TMI Blog2017 (1) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... does not stand to judicial review. Therefore, Respondent no. 2 giving cheque power to another Director in the place of petitioner by itself cannot be canvased as one of the ground in support of the plea of mismanagement. Increase in the share capital - Held that:- when the 2nd Respondent took decision to increase the share capital of the company which is within the knowledge of the Petitioner, it cannot be said that increase in the paid up share capital or allotment of shares to his group is an act of mismanagement unless and until it is shown that such course of things are detrimental to the interests of company and causes prejudice to the exercise of rights by the minority shareholders. One of the reliefs sought by the petitioner in this petition is to direct any of the parties either to sell or purchase the shares of other parties, after reducing the paid up capital increase in the year 2010 and by taking the share of the Petitioner as 20% of the paid up capital by bidding. In view of the above said findings and as per the admission of Respondent in the reply the shareholding of the petitioner on the date of filing of the petition was determined as 10.96% of the paid up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f extra high voltage equipment used in various industries, considering the expertise, knowhow and experience of the petitioner. 5. However, in order to compete in the market, petitioner invited respondent No. 2, Respondent No. 4 who is friend of R-2, and R-6 who is the brother of R-2, to join the first Respondent company and they readily accepted the invitation having satisfied with the technical skills of the petitioner. Respondents 3,5 7 are none other than spouses of R-2, 4 6 respectively and all of them were inducted in the Respondent No. 1 company. 6. Petitioner considering the requirement of the funds in the company agreed to share his interest and right with R-2 and gave consent to reduce his share to 20% of paid up capital. As per the understanding between the petitioner and R-2, R-2 was required to bring 6.00 Crores into R-1 company but R-2, 4, and 6 invested only 1.50 Crores in 1st respondent company. 7. The equity share capital since inspection till change in share holding pattern is as follows: Sr. No. Particulars Equity Shares Nominal Value Total Paid up capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use has arisen to wound-up R-1 company but winding-up would result in prejudice to the valuable rights of the petitioner. 11. In the rejoinder it is stated that insertion of clause 51-A of the Articles of Association is against the provisions of the Act and is against the democratic pattern of the management. The insertion of the said clause in the Articles of Association is itself an act of operation and mismanagement. The Criminal Complaint was lodged by the 2nd respondent only to harass petitioner and prevent him from taking any action against the acts of oppression and mismanagement committed by the respondents. The present worth of company is in crores of rupees on account of escalation of fixed assets of the company, the management of which is in the hands of respondents who only infused small amounts. It is also stated that reply is not properly and duly verified and executed. 12. In the light of the aforesaid averments and allegation petitioner prayed for the following reliefs: (a) To restore the petitioner as director and restore the share pattern of R-l company so as to make the petitioner share holding 20% of the total paid-up capital by necessary reduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 2011 in the Board meeting held on 20.06.2011, which was presided over by him and signed the minutes. It is in that meeting it was mutually agreed upon that Articles of Association be altered and powers of management of the company were given to Managing Director of R1 company. Therefore, even prior to EOGM itself it was resolved in the Board meeting dated 20-06-2011 to alter the Articles of Association of the company whenever necessary for which the petitioner never raised objection, except in this application. The very facts that the petitioner signed in the balance sheet of the financial year and Annual Accounts for the year 2010-2011 on 5.09.2011 in the capacity of whole time director rules out possibility of petitioner not having knowledge of EOGM. Even after the EOGM petitioner once again started acting adversely to the interest of the company by sending emails to several competitors and started soliciting work which is against the interest of the company. Petitioner also took up consultancy job in a competitor company by name Transformers and Rectifiers Ltd., Ahmedabad, which facts has also not been disclosed by the petitioner to the Respondent company, which made the R- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14. The following are the points that emerge for determination: (1) Whether the removal of Petitioner form the Directorship of 1st Respondent company on 13-06-2013 has been validly done or not? (2) Whether the removal of 1st petitioner as Director amounts to act of oppression or mismanagement or not? (3) Whether the alteration of Articles of Association was validly done or not? (4) Whether the alteration of Articles of Association giving the powers of management to R2 amounts to act of oppression or mismanagement (5) Whether EOGM held on 1-07-2011 was held behind the back of petitioner and if so it amounts to act of oppression or mismanagement. (6) Whether the increase in share Capital and allotment of 82,500 shares to M/s. Transpower Technologies private limited took place behind the back of petitioner or not? (7) Whether the allotment of 82,500 shares to M/s. Transpower Technologies private limited owned by R2 and R4 jointly on 20-12-2010 amount to act of oppression or mismanagement? (8) Whether Respondent No. 2 got R4 and R6 resigned as Directors of R1 company on 9-2-2012 and 28-06-2010 respectively (9) Whether Petitioner was denied access to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed. (3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting. (4) Where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so, - (a) in any notice of the resolution given to members of the company, state the fact of the representations having been made; and (b) send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company); and if a copy of the representations is not sent as aforesaid becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a that the alleged theft of intellectual property was levelled against him only with a view to remove his as a director. Petitioner stated that he joined in other companies which are not at all competitive to the petitioner company and no prejudice or loss has been caused to the company in its business or in conducting the affairs of the company. In this context it is the plea of the respondent that in view of the misdeeds of the petitioner, and in view of petitioner offered to share the technology of the R-1 company by writing emails to the competitive company, respondent have to resort to file a criminal case for theft of intellectual property rights, criminal breach of trust etc., and thereby necessitated the removal of the petitioner as director of the company. According to the respondents it is the petitioner that voluntarily called a meeting on 20.04.2013 vide Exhibit R-4 and it is the starting point that culminated in removal of the petitioner in EOGM held on 13.06.2013. A perusal of Annexure R-4, which is a notice issued by the Chairman of 1st respondent company 13.04.2013 whereby a meeting of the board of directors was convened on 20.04.2013 in the registered offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 and the petitioner want to take undue advantage of the topographical mistake and want to circumvent the procedure that has been correctly followed in the process of removal of petitioner as director. A perusal of the special notice and the covering letter and the fact that the both were received by the petitioner admittedly on 04.05.2013 goes to show that the date appearing on covering letter through which special notice copy was sent to the petitioner is nothing but a topographical mistake. It is contended by the learned Counsel for the petitioner when the EOGM was convened on 11.05.2013 there must be 7 days' clear notice and there is no such 7 days' clear notice in this case. To strengthen his argument, he contended that the date of notice and date of meeting and three more days for mode of service shall be excluded. In the case on hand admittedly the notice was received by the petitioner on 04.05.2013 for the meeting to be held on 11.05.2013 and therefore, even excluding 04.05.2013, i.e. the date of service of notice there are clear seven days. In the covering letter petitioner was asked to submit written representation by 10.05.2013. Accordingly, the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case Ravi Prakash Singh v. Venus Sugar Ltd. the judgment in this case made it clear that where articles of association confer power on the hoard of' directors to remove a director, such power is not affected by the provisions of section 284. On the other hand, there are many cases where Hon'ble court has decided that a Director can be removed for obvious reasons but on the other hand contrary to this at many circumstances an issue relating to removal of directors have emerged where director is removed only on the will of shareholders, Central government. Company law board. There was a case Vinod Kumar Mital v. Kaveri lime Industries Ltd. wherein it has been held to be a good ground for removing a director where it was found as a fact that the director had made misleading complaints to various government authorities which resulted in raids on the companies premises and the concerned authorities found nothing wrong and gave a clean chit to the company. But here we are concerned to find out the provisions when there is no evidence or reasons reason to remove directors but the shareholders or authorities wants to do so then what step or measure should they take to remove th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e management of the company to have their own man in the management of the company or with a view that the presence of the removed director is detrimental to the interest of the company. In the background of the facts narrated above, but for the acts of the petitioner there appears to be no reason or gain for the persons in management of the company to remove the petitioner from the directorship of the company. Even if the petitioner continues as one of the directors of the board still the respondent's groups have got majority of directors on their side. In view of the discussion on points 1 and 2 it is clear that petitioner was removed as director legally and by following the procedure laid down under the Act and Articles of Association. 18. POINT Nos. 3, 4 and 5: Admittedly Articles of Association was amended in the EOGM held on 1-07-2011. The following Articles are amended. They are Article 48 and 51, Article 51 -A was inserted. Article 48 of Article of Association: Powers to appoint Managing Director The board may from time to time appoint any one or more directors to be the managing director/whole time Director of the company on such remuneration and te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f independent directors. (c) Appointment of Directors, Senior Executives and day to day operations of the company (d) Composition of Board of Directors (e) Altering the provisions of the Memorandum and Articles of the company or the rights attaching to any shares of the company. (f) Issuing, allotting or redeeming any shares or securities, including any warrants, plant any options over the company's share approve the terms of a public issue by the company to any person (including shareholders) (g) Changing (including the reducing the share capital) the share capital structure and/or the control/management of the company. (h) Delete or distribute any dividend or other payment out of the distributable profit of the company. (i) The appointment of the company's auditors, any change in the company's accounting policies and opening of bank account(s) of the company. (j) Acquire (whether by formation, purchase, subscription or otherwise) any subsidiary or effecting the disposal or dilution of its interest, directly or indirectly in any subsidiary. (k) Any transaction by the company with any of its directors or officers other than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to management of company to 2nd respondent and is against democratic corporate governance. R1 company is private limited company and the shareholders have got a right to amend the Articles of Association. The majority shareholders are with 2nd respondent. Unless and Until it is shown that entrustment of all the powers to one individual i.e, R2 results in acts of oppression to petitioner or resulted in mismanagement it cannot be said that such entrustment of powers per-se amount to act of oppression. Sec. 31 of the Companies Act 1956 provides that a company may by passing a special resolution alter regulations contained in Articles of Association subject to provisions of Companies Act and the conditions contained in Memorandum of Association. 21. POINTS 6 and 7: INCREASE IN SHARE CAPITAL AND ALLOTMENT OF SHARES Chapter VI of the Companies Act deals with prevention of oppression and mismanagement. Section 397 deals with relief in cases of oppression and Section 398 deals with relief in cases of mismanagement. Sections 397 398 read as under: 397. Application to Tribunal for relief in cases of oppression (1) Any member of a company who complain that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make such order as it thinks fit. In a number of judgments, Hon'ble Supreme Court considered in extenso the scope of Sections 397 and 398. The following are the judgments that could be usefully referred to: (a) Needle Industries (India) Ltd. and Others vs. Needle Industries newey (India) Holding Ltd. and Others, (1981) 3 SCC 333. (b) Sangramsinh P. Gaekwad Ors. Vs. Shantadevi P. Gaekwad (Dead) Throught L.Rs. Ors. (2005) 11 SCC 314 22. From the above decisions, it is clear that oppression would be made out: (a) Where the conduct is harsh, burdensome and wrong. (b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-a-vis the others. (c) The action is against probity and good conduct. (d) The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply it is stated that petitioner also signed on the share certificates under which shares were transferred on 25-03-2008 vide Annexure R-5. Annexure R-14 of reply show that petitioner attended and chaired the Board Meeting dated 25-03-2008. Resolution No. 4 of the above said Board meeting clearly approved transfer of 63,000 equity shares of each ₹ 10/- and the petitioner was authorised to sign and endorse on respective share certificates. It is also mentioned that petitioner is not willing to purchase any shares. A perusal of share certificates dated 25-03-2008 which are part of Annexure R-5 show that petitioner also signed on those share certificates. Moreover, the transfer of shares that took place in the year 2008 when the petitioner was one of the Director is questioned in the year 2013 under the guise of oppression and mismanagement that too after petitioner was removed as director. Therefore, there is nothing in the allotment of 17000 shares on 25-03-2008 that could indicate that petitioner faced oppression or there is mismanagement of the affairs of the company that are not in the interests of the company. The removal of petitioner as Director of the company does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise of rights by the minority shareholders. 26. POINT NO. 8: - Resignation of R4 and R 6 as Directors etc., - It is stated that Respondent No. 4 was appointed as Director on 25-03-2008 and resigned on 9-02-2012. R6 was appointed on 25-03-2008 and resigned on 28-06-2010. R3 wife of R2 was appointed as Director on 15-07-2011 and she is still on board. One Girishchandra N. Shah was appointed on 1-07-2011 and resigned on 9-02-2012. It is also alleged that the above said appointments and removals were made without conducting any meetings as required and without notice to petitioner. In reply to it is stated that R6 resigned in the year 2010 and his resignation was accepted in the board meeting attended by petitioner vide Annexure 9. The resignation of other directors referred to above was duly accepted in the Board meeting attended by petitioner. Perusal of Annexure 9 show that R6 resigned and it was duly accepted in the board meeting attended by Petitioner. Even assuming that the resignations of R4 and Girishchandra N Shah were not accepted duly following the procedure, since it is the case of Petitioner that all respondents are the relatives and friends of R2 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case; (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned; (f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (g) any other matter for which in the opinion of the Tribunal it is just and equitable that provision should be made. In Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 2 SCR 720 Hon'ble Supreme Court compared the provisions of Section 397 with Section 210 of the English Act to hold: - The law always provided for winding up, in case it was just and equitable to wind up a company. However, it was being felt for some time that though it migh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 397 and/or 398 thereof, an order of winding up may be passed, but as noticed hereinbefore, the Company Law Board in a winding up application may refuse to do so, if any other remedy is available. The Company Law Board may not shut its doors only on sheer technicality even if it is found as of fact that unless the jurisdiction under Section 402 of the Act is exercised, there will be a complete mismanagement in regard to the affairs of the company. In Sangramsinh P. Gaekwad v. Shantadevi Gaekwad through Lrs. Or's., reported in (2005) 11 SCC 314 it is observed that the powers of the court to grant appropriate relief under section 397 of the Companies Act is wide amplitude and while exercising its discretion, the court was not bound by the terms contained in section 402 of the Act if any particular facts situation a further relief or reliefs was warranted. 31. In the light of the above said legal position and in order to do substantial justice to the parties and for the smooth conduct of the business, affairs and management of the company, this Tribunal under Sec. 402 of old Act can pass order even in the absence finding on oppression. Petitioner being one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to purchase the shareholding of the petitioner within fifteen days from the date of receipt of willingness given by the petitioner to sell his shareholding, petitioner is at liberty to file an application before this Tribunal not before the date of expiry of appeal time to enforce this order by appointing valuer to determine value of the share of 1st Respondent Company, and the date that has to be taken into consideration by the valuer to determine the valuer of share of 1st Respondent Company and the mode and manner of process of sale. (e) Even in case Respondents are willing to purchase the shareholding of petitioner, petitioner shall file an application before this Tribunal within fifteen days after Respondents willingness to purchase the shares was received by the petitioner, seeking appointment of valuer to determine the value of the share of 1st respondent Company and the date that has to be taken into consideration by the valuer to determine the value of share of 1st Respondent Company and the mode and manner of process of sale . (f) The changes, if any, made in the share capital of the 1st Respondent company or any alienations affected in the assets of 1st Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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