TMI Blog2008 (5) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... Fund and Financiers Pvt. Ltd. (R-1) was incorporated on 23.9.1965 having its registered office at 5, Sutlej Market, Jalandhar, 1440019 (Punjab). The authorized share capital of the company was ₹ 5,00,000/- divided into 5,000 equity shares of ₹ 100 each. It is a closely held private company with 15 members who are related/well known to each other. The company initially carried on the business of chit fund which was closed down on coming into force of the Prize Chit and Money Circulation Scheme (Banning) Act, 1978. For some time, the company carried on the business of hire-purchase of vehicles. The company has not been carrying on any business for the last several years. 3. Shri U.P. Mathur, counsel for the petitioners contended that the paid up of the company has been ₹ 2,00,000 divided into 2000 equity shares of ₹ 100 each at all relevant times. The company increased its paid up capital illegally by allotment of 3000 equity shares to respondents and their family members in 1996-1997 or thereafter which the petitioners (6 petitioners and 3 consenters) have challenged in the present proceedings. 4. It was pointed oat that P-1 who holds 250 shares is bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders are concerned, only Smt. Kailash Wati Gautam holds 200 equity shares, whereas the so called legal heirs of late Shri A.M. Gautam, who held 90 shares have no authority either to file or to give consent to the filing of the Petition. 6. Therefore, it was argued, even taking into consideration the consent of Smt. Kailash Wati Gautam, the minimum requirement of 1/10th of the total shareholding is not satisfied, the petition is not maintainable under Sections 397 and 398 of the Companies Act, 1956 for want of minimum requirement under Section 399(1)(a) of the Act. 7. It was further contended that Petitioners Nos. 2 to 6 claim to be legal heirs of the deceased shareholders of the Company, the Company is totally unaware regarding status of the Petitioners' claim it cannot possibly accede to their claim to succeed to the shares. In so far as P-2 is concerned, he claims to be the son of late S. Umrao Singh, who is stated to have died on 25.08.1984. As per the own saying of petitioner No. 2 he is stated to have applied to the Company after 15 years of the death of late S. Umrao Singh to transmit 250 equity shares held by S. Umrao Singh, by sending letters dated 09.10.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases for the Company to take action whether in writing or to maintain silence on the issue. It was argued that the petition is hopelessly barred by time. The counsel for the respondents further contended that consequent upon the death of Shri A.N. Gautam on 25.02.2004, his legal heirs have not made any application to the Company, seeking transmission of his shares and, therefore, in the absence of making any such request, the legal heirs cannot give consent to filing the petition. It was reiterated that the petition is not maintainable and in any case, is hopelessly barred by time. The petitioners have sought to maintain the Petition, by claiming that they hold 1,000 equity shares out of 5,000 equity shares in the Company, which works out to 20% of the issued and subscribed share capital of the Company. It was pointed out that the petitioners do not hold 1,000 equity shares, but only the first petitioner holds 250 equity shares, whereas the consenting party Smt. Kailash Wati Gautam holds 200 equity shares, which aggregates to 450 equity shares, bearing 9% of the issued and subscribed share capital of the Company. Rest of the petitioners or the consenting parties do not hold the equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such a registration itself is a grave act of oppression. 14. I have considered the pleadings and annexures therewith as well as the arguments of the counsels for the petitioners and the respondents. The respondents' preliminary objections regarding maintainability of the Petition in terms of Section 399 of the Act are not tenable. The percentage of 9% calculated by the respondents is based on the share capital of the company after the issue of further shares impugned in the petition. This Board has always taken the view that if shareholding of the petitioners is reduced below 10 percent on account of further issue of shares, and if the issue of further shares is also challenged in the petition, then, the petition will not be dismissed as not maintainable in terms of Section 399. 15. Instead, the allegation relating to the issue of further shares would be examined first as to whether the same is an oppressive act and if it is found to be so, then only other allegations in the petition would be examined. In the present petition P-1 holds 250 shares and one of the consenters namely Smt. Kalashwati Gautum holds 200 shares out of admitted paid up capital of 2,00,000 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotment to make it known as to on which date these additional shares were allotted by the company, this act of the respondents is held to be oppressive to the petitioners, the Respondents' shareholding has been increased from 350 shares out of paid up capital of 2000 shares that is 17.5% to 66.8% (being 3340 shares out of allegedly increased paid up capital of 5000 shares) and thereby reducing the shareholding of the petitioners from 50% (1000 out of 2000) to 20%. The burden of proving that the notices in this regard were given to the petitioners and the offer was also made to them was on the Respondents. This burden has not been discharged by the respondents. 18. Further, it is noticed that only R-2 has chosen to file reply to the C.P. and despite this fact having been pointed out in the rejoinder, other respondents have chosen not to file their reply. Despite the specific opportunity given to the Respondents to argue the matter on merit no further contentions have been made on merits except the R-2's reply contained in the counter affidavit contending that pursuant to the increase in the share capital in the EGM held on 14.2.96 the shares were allotted in the year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting in this regard. Furthermore, in view of the doctrine of 'proper purpose', it follows that in the matter of issue of shares, directors owe a fiduciary duty to shareholders of the company to issue shares for a proper purpose. The fiduciary capacity within which directors have to act enjoins upon them a duty to act on behalf of the company with utmost care and skill and due diligence and in the interest of the company. They have a duty to make full and honest disclosure to shareholders regarding all important matters relating to the company. Shares issued for maintenance and acquisition of control over the company is an extraneous purpose, and, therefore, cannot be upheld. 21. In Needle Industries' case the Supreme Court referred to some old English decision with approval. Punt v. Symons was quoted (at SCC p. 394, para 105) in which it was held: Where shares had been issued by the directors, not for the general benefit of the company but for the purpose of controlling the holders of the greater number of shares by obtaining a majority of voting power, they ought to be restrained from holding the meeting at which the votes of the new shareholders were to have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to recover sundry advance, rent recoverable and interest recoverable for the years ending 1999 to 2003, the respondents have given no explanation for the non-recovery of these dues. No appropriate legal proceedings were initiated for recovery of the dues which proves the petitioners' allegations of the mismanagement on the part of the respondents. Further, as regards the petitioners' allegation that the respondents company's assets comprise of vacant land and five shops in prime location on the main road near bus stand at Jalandhar City which have been let out to the respondents' own stooges at a very low rent and are illegally used by M/s Golden Transport Co. Pvt. Ltd. for parking its buses to the detriment of the interest of the company and that of the petitioners' also stand uncontroverted. 26. As regards the petitioners' next allegation that R-3 has been illegally appointed as a director, it is noticed that R-3 was appointed as Additional Director on 26.5.2005, the day when S. Ajit Singh Jhikka father of R-2 died. At that time, after his death, only R-2 was the director of the company and he alone cannot convene the board meeting to appoint R-3 as ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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