TMI Blog1996 (2) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... er of shares by the respondents. 2. The petitioner has further prayed for interim orders for restraining the company from issuing the rights equity shares to respondents Nos. 1 to 17. The petitioner has also prayed for interim orders under Section 250(2) of the Companies Act, 1956. 3. The brief facts of this case as stated in the petition are : The company issued a notice for an extraordinary general meeting on January 6,1992, for increasing the authorized capital from ₹ 2.8 crores to ₹ 8.5 crores and for considering and approving the rights offer of convertible/non-convertible debentures of ₹ 15 crores. The company had decided to raise funds for the purpose of long-term working capital, development of the estates and meeting the purchase consideration of four tea estates in Kerala acquired by the company. A series of litigations and actions by and on behalf of various respondents herein ensued thereafter : (a) The first was a suit by respondent No. 6 in the Calcutta High Court with regard to the notice of the meeting and an injunction was obtained/This order was later vacated at the instance of the company and respondent No. 6 preferred an appeal agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interim order was passed, the court did order that in the event of any renouncee applying for allotment the board shall not exercise discretion to reject such renunciation. Further, respondent No. 1 preferred an appeal against the above said order before the Division Bench and obtained an order on December 21,1992, for appointment of joint special officers to collect the money in relation to the tights issue. An adverse publicity was also caused by respondent No. 1 and dealings in the stock exchange were also affected consequently. The company, however, obtained an order of stay from the Supreme Court through a special leave petition against the appointment of joint receivers. (h) Oh December 29, 1992, respondent No. 1 again obtained an ex parte interim order from the Division Bench of the Calcutta High Court restraining the company from giving any effect to the extension of the Closure date of the letter of Offer. Respondent No. 1 also communicated the order to the company's bankers to the prejudice of the company without communicating the order to the company. (i) On December 31, one Ashok Kumar Singh claiming himself to be a public interest litigant obtained an ex par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent No. 10 misrepresented and induced the company to register one lakh shares in its name as if they were holding the shares as a security for a credit facility obtained by an existing shareholder. On the other hand, the 'fact is that the shares were acquired by another company of respondent No. 18 but the same was concealed. According to the petition, the facts clearly suggest that the shares are held by benamis without making proper declaration under Section 187C of the Act and hence it is, a fit case for investigation by the Central Government under Section 1870. It is also clear from the legal proceedings that the respondents were acting in concert to, destablise the management of the company and the intention appears to be to prevent the company from raising funds for acquiring four tea estates in Kerala and for expansion of business activities of the coppany. The above concerted activities of the respondents are prejudicial to the company and it had to spend some considerable sum of money on legal proceedings and it has also resulted in colossal amount of interest liability due to non-availability of funds on time. The development and expansion programme of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h shares. As regards the allegations against respondent No, 10 that it is acting in collusion or conspiracy with respondent No. 18, the same is denied. All general allegations applied to the whole list of the respondents cannot be applied in the case pf respondent No. 10 and the same has to be rejected. The respondents have also brought out the facts with regard to the pledge of the shares by respondent No. 9 and a financial accommodation provided by Hongkong Bank against which the shares were pledged. It is also stated that on liquidation of the liabilities by respondent No. 9, the shares were returned to them but the company had sought to delete the name of respondent No. 10 from its register of members on false and frivolous allegations. It is contended that respondent No. 10 has always acted bona fide in the matter and the action of the company in deleting the name of respondent No. 10 was wholly unwarranted, A similar reply has been filed by respondent No. 11. 9. The substantial reply on maintainability and merits has been filed by respondent No. 9 which was claiming ownership of one lakh shares of the company. The preliminary objections raised by respondent No. 9 are as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lakh shares. It has also refrained from any comments with regard to allegations against other respondents. It is also stated that the company wrongfully did not issue any letter of offer for rights convertible debentures in favour of respondent No. 9 thereby denying legitimate right to get the convertible debentures. The reply further states that respondent No. 18 is in no way concerned with respondent No. 9 and it is denied that respondent No. 9 is a nominee or stooge or henchman of respondent No. 18 or has colluded or conspired with him. On the other hand, it is the contention of respondent No. 9 that respondent No. 18 and Shri S. Rampuria, managing director of the company, are brothers-in-law and they have jointly set up the petitioner to find an excuse to stall the registration of one lakh shares. It is stated that both Rampurias and Sethias are hiding behind the scene to wrongfully usurp the one lakh shares purchased by respondent No. 9 with a novel scheme of delaying registration. The suggestion of collusion since the same advocates are common is stated as wholly irrelevant. The inter-connections of respondent No. 9 with some of the respondents has been denied and disposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh shares lodged by respondent No. 9, the interim order should be vacated to this extent. We decided to hear the parties on both the above applications along with the main petition. Accordingly, the final hearing was held on September 20, 1995. 11. Dr. A. M. Singhvi, senior advocate appearing on behalf of the company, explained the background of various litigations during the past two years and stated that it is the same set of persons who have been working in concert. He also stated that the rights issue of the company offered to the respondents has been renounced to the extent of about two lakh shares to the other respondents. He further submitted that the inspection report under Section 209A of the Act carried out as per orders of the Regional Director may also be taken into account by the Company Law Board in arriving at a conclusion. He strongly supported the petitioner's case for an investigation into the ownership of the shares. 12. Shri Sudipto Sarkar, senior advocate, appearing on behalf of respondent No. 9, made the following three preliminary observations, namely : (i) no relief can be granted under Section 247 of the Act by the Company Law Board as the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gations involving the company as contained in the records of the company could not have been provided without the active involvement of the company. The petitioner is, therefore, not a bona fide litigant whereas the company is the actual litigant. This is also evident from the delay on the part of the company to register one lakh shares belonging to respondent No. 9 already directed to be registered as per orders of the Eastern Bench of the Company Law Board. The company is further litigating even on the order under Section 634A passed by the Eastern Bench. Therefore, he sought for dismissal of the petition. 13. Arguments were advanced on behalf of the petitioner by Shri Harish Salve, senior advocate. He stated that the provisions of Section 247/250 of the Act have to be interpreted in the backdrop of three important factors, namely : (a) these are enabling provisions conferring inquisitorial powers on the Company Law Board to act in public interest and should, therefore, not be construed narrowly and pedantically ; (b) the provisions have undergone amendments and hence they cannot to be understood as being limited to their original context ; and (c) the overall endeavour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigations launched against the company, then to find out the true facts as to who are the people interested, the restrictions have to be imposed. 17. Distinguishing the present case from two other cases decided by the Company Law Board, namely, Alaknanda Manufacturing and Finance (P.) Ltd. v. Bahubali Services Limited [1993] 5 CLJ 423 ; [1996] 86 Comp Cas 291 (CLB) and Molins of India Engineering Ltd. v. Foster Consultants and Investments (P.) Ltd. (C. P. No. 13/14/25 of 1990), Shfi Salve stated that in the first case since the transfer of shares took place with the approval of the Company Law Board, intervention by recourse to the provisions of Section 250(3) and (4) was not warranted. In the second case, the Company Law Board held that the transfer had already taken place and the alleged predator had kept the shares in suspense for nearly, 11/2 years before the lodgment but the delay in lodgment does not necessarily vitiate the transfer already made. Hence, the situation was different in those two cases. In the present case, according to Shri Salve, the respondents and some other shareholders have been opposing various resolutions in the past. The respondents have also started ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 250(1), Shri Salve has strenuously attempted to convince us that a complaint can stand independently under Section 250(1). The sub-section, as it stood prior to the 1988 amendment, had given the power to impose restrictions on voting rights, etc., on the basis of an open ground. The Sub-section prior to the amendment stood as follows : Where it appears to the Central Government whether in connection with any investigation under Sections 247, 248 or 249 or otherwise that there is good reason to find out the relevant facts about any shares 21. The sub-section, after the amendment in 1988, stands as follows : Where it appears to the Company Law Board, whether on a reference made to it by the Central Government in connection with any investigation under Sections 247, 248 or 249 or on a complaint made by any person in this behalf that there is good reason to find out the relevant facts about any shares (whether issued or to be issued) and the Company Law Board is of the opinion that such facts cannot be found out unless the restrictions specified in Sub-section (2) are imposed, the Company Law Board may, by order, direct that the shares shall be subject to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to Shri Salve, the Legislature has conferred on the Company Law Board inquisitorial jurisdiction to prevent such situation as contemplated in Sections 247 to 249. We are in full agreement with this interpretation. In that case, the Company Law Board could exercise the powers under Section 247(1A) which is again a specific power conferred to make a declaration that the affairs of the company ought to be investigated as regards the members of the company. Thus, as regards the first question we are of the opinion that an independent complaint under Section 250(1) is entertainable. This also answers the question of jurisdiction raised by respondents Nos. 10 and 11. 25. Having already accepted that a complaint can be filed under Section 250(1) independently, we have to see whether the conditions as per clause (a) or (b) of Section 247(1A) are satisfied. 26. As regards the second issue, the threshold questions in respect of Section 250(3) and (4) are : whether there has been transfer of shares or whether there is a likely transfer of shares. Once this is established it is necessary to examine whether as a consequence there is a likely change in the management of the company. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nections have been established in respect of the above respondents. 30. As regards others, namely, respondents Nos. 6, 8, 9, 12, 14, 16 and 19, the only relationship which could be significantly noticed is that respondent No. 12 is stated to be related to the daughter-in-law of respondent No. 18. On this exclusive ground alone no prima facie opinion could be formed. Even this relationship between respondents Nos. 12 and 18 is not recognised as relationship within the meaning of Section 6 of the Act. If this relationship is to be considered then the counter-allegation of respondent No. 9 that respondent No. 18 is the brother-in-law of Shri R. S. Rampuria, managing director of the company, and that both of them are acting together to stall the registration of one lakh shares in the name of respondent No. 9 also carries weight. Though we are not considering any petition of respondent No. 9 as such, this relationship is of course a closer one than the one alleged by the petitioners. Apart from this there is no other direct relationship established between the various individual respondents and as such the inter-connections based on relationship does not create any impact to warran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents is to take over the management, these shares would not have been voluntarily given up by them. 34. Despite the lack of conviction with regard to the inter-relationship and the percentage holdings by the respondents' holdings, we have still examined whether the parties have acted in concert to acquire the management of the company. It may be true that there had been some consistent opposition to the proposals of the management primarily with regard to the issue of convertible debentures to the extent of ₹ 15 crores. The intention behind this objection, however, cannot be attributed to a motive for taking over the management. This could not be established even prima facie which is the requirement of Section 250(3) and (4). Though all the management resolutions were opposed by these persons, litigations and representations to financial institutions all relate exclusively to the issue of convertible debentures only. There has also not been any candidature for directorship. It appears that the management is irked by the consistent opposition to the debenture issue and probably suspicion was aroused. Mere opposition at the general body meetings to proposals of the manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scertain the facts about allegations made in the complaint was confined to seven companies which include respondents Nos. 4, 6, 8, 9 and 14. From a perusal of these inspection reports, it is evident that all these shares were held by the respective respondent companies in their own name and they had the necessary funds to make the investment. The source of the money for the investments has also been established. As such there is no room to come to a prima facie conclusion that there is any indication of a benami holding and as such there is no good reason for investigating into the membership of the company under Section 247(1A). The inspection report has dealt with this matter in detail and a further investigation will, in our opinion,' be a repetitive exercise. 38. Apart from the objective of the complaint which has been dealt with so far, with regard to the genuineness of the complaint the contentions of respondent No. 9 are very valid. The petitioner is the holder of just 200 shares and has not been entrusted with the affairs of the company in the past in any way. However, the petitioner has been able to set out a blow by blow account of the various litigations and other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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