TMI Blog2017 (12) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... ifies the manner in which the shares of a company are, to be offered and it is only when the party to whom it has been offered declines or is deemed to have declined, that the shares are to be distributed among the other shareholders of the company. The appellant further argued that the increased of paid up capital of the 1st Respondent is in violation of Section 62 of the Companies Act, 2013 which brought the combined shareholding of 2nd and 3rd Respondent at more than 50% of the total shareholding of the 1st Respondent & reduced the shareholding of the appellant to 14.29% on 26th November, 2016 prejudicial to the interest of the appellant with the sole view to oppress her. We have seen the facts of the case and to our mind the approach of NCLT, Hyderabad to pick and choose the issues is not appropriate on not giving any findings on the oppression committed against the appellant, if any. The Tribunal has, not given any findings on the issues relating to share capital and oppression committed against the appellant and have dealt with the matter relating to removal of the appellant from the directorship. We, therefore, remand back the matter to the Tribunal to deal with the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the NCLT at Hyderabad. (b) That this Hon ble Tribunal be pleased to call for records from the NCLT, Hyderabad and decide the case on its merits. (c) That this Hon ble Tribunal be pleased to declare the impugned transfer of shares from Respondent No.5 shown in the Annual Return filed for the year 2006 as null and void. (d) That this Hon ble Tribunal be pleased to declare the impugned Allotment of shares made on 30.09.2015 and 26.11.2016 as null and void. (e) That this Hon ble Tribunal be pleased to declare the impugned Board Meeting held on 30.09.2015, 31.10.2016, 26.11.2016 and 15.7.2017 as null and void. (f) That this Hon ble be pleased to declare the impugned EOGM held on 26.11.2016 as null and void. (g) That this Hon ble tribunal be pleased to declare the impugned appointment of Mr. Mallesham Mekala (Respondent No. 2) as Additional Director as null and void. (h) That this Hon ble Tribunal be pleased to declare Annual Return filed for the period 31.3.2016 as null and void. (i) That this Hon ble Tribunal may be pleased to set aside the Board Meeting held on 15.7.2017 as null and void. 3. Similar reliefs were sought by the appellant in the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant approached Tribunal. The Tribunal passed an interim order. It is not in dispute that 1st Respondent has a right to remove a Director unless he has been appointed as Life Time Director. It is also not in dispute that any shareholder has a right to give notice to 1st Respondent for removal of any director, by citing sufficient reasons for the same. In pursuant to such notice, the Board of directors, is supposed to consider the reasons, if any, is satisfied; then the concerned Director can be given notice giving opportunity to respond. In the instance case, as stated above, the notice for removal and notice given to the petitioner is on the same date, which shows how mechanically the respondents are acting on their whims and fancies. We have perused the notice dated 15.03.2017 and it did not contain reasons for the proposal for removal of the petitioner as Director. There is no reason assigned in the notice, then petitioner cannot be expected to give reply. In view of the above facts and circumstances, we are of the considered opinion that the proposed EGM, going to be held on 10.04.2017 is permitted to be continued and the decision taken against the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wledge of the allotments of shares that were made on 30.09.2015. The appellant also attended the Board Meeting dated 31.10.2016. The appellant herself attended EGM dated 25.11.2016 and participated in the resolutions. It is further submitted that 10 shares held in the name of 5th Respondent were transferred to 3rd Respondent with clear consent and understanding and where 5th Respondent had never challenged the transfer. 10. We have heard the parties and perused the record; before projecting our opinion on impugned order it is necessary to discuss Section 62 of the Companies Act, 2013. 62. Further issue of share capital (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered- (a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital. on those shares by sending a letter of offer subject to the following conditions, namely:- (i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n various cases has caste heavier duty on the Directors to act bona fide in the interest of the company. Hon ble Supreme Court in Dale Carrington Invt. (P.) Ltd. v. P.K. Prathapan [2004] 54 SCL 601 at page 224 has held that: 11. Validity of allotment of equity shares xxxx (d) We may also test the alleged act of allotment of equity shares in favour of Ramanujam from a legal angle. Could it be said to be a bona fide act in the interest of the company on the part of Directors of the company? At this stage it may be appropriate to consider the legal position of Directors of companies registered under the Companies Act. A company is a juristic person and it acts through its Directors who are collectively referred to as the Board of Directors. An individual Director has no power to act on behalf of a company of which he is a Director unless by some resolution of the Board of Directors of the company specific power is given to him/her. Whatever decisions are taken regarding running the affairs of the company, they are taken by the Board of Directors. The Directors of companies have been variously described as agents, trustees or representatives, but one thing is certain t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Directors have absolute freedom in the matter of management of affairs of the company. In the present case Article 4(iii) of the Articles of Association prohibits any invitation to the public for subscription of shares or debentures of the company. The intention from this appears to be that the share capital of the company remains within a close-knit group. Therefore, if the Directors fail to act in the manner prescribed above they can in the sense indicated by us earlier be held liable for breach of trust for misapplying funds of the company and for misappropriating its assets. xxxx 26. On the question of issue of fresh share capital, it was held to be illegal to issue shared to only one shareholder. This was held to be a violation of common-law right of every shareholder. Common law recognised a pre-emptive right of a shareholder to participate in further issue of shares. However, in India in view of Section 81 of the Companies Act, such a right cannot be found for sure. However, the test to be applied in such cases, which requires the court to examine as to whether the shares were issued bona fide and for the benefit of the company, would import such consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s due consideration of the Tribunal. 14. It is worth noticing from the impugned order itself that the Appellant approached the Tribunal and put its grievances under sections 59, 241, 242, 244 of the Companies Act with prayers of transfer of shares, allotment of shares and meetings deciding allotment to be declared null and void. Tribunal except deciding on the issue of removal of the appellant/petitioner, has not dealt with any other grievances/prayer of the Appellant and disposed of the petition without dealing with the merits. Allotment of equity shares disproportionate to the holding of the existing shareholders is act of oppression of R-2 and R-3 was one of the main issues put for consideration before the Tribunal. The shareholding of the appellant reduced to almost 14% from 49.99. 15. Yet the Tribunal without going into the merits of the case had disposed of the Company Petition. Section 62 clearly specifies the manner in which the shares of a company are, to be offered and it is only when the party to whom it has been offered declines or is deemed to have declined, that the shares are to be distributed among the other shareholders of the company. The appellant further a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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