TMI Blog1992 (8) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... and she was allotted 200 shares on June 15, 1977. Originally, respondent No. 2 and his sister were the directors in the company. The petitioner was inducted as additional director from June 15, 1977, and was reappointed as director at its every annual general meeting up to 1984. She resigned as a director on May 6, 1985, for business reasons. 3. It has been contended by the petitioner that she was involved in the affairs and business of the company and left her job in the Air India in May, 1983, to devote her full time to the family business. She was entrusted with the work of liaison with the company's principal customers and Government officials and respondent No. 2 was looking after the administrative, technical and other day-to-day affairs of the company. In addition to 200 shares allotted to her on June 15, 1977, further 600 shares were transferred by S.K. Seth, father of respondent No. 2, to her on July 4, 1988. The relations between the petitioner and her husband became strained since December, 1989, on account of respondent No. 2 having developed extra-marital relations with respondent No. 4 who is the first cousin of the petitioner. It is contended by the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affidavits in legal proceedings, etc., was filed by respondent No. 2. 6. In the hearing held on March 9, 1992, and April 9, 1992, Shri Mayank Jain, chartered accountant, attended the hearings on behalf of respondent-company. 7. With the consent of the parties it was decided to hear all the petitions together as the facts and circumstances alleged in all these petitions were similar and common replies have been filed by the respondents. 8. In the first hearing held on November 19, 1991, Shri Sawhney, advocate, appearing on behalf of the petitioner, explained the background of the case and in particular, pointed out the interim orders issued by the Delhi High Court in a suit (No. 1432 of 1991) in which the petitioner had sought a declaration and permanent injunction to prevent respondent No. 2 from further tampering with and falsifying the records. He referred to the office copies of the annual returns alleged to have been prepared by the company to show that prima facie the shareholding of the petitioner has been reduced from 800 shares to 200 shares, when the petitioner had not transferred any shares. He also referred to Article 13(b) of the articles of association of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s meeting held on September 24, 1990, and the register of members maintained by the company shows the correct shareholding position. Along with the reply, the relevant documents and extracts of the register of members have also been filed, including the transfer deed showing the transfer of 600 shares by Shri S.K. Seth to respondent No. 2. The affidavit of Shri S.K. Seth has also been filed in support of the transfer. In the rejoinder filed by the petitioner, it is stated that the respondents have made incorrect statements in the reply and have filed fabricated documents. In support of the transfer of impugned shares to her, she produced a photocopy of her bank pass book showing payment of ₹ 6,000 as consideration money to Shri S. K, Seth, along with a copy of the income-tax return for the year 1989-90. In the affidavit of Shri S.K. Seth, he has stated that on June 17, 1988, the meeting of the board of directors was held which was attended by him, respondent No. 2 and the petitioner. She has filed a copy of her passport to show that she was away abroad during June 2, 1988, to July 13, 1988, and she could not have attended the meeting as alleged. As desired by the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of seeking relief for rectification of register rather than reliefs under Sections 397 and 398 and, therefore, when a specific remedy has been provided under the statute, the petitioner cannot be permitted to invoke the other provisions. It was further argued that the petitioner had already filed a suit (Suit No. 1432 of 1991) before the Hon'ble High Court of Delhi seeking more or less identical reliefs and the court had refused to grant any relief for appointment of local Commissioner or seizure of books and, therefore, the petitioner cannot now ask for reliefs which have been earlier denied to her. It was also argued that the action of the petitioner in invoking the jurisdiction of the Company Law Board is motivated by extraneous considerations, as the present petition has nothing to do with the violation of the Companies Act but is merely a result of matrimonial discord between husband and wife. He also refuted the contention of the petitioner regarding wrongful transfer of 600 shares and fabrication of documents. In view of this, Shri Srinivasan argued that the petition should be dismissed on the ground of non-maintainability. 11. We had carefully considered all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to a board meeting which she is supposed to have attended when she was not present in India and, therefore, argued that no credence should be given to Shri S.K. Seth's affidavit. Considering the fact that Shri S.K. Seth, transferor of 600 shares, is the father of respondent No. 2 and his affidavit contains certain statements which the petitioner has proved as false and that Shri Chetan Seth being the managing director of the company is in control of the books of the company, we were inclined to place more reliance on the annual returns dated January 20, 1989, and November 30, 1990, filed by the company with the Registrar of Companies, which show that the petitioner is holder of 800 shares, Having carefully considered the various arguments advanced by the advocate of the respondents about the maintainability of the petition and also having perused the copy of the petition filed before the Delhi High Court in Suit No. 1432 of 1991 and the prayers made therein, we concluded that the present proceedings were not parallel proceedings and would in no way result in multiplicity of proceedings. We did not agree with the view of the respondent that the petition was only for rectifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e companies managed by respondent No. 2 including Chemon (India) Pvt. Ltd. It is further alleged that the petitioner had sought winding up of her proprietary firm, Raas Corporation, and withdrew from the administration of Chemon (India) Pvt. Ltd. It is also submitted by the respondents that the petitioner is not a majority shareholder, her shareholding being only 5.25 per cent. and she had resigned from the board of directors as she did not want to be associated in any manner with the business activities of the company. It is also submitted that since the petitioner was not on the board of directors of the company, there was no requirement for any notice to be issued to her in respect of any board meetings. In view of this it has been contended by the respondents that the petitioner has failed to establish a prima facie case to indicate that the actions of the respondents are highly oppressive or prejudicial to the interest of the petitioner and that he is mismanaging the affairs of the company in violation of the provisions of the Companies Act or the articles of association and that the company is liable to be wound up. 13. In order to entitle the petitioner to succeed in her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company to bring to an end the matters complained of and these reliefs can be obtained only in the proceedings under Section 397/398. Since the allegation regarding mismanagement, fabrication of documents and oppression are all centred around the issue of allotment of 2,101 shares made on September 24, 1990, the relevant articles from the articles of association are set out below : 5. The shares shall be at the disposal of the board of directors and they may allot, grant option over or otherwise deal with or dispose of them to such persons at such time and generally on such terms and conditions as they feel proper. 6. The directors may also allot and issue shares in the capital of the company as payment or part payment for any property sold or transferred goods or machinery supplied or for services rendered to the company or about the formation or promotion of the company or the conduct of its business and any shares which may be so allotted may be issued as fully or partly paid up shares, and if so issued, shall be deemed to be partly paid up shares, as the case may be. 10. The company in its general meeting may, from time to time, increase its capital by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The interpretation of counsel of the respondent that the board of directors have under Article 5full authority to allot or deal with equity shares which were part of the initial authorised capital and Article 13(b) will come into play only at the time of allotment of new shares out of the increase in the share capital does not seem logical, Capital raised by creation of new shares is considered part of the existing capital of the company by Article 12. There cannot be any distinction between allotment of shares within the authorised capital and allotment of shares after an increase in the authorised capital. The harmonious interpretation of both the articles clearly suggest the directors should first offer shares to the existing shareholders in proportion of their shareholding as per Article 13(b) and if none of the existing shareholders is ready to subscribe to the shares, then the board of directors are free to allot these shares to others as per Article 5 of the articles of association. In the facts of this case, we find that in the alleged illegal allotment, the board has allotted 2,100 shares to only one of the existing shareholders, respondent No. 2, and one share to. outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Chetan Seth, was allotted 2,100 shares out of additional 2,101 shares allotted, resulting in conversion of the majority shareholding of the petitioner to a minority, such allotment is clearly in violation of the articles of association and oppressive to the petitioner. We have, while coming to this conclusion also noted that no reasons have been given for increasing the share capital of the company except the statement made at the Bar by counsel for the respondent that the share capital was increased to consolidate the shareholding of Shri Chetan Seth. 17. In view of the above finding, we set aside the allotment of (2,101) shares made on September 24, 1990, and direct that an extraordinary general meeting be called and a new board of directors be elected. Meanwhile, in order to manage the affairs of the company as per the provisions of the Companies Act and the articles of association of the company, we reconstitute the board of directors with the following four directors effective from the date on which this order is served on the company and the parties to this petition, Shri Chetan Seth, Smt. Monica Velinkar, Mrs. Rashmi Seth or her representative and one more person who ..... X X X X Extracts X X X X X X X X Extracts X X X X
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