TMI Blog2009 (2) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... served with due notices on every share holder found mentioned on the Register of Companies as on that date before taking any decision. It shall be open for the appellants to take such action in his personal capacity as transferee of shareholding of Ajmer Singh to give notices in the manner required by the law and take appropriate decisions after due notices in the manner sanctioned by law. The entitlement or otherwise of Zora Singh to obtain transfer of shares pertaining to 25% held by Amrik Singh will be decided in the Civil Suit which is pending before it and no observation made by this Court shall be construed as constituting any remark in favour of or against either of the parties to contend that one way or the other about the respective merits of the case before the Civil Court. From the discussions made above and the findings rendered for the points raised in appeal by capturing them under relevant sub- headings, the following is summary of the conclusions:- (a) The MOU dated 09.11.2005 did not involve or contemplate transfer of asset of the company. It was an instrument to transfer the shares of the company to the parties to the document and a chosen medium for tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and mismanagement under Sections 397-399 of the Companies Act, 1956. It specifically found violations of statutory provisions relating to notice and Articles of Association that provided for pre-emptive rights. It held that the meetings held on 28.04.2006, 09.05.2006, 11.05.2006, 12.05.2006, 19.05.2006 and 20.05.2006 had not been properly convened and all the actions in the alleged meetings were in violation of the Articles of the Association and provisions of the Companies Act. It found that the purported act of increase of the authorised share capital from ₹ 1 crore to ₹ 2.5 crores on 28.04.2006 and again from ₹ 2.5 crores to ₹ 3 crores on 11.05.2006 were illegal having been passed without notices to the petitioner, who was a substantial share-holder. By the impugned order, the Company Law Board restored the status quo as regards the share capital of the company. The removal of the petitioner and his son from Directorship and induction of other Directors were found as having been done in violation of the statutory provisions of Section 191 and 284 of the Companies Act and the purported removal itself constituted gross oppression. The induction of new Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter which is clearly a domain of the Civil Court? (vi) Whether the refusal on part of minority shareholders to receive the balance sale consideration of shares on number of occasions can be attributed as an act of oppression and mis- management by the appellants? (vii) Whether the order dated 17.10.2007 passed by the Ld. CLB be sustained in view of wrong findings on the acts of oppression and mismanagement which is contrary to the facts and records of the case? (viii) Whether the commercial disputes be the subject matter of the petition under Section 397 and 398 of the Companies Act 1956? (ix) Whether a Single Technical Member of the Company Law Board can modify, terminate or amend the MOU between the shareholders for purchase of entire equity shares with the consent of 100% Shareholders with Third Party without obtaining the consent in terms of Section 402(e) of the Companies Act, 1956? (x) Whether a Shareholder who has received part payments of consideration for the sale of shares several times several times on behalf of other/all shareholders parties to the MOU can claim the relief under Section 397/398 of the Act when he is required to comply with the terms and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The possession of the holdings in the company were, Ajmer Singh had 75% shares and Amrik Singh had 25% shares. Both Ajmer Singh and Amrik Singh were Non-Resident Indians; the former was based in UK while the latter was based in USA. Malkiat Singh (who was the co- brother of Ajmer Singh and brother-in-law of Amrik Singh), however, was stationed in India and he was looking after the affairs of the family. (ii) Introduction of a third party to family in company affairs by a contemplation of sale of property of company:- 5. The company was really dealing in real estate and had obtained allotment of a large extent of land and building within the limits of Chandigarh city. The admitted case is that the Ajmer Singh, Amrik Singh wanted to dispose of the property of the company at profit and apprehending that the transactions might result in a huge incident of capital gain tax, decided to adopt a contrivance of sale of shares of the company to a person named, Zora Singh, who wanted to purchase the property. The decision to sell the property was hence dropped and transfer of shares was to take place in the following manner. Initially on 29.10.2005, a decision was taken at meeting of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the Company on 29.10.2005 even without transfer of shares in his favour. IV. The genesis of dispute:- 8. The Memorandum of Undertaking was executed under the terms of which the entire shareholding in the hands of Ajmer Singh and Amrik Singh were to be transferred to Zora Singh for a consideration of ₹ 15 crores. All other issues have been denied. Even the date of execution of the MOU is denied by Zora Singh by pointing out that although a recital of the document on the first page is made as though it was 09.11.2005, the document had been signed on the last page by Zora Singh only on 10.11.2005. This, according to the appellant will have a bearing on the last date before when the amount was to be paid. 9. Ajmer Singh admits the payment of the entire sale consideration before the date stipulated under the MOU and this fact was denied by the respondent by stating that the payments alleged to have been made on various dates either to Ajmer Singh or Malkiat Singh purported to be on his behalf are not any payments in the eye of law, since he had not given any such authority for receipt on his behalf. It is also contended on behalf of the respondent that all the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y:- 13. The fallacy in such a line of argument on the side of the respondent is that the MOU does not contemplate sale of the property of company. It is a fundamental percept that can suffer no dent is that the share-holders are distinct from the Company and the share-holders are not the owners of the property of the Company. Company and shareholders are distinct entities (Chiranjit Lal Chowdhary Vs. Union of India AIR 1951 SC 41). A shareholder that buys shares buys no interest in the property of the company which is a juristic person entirely distinct from the shareholder. The true position of a shareholder is that on buying shares as an investor, he becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of dividents among the shareholders. He has undoubtedly a further right to participate in the property of the company which would be left over after winding up but not the assets as a whole (Bach F. Gugdar Vs. CIT AIR 1953 SC 74, (1955) 25 Comp Cas 1). The ownership in the property is only with the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares constitute an admission that Amrik Singh continues to be a 25% shareholder. While he may have appropriate remedy through a Civil Court, he is not entitled to contend that the continuation of the proceedings before the Company Law Board itself has become untenable by the pendency of a civil suit. Such an argument made by the learned Senior Counsel on behalf of the appellants is not tenable in the eye of law for, a person who is complained of as having caused oppression and mismanagement cannot oust the jurisdiction of the Company Law Board by subsequently instituting a civil suit. Before the Civil Court, the relevant issue could be whether the plaintiff had performed his part of the contract and the non-execution of transfer of shares by Amrik Singh was justified or not. So long as Amrik Singh continues to be a shareholder, all the trappings of the Companies Act relating to the rights of such shareholders by entitlement to statutory notices and his own entitlement to participate in the proceedings of the Board cannot be ousted. VIII. Proof of service of statutory notices by certificate of posting-weak evidentiary value:- 16. Several meetings of Board under which new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day on which the advertisement appears, on every member of the company who has no registered address in India and has not supplied to the company an address within India for the giving of notices to him. (4) A document may be served by the company on the joint-holders of a share by serving it on the joint-holder named first in the register in respect of the share. (5) A document may be served by the company on the persons entitled to a share in consequence of the death or insolvency of a member by sending it through the post in a prepaid letter addressed to them by name or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied, by serving the document in any manner in which it might have been served if the death of insolvency had not occurred. 17. It will be wrong to read from this provision that there is any presumption regarding the service on an addressee even otherwise there is an express denial of receipt of the notices. However, a presumption is made under Section 27 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible but rare occurrence in 1981 is now seen as common. Section 53 of the Companies Act, which provides that if a document is sent by post in the manner specified, service thereof shall be deemed to be effected. These are rules of evidence which attempt to assist the judicial mind in the matter of weighing the probative or persuasive force of certain facts proved in relation to other facts presumed or inferred. Sometimes a discretion is left with the Court either to raise presumption or not as in Section 114 of the Evidence Act. On other occasions, no such discretion is given to the Court so that when a certain set of facts is proved, the Court is bound to raise the prescribed presumption. But that is all. The presumption may be rebutted. Raising of a presumption, therefore, does not by itself amount to proof. The result of a mandatory requirement for raising a presumption cast on the Court, as there is Section 53(2) of the Companies Act, is that the burden of proof is placed on the person against whom the presumption against whom the presumption operates for disproving it. It is only if such person is unable to discharge the burden, that the Court will act on the presumed fact. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notices to NRI Directors to whom the notices had not been served, where it went out to hold it to be an instance of oppression and mismanagement. In a decision of the Madras High Court in Micromeritics Engineers (Pvt.) Ltd. Vs. S. Munuswamy (2002) CTC 661 wherein it is held that a decision of CLB inferring oppression and mismanagement of the act of the majority in a closely held family company in removing the directors that had minority shareholding without adequate notice was not merely invalid but would be an instance of oppression and mismangement. Holding board meetings without proper notice of removal of erstwhile old Directors and several other acts like change in clauses of Articles of Association giving room to a chain of events having serious consequences would operate as oppression and mismanagement. In the decision of the Hon'ble Supreme Court in Claude-Lila Parulekar (Smt) Vs. Sakal Papers (P) Ltd. and others (2005) 11 SCC 73, the Hon'ble Supreme Court cautioned that the majority cannot ride roughshod over the minority without adequate notices under Section 173 of the Companies Act. 20. When the receipt of all the notices were denied by the respondent, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase before the Civil Court. 22. From the discussions made above and the findings rendered for the points raised in appeal by capturing them under relevant sub- headings, the following is summary of the conclusions:- (a) The MOU dated 09.11.2005 did not involve or contemplate transfer of asset of the company. It was an instrument to transfer the shares of the company to the parties to the document and a chosen medium for total control over the affairs of the company to one of the parties to the document. It did not operate to transfer the assets of the company to either of the parties. The fidings rendered by the Company Law Board, and found expressed in para 51 of the impugned order are set aside. (b) The actual payment of consideration under MOU and the entitlement to obtain transfer of all the shares of the company to Zora Singh including the shares of Amrik Singh and Malkiat Singh to give a valid discharge on behalf of Amrik Singh (the respondent No.1 herein) shall be matters which shall fall adjudication only in the civil suit pending between the parties and nothing mentioned in this judgment nor the Company Law Board will operate to be final against the respective int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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