TMI Blog2006 (9) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the company. The 1st petitioner is a permanent director and 7th respondent is the Chairman. In the year 1998, 2000 unissued preference shares were reclassified into 2000 equity shares of ₹ 100/. Out of these reclassified 2000 equity shares, 1500 shares were allotted to Complex Credit. This company, according to the petitioners is under the control of 7th respondent. In view of this allotment, the shareholding of the petitioners of 51.53% has come down to about 43%. Accordingly, a declaration has been sought that the allotment of 1500 equity to M/S Complex Credit is illegal and void and therefore this allotment should be cancelled. The respondents have raised a preliminary objection on the ground that the petition is time barred having been filed only in 2002 seeking for cancellation of the shares allotted in 1998. 4. Shri Choudhary appearing for the petitioners submitted: The company was incorporated in 1984 and the relationship among the shareholders who are all closely related family members was cordial till 1998. However, certain disputes had arisen among them due to which it was agreed that there should be consolidation and restructure of share holding in the fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed. Since the company is a family company, if at all further shares had to be issued, it should have been issued proportionately. Issuing of shares to a non member, that too under the control of the 7th respondent, would clearly indicate that the motive for allotting the shares to the 10th respondent was with a view to grab the company by the respondents. The manipulation of records is evident that even form No. 23 and 5 which should have been filed by 28.10.1998 were filed only on 18.12.1998 after the alleged allotment to the 10th respondent on 20.11.1998 The respondents have contended that the 1st petitioner was a party to reclassification of the capital in 1985 and in 1995 and therefore when the capital was reclassified in 1998, the petitioners cannot have any objection. This argument is fallacious, as, for the earlier reclassifications, all the shareholders including the petitioners had given their consent but in 1998, no such consent was taken either in the board meeting or in the general meeting by conveniently omitting to issue notices for these meetings to the petitioners who were at that time holding majority shares in the company. In terms of Section 286 notices have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Trading should be cancelled. The learned Counsel relied on the following case laws: parameshwary Prasad Gupta v. UOI 44 CC 1: Even if notice for board meeting is not given even to a single director, then, the said meeting is invalid. Kuldip Singh Dhillon v. Paragoan Utility Financial Pvt. Ltd. 64 CC 19: Notice of board meetings should be sent to all directors failing which the decision taken in that meeting will be invalid. Ujjwal Sarin v. Om Prakash Baldev Krishan Builders and Contractors Pvt Ltd. CP No. 68 of 2002: IN a company in the form of a quasi partnership, shares should be allotted on a prorata basis failing which the allotments otherwise would be invalid. 8. The learned Counsel appearing for the respondents Shri Mehta submitted: There has been a mis-joinder of parties. The 3rd petitioner is not a shareholder as he had already transferred his shares to the 2nd petitioner on 12.2.1999 as is evident from the copy of the transfer instrument at page 96 of the rejoinder. The claim of the petitioners that they hold 51.53% shares in the company is not correct. The Simplex Group has a number of family businesses. Since disputes and differences had arisen among the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be dismissed on account of waiver, acquiescence etc. Further, the petition is also barred by limitation. In Hungerford Investment Trust Ltd. 1970 ILR 286,it has been held that Article 137 of Limitation Act is applicable to proceedings under Sections 397/398 of the Companies Act. In Sheth Mohan Lal Ganpat Rao v. Sayaji Jubillee Cotton and Jute Mills Ltd. 34 CC 777 Guj., it has been held that even if a resolution passed by a board is in contravention of the provisions of law but it may be very much in the interest of the company and shareholders. Therefore, the same cannot be challenged as an act of oppression but could be attacked as invalid in a suit. In SP Jain v. Kalinga Tubes Ltd. , it is held that it should be established that the conduct of the majority shareholders was oppressive and that there must be continuous acts on the part of the majority shareholders continuing up to the date of the petition showing that the affairs of the company are being conducted in a manner oppressive to some part of the members. In Sangram Sink P. Gaekwad v. Shanta Devi , it has been held that an isolated incident may not be enough for grant of relief and continuous course of oppressive conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of holdings and restructuring, but not with a view to arrive at a family settlement. The very fact that the alleged family settlement was not even whispered in the reply affidavit filed by the 2nd respondent on 31.5.2002 would indicate that it is only an after thought. There has been not even any contemporaneous correspondence in relation to the family settlement. Therefore the bogey of family settlement is nothing cut a concocted story. As far as the 10th respondent is concerned, it is not an independent. It is connected with the respondents and that is the reason why it did not seek for refund of ₹ 3 lacs given as loan to the company for nearly 14 years. The 10th respondent is actually a investment company of the respondents. The shares were allegedly allotted to the 10th respondent against adjustment of the loans given by it 14 years earlier and the amount adjusted was a mere ₹ 1.5 lacs which the company could have easily repaid or could have mobilized the same from the other shareholders. Therefore the claim of the 10th respondent that it is a bonafide allottee of shares cannot be accepted. 12. I have considered the pleadings, arguments and the written submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve also alleged that by reclassifying the share capital in 1995, the petitioner had allotted all the shares to his own group, thus, acquired majority as against each of the four groups holding 25% shares at that point of time. I find from the records that at no time the respondents had questioned the allotment of shares to the petitioner's group in 1995. Taking into consideration, the averment of the petitioner that the said reclassification and allotment was with the approval of all shareholders and in view of the fact that the respondents had never questioned the said allotment, the respondents cannot now impugn the said allotment to claim that the petitioners have unjustifiably increased their shareholding. Likewise, in so far as the gift of 806 shares by the second petitioner to the 9th respondent is concerned, the name of the 9th respondent has not been entered in the register of members in respect of these shares and they continue to be in the name of the 2n petitioner. It is not a case where the instruments of transfer were lodged with the company along with share scripts and that the company had refused to register the gift. As a matter of fact, the share scripts are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Likewise, in the absence of attendance register showing the presence of the petitioners in the AGM held on 30.9.1998 in which the reclassification of the share capital was approved, the respondents cannot claim that the petitioners were present in that meeting. If the petitioners had been present, without their consent, the resolution could not have been passed since the petitioners were holding majority snares in the company. Even assuming that reclassification of the share capital cannot be considered to be an act of oppression, yet, the subsequent allotment, with which also I find contradictions in the stand of the respondents, has resulted in the conversion of the petitioner from a majority into a minority. 16. In paragraph 47 of the reply of the company affirmed by the 2nd respondent, it is averred that even though the 1st petitioner was aware of the proposed allotment of 1500 shares, he did not apply for any shares for allotment in his name and only one application was received from Complex Trading Company Limited and therefore shares were allotted to it. There is nothing on record either by way of notice or in the minutes of the meeting that shares were offered to the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlement. If even after the allotment to the 10th respondent, the company were to remain with the respondents, then, naturally, the 10th respondent cannot be independent but should have connection with the respondents. That is why, perhaps, it never demanded refund of the loan for over 10 years. Therefore, from the facts and circumstances of the case the only conclusion that could be arrived at is that the allotment of 1500 shares to the 10th respondent was not bonafide and has been done with a view to convert the existing majority into a minority. It has been contended by the learned Counsel for the respondents that a single act cannot constitute an act of oppression within the meaning of Section 397 of the Act. In a number of cases, this Board has held that in so far as allotment of shares is concerned, even though it is single act, since, it has continuous effect, the same could be considered to be an act of oppressions within the meaning of Section 397 of the Act. 17. On an overall examination of the case, I find that the petitioner has established that the allotment of shares to the 10th respondent was only with a view to reduce the holding of the petitioners from over 51% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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