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Ace Oilfield Supply Inc. & Anr. Versus Oil Tools International Services Pvt. Ltd. & Ors.

2017 (11) TMI 781 - NATIONAL COMPANY LAW TRIBUNAL, MUMBAI

Oppression and mismanagement - Conducting the affairs of R1 Company prejudicial to the interest of the Petitioners - Whether or not increase of authorized share capital is prejudicial to the interest of the Petitioners? - Held that:- Since these Respondents held Board Meeting without calling one of the directors representing majority of the shareholding of the company and general meeting was held without any notice to the Petitioners for increase of authorized share capital, the increase happene .....

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ned u/s 172 would never become a notice u/s 172 of the Companies Act, 1956. - Whether or not bringing an outsider as a shareholder is in violation of the Articles of Association and constitution of Private Limited Company? - Held that:- A separate sub-section has been carved out as section 81(1A) saying that if such shares are proposed to be offered to any person/s, whether or not those persons are covered under sub-section 81(1), a special resolution has to be passed for allotting those sha .....

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. That being the scenario, for allotment of shares to R5, the company ought to have passed a special resolution for allotment of shares to R5, since it is the case of the respondents that shares were allotted to R5 in a Board Meeting held on 14.12.2013 allotting 18,16,158 shares to R5 at par, it can never be an allotment as stated under section 81(1)(A) of the Act 1956. The blunder that has committed by the company is, R5 being an outsider, first shares should not have been issued, if at all any .....

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- Whether or not allotment of shares to Respondent Nos. 2, 3 and Respondent No. 5 is prejudicial to the interest of the Petitioners? - Held that:- If really the case of the Respondents is, the Petitioners not responding to the offer, allotment should have been done on premium, without taking valuation into consideration, without giving an opportunity to the existing shareholder, if any allotment is made at par, it could only be understood that allotment is for the gain of the persons getting s .....

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s aforementioned the allotment made to R2 and R3 is bad in law and prejudicial to the interest of the Petitioners. - Whether or not removal of P2 as director of the company u/s 283(1)(g) of the Companies Act, 1956 is prejudicial to the interest of P1? - Held that:- Unless and until all these details are given, proof is placed, the Board of Directors are not supposed to invoke Section 283 to arbitrarily terminate the office of the Director under the cover of section 283(l)(g). By seeing this .....

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mplaint in the case of oppression and mismanagement, but in a case like this, where P2 has been appointed as representative of P1 to protect the interest of P1, especially in a company like this where only two shareholders are present, it cannot be brushed away saying it is a directorial compliant when a director representing majority shareholding is removed as director. - Whether or not appointment of R5 as director of the company is prejudicial to the interest of the Petitioners? - Held th .....

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is invalid, the alteration of Memorandum of Association and Articles of Association in said meeting automatically would become invalid, therefore, alteration of Memorandum of Association and Articles of Association is hereby declared as invalid and prejudicial to the interest of P1. - Whether this Bench has jurisdiction to pass orders under 1956 Act? - Held that:- Accordingly, this point is decided that these proceedings are bound by 397-398 of Companies Act, 1956 but not by Companies Act, .....

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r. Counsel, Phiroz Colabawala, Adv. Prathamesh Kamat, Adv. C.S. Anshul Bhatt, PCS, Rahul Chitnis and Ms. Vidya Nair, Advs. ORDER B.S.V. Prakash Kumar, Member (Judicial) It is Company Petition filed u/ss 397-398 of Companies Act, 1956 by the P1 & 2 against R1 Company namely Oil Tools International Services Pvt. Ltd. and other Respondents stating that other Respondents conducting the affairs of R1 Company prejudicial to the interest of the Petitioners, hence this Petition with following relief .....

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ed 12.12.2013 and 14.12.2013 as null and void and reinstate P2 as director on the Board of Directors of R1 Company. 4. To remove R2-R4 from the Board of Directors of R1 company. 5. To initiate proceeding against R2-R4 u/s 625 of the Companies Act, 1956. 6. To direct that any resolution passed by R1 company either in the Board meeting or the General meeting be subject to the approval of the Petitioners. 7. To restrain the Respondents from conducting the meetings of the directors of R1 Company in .....

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ders i.e. R2 and one Ms. LizyBabu holding 7,500 shares each and they continued for some time as first directors of R1 Company to carry out the business of manufacture, export, import and trade in the tools and the machineries used in oil and gas exploration. Subsequently, on resignation of Ms. LizyBabu on 18.7.2005, her shares were transferred to R3. 2. First Petitioner namely Ace Oilfield Supply Inc. is a company of United States of America, having its registered office at Texas having a renown .....

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upply Inc. (P1) Alberta Ltd. Hightly Corpn. Ajit Venugopal (R2) 232320 (34.99%) 232269 (34.98%) 99553 (14.99%) 99700(15.01%) 4. Over a period of time, the shareholding of Alberta Ltd., Hightly Corporation has transferred over to P-L consequently, the director appearing on behalf of other companies resigned from the company, in the result, finally by 2010-11, only two shareholders left in the company i.e. Ace Oilfield Supply Inc. and Ajit Venugopal (R2) group has 15.01% as against 84.98% held by .....

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hat P-l will procure high quality raw material from across the world and supply the same to R1 and R1 will in turn process raw material into final product which is used for exploration of oil and gas. After such manufacturing, R1 Company would export them to P1, then P1 would invest time and resources to trade the final products in the market by which R1 is entitled to the processing charges for the above manufacturing. While doing so, P1 has incurred huge expenditure to meet day to day expenses .....

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t to the Petitioners, the Petitioners would trade the same as final product in market. To meet the formalities in the customs, the Custom invoices are issued whenever product has been sent to P1 so as to comply with the export norms. This kind of arrangements could not be treated as liability against the Petitioner, because P1 is nothing but holding company of R1 Company. On the contrary, these respondents failed to honour their obligations in respect of the loan amount of USD 1,329,471 due and .....

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me is sent for shipment, for which the Petitioners sent an email for conducting a quality control. Since functioning of R1 was not running smoothly, the Petitioners carried out inspection of statutory records lying with RoC, wherein they shocked to learn that R2-3 on 20.12.2013 under the signature of R2, on 28.11.2013, passed ordinary as well as a special resolution for increase of authorized share capital. Not only that, these respondents have gone ahead and filed Form-5 notifying increase of s .....

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permissible under law as well as articles of association. Above this, these respondents filed Form 32 showing as if board resolution was passed on 23.01.2014 for intimating RoC about cessation of the office of director by P2 under section 283(1)(g) of Companies Act, 1956 retrospectively w.e.f. 14.12.2013. They have also filed another Form 32 regarding appointment of R5 as additional director of R1 company w.e.f. 06.02.2014. To justify all these oppressive acts, the Respondents have unilaterally .....

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and appointing an outsider as director of R1 Company behind the back of the Petitioners whereby, these petitioners have sought the reliefs as mentioned above. 6. To which R2-4 and R5 filed replies independently, all this story came out when R1 Company on 28.02.2015 issued legal notice to P-1 for the recovery USD 5,93,605 from P1, these Respondents submit that the petitioners, instead of clearing the liabilities, set up this case as counter blast to the legal notice issued on 28.02.2015. The resp .....

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to reduce the shareholding of P-l, this reduction is only a consequential outcome in pooling funds to R1 Company by allotment as well as credit facility from R5, therefore this bonafidely done allotment cannot be seen as an act oppressive to one of the shareholders of R1 Company. The respondents further submit that main modus operandi of the Petitioners is to become part of Indian companies as a shareholder and project themselves operating as foreign arm of the Indian company to deviate profits .....

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rther amending in 2011, where R1 has received an amount of USD 6,68,731 from P1 as External Commercial Borrowing (ECB) for business purpose of R1. Since P1 was substantial shareholder of R1 and being aware of the critical financial condition of R1, P1 has never demanded any interest on loan given by it. P-1 has in fact agreed that interest towards loan would be decided as and when R1 financial condition has become resolved and therefore P1 has never demanded any interest on any loan amount. 7. T .....

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itioners to provide details of invoices of products sold by P1, but the Petitioners always used to promise R1 that P1 would give details of the customers but never cooperated to fulfil the requirements or compliance of the several statutory departments ranging from Central Excise, customs, RBI, IT authorities, banks, and other statutory boards. These petitioners always kept on promising that new orders would come but no business happened as promised by the Petitioners. The Petitioners used to de .....

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of the company, as there was no go, R1 Company went for the rights issue and made allotment of shares to R5, for R5 agreed not only to invest into the capital of the company but also to provide loan to the company. Since losses were as on 31.03.2013 accumulated to ₹ 5.2 crores, R2-4 allotted shares to R5 by themselves getting their shareholding diluted from 15.2% to 4.39%, therefore, the Petitioners should not and ought not to have made this allegation that P1 shareholding alone was dilute .....

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eration of the Memorandum of Association to increase the authorized share capital and also passing special resolution for alteration of Articles of Association in a duly convened meeting. The respondents expecting P2 would attend the board meeting held on 30.8.2013 to approve the financials and discuss the bad condition of R1 but P2 remained absent, despite notified about holding meeting. Again on 27.11.2013 sent another letter to P2 for the proposed rights issue for which EOGM to be held on 28. .....

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R5 as director in the board of R1 Company. As to cessation of P2 as Director of the company, the respondents submit that P2 did not attend any meeting from April 2010 onwards till January 2014, it is a known proposition of law whenever a director remains absent for 3 consecutive meetings, such director would be ceased to continue as director as envisaged u/s 283(1G) of the Companies Act, 1956. For P2 remained consecutively absent for three board meetings, he deemed to have vacated office, the sa .....

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Respondents 2 & 3 participated and cast their votes in favour of the resolutions, such resolutions are valid. The Respondents further deny the allegations of not sending notice for the board meeting held on 12.12.2013, because R1 sent the calendar of board meetings and general meetings to be held in financial year 2013-14 to P2 through courier on 18.03.2013, thereby no occasion arose for again sending another notice to the board meeting held on 14.12.2013. 10. In view of the same, the Couns .....

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of the Articles of Association and constitution of Private Limited Company. 3. Whether or not notices have been served upon the Petitioners as prescribed under law and whether or not sending calendar of events far before holding such meetings amount to effective service against the petitioners as prescribed under law. 4. Whether or not allotment of shares to R-2, 3 and R-5 is prejudicial to the interest of the Petitioners. 5. Whether or not removal of P2 as director of the company under section .....

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e interest of the Petitioners. 11. Looking at the facts of the case, it appears that principally there are only two shareholders; one is P1 having 84.98% shareholding, two R2 has some shareholding independently and some shareholding jointly along with R3 aggregating to 15.02% shareholding, therefore, essentially there are two shareholders with an arrangement among them to carry on the functioning of this private limited company, that is P1 and R2. P1 is a majority shareholder, holding 84.98% sha .....

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e petition in the case of oppression and mismanagement. Therefore, majority is also permitted to seek remedy when affairs of the company are being dealt with causing oppression to the majority shareholders. It is not the case that the Petitioners left the management entirely in the hands of R2-4 - P2 was acting as director on behalf of P1, therefore, whenever any decision is taken in a company, majority decision will prevail over minority. Per contra, here in this case the R2-4 went ahead in dil .....

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etitioners submit no notice was sent to the Petitioners and no courier receipt was filed by the Respondents to prove that holding a board meeting was intimated to the Petitioners. Since the Respondents have not filed any proof showing a notice was sent intimating the Petitioners to hold a Board Meeting on 04.10.2013 to propose an EOGM to be held on 28.11.2013 for increase of authorized share capital, it can be safely inferred that Board Meeting was held on 4.10.2013 without any notice to the pet .....

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ld, either Board meeting or General meeting, duty is cast upon the persons holding meeting to send the respective notice with Agenda items as prescribed under Companies Act. Since no such notice has been received by the Petitioners, sending a calendar of events cannot be called as service of notice upon the Petitioners. Assuming an intimation has gone to the Petitioners through a calendar of events, by going through this calendar of events, it nowhere reflects that a Board meeting was scheduled .....

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without notice to P-2, therefore this act of not sending notice to P2 is not only invalid but also prejudicial to the interest of P1, majority shareholder. When the Petitioner and R2-4 working together for more than six seven years without any difficulty in communicating business happening in the company, that too in e-mail era, what had become such a big impediment for these respondents not to send notices to the Petitioners at least by e-mail, if not, by post? These respondents have not shown .....

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areholders hardly holding above 15% shareholding could not have held the meeting with an excuse that they already intimated calendar of events to the petitioners. It is on equitable and legal considerations abominable. When Section of law categorically mentioned how a notice of agenda has to be given and how much time before notice to be issued is made clear, and then meeting held on 04.10.2013 without notice to P1 will not get any validity. This mandate, especially when unfairness is writ large .....

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notice upon the petitioners on the ground since the petitioners have no registered office in India, they are under no obligation to serve notice upon the petitioners. In any event, holding a meeting without giving notice to the Petitioners is invalid, not sending a notice though e-mail address is available indicates that respondents consciously did not send notice to the petitioners with mala fide intention to suppress the fact of holding Board Meeting and EoGM from the notice of the Petitioner .....

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Petitioners side to this belated reminder is, this reminder reached to them on 02.12.2013 i.e. almost 3-4 days after meeting was held. Had there been any intention to these respondents to send notice to the petitioners on time, what prevented them to send this notice immediately after Board Meeting held on 04.10.2013? More than one month fifteen days left in between, they did not admittedly send any notice, perhaps, to ensure that it should not reach to the Petitioners in time, so that they cou .....

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that these respondents applied every trick of the trade to ensure that Petitioners do not to attend the meeting dated 28.11.2013. 15. Since these Respondents held Board Meeting without calling one of the directors representing majority of the shareholding of the company and general meeting was held without any notice to the Petitioners for increase of authorized share capital, the increase happened in the EOGM held on 28.11.2013 is hereby held as invalid. Moreover, though it has been categorical .....

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t bringing an outsider as a shareholder is in violation of the Articles of Association and constitution of Private Limited Company. 16. R1 is a private limited company incorporated long before R-2 came in contact with the Petitioners. It need not be said separately what is meant by a private company, four elements that make a private company different from public limited company, that is - restriction of right to transfer of shares, limiting the number of its members to 50, prohibiting any invit .....

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g to Article 5 of Articles of Association of R1 company, Board is authorized to increase the subscribed capital of the company by way of allotment of further shares, subject to the provisions of section 81(1A) of Companies Act, 1956, the Board shall issue such shares in the manner set out in section 81(1) of the Act. 18. If we read section 81, it is a section deals with rights issue for allotment of shares offering them to the holders of the equity of the company in proportion to the capital pai .....

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1(1A) saying that if such shares are proposed to be offered to any person/s, whether or not those persons are covered under sub-section 81(1), a special resolution has to be passed for allotting those shares to a person other than the persons covered under sub-section 81(1). Of course, under sub-section 81(3), it has been said that this proposition is not applicable to a private limited company. But, for it has been specifically incorporated in the Articles of Association of this company that it .....

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can never be an allotment as stated under section 81(1)(A) of the Act 1956. The blunder that has committed by the company is, R5 being an outsider, first shares should not have been issued, if at all any such issue has happened for Articles permitting such allotment of rights issue subject to section 81(1A), the company ought to have passed a special resolution for allotment of shares to R5. For no such special meeting was held and no such special resolution was passed, allotment of shares to R .....

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ed Form-2 reflecting allotment of shares to R2 and R3 on 26.12.2013, the Petitioners say, for which also no notice was given to the Petitioners. Since shares are being issued at par, without notice to the remaining existing shareholder, it would be not only invalid but also prejudicial to the interest of the Petitioners. Hence this allotment is also declared as bad for the reasons below: Common point that is answerable to the above two points is necessity of funds, it does not mean that if funds .....

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uthorized share capital itself is bad, the question of allotment of shares would not arise. It is to be noted that P2 was shown as removed u/s 283(l)(g) far after alteration of Memorandum of Association and Articles of Association, increase of authorized share capital and allotment of shares to R2 & R3. Therefore, even according to the Respondents, since P2 was holding director position, notwithstanding whether representing majority or not, holding a meeting without notice to one of the dire .....

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nts raised for allotment of shares is that the company needs fund to carry on the functioning of the company. But the ground of necessity of funds cannot become a ground to avoid issuing notice to the petitioners, by seeing the conduct of the Respondents; it appears that the intention of the respondents is primarily for diluting the shareholding of the P1. 20. In view of the reasons aforementioned the allotment made to R2 and R3 is bad in law and prejudicial to the interest of the Petitioners. P .....

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aying that P2 was not associated with the company w.e.f. 14.12.2013. By looking the notice, extract of resolution and Form 32, this Bench has noticed the following anomalies: a. R2-R4 themselves filed a letter dated 23.01.2014 stating that Board had proposed the rights issue of shares for the required amount of financial assistance to the company for want of working capital and day to day activities of the company operation and also since P2 had not been attending to a single meeting (Board and .....

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minutes of the previous meeting, two - to take a general view of the performance of the company, three - to consider and note vacation of office by Mr. Paul Douglass Waters, four - any other business with the permission of the Chairman. Since the respondents themselves filed these documents authenticity of the documents need not be doubted therefore, it has to be taken that according to the respondents meeting was to be held on 30.01.2014. b. In this notice, it has not been mentioned to what me .....

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. Which one is to be taken as correct, meeting on 30.01.2014 or meeting on 23.12.2013? It is not that Petitioners generated these documents; the author of both documents is R-2 only. Since R2 himself is not certain on which date meeting was held, this Bench has to consider that the Respondents failed to prove that a Board meeting was held to pass a resolution for invoking section 283(l)(g) to show deemed vacation of P2 as director of the company. e. We believe to find out the rigors of 283(l)(g) .....

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ings of the Board of Directors held or (2) from all meetings of the Board for a continuous period of three months (3) in either of the cases, the time period must be more than three months (4) it must be mentioned in those resolutions in which meetings he remained absent without obtaining leave of absence from Board. 23. In the notice sent by R2, it has not been mentioned to how many meetings this director was absent and what dates meetings were held, whether notice has been sent to the Petition .....

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n removing the Petitioner as director of R1 company henceforth we hereby hold that such removal is bad in law. Accordingly, this Bench hereby declares holding of such meeting is bogus because the date of meeting in the notice purportedly sent to P2 is different from the date shown in Form-32, therefore Form 32 filed showing P2 vacated office as invalid. 24. There is an argument saying that removal of director will not become a complaint in the case of oppression and mismanagement, but in a case .....

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ecause already allotment of shares to R5 itself is when said bad, the company being private company, for there being no valid notice to the petitioners, especially to P2, in appointing R5 as director, appointment of R5 as director of the company, his appointment as director is also declared bad. Point # 6: Whether alteration of Articles of Association by Respondents 2-4 is prejudicial to the interest of the Petitioner No. 1 or not? 25. For this Bench having already held that holding an extra ord .....

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le or the Companies Act, 2013 is applicable to adjudicate the cases instituted under sections 397-398 of Companies Act, 1956 before advent of Companies Act, 2013. 27. Normally, an action is bound by law in existence as on date because people are expected to be bound by the law in existence as on date, a new law subsequently come cannot be applied retrospectively unless it is explicitly stated as retrospectively applicable. This principle has been elaborated in the following paras to hold that 19 .....

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a state Act), sub-section 2 of the Act deals with savings given to the old Act in respect to the acts done and litigation pending from the acts emanated from the old Act with a rider of subject to the provisions of the new Act, so it can t be said that savings given in sub-section 2 are fully free from the new Act, but the silver lining is sub-section 3 of the section says that the matters mentioned in sub-section (2) of 465 of the new Act shall not be held to prejudice the general application o .....

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ect of repeal of the repealed enactments as if the Registration of Companies (Sikkim) Act, 1961 were also a Central Act. Here it shall not be confused by seeing induction of Registration of Companies (Sikkim) Act, this was added to say that this Act also be treated as Central Act, because General Clauses Act is applicable to Central Acts alone. It is slightly ticklish, at least to me, to understand that whether it is applicable to all repealed enactments or only to Registration of Companies (Sik .....

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t is settled proposition that every Statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. The retrospective operation cannot be taken to be intended unless that intention is manifested by expressed words or necessary implication. And there is a subordinate rule to the affect that a Statute or a section in it is not to be construed so as to have larger retrospective operation than its language renders necessary. 33. So the gene .....

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rocedural enactment intervenes with vested rights of the parties, there, retrospectivity cannot be given effect. 35. The classification of the Statute as either substantive or procedural does not necessarily determine whether it will have retrospective operation or not, it is the effect of the new Act on the past events, that is determinative to decide the application of retrospective operation. Normally when it adversely affects the person, then, old Act will remain in force, when it is for the .....

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f the court, but by the advent of Criminal Procedure (Amendment) Act, 2005, it was made non-compoundable. This predicament was resolved by the Supreme Court saying there can t be any retrospective operation over the offences occurred before 23-5-2006, therefore it is hereby held that it could be dealt with under old dispensation. 37. Accordingly, this point is decided that these proceedings are bound by 397-398 of Companies Act, 1956 but not by Companies Act, 2013. The Counsel for R1-R4 relies u .....

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nies Act any way since that distinction will not bring to turn the case in favour of the Respondents, we hereby hold that this ratio is not applicable to the Respondents. The Counsel for R1-R4 relied upon R. Khemka v. Deccan Enterprises (P.) Ltd. [1998] 16 SCL 1, to say that the burden of proof lies on the person who alleges non-receipt of statement. Therefore, since the Petitioners have stated notice has not been received by them, it is their duty to prove that notice has not been received by t .....

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spects in a position to wind up this Company, since such winding up would unfairly prejudice the petitioners, following orders are passed, the ratio being squarely applicable to say that this Bench has come to an opinion that ground is established it is just and equitable to wind up the company. The Counsel for R1-R4 relied upon Bharat Bhushan v. H.B. Portfolio Leasing Ltd. [1992] 74 Comp. Cas. 20 (Delhi) to say that failure to attend three consecutive Board Meetings, there is no need to give no .....

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there is no illegality in issuing further shares when company needs money for payments. We have already answered this point if meeting is held for fund requirement, it is not that Respondents are entitled to hold meeting without notifying it to the petitioners. Even for raising funds by allotment, first notice is to be given to every shareholder, thereafter it must be proved that the company has need to raise funds for the functioning of the company. None of this is followed by the Respondents; .....

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akin to the facts of the above case, and this petitioner did not keep quite after knowing these facts, P2 complained various authorities, therefore it can t be equated to a case three years delay happened, moreover gross injustice done to the petitioner having 85% shareholding in the company. 38. In view of the reasons aforesaid given, we hereby hold that the conduct of respondents in dealing with the affairs of R1 Company is oppressive against the Petitioners and prejudicial to the interest of .....

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