TMI Blog2013 (8) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... d certain other items. 2.2 It is the case of the petitioner that R1 was working as sales executive at Thermax Co. till 2003. Therefore, the entire partnership business was being controlled and managed by the petitioner only. With the passage of time, the business grew in size and turnover, therefore, the petitioner invited R1 to quit his employment and become a full time entrepreneur for the purpose of growth and extension of business. Thus, the partnership business was converted into a private limited company and the R3-company was incorporated on 19th April, 2003. The shareholding pattern since incorporation is as follows: Petitioner 25% R1 70% R2 5% 2.3 According to the petitioner, it-was envisaged at the time when partnership Was converted to private company, that both of them will jointly manage the company. Based on the above pleadings, the petitioner's case is that the R3-company is, thus, in the nature of quasi-partnership company. 2.4 It appears that the business went on smoothly until 2011. In the beginning of the year 2012, some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner that the said notice is non-est, irregular, illegal, ineffective and, thus, liable to be set aside. 2.10 The petitioner has further made allegations upon R1 and R2 pointing out their alleged misconduct and mala fides by saying that they filed a caveat in the court on 09/03/2012 which goes to show that they were predetermined and had planned to remove the petitioner from the post of director out of personal grudge. This is further an act of mismanagement of oppression and hence this act is liable to be set aside. 2.11 The petitioner has further pointed out that R1 and R2 also issued directions to the Bankers from allowing the petitioner to operate the bank account with effect from 09/03/2012. Therefore, imposing restrictions to know the financial transaction is another clear act of oppression and demonstrate the mala fide intention on the part of the respondents. 2.12 Alleging further acts of oppression the petitioner has stated that the petitioner received a letter dated 13th March, 2012 by which the R1 attempted to correct the gross irregularity by sending explanatory statement as required under section 173 of the Act along with the said letter. However, none of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner is an act of oppression. The petitioner has also challenged the transfer of 100 shares in favour of the R2 thereby reducing his shareholding from 25% to 24% as non-est, illegal, invalid and, thus, liable to be set aside. 2.15 It is further alleged that the petitioner did not received his provident fund at his request deposited with the R-3-company. However, the respondents release the amount only after the intervention of commissioner of provident fund. It is further stated that the respondents knowing fully well that the petitioners has huge deposits with the company, they filed recovery suits making baseless allegations to malign his image. Thus, the said act amount to oppression as defined in section 397 of the Act. 2.16 The petitioner has further pleaded the mismanagement committed by the respondents in the affairs of R3 company and pointed out the following instances claiming to be within the definition of mismanagement: (i) After filing of the petition, the respondents revengefully filed bogus civil suit for the recovery of service tax, petrol allowances, daily recovery amount, etc. (ii) Without issuing any demand letter, the respondents file a criminal case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board meeting and the subsequent EOGM as well as the validity of notices issued all in respect of the Board meeting and the EOGM. The respondents in their reply have pointed out various misconduct committed by the petitioner against the interest of the R3-company. They have further denied allegation made by the petitioners having siphoned off any fund of the R3-company and ultimately prayed to dismiss the petition being devoid of merits. 4. Petitioner filed rejoinder to the reply to which the respondents have filed their sur-rejoinder. 5. I have heard the learned counsel appearing for the parties and perused the record. 6. The first point which arises for my consideration is as to whether the R3-company is a glorified partnership having regard to the facts of the present case. It is the case of the petitioner that the company was being run in the form of quasi-partnership. According to the learned counsel, prior to incorporation of the R3-company, the petitioner and R2 had entered into a partnership business having 50 percent share each. After the tremendous growth of their business, they decided to form a company and as such the R3-company was incorporated in the year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, for the purpose of judging the dealings between the parties and the transaction which are impugned, may assume significance and in such an event the principles of quasi-partnerships in a given case may be invoked. Thus, it is evident whether the quasi-partnership principles can be applied or not could depend upon the fact of each case. Further, equality in the shareholding, conversion of pre-existing partnership into a company, an understanding between the parties for equal participation in the management are some of the circumstances which may led to the presumption that the company is in the guise of a partnership. Though, it is not necessary the existence of the aforesaid facts for such presumption but the existence of these facts could only strengthen the claim of quasi-partnership. I would like to cite few more decisions in support of my findings: (1) K.N. Bhargava v. Trackparts of India Ltd. (2000) 36 CLA 291 (CLB) - Quasi-partnership: One other aspect that we would like to record, as it would have bearing on the examination of the allegations and the reliefs to be granted, is that there are sufficient material to show that this company is a family company in the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered to be an act of oppression. In another case of Dipak G. Mehta v. Shree Anupar Chemicals (P.) Ltd. (1999) 33 CLA 393 (CLB) : (1999) 2 Comp LJ 539, we held, in facts of that case in which it was established that the company was in the guise of a partnership, removal of the petitioner as director was an act of oppression. In the same way in the case of Naresh Trehan v. Hymntic Agro Equipments (P.) Ltd. (1999) 34 CLA 333 (CLB) : (1999) 4 Comp LJ 369 where the company being a family company wherein implied agreement relating to participation of all the shareholders in the management was established. The CL15 held that ouster of one of them as director was an act of oppression warranting winding up of the company on just and equitable grounds. As a matter of fact there is nothing on record to show that the company invited any outsider to become a shareholder. The composition of Board of directors shows that one member from each group has been taken on the Board as director and, thus, ensuring joint petitioner and the respondents would prima facie establish that the company has been incorporated with mutual trust and confidence among shareholders with a view to run it in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership and, thus, the principles of partnerships will be applicable to the present case. 11. I, now proceed to examine the allegations of the petitioner made against the R1 and R2 and the alleged oppressive acts committed by them thereby affecting their rights as a minority shareholder. It is well settled' that the expression 'oppressive', means burdensome, harsh and wrongful. Further, it is trite that mala fide, improper motive and similar other allegations must be pleaded and proved with full particulars so as to obtain the reliefs sought for. Section 397(2) of the Act provides that an order could be made on an petition made under sub-section (1) if the court is of the opinion (1) that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members; and (2) that the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; and (3) that the winding up order would unfairly prejudice the petitioner. It must further be shown that the conduct of majority shareholder was oppressive to the minority as members and thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was paid to the petitioner in respect of the 100 shares. 14. I have considered the rival submissions. Admittedly, 100 shares were transferred by the petitioner in the year 2005. He has admitted having signed the transfer deeds in favour of the R2. The transfer has already been affected. It is seen from the record that there was no dispute till the end of 2011. He never complained that he did not receive the consideration in respect of the sale of 100 shares until the dispute between the two came to surface. Now, challenging the said transfer of shares as null and void for want of consideration after a period of 7 years does not appear justifiable. The version of the petitioner that he signed the transfer deeds on the persuasion of the R2 considering his cordial relation with him is nothing but an afterthought and does not inspire confidence. The said ground of oppression, therefore, cannot be accepted and is liable to be dismissed. 15. The petitioner has further levelled charges upon the R1 and R2 relating to the non-payment of provident fund deposited with the R3-company and the dividend accrued on his shareholding despite his repeated requests made by him to the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Private Limited Opulent House, Sr. No. 33/2/2/1+2, Opp. Shivneri Society, Baner, Pune 411 045, Tel:- 020 721 5050 Fax: 020 27215060 19. Thereafter, the Board meeting was held in which the petitioner was present. The discussion look place which is evident from the minutes of the Board meeting dated 8th March, 2012, I would like to reproduce the minutes of the meeting. Minutes of the meeting of Board of directors of Opulent Auto Care (P.) Ltd. held on 8th March, 2012 at 11.00 AM at the Registered Office of the company situated at Opulent House, Sr. No. 33/2/2/1+2, Opp. Shivneri Society, Dhankudevasti, Baner, Pune -411045 Present: 1. Mr. Sathyaprakash Subramanian, managing director 2. Ms. Bhageerathy Sathyaprakash, director 3. Mr. Mohammed Rafiq Bagwan, director Chairman of the meeting Mr. Sathyaprakash Subramanian, director took the chair. As the meeting commenced Mr. M.J. Bagwan handed over two notices as drafted by him and an addendum to Board notice for removal of Mrs. Bhageerathy S. from the post of director. The chairman informed that such addendum to notice cannot be taken at the last minute and that a separate meeting of the Board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat was the cause for him to approach the auditors of the company to make such statements Mr. M.J. Bagwan informed that the auditors had informed that there is no internal audit system in the company. The chairman informed Mr. M.J. Bagwan that the appointment of internal audit is the company's responsibility and not of the statutory auditor. Also the facts that the decision for internal audit should be done within the company under the supervisions of Mr. M.J. Bagwan was never implemented. Mr. M.J. Bagwan on being queried what his interest were not protected as stated by him to the auditors, informed that it was only the purchase of car for himself which was not done and that the same troubled him. The chairman informed that the discussion for the purchase of the car has started only since January 2012 and that the chairman had then itself asked him till when can he wait to buy a SUV for himself. The said point was accepted by Mr. M.J. Bagwan. The chairman further stated that this mistrust as shown by Mr. M.J. Bagwan has been happening for the last 4 years and the image of the company is being spoilt due to the same with the employees and outsiders. Mr. M.J. Bagwan denied the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post of director as held by him in the company. The chairman informed Mr. M.J. Bagwan that he can give his say in the said matter of his removal, in the EOGM of the members to be held. Mr. M.J. Bagwan stated he requires time of at least 30 days for replying to the notice. The chairman informed that he has enough time, i.e., 22 days and he can give his reply for the same The Board discussed the matter and passed the following resolution by majority. Resolved that the EOGM of the company be held on 30th March, 2012 at 11.00 AM at the registered office of the company situated at Opulent House, Sr. No. 33121211+2, Opp. Shivneri Society, Dhankudevasti, Baner Pune - 411045. 7. Progress of the company The chairman informed the Board the progress made by the company since the last Board meeting. The Board noted the same There being no other business the meeting ended.... 20. Thus, from the perusal of the above minutes, it is clear that discussions had taken place and the allegation taken by the petitioner that he was not heard proves false. Now challenging the notice of the Board meeting, inter alia, on the ground that the requisition of the shareholder calling upon the EOGM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e calling, convening and holding of the said EOGM wherein a resolution was passed to remove him as a director. 24. Having found that the Board meeting dated 8th March, 2012 and EOGM dated 30th March, 2012 were held according to law, I need to examine now, as to whether the termination of the petitioner as director of the R3-company amounts to an oppressive act. 25. It is a settled law that in a petition under section 397/398 of the Act it is not the legality or illegality of an action which has to be examined, but it is the probity and fairness towards the petitioner which requires to be considered. 26. The major grievance ventilated by the petitioner is that he was illegally and mala fidely removed by the respondents as director of the R3-company with intend to take entire control and management of the business of the company. He further added that he was ousted from the management of the company by the respondents in a designed manner on baseless grounds. According to him, admittedly he was holding 25 percent shareholding prior to 2005. But as a pre-plan to gain entire control over the management of the company in the year 2005, he was persuaded to transfer 100 shares in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and status and has made an attempt to humiliate him by claiming that his family was a vegetable vendor. The learned counsel appearing for the petitioner has invited my attention to filing a caveat in the civil court by the respondents and submitted that the respondents had already made their mind to terminate the petitioner as a director and that is why they filed a caveat in civil court in anticipation of filing a suit by the petitioner. The learned counsel has further invited my attention to a letter addressed by the respondent to the Bank by which he was deprived of the authority to operate the bank account and his e-mail ID was blocked. It was, therefore, contended that all the chain of events, if taken cumulatively prove that the conduct of the respondents was vindictive and they had decided to execute their plan by terminating the petitioner from the management and, there... a clear case of oppression is made out against the respondents. 28. In order to support his allegations, the learned counsel for the petitioner has then taken me to the record and submitted that the petitioner had raised certain objection on coming to know certain irregularities in the accounts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. The case of the respondents is contrary to what has been stated by the petitioner. According to him, the conduct of the petitioner was harsh, burdensome and wrong. According to them, he was misusing the office of the director. He was highly irregular in attending the office. He was not taking interest in the affairs of the company and he was misusing its funds. Further, he was creating situation which could have led serious indiscipline among the staff members and, therefore, on receiving a requisitions from a shareholder of the company under section 284 of the Act for his removal as a director, he was removed after making necessary compliances as required under the said provision. It is, therefore, contended on behalf of the respondents that the said act cannot be treated as oppression. 31. Further, the learned counsel appearing for the respondents made allegations against the petitioner for causing loss to the reputation and goodwill of the company by raising suspicion and fighting out with the auditor and other staff of the company. He was not attending the office regularly and was not rendering any kind of assistance in the management of the company. It is next contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has further pointed out that the petitioner has filed this petition in the capacity as a director and not in the capacity as a member. The petitioner has not given any events which states that the affairs of the company are being conducted in the manner oppressive to any member or members, and, therefore, the petition under section 397 is not maintainable. 33. Referring the decision in the case of Hanuman Prasad Bagree v. Bagree Cereals (P.) Ltd. (2001) 41 CLA 258 (SC) : (2001) 105 CompCas 493 it was argued that the termination of a director does not fall within the definition of oppression. It was further argued that the termination of directorship could not be entitled such person to ask for winding up on just and equitable ground inasmuch as there is an appropriate remedy available to the petitioner and, therefore, on this said ground also the petition is liable to be dismissed. 34. I have considered the arguments and perused the record. It is unfortunate that the parties who had worked together and nurtured the company for over a decade should not have fallen out on flimsy ground. It is noted from the perusal of the record that in the beginning of 2011 the petitioner soug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust his money to a company is entitled to relief. I, therefore, hold that the removal of the petitioner as a director is illegal, invalid and liable to be set aside being oppressive in nature. 36. It was also argued by the learned counsel for the respondents that a singular act cannot constitute an act of oppression in view of the settled proposition of law and, therefore, the petition is liable to be dismissed. I have considered the said issue. In my considered opinion, the removal of the person holding the position of director and depriving him from the salary and other benefits is not a singular act. It is persisting, continuous and as such in my opinion, the Board can take cognisance of such act of oppression and pass appropriate directions in exercise of its rights and powers conferred by virtue of provisions contained in section 402 of the Act. 37. Now, I propose to examine the allegations relating to alleged mismanagement committed by the R1 and R2. According to the petitioner, the R1 is running a parallel business in the name of Finora Technologies (P.) Ltd. and thereby he is diverting the funds through the said company and causing loss to the R3-company. The petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estly and in good faith; to account for any undue profits made in the course of the dealing of the company not to expropriate the company's property for their own benefit and last but not least to prevent any misuse of his powers and/or cause any fraud to the minority. 40. From the perusal of the records, it is established that the petitioner was denied access to the accounts of the R3-company. When he sought certain informations from the company auditor, he was not provided explanation in regard with the desired informations. Thereafter, the respondents initiated process to terminate him as a director. This creates a reasonable bona fide doubt in my mind that certain irregularities were existing in the accounts of the R3-company and that is the reason only the respondents failed to provide the desired information to the petitioner, to which he was entitled as a director and shareholder of the company. I, therefore, hold that a case under section 398 of the Act stands proved against the respondents. 41. Placing reliance upon the decisions of Hanuman Prasad Bagress (supra), Ebrahimi (supra) Srikanta Datta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Enterprises (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by respondent No. 3 thereby removing the petitioner as a director is hereby set aside. The petitioner is reinstated as a director with effect from the date of his removal. Form 32 filed by the company showing his removal as a director in the office of ROC is cancelled. Another Form 32 shall be filed by respondent No. 3 showing him as a director. The petitioner shall be entitled to get salary, perks and allowances and other consequential benefits with effect from the date of his removal until the amount is actually paid to him. (ii) The petitioner is directed to sell his 24 percent shareholding to R1 and R2 in terms of articles of association on a fair value to be assessed by an independent valuer. The parties may nominate some valuer by consensus within 15 days. If they fail to reach at any consensus for the appointment of any independent valuer, V.A. Bapat Co., chartered accountants, 208/209, Acharya Commercial Centre, Dr. GC Road, Chembur Mumbai-400 074, Phone No. 022 65145672, who is on the panel of the list of official liquidator, shall carry out the valuation within 30 days from the date of his appointment.-Such valuer shall value the shares of the respondent No. 3-com ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
