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Yusuf Kagzi And Another, Pervez Akhtar, Vishnu Ajit Saria Versus Avigo Trustee Co. Pvt. Ltd. And Others

2016 (1) TMI 421 - BOMBAY HIGH COURT

Oppression and mismanagement - CLB accepted the case of Respondent Nos. 1 and 2 of oppression and mismanagement, and dissolved the Board of Directors of Appellant no.2 and reconstituted the same - Held that:- . As rightly held by CLB, it is inconceivable that Appellant No.1, who is an industrialist and who has been running the Company having net worth of crores of rupees (with financial assistance worth about ₹ 124 crores from banks), was not aware of the consequences of the documents or t .....

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facts of the case, it was obviously for the Appellants to discharge the onus to show that the documents were signed under misrepresentation or were otherwise not binding. They could very well have led evidence in this behalf . There is nothing on record to show that they offered to lead any evidence on the subject besides what was produced before CLB or were denied any opportunity to lead further evidence.

Parties take various positions in their pleadings. What is considered at the h .....

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odging) No. 46 of 2013 was a nominee director of promoters represented by Appellant No.1 in the main appeal and has himself signed the share certificates issued to Respondent Nos. 1 to 3 in pursuance of decision take at the EOGM of 5 March 2010. It was the case of Respondent Nos. 1 to 3 before CLB that he was part of the management under Appellant No.1; that many general meetings were called by the Company likewise with a short notice; and that he had notice of the Board meeting as well as EOGM .....

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s, in any of the submissions advanced by the Appellants. All three Company Appeals are accordingly dismissed. - Company Appeal No. 59 of 2014, Company Appeal (L) No. 45, 46 of 2013 - Dated:- 7-1-2016 - S. C. Gupte, J. For the Petitioner : Mr. Mustafa Doctor, Sr. Adovcate a/w. Karl Tamboly and Purazar Fouzdar i/b. J. Sagar Associates, Mr. N.H. Seervai, Sr. Advocate i/b. Bimal Rajasekhar, Mr. Chirag Balsara i/b. Sanjeev Rawell For the Respondent : Mr. Rakesh Khanna a/w. Sahil Chopra i/b. Shailendr .....

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General Body as illegal and set aside the same. 2. The Appellants' case may be briefly stated thus: Respondent nos. 1 and 2 had invested a sum of ₹ 40 crores in Appellant No.2 Company ( Company ), under a Share Subscription cum Shareholders Agreement ( SSSA ) dated 24 March 2008 entered into between promoters of the Company who are represented by Appellant no.1, Respondent nos. 1 to 3 and the Company. After acquiring land and setting up a new factory, the Company commenced production a .....

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general meeting, purported to pass resolutions approving amendments to the SSSA as well as Articles of Association of the Company to give effect to the amendments inter alia allowing Respondent nos. 1 to 3 to convert their preference shares (Series A) into equity shares in the manner provided in the amended SSSA. This was followed by a purported Supplemental Agreement dated 6 March 2010. Respondent nos. 1 to 3 claimed to have exercised their right of conversion of preference shares into equity s .....

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nominee director of Respondent Nos. 1 to 3 resigned from the Board. It was the case of Respondent Nos. 1 to 3 that instead of reconstituting the Board, in a meeting of the Board, Respondent Nos. 8 and 12 herein were appointed as additional directors and Respondent No.13 herein as director. Respondent Nos. 1 to 3, thereupon, by notice dated 2 July 2010, terminated the SSSA. It was the case of Respondent Nos.1 to 3 that instead of acting upon such termination in compliance with the SSSA, the Appe .....

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impugned order came to be passed. 3. On the petition of Respondent Nos. 1 to 3, CLB came to following conclusions: (i) The issue relating to maintainability of the petition (i.e. on the ground of not having claimed a relief of rectification under Section 111 of the Companies Act simultaneously) was already decided at the preliminary stage in favour of Respondent Nos. 1 to 3 (original Petitioners) and the same not having been appealed from, was final and could not be re-agitated at the hearing. .....

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the decisions taken thereat were liable to be set aside. (v) Holding of Board Meetings as well as General Body Meetings without notice to the nominated directors of Respondent Nos. 1 to 3 (Original Petitioners) was a clear violation of the Articles and showed lack of probity and unfairness, seriously jeopardizing the interest of the original Petitioners. (vi) The Appellants (original Respondents) had assumed control over the Company by illegal means, including manipulation of records. (vii) Havi .....

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following questions of law are pressed by Mr. Doctor, learned Counsel for the Appellants, at the hearing of the Appeal for impugning the CLB order: (i) The reliefs claimed in the petition are on the basis that the Petitioners are 69.38% shareholders of the Company; but no relief can be granted on such footing unless a rectification is sought and obtained as part of the reliefs. Till such time as such rectification is not ordered, the law does not recognize the membership of the Petitioners in r .....

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eal (Company Appeal (Lodging) No. 45 of 2013) and Mr. Balsara for Appellant in Company Appeal (Lodging) No. 46 of 2013, who are shareholders of the Company, submit that the purported general meeting of 5 March 2010, on the basis of which mainly reliefs were granted to the original Petitioners, was held without notice to their respective clients and thus, illegal and could not have transacted any business or passed any resolution. Learned counsel submit that without considering this aspect, CLB h .....

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s such to file the petition. What is submitted, however, by the Appellants is that the Petitioners are not by that reason or otherwise entitled to claim reliefs on the basis that they hold 69.38% of issued, subscribed and paid up share capital of the Company. The contention is that the general meeting of 5 March 2010 and decisions taken thereat, on the basis of which the original Petitioners claim to be entitled to conversion of their preference shares (Series A) to equity shares, are subject ma .....

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a Bai Vs. Harrisons Malayalam Ltd. 1988 (Vol. 63) Company Cases Page 662 and the decisions of Company Law Board in Satish Chand Sanwalka & Ors. Vs. Tinplate Dealers Association Pvt. Ltd., & Ors. (1998) 93 Comp Cas 70 (CLB) T.N.K Govindaraju Chetty & Co. Vs. Kadri Mills (CBE) Limited (1999) 96 Comp Cas 871 (CLB) and Navin Ramji Shah & Ors. Vs. Simplex Engineering and Foundry Works Pvt. Ltd., (2007) 136 Comp Cas 770 (CLB) in support of their contentions. 7. The Supreme Court in Bal .....

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the holder of shares, whose name was entered in the register of members, the right to issue a notice of an EGM under Section 169 of the Companies Act, 1956 and vote at such meeting. In the context of these questions, the court made its observations referred to above. As far as a petition under Sections 397 and 398 is concerned, the position would be entirely different. Reduction of a petitioner's shareholding or non-allotment of shares to him may itself be an act constituting an oppression. .....

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titioners had admittedly invested a total sum of ₹ 40 crores in the Company towards subscription of equity shares together with 'Series A' preference shares with a right of conversion into equity shares. Accordingly, the Petitioners were allotted 1000 equity shares and 19,99,000 preference shares of the Company. The SSSA provided for the petitioner's right to convert these preference shares into equity shares in part or full, at any time after 31 March 2009 by giving a notice t .....

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onversion price. The relevant Articles of Association of the Company were also, accordingly, amended by a resolution passed on 5 March 2010, providing for conversion of preference shares into equity shares at a stated ratio. The Petitioners, accordingly, exercised their right of conversion and on 31 March 2010, the Company allotted 1,58,64,074 equity shares equal to 69.38% of the issued, subscribed and paid up equity shares of the Company to the Petitioners. The share certificates were produced .....

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ion of the Board or setting aside resolutions passed in meetings, urging their entitlement to 69.38% equity shares of the Company. Andhra Pradesh High Court in the case of N. Satyaprasad Rao & Ors. Vs. V.L.N. Sastry & Ors. 1988 (Vol.64) Company Cases 492 considered the case of petitioners, who were allottees of shares, but whose names were not entered in the register of members in the context of an application under Sections 397 and 398. The Court held that such petition was maintainable .....

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these observations. When want of entry in the register itself is occasioned by an act of the oppressor, there is no question of denying relief to the oppressed on the ground of such want. 9. The Appellants contend that Respondent Nos. 1 to 3 have terminated the SSSA by a notice dated 7 May 2010, calling for purchase of their shares at a price which gives them the specified IRR, and have now filed the petition for recovery of this amount. Clause 15.3.1. read with clause 16.1 of the SSSA (as amen .....

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management, to seek redressal under Sections 397 and 398 of the Companies Act, 1956. 10. Learned Counsel for the Appellants relied on English decision in the case of Re Bellador Silk Ltd. [1965] All E.R. Ch.D 667 in support of his contention that the presentation of the petition in order to bring pressure to bear to achieve a collateral purpose was an abuse of the process of the Court. The dicta of the English Court were followed by Kerala High Court in the case of Palghat Exports Pvt.Ltd. vs. T .....

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n as such member. That was clearly a collateral purpose. This ratio cannot be invoked in the present case, where the petitioners are claiming reliefs in respect of their membership. Besides, the real purpose as opposed to the ostensible purpose of the petition is a matter of fact and the finding of CLB in that behalf cannot be faulted on a question of law. 11. The questions as to whether the EOGM of 5 March 2010 did take place and whether the resolutions passed thereat and documents executed in .....

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tes were duly issued to Respondent Nos. 1 to 3 on 31 March 2010. The share certificates contain signatures of the Company Secretary and two directors, one of whom is Appellant No.1. In the premises, CLB has refused to give credence to the submission of Appellant No.1 that he was induced to sign these documents by a misrepresentation or a false promise. As rightly held by CLB, it is inconceivable that Appellant No.1, who is an industrialist and who has been running the Company having net worth of .....

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contention that this was a matter for the Civil Court to decide by reason of being a complicated question of fact needing extensive evidence. In the facts of the case, it was obviously for the Appellants to discharge the onus to show that the documents were signed under misrepresentation or were otherwise not binding. They could very well have led evidence in this behalf . There is nothing on record to show that they offered to lead any evidence on the subject besides what was produced before CL .....

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aring before CLB. This Appellant has not even filed any reply to the petition before CLB. He now relies on a reply filed by original Respondent No.3 (i.e. Appellant in Company Appeal (Lodging) No. 46 of 2013) to claim want of notice. In his reply to the petition, original Respondent no.3 had averred about want of notice to himself and not to others including Appellant in Company Appeal (Lodging) No. 45 of 2013. In any event, there is no submission in this appeal that the case of want of notice t .....

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