TMI Blog2001 (3) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 ordinary shares of ₹ 100 each. The paid up capital of the company, before issue of new and bonus shares, consisted of 4,132 ordinary shares of which ₹ 45 was partly paid and 1,868 fully paid ordinary shares and 3,065 fully paid preference shares. These 4,132 partly paid shares were originally held in the name of one Gupta Brothers on which ₹ 25 had been paid. In the year 1966, these shares were forfeited and the petitioners became the shareholders in respect of these shares in 1986 on reissue of these to them. According to the respondents, these shares were issued to the petitioners on account of Gupta Bros, and, therefore, they were liable to pay the interest attributable to Gupta Bros, for non-payment of the calls made on them, while according to the petitioners, these shares were held in their own names for their own benefits. It is alleged by the petitioners that without notice to the petitioners, the authorized capital was increased in July, 1994 to ₹ 5 crores. The company had revalued its only asset, namely, an industrial plot in Okhla Industrial Area, New Delhi by over ₹ 3 crores and the company had issued bonus shares against this revalua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes. Accordingly, this Bench passed an order on 13-10-1996 incorporating therein the terms of settlement, which inter alia contained that the bonus shares allotted out of the revaluation reserve as well as further issue of 25,000 ordinary shares would be treated as cancelled and that the 4,132 ordinary shares would be restored in the name of the petitioners. It was also stipulated in that in view of the consent order, the petition would be treated as withdrawn. However, two of the respondents, viz. respondent 5 and respondent 9 challenged the consent order on the ground that they were not parties to the same. After hearing the parties, this Bench passed an order on 6-3-1997 recalling the consent order dated 13-10-1996 and restoring the petition. Thereafter, the respondent raised a preliminary objection that this petition was not maintainable in terms of section 399. After hearing the preliminary objection, this Bench passed an order on 23-7-1997 indicating that the merits of the case would be further heard. Aggrieved by this order, the respondents filed an appeal before the Calcutta High Court seeking for a direction to this Bench to pass an order on the maintainability of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y an agreement between Gupta Bros. and the petitioners, the later undertook to take over the liabilities towards interest on the amount of call made on Gupta Bros, does not hold water. Further, nothing has been produced before this Bench that there was any written agreement to this effect. It is also wrong to contend that Gupta Bros, whose shares had been forfeited as early as in 1966 should have voiced their grievance about the forfeiture in 1986 resulting in the alleged agreement between the petitioners and Gupta Bros. He also pointed out that the petitioners had, as early as on 16-3-1986, at the time of making the payment towards application and allotment money of ₹ 35 specifically indicated in that letter that balance ₹ 65 was due 'ON CALL'. Thereafter, on a call of ₹ 10 made, the same was paid by the petitioners. Thereafter, no call was made by the company on the petitioners to pay up the balance. The very fact that the company had also not asked for compliance with the provisions of section 187C of the Act would indicate that the shares were allotted/issued to the petitioners in consideration of the money invested by them and therefore the question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 25 per share. He also pointed out that the respondents have not established the identity of Gupta Bros. If it had been a firm, it could not have held shares in its name which would be against the provisions of the Act and if it is a HUF, then, it must belong to the group of 2nd respondent in which case, the veil will have to be lifted. Once it is done so, it will be clear that the 2nd respondent in his anxiety to retain control over the company has raised all these untenable issues. 7. Regarding subsequent forfeiture of shares held by the petitioners, Shri Chaudhary pointed out that the respondents arc not clear as to the grounds of forfeiture. While in the reply, they have stated that the shares were restored in the name of Gupta Bros, as there was an attachment order against the shares and with a view to avoid any legal consequences, during the hearing it was urged that the forfeiture was effected owing to the failure of the petitioners to pay the call made by a notice dated 5-1-1991. He submitted that the notice dated 5-1-1991 alleged to have been issued to the petitioners was never received by them and as a matter of fact the said notice is a fabricated one. In this notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld also have been offered additional shares when the company allotted 25,000 shares to the respondents' group. Referring to Re Cetus Electronics (P.) Ltd, [1987] 62 Comp. Cas. 688, he pointed out that the C.L.B. had held that even in a private limited company, proportionate shares should be offered to all the shareholders and therefore, exclusion of the petitioners in the allotment of further shares is an act of oppression. He also pointed out that the paid up amount on these shares is only ₹ 40 per share and therefore, it is obvious that the shares were issued only to convert the majority into minority. 9. He pointed out that during the pendency of the proceedings, the respondents not only commenced construction on the land owned by the company, they also entered into an agreement for leasing the building for a paltry sum of ₹ 1 lakh per year for a period of 30 years to two of their own sister concerns. He also pointed out that the lessees of the building are owned and controlled by the respondents. The terms and conditions of the lease deeds are one sided favouring the lessees and against the interest of the company. Since prima facie it appears that by leasing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners had paid only ₹ 45 as against ₹ 100 being the face value, the petitioners had defaulted in paying the calls already made and also the interest due thereon. Therefore, in terms of section 399, they are barred from invoking the provisions of section 397/398. He also pointed out that it is wrong to contend that after the shares were reissued, the company had to make a fresh call since such a course is not possible as the capital of the company had already been raised when calls were made initially on Gupta Bros. Referring to Principles of Company Law by HAJFord, he pointed out that the purchaser of forfeited shares is liable for future calls and also for the call which occasioned the forfeiture. On the same proposition, he relied on Randt Gold Mining Co. Ltd. v. Wain Wright [1901] 1 Ch D. 184 and also on In Re. Randt Gold Mining Co. Ltd. [ 1904] 2 CH D 468. He also submitted that the liability of a new shareholder will cease only if the articles so provide and a certificate is granted to the shareholder that he acquires the shares free from such liability. In the present case, neither the Articles provide for freeing the new shareholders from the past liability nor an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to him, once the CLB finds that the petitioners have not fulfilled the requirements of section 399, then, they have no locus standi to file this petition and as such the same should be dismissed in limine. 14. Dealing with merits of the case, Shri Sarkar pointed out that the respondents holding 1,868 fully paid shares were always in majority compared to the petitioners holding 4,132 partly paid shares as article 22 provides that a member is not entitled to vole in respect of shares on which money was due and outstanding. Even otherwise, since no dividend had been declared in respect of the preference shares, the respondents holding 3,065 shares were entitled to exercise voting rights in respect of these shares also. If that is so, even in this case, the respondents were in majority. In this connection, he referred to article 21, according to which, every shareholder is entitled for one vote-both in respect of show of hands as well as pool for every share held by him. Therefore, the contention of the petitioners that they have been reduced to minority by allotment of further shares has no basis. 15. In regard to the cessation of office of directors by the petitioners, he poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have no locus standi to file this petition. 19. First we shall deal with the first objection. There are two limbs to this objection. One is that since the petitioners held the shares in account of Gupta Bros., the liability of Gupta Bros, for the call as well as the interest accrued devolved on the petitioners and the other limb is that once a call is made, the liability towards the call is attached to the share and who ever obtains the share subsequently, such a person is liable to pay the call. It is on record that Gupta Bros, held 4,132 shares which were partly paid at ₹ 25 per share. The company reportedly made a call on the shares at ₹ 75 per share and on the failure of Gupta Bros, to pay the calls, the shares were reportedly forfeited in 1966. The stand of the respondents is that by an agreement between Gupta Bros, and the petitioners, the shares were reissued to the petitioners on account of Gupta Bros, and the petitioners were to discharge the liability of Gupta Bros, on account of the interest accrued on the forfeited shares. The question for consideration is whether the shares were/could be held on account of Gupta Bros. In 1986, the petitioners became sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lender. In the present case, the petitioners were not given any credit for the amount of ₹ 25 per share paid by Gupta Bros, and it is the petitioners who had paid ₹ 45 per share after the shares were reissued. It is incomprehensible that a person who pays the consideration for the shares, would agree to hold the shares on account of someone else. Further Gupta Bros, have not come forward to make this claim, while the company has done so even though the company records do not indicate that the provisions of section 187C have been complied with for the company to take this stand. Further, we also note, as pointed out by Shri Chaudhary, that after 1986, the forfeited amount is not shown in the balance sheet under any head, giving raise to a presumption that the amount forfeited had been refunded to Gupta Bros. If is so, then, they had no further interest the company. Therefore, there is absolutely no basis for the claim that the shares were held by the petitioners on account of Gupta Bros. Accordingly, we reject this stand of the company that the shares were held by the petitioners on account of Gupta Bros. 21. Now the next issue is as to what was the amount payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no longer be a member of the company. However, if the Articles so provide, then the original shareholder would be liable, but not as a shareholder but only as a debtor 1904 AC 165. These cases indicate that everything would depend on the provisions of the Articles of a company. Article 18 of the Company provides Any member whose shares have been forfeited shall, notwithstanding such forfeiture, be liable to pay and shall forthwith pay to the company all calls instalments, interest and expenses owing upon or in respect of such shares at the time of forfeiture together with interest thereon, from the time of forfeiture until payment at nine per cent per annum and the director may enforce the payment of such moneys or any part thereof if they think fit, but shall not be under any obligation to do so. Thus, even from this article, it is clear that it is the member whose shares have been forfeited is liable for payment of interest and the interest is not attached to the shares to make the person to whom the shares are reissued, liable for the interest. Therefore, the claim of the respondents that the petitioners were liable to pay interest from 1967 has no basis. 22. The next issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the shares or not. The Court held that the purchaser was not entitled to vote since calls were due and payable by the original shareholder. According to Shri Sarkar, if the same principles are applied then the petitioners holding forfeited shares on which calls were due, cannot file this petition as section 399 of the Act stipulates that a person holding shares on which calls are due, is not entitled to file a petition under section 397/398 of the Act. He also cited the decision of House of Lords in respect of the same company in 1904 PC 165. In this case, it was held that the person to whom forfeited shares are issued, he would be relieved from any liability under the previous call which has been made by the company and from any consequences of not complying with that call, but he is subject to any cal! which the company may properly make. He is in the same position in all respects as if those previous calls had never been made. It was also observed in that case that the purchaser of the forfeited shares is to get a certificate of proprietorship like every body else specifying what has been paid on his shares and leaving him liable in respect of the balance to any call which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this proposition, he also cited Gulab Rai's case (supra). In the present case, when the petition was filed, the petitioners were not aware of the forfeiture of their share. Only subsequently, on filing of the reply, it came to light that the company had forfeited the shares held by the petitioners. Therefore, on the day of filing of the petition, there was nothing to show that the petitioners were aware that the shares had been forfeited and that they were no longer members of the company. This fact distinguishes Gulab Rai case wherein the petitioners had, in the petition itself, challenged their removal as members. Further, this Board has been taking a view that if in a petition under section 397/398, the allegations of oppression relate to removal as a member or conversion into a minority, then the petition could be heard, notwithstanding the fact that the conditions of section 399 are not fulfilled, first to determine their entitlement. In Dipak G. Mehta v. Shree Anupar Chemicals India (P.) Ltd. [1999] 33 CLA 393 (CLB), this Board took this view and considered the maintainability of the petition first in terms of section 399. Therefore, this objection that this Bench canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclare that the petitioners continue as shareholders of the company, and as such are qualified to file this petition in terms of section 399 and therefore, this petition is maintainable. The company will rectify the register of members by entering the names of the petitioners within 2 months of this order. The company is at liberty to make further call for payment of the balance ₹ 55 per share. 25. The main grievance of the petitioners is that they have been converted into a minority by issue of bonus and equity shares. As far as issue of bonus shares is concerned, it is on record that the company had issued bonus shares against the revaluation reserve. Both the counsel argued on the correctness or otherwise of issue of bonus shares out of the revaluation reserve as also issue to the preference shareholders. There is no specific provisions in the Companies Act regulating issue of bonus shares. While in respect of listed companies, the SEBI has issued guidelines, in respect of other companies, the Central Government has also issued guidelines. In the Act, only Table A, contains certain provisions relating to capitalization of profits. Article 96 of Table A deals with the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a set of shareholders then, such further issue could be considered to be an act of oppression. Consequent to the increase in the authorized capital, bonus shares were issued as also further 25,000 shares. In regard to bonus shares, we have already held that the same was in violation of the articles. Further issue of 25,000 shares was made in March 1996. At this time, as per the version of the respondents, the petitioners had ceased to be members of the company on account of the forfeiture of their shares, which also we have held as invalid. In regard to the need for additional funds, we find that on mobilization of ₹ 10 lakhs arising out of issue of 25,000 at ₹ 40 per share-partly paid, the company had paid about ₹ 15 lakhs to DDA. We find from the resolution of the Board dated 28-2-1996, that the shares were offered only to the 2nd respondent, without any offer being made to any other shareholders. Since there were only two group of shareholders, notwithstanding the fact that the company is a private limited company, equity and fairness demanded that the petitioners, being the only other group should also have been offered shares. When there are only two grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land-to the company on a perpetual lease, with a stipulation to complete construction within a time frame. According to the company, it could get UCLR clearance only in 1994. When the company sought for extension of time for completion of the building, the DDA levied certain composition fee against which the company filed a writ petition before the Delhi High Court which directed the company to pay about ₹ 15 lakhs to DDA. According to the company, DDA gave time upto 19-4-1998 to construct a minimum area of the plot and since, the company could not mobilize funds on its own, with a view to save the land from repossession by DDA, the 3rd respondent and his mother the 9th respondent who were the directors of the 11th respondent undertook to mobilize funds through the 11th respondent at a very high cost of 24 per cent for constructing a building of about 4000 sq. ft. Likewise the 12th respondent also undertook to construct a similar adjoining building. In consideration thereof both these respondents entered into a lease agreement with the company in respect of these buildings. Both these respondents were added as parties on an application made by the petitioners. The petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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