TMI Blog2015 (12) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... is also void, bad in law and is accordingly set aside. Appropriate Forms in this regard shall be filed by the Company with the ROC, Gwalior. It is, however, clarified that the company is not precluded from increasing its authorized share capital in accordance with the law and pursuant thereto the Company may allot further shares to all the shareholders including legal heirs of Late Smt. Jayshree Soni as per law. M/s Pathak Anup & Associates, having its address 416, Sliver Arcade, 1, New Palasia, Indore- 452001 Tel: 0731-2432837, (Mob; 9425354043) is hereby appointed as a special auditor to conduct audit of the company for the years 2011-12, 2012-13, 2013-14 and 2014-15. In case, it is found that the Respondent Nos. 2 to 5 have diverted/misappropriated the funds of the Company's funds, and the company has suffered any loss the same shall be recovered from their personal resources and be paid back to the Company. The parties are directed to extend their co-operation to the said Auditors. The fees of the said Auditors shall be paid by the Company. The Special Auditors shall submit their report to the Company after completion of the audit within six weeks with effect from the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 M/s Neo Finance Private Limited, the Respondent No. 1 Company (hereinafter referred to as Neo or the Company ) was incorporated under the provisions of the Companies Act, 1956 (hereinafter referred to as the Act ) on 2/7/1985. The Registered Office of the Company is at the address mentioned in the title of the petition. The Company has, since inception, been a holding company and owns the property located at 10/11, Chain Singh Ka Bagicha, New Palasia, Indore. 3.3 The Respondent No.2 is a Director of the Company and is the wife of Respondent No.5. The Respondent Nos.3 and 4 are the sons of the Respondent Nos.2 and 5 and also purport to be Directors of the Company. The Respondent No.5 is the brother of the Petitioner. The Respondent No,5 is also one of the successors to the Estate of Mrs. Jayshree Soni. Like the Petitioner, the Respondent No.5 is legally entitled to 7083.8 shares forming one fifth (1/5th) of the shares held by Mrs. Jayshree Soni at the time of her death. Like the Petitioner and the Respondent No.5, the Respondent Nos 6, 7 and 8 are each legally entitled to 7083.8 shares forming one fifth(1/5th) of the shares held by Mrs. Jayshree Soni at the time of her deat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner that after the death of Mrs. Jayshree Soni, the Respondent No. 2 was the only surviving Director of Company. In the circumstances, the Respondent No. 2 ought to have appointed the Petitioner and/or the other legal heirs of late Jayshree Soni as Directors of the Company for the purposes of filling up the vacancy on the Board created by the demise of Jayshree Soni and so that the minimum number of Directors statutorily required on the Board of Directors could have been achieved. The Petitioner and/or other legal heirs of late Jayshree Soni also ought (have been appointed as Directors in order to represent the interest of the majority shareholder/the estate of the late Jayshree Soni. The Respondent No. 2 failed to do so. She as the sole surviving Director, also did not call for a general meeting of the members of the Company for the purposes of appointing a director of otherwise. 3.10 It is further alleged that thereafter, on 9/9/2013, the Company purportedly passed a special resolution, inter alia for increasing the authorized share capital of the Company from INR 5,000,000 to INR 15,000,000 by amending the Memorandum and Articles of Association of the Company. It is alleged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company filed balance-sheets, annual returns and compliance reports for the FYs 2009-2010, 2010-2011, 2011-2012 and 2012-2013. It is alleged that though the Company was required to file the balance-sheets, annual returns and compliance report for the said Financial Years at the relevant time, they did not do so. This delay was because the documents submitted along with the said Form 23AC filing, including Directors' Reports, Auditors' Report, Secretarial Compliance Certificate have been hurriedly prepared, ante-dated and fabricated to reflect the appointments of the Respondent Nos.3 and 4 as Directors of the Company. 3.15 It is further the case of the Petitioner that, in the meantime, he received a letter dated 21/11/2013 from the ROC, in response to his complaint, forwarding therewith response from the Company dated 5/11/2013, and calling upon him to submit his say thereto. It is stated that the Company in its said letter has falsely alleged that the special resolution for increase in the authorized share capital was passed in an EOGM purportedly held on 9/9/2013, and purportedly attended by the Respondent Nos 2 and 3. However, the Company did not address the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This was solely for the benefit and self-aggrandizement of the Respondent Nos. 2 to 5 and to the immeasurable harm, injury and prejudice of the Petitioner and other heirs of late Jayshree Soni and the Company itself. 3.18 It is further stated that the shares to which the Petitioner was entitled to were intentionally and willfully not transmitted to him and the other legal representatives after the demise of Jayshree Soni. It is further stated that as per the Respondents, the Company had increased its authorized share capital and offered shares on Rights basis of 2 shares for every one share held by the members of the Company. Further, the Respondent Nos. 2 to 4, knowing fully well that Mrs. Jayshree Soni had expired, and by deliberately not transmitting the shares held by her to her legal representatives, denied to them the opportunity to subscribe to the additional shares allotted on rights basis in the ratio of 2:1 for every share held by the members. Further, it is crucial to note that the Company was not and could not have been in any need of funds, necessitating or warranting increase in its authorised shares capital and allotment of additional shares. It is an admitted po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liefs and directions under sections 397, 398, 402 and 403 of the Act for management of the Company and for that purpose, such fit and proper person(s) be appointed, as this Bench may deem fit as Administrator(s) and/or Special Officer(s) and/or an Independent Committee of management be appointed to carry on the business of and to manage the affairs of the company for such period and on such terms and conditions as this Bench may deem fit. (d) To pass an order thereby removing the present auditors and appointing an independent auditors for carrying out special audit of the books and accounts of the Compay, in a manner as this Bench deems fit and proper, particularly with regards to the issue of shares by the compay. (e) To pass an order, without prejudice to payer (c) above, to remove and/or supersede the present Board of Directors and appoint such number of persons as may be deemed fit and proper to hold office as an independent Board of Directors to assume charge of the management and affairs of the Company, in manner as this Bench may deem fit and proper, and on such terms and conditions as may be fixed by this Bench. (f) To pass an order thereby directing the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the Company and/or filing any false and incorrect statutory records in respect of the Company with the Registrar of Companies, Gwalior and/or addressing any correspondence whatsoever for and on behalf of the Company. (m) To pass an order thereby declaring that all or any acts done by the Respondent No. 3 and/or the Respondent No. 4, as Additional Director(s) and/or as Director(s) of the Company are null and void, illegal, without authority, non-est, bad in law, contrary to and/or in violation of the interest of the company and/or the Petitioner, and that the same is not binding on the Company and/or the Petitioner, (n) To pass appropriate orders, reliefs and directions under Sections 58 and 59 of the Companies Act, 2013, to rectify the Register of Members of the Company to set aside the transfer of 10 shares each from the Respondent No.2 to the Respondent Nos. 3 and 4, respectively, on or around 4th October, 2013. (o) To provide costs of and incidental to this petition from the Respondents. (p) To pass such further or other orders and/or direction or directions as this Bench may deem fit and proper. 5. Pursuant to the notice, the Respondents a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Respondent Nos. 1 to 4. Mr. Sagar Divekar, Ld. Counsel argued the matter on behalf of the Respondent No. 5. However, the argument of Mr. Gaurav Joshi, Ld. Sr. Counsel and Mr. Sagar Divekar, Ld. Counsel, were common as Mr. Sagar Divekar, Ld. Counsel, had adopted the arguments advanced by Mr. Joshi, Ld. Sr. Counsel, I have also perused the record and other material available on record. 9. At the outset, the Ld. Sr. Counsel appearing on behalf of the Respondents, raising preliminary issues, challenged the maintainability of the Petition. The Ld. Counsel contended that the Petitioner is not a shareholder and member of the company as on the date of the filing of Company Petition and, therefore, it deserves to be dismissed at the threshold stage, without entering into merits of the case being not maintainable. In addition, the Ld. Sr. Counsel contended that the Petition is not maintainable in view of the fact that the Petitioner has also sought similar reliefs on identical pleas in a civil suit filed at Indore by him wherein the parties are same. The Ld. Sr. Counsel further submitted that the issue of maintainability ought to be decided as a Preliminary issue before proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 399 of the 1956 Act. Under the said Section, only members representing, not less than l/10th of its total number of members or holding not less than 1/10th of the total issued share capital of the company, are entitled to maintain a Petition under Sections 397 and 398. According to the Ld. Sr. Counsel, the Petitioner has not satisfied any of the aforesaid conditions, which conditions are sine qua non for maintaining a Petition filed under Sections 397 and 398 of the Act. 13. The Ld. Sr. Counsel pointed out that the term Member has been defined in Section 41 of the Companies Act, 1956. As per Section 41(1), a subscriber of Memorandum of the company shall be deemed to have agreed to become a member of the company and on its registration shall be entered as a member in its Register of Members. Sub-Article(2) thereof states that every other person who agrees in writing to become a member of the company and whose name is entered in its Register of Members, shall be a member of the company. 14. Based on the above, it was argued that since Petitioner is not a member as on the date of filing of the Petition, the Petition is not maintainable. In support of his contention, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such a procedure should be adopted, the Petitioner would have to prove his claim by stepping into the witness box. Mr. Joshi, therefore, contended that the matter in such circumstances needs to be adjourned for recording oral evidence. The Ld. Counsel further pointed out that no application for transmission was served on the Company, according to the Respondents, and the Petitioners deliberately sent the application at the wrong address. Further, the service of the application on the erstwhile Advocates cannot be presumed as a sufficient service on the Company as it does not meet the requirement of the provisions. He, therefore, contended that the precondition for filing of combined petition is to make a written application to the company for transfer/transmission of shares and a refusal thereof, which admittedly is not met out in this case. 18. Apart from the above, Mr. Joshl submitted that the Petition is not otherwise maintainable for the following reasons : a. Because the Petitioner claims that, though he was not a member, he was on the demise of the deceased member i.e. Jayshree Soni on 31/12/2012 entitled to 1/5th share in her estate on the basis of intestacy. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deceased or an order of the testamentary Court for division/partition, in respect whereof the latest suit filed by Respondent No. 6 is pending. It is only thereafter that the estate of the deceased can be divided or partitioned. 20. Based on the above, Mr. Joshi submitted that the shares now belong to the estate of the deceased and would be distributed, in accordance with law, after a valid order of a competent testamentary court is obtained. According to Mr. Joshi, the Petitioner who is not a member, in the absence of the above documents, cannot claim to be acting on behalf of or through the deceased member or representing her estate. It was, therefore, contended that the Petitioner has no locus to file the instant Petition and on this ground alone, the Petition is liable to be dismissed. 21. In order to substantiate the aforesaid contentions, the Ld. Counsel also relied upon the provisions of the Hindu Succession Act, 1956 providing the mechanism for succession of the estate of the deceased to his legal heirs as tenants-in-common. In this connection, it was argued that where a deceased dies intestate, the devolution of his estate would be governed by the Hindu Successio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n effect seeking a partition and administration of the estate of the deceased which cannot be done by this Board and the jurisdiction whereof is exclusively with the Civil Court only. He, therefore, contended that Petition deserves to be dismissed being not maintainable. In support of these submissions the Ld. Counsel relied upon the following decisions : i. Hemlata Saha v. Stadmed P. Ltd. AIR 1965 Cal 436; ii. Kalyani Sundaram v. Shardlow India Ltd. and Ors. (1990) 67 Comp Cas 306 (Mad) iii. Samcon Resort Hotels P. Ltd. 2014 SCC online CLB 293; 24. In continuation of the aforesaid arguments, the next argument advanced by the Ld. Sr. Counsel is that the Petition fired by only one of the heirs, is not maintainable. In this regard, it was argued that even otherwise the Petition is not maintainable in-as-much-as the other legal heirs of the deceased have not joined the Petitioners as Co-Petitioner to approach this Board in the instant Petition. The Ld. Counsel further submitted that inter se disputes between heirs cannot be decided by the Board. It is not the case here that all the heirs had jointly applied to the company for transmission of the shares jointl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of the said shares. Referring to a decision in the case of Sangram Singh P. Gaekwad Ors. Vs. Shantadevi P. Gaekwad Ors. (2005) 11 SCC 314, it was contended that this Board cannot go into the issue of succession between the legal heirs of the deceased as it involves complicated questions of fact and law which have to be decided by a Civil Court, and therefore, the Petitioner cannot claim separate right in respect of 7083.8 shares in absence of partition/administration of the entire estate of the deceased made under an order of a civil court. The Petitioner also relied upon the following decisions in support of the above contentions: a. National Insurance Co. Vs. Glaxo India Ltd. 1999 Vol. 101(2) Bom. L.R. 331; b. Rao Saheb Manilal Gangaram Sindore Ans. Vs. M/s. Western India Theatres Ltd. Ors. AIR 1963 Bom.40; c. Jayashree Shantaram Vankudre Vs. Rajkamal Kalamandir Pvt. Ltd. AIR 1960 Bom. 136. d. Bipin Jain Ors. Vs. Savik Vijay Engineering Pvt. Ltd. Ors. (1998) 91 Comp Cas 835 (CLB). e. Dr. Mahesh Batra Vs. Gajraj Beverages Pvt. Ltd. Ors. MANU/CL/0092/2002 26. Answering the above contentions of the Respondents' Counsel a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by the Petitioner in his First Rejoinder in Paragraph 8. Thereafter, in Paragraph 5 of Respondent No. 5's Affidavit in reply, it was alleged that till date, none of the legal heirs have found any will of Late Mrs, Jayshree Soni. It is also pertinent to mention that there was not a whisper regarding 'the alleged will' by the contesting Respondents at the time of final arguments. 28. The Ld. Counsel for the Petitioner submitted that as per the own admissions of the contesting Respondents in its pleadings, as can be seen from paragraph 6 and 25 of the First Reply, Paragraph 15.4 of the First Rejoinder and Paragraph 12 of the Second Reply, the Petitioner is a legal heir of Late Mrs, Jayshree Soni and the Petitioner was treated as a member of the Company after the death of Late Mrs. Jayshree Soni. 29. In addition to the above, it was urged on behalf of the Petitioner that a legal heir of a deceased member of a company is to be treated as a 'member' for the purposes of Section 399 of the Companies Act, 1956 as held in the cases of (i) M/s. World Wide Agencies Pvt. Ltd. Anr V. Mrs. Margarat T. Desor Ors. 1990 1 SCC 536, (ii) Serum Institute of India v. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the Company and its Members and Members inter-se. It is, therefore, appropriate to look into the provision of AOA as contained in the AOA of the Respondent No.1 Company. It is binding between members inter-se as held in the case of V. V. Ranga Raj v. V. B. Gopalkrishnan [1991] 6 CLA 211 (SC). In the case of instant company, Article 27 of the AOA is relevant in this context which is being reproduced for the sake of easy reference. Article 27 Any person becoming entitled to or to the transfer of any shares in consequence of the death or insolvency of any sole holder thereof or any way other than by transfer upon producing such evidence of his title thereto or that be substains the character in respect of which he proposes to act under this article as the Directors (which they shall not be under any obligation to give) and without production of any probate or Letters or Administration or Succession Certificate and upon such terms as to indemnity or otherwise as the Director may impose, be registered as may member himself in respect of such share or may, with such other person as the Directors may approve at. However, in the event of his proposing to such person as aforesaid, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng legal heir of late Smt. Jayshree Soni. According to the Respondents' own case, the Petitioner was also offered Rights shares. The Rights shares can only be offered to an existing member/shareholder of the company. Therefore, the contention of the Respondents that the Petitioner is not competent to file this petition In terms of Section 399 of the Act, is not tenable. It deserves to be rejected. The pendency of the suit(s) has no relevance, in so far as the prayer for rectification of Register of Member is concerned. In the case of Pearson Education Inc. v. Perntice Hall India (P.) Ltd. [2006] 134 DLT 450 it has been held that a composite petition filed under Sections 58, 59 read with Section 397/398 of the Act, would be maintainable. 36. In so far as the decisions cited by the Respondents are concerned, in my opinion, thev do not apply having regard to the facts of the case in hand. It may be mentioned here that in the case of (a) Ved Parkash (supra), the Petitioner was removed from the register of members by the Board of Directors of the Company, in the case of (b) S.K.Abdul Sabir (supra),the Petitioner had sought relief for specific performance of a Memorandum of Unders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary delay takes place, in entering on the register the fact of any person having become, or ceased to be a member; 31, the person aggrieved, or any member of the company, or the company, may apply to the Court for rectification of the register. 32 Sub-section (1) (a) of Section 155 refers to a case where the name of any person without sufficient cause entered or omitted, in the register of members of a company. The word 'sufficient cause' is to be tested in relation to the Act and the Rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the Rules or what ought to have been done under the Act and the Rules but not done. Reading of this sub-clause spells out the limitation under which the court has to exercise its jurisdiction. It cannot be doubted in spite of exclusiveness to decide ait matter pertaining to the rectification it has to act within the said four corners and adjudicate of such matter cannot be doubted to be summary in nature. So, whenever a question is raised court has to adjudicate on the facts and circumstance of each case. If it truly is rectification all matter raised in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt is able to conclude no fraud, then it should proceed to decide the matter and not reject it only because fraud is stated. 39. On a critical analysis of the facts of the instant case, I do not find that any complicated question of facts and law is involved. Furthermore, in so far as the first civil suit being NO.178A/2014, is concerned, it is evident that the Petitioner has not filed the same. It has been filed by Respondent No.6, which is not binding on the Petitioner herein. Secondly, as held in the case of Ammonia Supplies Corpn (P.) Ltd. (supra) the exclusive jurisdiction for rectification of Register of Members is with the CLB only, therefore, in other words the civil court is not competent court to grant any relief with respect to the rectification of Register of Members. Furthermore, in so far as the suit filed by the Petitioner is concerned, the major reliefs sought by him are different and for which only a civil court is competent to take cognizance thereof and grant reliefs. It has no connection with the shares-in-question. This can be seen from the reliefs sought for in the said suit which are as follows;- 40. For these reason, in my opinion, the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the Respondents, is that the Petitioner, in connivance of the Respondent No.6, who is his real brother, has indulged in forum shopping and hence, the petition is not maintainable. In this regard, it was argued that prior to the filing of the present Petition, the Respondent No.6 had on or about November, 2013, filed a civil suit in the District Court at Indore. The Ld Counsel submits that the instant Petition is filed during the pendency of a Civil Suit filed by Respondent No.6 in collusion with the Petitioner, claiming identical/similar reliefs as are claimed in the Petition, the Petitioner is guilty of forum shopping. The Ld. Sr. Counsel further submits that the interim reliefs as prayed for in the said civil suit were refused on merits vide an Order dated 26/11/2013. The Ld. Sr. Counsel submits that it is only after refusal of such interim reliefs, that the Petitioner has filed this Petition in the month of February, 2014. The Ld. Sr. Counsel contended that this makes it abundantly clear that the Petitioner, in collusion with Respondent No.6, has indulged in forum shopping, 44. I have also given my thoughts to the contention of the Respondents that the succession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra). In my opinion, the civil suit filed by the Respondent No.6 and is pending before the Civil Court, Indore cannot be a reason for dismissal of the petition. 47. The next point argued by the Ld. Sr. Counsel appearing for the Respondent is that the present petition should be stayed in view of the proceedings pending in Civil Court at Indore filed by the Respondent No.6 and another Civil Suit filed by the Petitioner himself, wherein the prayers sought in said Civil Suit are almost identical to the relief sought for by the Petitioner in the case in hand and in this regard he has relied upon the dicision of (i) Swagath Marine Products Pvt. Ltd. v/s. Shri K. Muthusamy reported in (2006) 134 Comp Cas 182 (CLB) ; (ii) Challapalli Sugars Ltd. vs. Swadeshi Sugar Sugar Supply Pvt. Ltd. reported in AIR 1983 Cal 199. 48. I have considered the rival submission and also gone through the copy of the plaint filed by the Petitioner in the court of Xlth Civil Judge Gwalior. On a perusal of plaint, it is clear that this is a suit for declaration. In the said suit no relief has been sought with respect to the shares in question. Therefore, on account of pendency of the said suit, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholding into a controlling majority shareholding and the entitlement of the Petitioner and other legal heirs to the shares of Late Mrs. Jayshree Soni in the Company was reduced from 70.84% to 23.16%. Consequently, the shareholding of each legal heir was effectively reduced from 14.17% to 4.72%. 52. According to the Petitioner, no offer letter was received by the Petitioner, the alleged rights issue was done at the behest of the Respondent Nos. 2 to 5 only with a view to usurp and consolidate their control over the Company and although the Company did not require any funds. It was, therefore, argued that the allotment of shares was illegal and therefore, the alleged Rights issue ought to be set aside, 53. In addition to the above, it was submitted on behalf of the Petitioner that, the Petitioner never received an offer letter to participate in the alleged rights issue. The Ld. Counsel submits that during hearing on 17/2/2014 before this Board, the Respondent Nos. 2 to 5 for the first time alleged that letter dated 11/10/2013 was sent to the Petitioner inviting him as legal heir of Mrs. Jayshree Soni to subscribe to the Rights issue. However, the date of issuing/ dispatching ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that too, after filing their reply and sur-rejoinder during the intervening period. The Ld. Counsel contended that even assuming that the notice was issued to the Petitioner, yet the intimation did not allow for 30 days although the minutes of EOGM specifically provided for such period. In this regard, the Petitioner relies upon the case of Martin Castelino v. Alpha Omega Ship Management Ltd. 2001 104 Comp Cas 687 CLB wherein an EOGM was held to be invalid on account of non-issue of notices, Consequently, increase in share capital and allotment was set aside register of members was rectified. 57. Refuting the defence put forth by the Respondents that the Company was in requirement of urgent funds, it was argued that the Company does not carry on any business activity and has at all times acted as a holding company for the Soni family and for its main asset, the Property. Therefore, the Company was not in need of funds and hence, the alleged rights issue which was done at the instance of the Respondent Nos, 2 to 5 with mala fide intentions to control the management of the Company and oust the Petitioner and other legal heirs of Late Mrs. Jayshree Soni, ought to be set aside. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Surplus at ₹ 54,32,303/-. According to the Respondents' Counsel, on 1/4/2013 the said lessee vacated the premises and upon such vacation, the Respondent company became liable to refund the security deposit amounting to ₹ 80 lakhs that was accepted at the time of leasing of the said premises. In furtherance thereto, Metalman also informed various authorities of the change of address. Metalman addressed a letter to the Collector, Indore intimating him about the change of its address to 602B, Devdarshan Apartment, AB Road, Indore - 452001. Further, Metalman also informed the Tehsitdar, Indore that it had ceased to be a lessee of the Respondent Company. 60. Taking me through the record, the Respondent's Counsel submitted that the Petitioner has admitted that Metalman was in possession of the building of the Respondent Company and that a sum of ₹ 80 lakhs was paid by Metalman on behalf of Respondent Company. However, the Petitioner has conveniently maintained silence on the capacity in which Metalman was occupying the said premises i.e. in their capacity as a Lessee, It was, therefore, contended that the necessary adverse inference ought to be drawn. 61 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ridiculously low price and only with a view to capture the premises of the Respondent Company, it was argued on behalf of the Respondents that the directors have power to Issue shares at par even if the market price is higher, being primarily a matter of policy. The Ld. Counsel submits that the judgment of the Hon'ble Supreme Court in Sangrams Singh's case (supra) reiterates and affirms this position at paragraph 67 which provides that significantly, in Needle Industries (supra) it was categorically held that the Directors have power to issue shares at par even if their market price is higher being primarily a matter of policy. Based on the above, it was argued that the company was in bona fide need of funds so as to necessitate the issue of shares on Rights basis as explained in the Explanatory Statement annexed to the Notice of the Rights issue. 67. The Ld. Counsel further argued that the if the company is in the need of funds, then the Court will not interfere with the discretion exercised by its directors, because the principle is obvious that if new shares have been issued because the company needs funds, then it cannot be said that the discretion vested in the dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge. It is, therefore, contended that such an argument is not only unsupported by cogent legal basis but also proceeds to undermine the ability of the watchman. Further, the Petitioner has nothing on record to show that a person who is employed as a watchman is in any manner incapable of signing documents in English language. 70. In Rejoinder arguments, the Ld, Counsel appearing on behalf of the Petitioner, denied the alleged bona fide requirement of funds suggested by the Respondents for the purpose of Rights issue. As regards Metalman issue, it was that in 1999, the Company was leasing the Property i.e. premises at New Palasia, Indore to Metalman Industries Limited (Metalman). On 1/4/2013, the Company vacated the premises and became liable to refund the Security Deposit of ₹ 80 lacs taken by the Company from Metalman. However, as clarified by the Petitioner in paragraph 15,6 of the First Rejoinder, the ₹ 80 lacs allegedly taken from Metalman as security deposit was in fact paid by Metalman on behalf of the Company at the time of purchase of the Company in 1999 by the Soni family. Moreover, there is no rent collected by the Company since the Company did not have bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Petitioners' Counsel that the contesting Respondents have alleged that the Property was in need of repairs and renovation and the building had unutilized FSI, which could be utilized by undertaking further construction. 75. For the above stated reasons, it was argued that there was no need for funds by the Company and the reasons stated above on behalf of the Respondents are entirely bogus and hence deserve to be rejected. Consequently, the Rights issue ought to be set aside. 76. Dealing with the issue as to wrongful allotment of shares, the Petitioner's Counsel submitted that pursuant to the special resolution passed on 9/9/2013 for the alleged rights issue, on 23/10/2013, the Company allotted additional shares to the Respondent Nos. 2 to 4. In this regard, it was pointed out that it was only at the time of the rights issue that a bank account was opened by the Company for the first time, the rights issue was completed in less than 30 days. Further, demand drafts for subscribing to the rights issue were prepared on 19/10/2013 i.e. even before bank accounts were opened on 21/10/2013. It is, therefore, contended on behalf of the Petitioner that the allotment of addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Evidently, therefore, the ratio which emerges from the decision is that the duty to disclose as regards issue of additional shares is relatable to proper purpose thereof. If the purpose is proper and the action of the Director is bona fide, the ratio should not be extended so as to hold that such a duty of the Director towards the shareholder is absolute despite the fact that there is no legal requirement therefore. Duty of disclosure to shareholders in that case had a strong nexus with the affairs of the Company. Dale Carrington is not an authority for the proposition that the purported fiduciary duty of a Director towards the shareholder is absolute although the transaction in question may not have a direct co-relationship with the affairs of the Company. 62. Moreover, the Bench did not have the advantage of considering the for-judge Bench decision of this Court in Nanalal Zaver. It furthermore did not have the advantage of noticing the decisions of other jurisdictions which had been noticed hereinbefore. 63. The Court, it is interesting to note, noticed Needle Industries as regards the power of the Company to issue new shares but the legal effect thereof was not cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following terms: *12. Article 52 of the appellant Company provided that the Directors might at their absolute and uncontrolled discretion decline to register any transfer of shares. Discretion does not mean a bare affirmation or negation of a proposal. Discretion implies just and proper consideration of the proposal in the facts and circumstances of the case. In the exercise of that discretion the Directors will act for the paramount interest of the Company and for the general interest of the shareholders because the Directors are in a fiduciary position both towards the Company and towards every shareholder. The Directors are therefore required to act bona fide and not arbitrarily and not for any collateral motive. 69. This Court therein also applied the bona fide test of the Director and for the benefit of the Company as a whole. In that case, the Directors assigned reasons which were tested from three angles viz. (i) whether the Directors acted in the interest of the Company, (ii) whether they acted on a wrong principle; and (iii) whether they acted with an ablique motive or for a collateral purpose. It was observed in Harinagar Sugar Mills Ltd. v. Shy am Sunder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries this Court said even in certain cases the Directors' attempt to maintain their control over the Company or in newly acquiring control over the Company may not amount to abuse of their fiduciary power stating: Applying this principle, it seems to us difficult to hold that by the issue of rights shares the Directors of NIIL interfered in any manner with the legal rights of the majority. The majority had to disinvest or else to submit to the issue of rights shares in order to comply with the statutory requirements of FERA and the Reserve Bank's directives. Having chosen not to disinvest, an option which was open to them, they did not any longer possess the legal right to insist that the Directors shaft not issue the rights shares. What the Directors did was clearly in the larger interests of the Company and in obedience to their duty to comply with the law of the land. The fact that while discharging that duty they incidentally trenched upon the interests of the majority cannot invalidate their action. The conversion of the existing majority into a minority was a consequence of what the Directors were lawfully obliged to do. Such conversion was not the motive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surance Co. Ltd. AIR 1950 SC 172, wherein it is held as under:- It is convenient here to state what the true approach should be to a question of this nature when it arises in a case. It is well settled that in exercising their power whether general or special, the directors must always bear in mind that they hold a fiduciary position and must exercise their powers for the benefit of the Company and for that alone and that the Court can intervene to prevent the abuse of a power whenever such abuse is held proved, but it is equally settled that where directors have a discretion and a bona fide acting in the exercise of it, it is not the habit of the Court to interfere with them. When the Company is in no need of further Capital, directors are not entitled to use their power of issuing shares merely for the purpose of maintaining themselves and their friends in management over the affairs of the Company, or merely for the purpose of defaulting the wishes of the existing majority of shareholders. It appears to me that the learned Judges in the Court below approached the decision of the question in the light of the principles stated above and the contention of the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said exercise of powers will not be questioned and invalidated merely because they have any subsidiary additional motive even though this is to promote their advantage. An exercise of power by the directors In the matter of allotment of shares, if made mala fide 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. 82. Admittedly, in the EOGM-in-question, the Petitioner was not present. In my view, the Petitioner has successfully established the fact that notice with respect to holding of the EOGM on 9/9/2013 was not validly served on him. The alleged service on Munna Singh, a person whom the Respondents claims Petitioner's employee, in my view, is not reliable. Therefore, the EOGM-in-question is non-est, illegal and void. 83. On the basis of submissions advanced by the Ld. Counsels for rival parties, and the law discussed above, the next question that arises for consideration is as to whether the allotment of shares under the Rights Issue was for the best interests of the Company and for proper purpose or it is a deliberate attempt to sideline the Petitioners by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their case. This issue is answered accordingly. 85. The next grievance ventilated by the Petitioner as to the acts of operation is that the Respondent No. 2 has illegally gifted the shares to the Respondents Nos. 3 and 4. It was in this connection argued on behalf of the Petitioner by the Ld. Counsel as stated below. 86. Dealing with the said issue, the Petitioner's Counsel urged that for the first time, the Respondent No. 2 in her reply to the Petitioners complaint to the ROC alleged that she had gifted 10 shares each to her sons, the Respondent Nos. 3 and 4. The Ld. Counsel then pointed out from reply that the Respondent No. 2 alleged that during Mrs. Jayshree Soni's lifetime, the Respondent No. 2 had gifted shares to her sons, Respondent Nos. 3 and 4. The alleged 'duly stamped Transfer Form' were executed to effect the transfer the shares in favour of the Respondent Nos. 3 and 4. The Ld. Counsel submits that the Petitioner states that as explained in paragraphs 11 and 12 of the First Rejoinder, the Petitioner filed an application under the Right to Information Act, 2005 before the Sub-Registrar of Stamps at indore. The Sub-Registrar replied that there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No. 2, being the mother of Respondent Nos. 3 and 4, transferred the shares held by herself and that no shares held by the deceased were ever transferred to the Respondent No. 3 and Respondent No. 4. Further, the Respondent No. 2 has the right to dispose off her shares as per her wishes as the shares are her absolute property. Pertinently, the said shares were transferred during the lifetime and to the knowledge of the deceased Mrs, Jaishree Soni. Further, the Respondent No. 2 also executed gift deeds in favour of Respondent Nos. 3 and 4 in addition to executing the share transfer forms. The execution of gift deeds was not a legal requirement in view of the execution of the share transfer forms. According to the Ld. Counsel, it is sufficient to note that the transfer of shares took place during the lifetime of the deceased Jayshree Soni and therefore, it is now not open to the Petitioner (who is claiming to be the heirs of the deceased) to challenge the said transaction. 91. Referring to the order dated 1/9/2014, the Ld. Counsel submitted that the said Order has been challenged by these Respondents before the Hon'bie High Court of Madhya Pradesh and, therefore, these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering any finding on this issue. This issue is answered accordingly. 96. The next instance cited by the Petitioner as an art of oppression is that the Respondents have illegally appointed Respondent Nos. 3 and 4 as the Directors on the Board of the Company without following due course of law in order to gain majority and thereby control the affairs of the Company. In this regard, the Petitioner's Counsel submitted that on 3/10/2010, FORM 32 for appointment of Respondent No. 3 as additional director of the Company was filed with the ROC for retrospective appointment with effect from 3/9/2010, Further, the Petitioner states that on 3/10/2010, FORM 32 for appointment of the Respondent No. 4 as additional director of the Company, was filed with the ROC for retrospective appointment with effect from 1/9/2010. Further, on 11/10/2013, FORM 32 for appointment of the Respondent No. 3 as director of the Company was filed with the ROC for retrospective appointment with effect from 29/9/2010. Further, on 11/10/2013, FORM 32 for appointment of the Respondent No. 4 as director of the Company was filed with the ROC for retrospective appointment with effect from 29/9/2011. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such appointment of the directors was illegal. According to the Ld. Counsel, it is a settled law that filing of Form 32 in respect of an appointment of a Director of a company is a mere procedural formality and any delay therein can be cured by paying a penalty that may be imposed by the ROC for such belated filing. It is, therefore, contended that the Respondent Company had passed resolutions for the appointment of Respondent Nos. 3 and 4 as directors in accordance with law. In view of the aforesaid, the contention of the Petitioner that the appointment of Respondent No. 3 and Respondent No. 4 as directors of the company being illegal, is wholly misplaced. In any event, the Form 32s were filed by the Respondent Company much prior to the filing of the present Petition which was filed on or around 2/2/2014. This fact unequivocally obviates any malpractice on the part of the Respondent Company. 101. Lastly, it was submitted that, without prejudice to the above, no adverse inference can be drawn on account of the delayed filing of the transfer forms. It is submitted that if any such adverse inference is to be drawn, the contesting Respondents ought to be given an opportunity to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Balance Sheets for the period 2009-2011, when Mrs. Jayshree Soni was alive and director of the Company, are not signed by Respondent Nos. 2, 3 and 4. The Ld. Counsel for the Petitioner pointed out that the Director's Report for the year ending 31/3/2010 is signed by Respondent No. 3 on 4/9/2010, a day after his appointment as additional director on 3/9/2010. The Secretarial Compliance Certificate for the FY 2010, 2011 and 2012 states that several board meetings were held. This was during the lifetime of Mrs. Jayshree Soni. However, no notices/minutes have been produced by the Company. It was, therefore, argued that balance sheets and other documents filed with the ROC were fabricated, backdated and illegally done. 105. The Ld. Sr. Counsel appearing on behalf of the Respondents has rebutted the said allegations and contended that all documents are genuine and were duly filed in accordance with the provisions of Law. 106. Having analysed the allegations made above with respect to the act of management, I am of the view that the documents referred to above, reveal certain manipulations committed by the Respondents. In my opinion, this dispute can be resolved by appointing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. 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 to the matters complained of. 110. It is a settled proposition of law that where any shareholder is denied his most valuable rights in utter disregard of the statutory provisions, the making of a winding up order, on the ground that it is just and equitable would be justified. Therefore, having regard to the facts of the case in hand, the necessary ingredients of the provision contained in Section 397 which provides that: to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just a equitable that the company should be wound up; also stands proved. 111. On the basis of aforesaid conclusions, to bring an end to the acts complained of and to do substantial justice between the parties. The C.P. is disposed of in the following manner:- ORDER a. C.A. No. 291/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
