TMI Blog2004 (10) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... second respondent vacated the office as director on 04.02.2002; 5) to direct convening of the general meeting of the Company to elect a new set of directors to manage and administer the affairs of the Company; and 6) to set aside the acts performed by respondents 2 to 4 in their capacity as directors of the Company. 2. Shri R. Vidhya Shankar, learned Counsel appearing for the petitioners while initiating his arguments submitted that the Company was promoted in November, 1990 with main object of carrying on Non Banking Financial Companies (NBFC) activities by the first petitioner and the second respondent along with S. Kasthuri Swamy and C. Dhandapani, being subscribers to the Memorandum and Articles of Association and the first directors of the Company. The authorised share capital of the Company is 3,00,000 equity shares of Rs. l0/- each and the validly issued, subscribed and paid up share capital is only 2,50,000 equity shares of ₹ 10/- each. The shares of the Company have been allotted and transferred from time to time ensuring parity among the three groups viz., the first petitioner group, the second petitioner group and the second respondent group. Consequently, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urportedly held on 08.07.2002, in terms of Form No. 32 filed before the Registrar of Companies on 17.07.2002. The allotment of 50,000 shares is claimed to have been made on 08.04.2000, on which date even according to the respondents the petitioners were on the Board of the Company. Therefore, the second respondent, a lone director could not have convened any Board meeting allotting the impugned shares. Moreover, the second respondent, being an interested director in the matter of allotment of shares could not legally allot shares in his favour. According to learned Counsel, the Board meeting was a concocted one and no notice of the Board meeting was either sent by the second respondent. The allotment is neither supported by any consideration. Though cash consideration is disclosed in Form No. 2 for the allotment of shares, the same is not reflected in the Company's bank account. The Company is a closely held Company, managed on partnership principles with transparency and utmost good faith maintained in respect of all acts and transactions. There was absolutely no justification on the part of the second respondent to allot the entire unissued share capital to his own group, beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian Dairy and Allied Services Pvt Ltd - 1996 Vol. 86 CC 657 - to show that where there is a provision in the articles of association of a company for pre-emption by members in the matter of transfer of shares, a transfer in violation of such provisions constitutes oppression. Praful M. Patel v. Wonderweld Electrodes (P) Ltd - 2002 6 Comp LJ 423 - to show that the issue of further shares exclusively to the respondent group, converting majority into minority or creation of a new majority is always held to be an act of oppression. Such an allotment having continues effect can be challenged in a petition under Section 397. Dale and Carrington Investments Pvt Ltd v. P.K. Prathapan - 2004 Vol. 112 CC 161 - to show that the directors shall exercise their powers bonafide and in the interest of the Company and further that any issue of shares solely to gain control over the company is not to be allowed. Akbarali A. Kalvert v. Konkan Chemicals Pvt. Ltd - 1997 Vol. 88 CC 245 - to show that any additional shares issued without offering them to the other shareholders in violation of the articles of association and without any notice for attending meetings and transferring shares in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup and the respondent group has been disturbed. The Company stopped doing any finance business, but was bound to repay several lakhs of fixed deposits made with the Company. The second respondent took efforts to repay the depositors and the petitioners had no objection in transfer of the liabilities towards the depositors to the account of the second respondent in lieu thereof, as borne out by a certificate of the Company's auditor as well as the letters of discharge of the various depositors. Subsequently, shares were allotted to the respondents 2 3 in lieu of the amounts available to the account of the second respondent. The annual return dated 07.07.2000 signed by the first petitioner discloses the issued and paid up share capital of the Company as 3,00,000 equity shares which include the allotment of 50,000 equity shares in favour of the second respondent group. The allotment of shares by a company to any person in lieu of a genuine debt due towards him is in perfect compliance with the provisions of Section 75(1) and in consonance with the guidelines issued by the Department of Company Affairs. Similarly, if consideration for the allotment of shares is actual cash, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edly intimated of his vacation of the office is fabricated document. Shri Ramakrishnan, learned Counsel pointed out that the registered office of the Company was at Gandhipuram, while the second respondent was allegedly removed. However, none of the notices for the Board meetings said to have been issued by the petitioners bears address of the registered office at Gandhipuram, but they contain address of the new registered office which took effect at a later point of time. In this connection, learned Counsel referred to the letter heads of the Company both old and new to show that the notices are fabricated. Moreover, both the petitioners and the second respondent had jointly signed an acknowledgement of liability in favour of the Company's banker on 07.02.2002 representing the Company in which case the second respondent could not have ceased to be director on 04.02.2002. Shri Ramakrishnan, learned Counsel while concluding his submissions expressed the willingness of the second respondent group for verification of the accounts of the Company by an independent Chartered Accountant, to find out details of the amounts incurred in connection with carrying on day to day affairs of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion clauses contained in the article of association and the illegal removal of the petitioners from the office of directors. It is on record that the first petitioner and the second respondent along with S. Kasthuri Swamy and C. Dhandapani are the promoter-directors subscribing to the Memorandum of Association of the Company. The shares held by C. Dhandapani, upon his demise came to be transferred by his wife in favour of the first petitioner group and the second respondent group. The shares held by Kasthuri Swamy were transferred to the second petitioner and his associates. As at 28.03.1997 the entire equity share capital of the Company was held among the first petitioner group, (70,000 shares) second petitioner group (70,000 shares) and the second respondent group (70,000 shares) till the allotment of 40,000 shares made on 12.03.1998 in favour of respondents 5 to 8, who subsequently transferred their shares in favour of ninth respondent, who is daughter of the second respondent. It is therefore clear that the Company is closely held within a close knit group of different families. Against this back ground, the allotment of 50,000 shares made in favour of the respondents 2 3 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f notice of further shares. While the impugned allotment of shares was made in lieu of the amounts available to the account of the second respondent the quantum of which is under dispute, Form No. 2 filed with the Registrar of Companies is not in consonance with the stand taken by the second respondent. Form No. 2 filed after a delay of 19 months remains unexplained. It is not denied that the petitioners had also repaid the matured deposits in favour of certain depositors on behalf of the Company, towards which no shares were allotted in favour of the petitioners. Furthermore, there is no documentary evidence establishing the allotment of shares at any meeting of the Board of directors of the Company. By allotment of the impugned shares in favour of the respondents 2 3, the shareholding of the petitioner group has been reduced to a minority. In a number of cases, this Board has categorically held that, if further issue of shares results in conversion of majority into minority, or creation of new majority, then such issue of shares is an act of oppression. I am, therefore, of the view that the allotment of shares impugned in the company, petition made for personal gains and with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sale notices in no way could establish service of the notices upon the Board of directors, in due compliance with article 17 by the respondents 5 to 8. The minutes of the Board meeting dated 24.07.2002 approving the transfer of shares indicate that the Board did not initiate any action on the sale notices dated 09.04.2002 to find a member willing to purchase the shares. The Company is duty bound to speak on its non-action in terms of the relevant articles pursuant to the sale notices, especially when the transferee viz. the ninth respondent is daughter of the third respondent and niece of the fourth respondent, who being directors of the Company approved the transfer of impugned shares. At this juncture, it is worthwhile to observe that the disputes already surfaced between the parties, which ultimately resulted in filing of a civil suit by the petitioners against the second respondent. There is no material to substantiate that the petitioners or any other shareholders have been afforded any opportunity to exercise their right of pre-emption to purchase the shares sold by the respondents 5 to 8, which is clearly in violation of the articles, constituting an act of oppressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificates of posting as held by this Board in a number of decisions. There is nothing on record to show that the notice of extraordinary general meeting dated 28.06.2002 was served upon the petitioners, in the absence of which it cannot be said that the requirements of Section 284 have been duly met. Any omission to serve a special notice on the directors sought to be removed constitutes denial of their statutory right of reply and the absence of such notice to the directors, any resolution for their removal would be vitiated by such omission. I do not see any other material substantiating the fulfilment of the requirements of Sections 284 and 190, before removing petitioners from the post of directors. Moreover, the first petitioner is one of the promoter -directors of the Company. The second petitioner having had acquired shares of Kasthuri Swamy, yet another promoter of the Company, has been director of the Company. Under these circumstances, the resolution passed at the extraordinary general meeting on 08.07.2002, even if it were perfectly legal, yet would be oppressive, warranting appropriate reliefs. The various discrepancies appearing in the share certificates issued in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998, which were transferred subsequently to the ninth respondent, being daughter of the second respondent in July, 2002. In these circumstances, it is not equitable to direct either the first petitioner group or the second petitioner group or the second respondent group to go out of the Company. Since these groups have been in the management of the Company at the relevant point of time they would be aware of the real worth of the Company. Therefore, I am of the view that the most equitable relief would be that the first petitioner group, the second petitioner group and the second respondent group shall quote their price per share and the group that quotes the higher price should purchase the shares of the other group at that price. In view of the foregoing conclusion and in exercise of the powers of the CLB under Section 402, the following order is passed : i) The allotment of 50,000 shares in favour of the respondents 2 3 as well as the transfer of 40,000 shares by the respondents 5 to 8 in favour of ninth respondent are declared as invalid. Consequently, the paid up capital of the Company shall be reduced to 25,00,000/- only. ii) The removal of the petitioners from the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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