TMI Blog2017 (10) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of the Company duly following principles of natural justice, the petitioner, in fact is not entitled to maintain the present petition. It is true that a petition under section 397/398 can be maintained by even a person holding less than 10% of shares etc., as prescribed under section 399 of Companies Act, 1956, provided that such petitioner is deprived of his shares/not offered such new shares first to him before allotting to others etc, provide such actions are questioned in Company petition. In the instant case, the petitioner was offered new shares to him, and he did not accept it and even now the same offer is kept open to him by the respondents as stated below After perusing all the records especially with regard to conducting of meetings of Board where, the petitioner was absent, we are convinced that the petitioner was terminated his Directorship in accordance with law. We are of the view that as per Law, Managing Director of a Company should be available in the Country to take care of day-to-day affairs etc. It is relevant to point out here that the petitioner claimed that he is also promoter and Managing Director of the Company. So if he is MD of the Company, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal, unlawful, null and void and consequently to (i) set aside the said allotment of shares; (ii) direct the Ministry of Corporate Affairs to delete the relevant Form No.2 and (iii) direct a rectification of the register of members to remove entries thereto. g. To declare the AGM 2011 purportedly held on 25th November 2011 as unauthorized, invalid and illegal and consequently set aside the proceedings thereof. h. To declare the EGM purportedly held on 7th December 2011 and 28th December 2011 as unauthorized, invalid and illegal and consequently set aside the proceedings thereof. i. To declare the impugned increase in authorized capital of the Company from ₹ 5,00,000/- to ₹ 50,00,000/- on 7th December 2011 as oppressive, unfair, fraudulent, invalid, illegal, unlawful, null and void and consequently (i) set aside the said allotment of shares; and (ii) direct the Ministry of Corporate Affairs to delete the relevant Form Nos.5 and 23 thereto. j. To declare that the impugned allotment of 2,69,834 fully paid up equity shares purportedly allotted to Respondent 5 on 21st December 2011 as oppressive, unfair, fraudulent, invalid, illegal, unlawful, null and void a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the funds allegedly pumped into the Company. 2. Brief facts of the case, which are relevant to present issue, are as follows: (a) Dictasol (India) Private Limited is a private limited Company incorporated under the Companies Act, 1956 on 08/09/2009 (Eighth September Two Thousand and Nine) with the Registration No.U74900AP2009PTC064965. Its Registered Office is situated at HIG-33, 5th Phase, KPHB Colony, Hyderabad - 500072. (b) The Capital Structure of the Company as at 31st March 2011 is as under: i. The Authorized Capital of the First Respondent is ₹ 5,00,000/- (Rupees Five Lakhs Only) divided into 50,000 (Fifty Thousand only) Equity Shares of ₹ 10/- (Rupees Ten Only) each. ii. The issued, subscribed and paid-up capital of the First Respondent is ₹ 1,00,000/- (Rupees One Lakh Only) divided into 10,000 (Ten Thousand only) Equity Shares of ₹ 10/- (Rupees Ten Only) each. Subsequently through illegal issue of shares the paid up capital of the Company was increased twice which are under challenge in this Company Petition. (c) However, the authorized capital of the Company has been illegally increased from ₹ 5,00,000/- to ₹ 50, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the impugned share allotment purportedly made on 27th October 2011 The same is under challenge in this Petition. (j) Respondent No.5 has been added as a shareholder of the Company by virtue of the impugned allotment of 2,69,834 equity shares on 21st December 2011 This share issue is under challenge. It is a foreign Company situated in Switzerland. (k) The Petitioner initially worked with M/s. GS Infocomm Data Private Limited., of Delhi as Office Manager of Hyderabad location during August 2008 to October 2009. During that period he got acquainted with Duncan Lewis Co., of UK operations. The Petitioner is the founder, chief promoter and majority shareholder (99%) of the First Respondent , which is handling the back office services like Finance Accounts, HR, Legal transcription, Call handling and Scanning Archiving works of the UK based company viz., Duncan Lewis, London, UK. (l) Thus, Duncan Lewis of UK offered to give their assignment of outsourcing of back office services and extended their support and co-operation for establishment of infrastructure facilities for setting up fully equipped, Modern and state of art facilities for the proposed outsourcing busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the said meeting the 40,000 equity shares of ₹ 10 each totalling ₹ 4,00,000/- were allotted to Respondents No.2 to 4. The particulars where of have been given below: Sl. No. Name of the Allottee No. of shares Value of the shares in Rs. Status in the Petition 1. Mr. Ramakrishna Reddy Raya 10,000 1,00,000 Respondent No.2 2. Mr. Jagdeshwara Rao Eturi 20,000 2,00,000 Respondent No.3 3. Ms. Sushma Arisetty 10,000 1,00,000 Respondent No.4 Total 40,000 4,00,000 (r) As a result of the above invalid and illegal allotment, the stake of the Petitioner was reduced from 99% to 20%. The allotment is highly oppressive, un-authorised, invalid, illegal, malicious, null, and void. It is liable to be set aside. When the AGM 2010 itself having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) The Petitioner, in exercise of his available rights, as per Article 31 of AOA, had issued to the Company a letter dated 11th November 2011 expressing his intention to appoint five more directors, who are experienced in different fields, on the Board of Directors of the Company with a view to increase the business of the Company and expand its operations. The appointment of those persons as directors would go a long way in increasing the business potential of the Company. (w) However, at the time, he wrote the letter dated 11th November 2011, the Petitioner was not aware that the Respondents No.2 and 3 had (i) oppressively and fraudulently removed the directorship of the Petitioner; (ii) oppressively and illegally allotted shares reducing the Petitioner's stake in the Company drastically. The Petitioner was not aware that the Respondents have had several other plans up their sleeve even at that time. (x) In response to the said letter of the Petitioner, the Respondents mention in their reply dated 18th November 2011 as though they tried in vain to contact the Petitioner for more than a year. Further it is through this reply the Respondents have let the cat out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooked up records and filed forms with Registrar of Companies. (bb) It is alleged that by virtue of illegal allotment of shares to others, the stake of the Petitioner has been reduced from 99% to almost 0.01% which is oppressive, prejudicial to the interests of the Petitioner, who is the founder member of the Company and without his presence and consent there could not have been any board meeting or general meeting at all. (cc) It is alleged that the Company has been used as a conduit for routing black money from abroad and requires a thorough investigation in the origin of funds. (dd) The actions of Respondents No.2 and 3 are accentuated by mala fides. Their self interest contradicts with their duties as Director. They have breached their fiduciary duties thoroughly. Both of them are unfit to be directors of the Company. On 25th March 2010 only the Petitioner had left for UK. On 1st June 2010, itself he came to India. Then he left for UK again on 13th June 2010 and he came back again to India on 15th November 2010. He left India for UK again on 14th December 2010. He came back to India on 20th July 2011. Respondents No.4 to 5 could not have dreamt of becoming shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, wild and against the records. (b) The Petitioner was initially working in a Delhi-based company viz., GS Infocomm Data Private Limited as Office Manager for a period of one year. The said company was handling outsourcing services of the UK-based company Duncan Lewis Co. During the course of the employment, the petitioner had to co-ordinate with the Duncan Lewis Co Solicitors on a daily basis. Due to a hike in rates charged by GS Infocomm Private Limited, Duncan Lewis Co Solicitors decided to terminate its contract with the Delhi-based company in India and consequentially petitioner was also thrown out of the company by the Indian company. Thereafter with the financial support of the Duncan Lewis Co Solicitors the first respondent company was established in Hyderabad. All the outsourcing work was delegated by the Duncan Lewis Co Solicitors to the first respondent company. (c) Initially for the first six months, the petitioner and the second respondent were managing the affairs of the Company and during March 2010, the third respondent was inducted into the Board. Petitioner migrated to the UK to take up employment with Duncan Lewis Co. The Duncan Lewis Co So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esides, and had taken up full-time employment with none other than Duncan Lewis Co. Solicitors, in the UK, which is the backbone of the first respondent company. The visa given to the petitioner is that of HSMP i.e., Highly Skilled Migrant Programme. The said visa is neither a short term visa given to students nor a tourist visa. This is a visa given as Work Permit for a period of 2 years and can be further extended by another 3 years. After staying in the UK for a total of 5 years (including extension of visa), one can apply for permanent residence visa). The Petitioner who claims to be the Managing Director of the first respondent company left India during March 2010 itself i.e., within a period of six months from the date of incorporation of the first respondent company after completely handing over the charge and affairs to the third respondent. Thereafter he took up full-time employment in the UK with the said Duncan Lewis Co Solicitors and also started living with his family members who had already migrated to the UK. In fact after the expiry of the first 2 years of visa the petitioner suo moto did apply for extension for another 3 years. This clearly shows the intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 27/11/2011 has allotted 10000, 20000 and 10000 shares to second, third and fourth respondents respectively. Form 2 with respect to the said allotment was also duly filed with Registrar of Companies, Hyderabad. The company, in the course of its business, had to raise additional capital, and it is the prerogative of the Board to decide as to in what form funds would be raised. The Board of the Company by deciding to raise funds by way of issue of additional shares has made the impugned allotments. In fact, an offer was also made to petitioner, in his capacity as a shareholder to invest in the company. Since the petitioner did not show any interest for the offer, shares were allotted to those shareholders, who wanted to invest in the Company. The petitioner, who was least bothered about the affairs of the first respondent Company after his taking employment in the UK, did not choose to bring in additional capital, and thus could not be allotted any shares. Therefore it is stated that the impugned allotment of 40,000 shares to second, third and fourth respondents is absolutely valid and legal. (k) It is stated that notice was duly sent to the registered address of the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g March 2010 to take up employment abroad and ceased to be a Director with effect from 20.01.2011 and therefore the respondents are not obliged to render any accounts to the petitioner as a Director. (n) It is stated that the petitioner was given due notice of the Board meeting held for shifting of registered office, the copy of the postal dispatch is also filed, the petitioner, after 36 months has attended in person a board meeting on 23.03.2016 that was held in the new registered office, and he has faced no problems in accessing the office. The shifting of Registered Office is due to the financial reasons due to the downsizing of the operations. (o) It is stated allotments of shares have been made as per FEMA process, and all the KYC has been obtained from the bankers and the Reserve Bank of India has taken on record. The allegations made are wild and mala fide. (p) Therefore, it is strongly denied the allegation that the affairs of the company are being conducted in a manner oppressive to the petitioner or prejudicial to the interest of the company and its shareholders. The second and third respondents have been managing the affairs in a prudent manner protecting the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been hoodwinking him for about two or three months until they actually issued a notice of a general meeting for which Petitioner had to object by his letter dated 11th November 2011. There was not even an ordinary correspondence to the Petitioner that he had lost his Directorship. Subsequent to the fraudulent removal of the Petitioner by backdating the same from 20th January 2011, Respondents have made the impugned issue of shares on 27th October 2011. (d) It is stated that handing over of records on 24th March 2010 prior to his leaving for UK it cannot be understood to mean anything more than doing a job in a proper administrative way. Petitioner has amply demonstrated that the action of the Respondent is accentuated by mala fides; they are completely unfair, oppressive and betrayal and breach of trust besides being unlawful and invalid and illegal. (e) It is stated that a private limited company, any transfer of shares in contravention of articles of association of the Company without following the procedure set out in the articles and in utter disregard of the rights of existing members is per se oppressive and is liable to be set aside on that single ground. So the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents to file Original Records pertaining to issue of Notices for the Board Meetings/AGM's/EGM's and proceedings taken during such meetings with respect to R1 Company. Accordingly, the Learned Counsel for R1 Company has filed an Index dated 30.01.2017, furnishing the details of the meetings, and the dispatch of notices etc. We have perused all the records produced on behalf of the Company and found that all the notices in question were duly sent to the petitioner by way of Speed Post/Courier/Email/Ordinary Post, in accordance with extant procedure. In fact, subsequent correspondence made by the petitioner indicates that he was aware of all the affairs of the Company taken place in India. 9. By perusal of pleadings of both the parties, the main issue arise for consideration by the Tribunal, are as follows:- (a) Whether the Petitioner prima facie made out a case so as to examine of various allegations/issues raised by the petitioner; (b) Whether the petitioner is eligible to file the present petition u/s 399 of Companies Act, 1956 since the petitioner admittedly became bare nominal shareholder holding less than 1% after subsequent allotments made by the Company; (c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at Registered Office of the R1 Company on 27.08.2010 at 11 AM. The minutes of the meeting were also enclosed to the notice, wherein while transacting the other business, the absence of the petitioner without leave was also recorded. Similarly, another notice dated 25.10.2010 was given to the Petitioner by communicating that the meeting of the Board of Directors would be held at Registered Office of the R1 Company on 10.11.2010 at 11 AM. The minutes of the meeting were also enclosed to the notice, wherein while transacting the other business, the absence of the petitioner without leave was also recorded. Another letter dated 02.12.2010 was issued to the Petitioner informing him about the failure to attend the three (3) consecutive meetings over the last nine (9) months, and also requested him to attend the next Board meeting to be held on 15.12.2010 at the Registered Office of the Company at 11 AM to discuss about his position in the Company, and also seek a Board resolution to terminate his position as a Director of the Company. Another letter dated 28.11.2011 was issued attaching notice of an Extra-Ordinary General Meeting of the Company to be held on 07.12.2011, wherein the Age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies Act. The Petitioner was not present and participated in the Board Meetings and left for UK by entrusting his duties to Eturi Jagdeswara Rao, Respondent No. 3 and he has again making allegations against them too in conducting the affairs of Company. 13. The main grievance of the Petitioner as discussed supra is that, even though he is a First Permanent Director and he was holding majority of shares, were illegally removed from the Directorship and was reduced to minority by virtue of the illegal enhancement of Authorized share capital from ₹ 5 lakhs to ₹ 50 lakhs and ₹ 50 lakhs to ₹ 100 lakhs. It is not in dispute that the petitioner is still a shareholder of the Company and a Director of the Company till 20th January, 2011 when he was ceased to be Director by operation of law as stated supra. The contention of the petitioner that since, he being a permanent Director as per Articles of Association of the Company and he cannot be removed is not tenable and the Articles of a Company cannot have overriding effect over the extant provision of Companies Act, 1956/2013. It is not the case of petitioner that he was physically available in the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained by even a person holding less than 10% of shares etc., as prescribed under section 399 of Companies Act, 1956, provided that such petitioner is deprived of his shares/not offered such new shares first to him before allotting to others etc, provide such actions are questioned in Company petition. In the instant case, the petitioner was offered new shares to him, and he did not accept it and even now the same offer is kept open to him by the respondents as stated below. It is relevant here to extract the offer made by the Respondent in their addendum to the written arguments in the following paragraph. 16. Respondent has filed an addendum to the written arguments dated 30th January, 2017, the following are submission in this addendum:- (1) R2 and R3 mobilized some working capital by subscribing to 40,000 equity shares in a duly constituted board meeting on 27th October, 2011. This was done as per Article 4 of the Articles of Association, which gives the power to the Board to issue shares. The Section 81 of the Companies Act, 1956, is not applicable to a private limited company. Hence, the Board is empowered to issue shares without getting shareholders' approval. (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company to Court on frivolous grounds. (9) The respondents are ready and willing to oblige to the following if the Hon'ble NCLT directs them to - (a) Allot as many shares to the petitioner to subscribe at nominal value of a share, or (b) Sell all the respondents' shares to the petitioner at a fair value, or (c) Buy all the Petitioner's shares at a fair value. 17. The abovestated of the respondent would prove that their bona fides to resolve the issue amicably. It is relevant to examine bona fide of the petitioner in coming to the Tribunal with this petition. The petitioner has made so many frivolous/baseless/un-tenable/allegations to maintain the present petition. Apart from that, the petitioner's educational qualification certificates are declared as false by Andhra University. The letters of Andhra University vide proceedings No. E- VII(2)/MBA/Genuine/2012 dated 24.04.2012 and another letter vide proceedings No. E-VII(2)/MCom/Genuine/2012 dated 26.04.2012. (Which are filed as material papers as Annexure A-4 along with Addendum to the Written Arguments dated 30th January, 2017). For ready reference, these letters and reply of the petitioner are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milies. The petitioner as stated supra, had employment in UK and still he had not shown any interest in running the affairs of the Company though he is invited for the same as stated supra. 19. As stated supra, the respondents have shown their bona fide by their willingness to allot as many shares to the petitioner to subscribe at nominal value of a share, or Sell all the respondents' shares to the petitioner at a fair value, or Buy all the petitioner's shares at a fair value. Any way, it is for petitioner and the respondents to settle their issue mutually and we are not expressing anything on this offer. 20. After perusing all the records especially with regard to conducting of meetings of Board where, the petitioner was absent, we are convinced that the petitioner was terminated his Directorship in accordance with law. We are of the view that as per Law, Managing Director of a Company should be available in the Country to take care of day-to-day affairs etc. It is relevant to point out here that the petitioner claimed that he is also promoter and Managing Director of the Company. So if he is MD of the Company, he is not expected to live in the other Country unlike a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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