in the Articles is therefore not bindi .....

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