TMI Blog2011 (10) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany agreed to invest a sum of ₹ 131,20,00,000 in the company in various instalments. In return, the company agreed to issue and allot 1,25,160 equity shares of class A having face value of ₹ 10 each per share aggregating to a total economic interest of 55 per cent, and voting rights of 44.99 per cent, of the total paid-up share capital of the company. In July, 2007 Mr. M. Fysh, the nominee director of the petitioner in respondent No. 1 company was appointed the Chief Executive Officer (CEO) of the said company. The CEO suggested and began to arrange for external finance for affordable housing development from financial co-investment partners, the World Bank and other related institutions and also began to arrange for credit financing from Japanese and Korean institutions. Respondent No. 3 in contravention of the said SSA and SHA, started to interfere in the day to day affairs and decision making of the company including preventing the company from raising any external finance for its development. Respondent No. 3 forced the company to appoint a local chief operational officer and head of technical. Mr. Fysh, the CEO of the company made several attempts to explain res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and respondent No. 8 which is evidently a breach of clause 4.2(b) of SHA and clause 28(b) of the memorandum and articles of association of the company. The petitioner vide its email dated September 18, 2008 sent on September 22 2008 requested respondents Nos. 2, 4 to 7 to provide the full corporate information of the company and respondent No. 8 and also all proposed board meetings to be held or any meetings held after the board meeting of March 20, 2008. In spite of the said request, respondents Nos. 4 to 7 failed to provide any details. The petitioner is given to understand that the board meeting was called on September 26 2008 to approve the audited accounts of the company and respondent No. 8, but no proper notice or information was given to the petitioner's nominee director. It was deliberate attempt on the part of respondents Nos. 2, 4 to 7 to restrain the petitioner's nominee director from attending the said board meeting with relevant and material information and to ensure that respondents Nos. 2, 4 to 7 approve the accounts of the company and respondent No. 8. However, the petitioner came to know about the said meeting and Mr. Fysh attended the said meeting via t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued 476 class A shares (voting shares) and 19,99,524 class B (non-voting shares but are given preferential rights on liquidation) of respondent No. 8 aggregating to 32.24 per cent, of the total equity shares of respondent No. 8. At the said meeting the board approved and adopted new articles of association without any reference or authorisation of respondent No. 1 or the directors and shareholders of respondent No. 1. The petitioner was never informed about the said meeting nor was any approval or consent taken from the petitioner for adopting the new articles of association of respondent No. 8. By an e-mail of October 1, 2008, the petitioner was informed by the respondents that a purported board meeting of the company was held on September 6, 2008 and the annual general meeting of the company was held on September 29, 2008. The consent of the petitioner was sought by the respondents for holding the annual general meeting at a short notice, i.e., in a period less than the statutory notice provided by the provisions of the said Act. It is significant to note that the petitioner was kept completely in dark about the said annual general meeting and only a post-facto information w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt regard to the orders of this Bench and interests of respondents Nos. 1 and 8. Furthermore, the petitioner's repeated, fair and reasonable request for information on vital projects of respondents Nos. 1 and 8 fell on deaf ear and no information has been provided to the petitioner till date, for reasons best known to the respondents. 5. A meeting of the board of directors of respondent No. 8 was also held on March 9, 2009. Once again, respondent No. 8 in cohorts with the other respondents, sought to adopt the resolutions on items which were either sub-judice or those for which no information was provided to the director Max Fysh and which authorised persons, who were massively conflicted to take vital decisions on behalf of respondent No. 8. Furthermore, and once again showing complete disregard to the orders of this Bench which required respondent No. 8 to maintain a status quo of its fixed assets, it was also proposed that Mr. Pravin Banavalikar, director of the company, be and is hereby authorised to exercise the powers and functions for and on behalf of the company, to discuss, negotiate on behalf of the company, for the transfer of land or other properties on the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aster plans, development option documentation and financial forecasts relating either to the whole TMC development or part of the development proposed to participate in the advance disbursement facility scheme, which were earlier requested by the board of directors on March 9, 2009. 6. It is further submitted that respondents Nos. 8 and 3 filed Company Applications Nos. 50 and 51 of 2009 respectively, praying for, inter alia, that respondent No. 1 be permitted to create mortgage in respect of their fixed assets in favour of lenders/banks/financial institutions and that respondent No. 3 be permitted to appoint and/or nominate directors on their board from time to time. The prayers in these applications were also the subject-matter of the aforesaid circular resolutions dated March 25, 2009 and March 26, 2009. The respondents, therefore, ought to have waited for the disposal of the said applications rather than adopted the circular resolutions, knowing fully well that the matter was sub-judice. It is further submitted that the petitioner had on numerous occasions, both orally and in writing requested the respondents to furnish vital information on the working of respondents Nos. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of directors of respondent No. 8 despite the fact that respondent No. 3 had no right to nominate anyone as a director and the same had to be done by respondent No. 1 which held 100 per cent, of the shares in GRPL. During the meeting of the board of directors of respondent No. 8 on June 26, 2009 it was proposed that a steering committee be constituted for proper guidance of the day to day workings of the company . Many of the items under proposed rights and responsibilities to be given to the steering committee contained right of appraisal of and action on information that had been repeatedly and reasonably requested by the petitioner and Max Fysh and had been denied to them. The entire idea of constituting the purported steering committee was inspired by the fact that the respondents wish to keep the petitioner and Max Fysh out of the working of respondents Nos. 1 and 8 which clearly shows the gross mismanagement of respondents Nos. 1 and 8 with the mala fide intention of gaining personal benefits at the expense of the interest of the petitioner. 7. It is submitted that to Mr. Fysh's surprise, and for reasons best known to him, Mr. Naik respondent No. 6 herein said th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssented to the nomination of Mr. Bangera. The petitioner submits that an attempt was made even in the draft minutes of the meeting of the board of directors of respondent No. 1 dated June 25, 2009, to propose the names of persons who were neither directors nor officers of respondent No. 1, to sign on bank documents/papers on behalf of respondent No. 1. In that instance the names of Mr. Diwakar Gam and Mr. Nirav Shah were proposed as signatories to the company's bank accounts. During the meetings of the board of directors of respondents Nos. 1 and 8 held on December 7, 2009, the petitioner discovered that Mr. Pravin Banavalikar had resigned from the boards of both respondents Nos. 1 and 8 on October 20, 2009 and that in fact a letter dated November 12, 2009 has been received from Mr. Joe Silva, nominating one Mr. Prakash Bangera as his personal nominee director on the board of directors of respondent No. 1. The petitioner states that on December 12, 2009 Mr. Max Fysh received an e-mail, with notice for annual general meeting to be held on December 31, 2009 from Mr. Anto Jacob whereby receiving, considering and adoption of balance-sheet as on March 31, 2009 together with the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner in the company. 11. The aforesaid acts of deliberately not informing the petitioner or its nominee director of the board meetings and extraordinary general meeting is clearly oppressive as well as amounts to mismanagement and is also in contravention of the provisions of the articles of association of the company. It is further submitted that the execution of the investment agreement without the consent and approval of the petitioner is oppressive as well as illegal. It is submitted that as a result of the said investment in respondent No. 8, the economic interest of the petitioner in respondent No. 8 has significantly reduced. The said act was done by respondents Nos. 2 and 3 with an intention to alienate the petitioner and to take charge and control the affairs of the company and respondent No. 8. The aforesaid instances also clearly demonstrate that respondents Nos. 2, 5, 6 and 7 have violated their fiduciary duty for their personal gain. 12. Learned senior counsel in summarising his arguments submitted that the petitioner holds 42.24 per cent, and respondent No. 2 holds 12.77 per cent, and respondent No. 3 holds 44.99 per cent, shares in respondent No. 1 compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 1 company however the respondents violated the articles. It is submitted that the petitioner is challenging the resolution of the board meetings dated September 9, 2008, September 26, 2008. The petitioner addressed several letters to the company to provide information and details but the respondents have not allowed the petitioner to inspect the documents and records of the company. In this regard he placed reliance reported in in the matter of the Bombay High Court (Rajdhani Roller Flour Mills P. Ltd. v. Mangilal Bagri). It is of the view whether respondent entitled to photocopies of documents already inspected by them--such copies required for proving case of respondent regarding mismanagement of companies fund--claim of appellant that only directors has got right to take copies of such book is untenable--held, application for taking books of account maintainable since it will not be prejudicial to interest of the appellant-company. 14. Learned senior counsel in furtherance made some points and stated that the company is run by some other persons who are not connected to the company and the unauthorised persons operating the bank account viz. Mr. Prakash, who is not an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 6 have filed their counter/reply. Shri Chirag Mody, learned counsel appearing for the respondents submitted that the present petition is filed by the petitioner with an ulterior motive and mala fide intention and the real purpose of the present petition is (a) to exit from respondent No. 1 (MRPL) in whatever manner the petitioner can, including by pressurising the respondents by stalling the only on going project under the development by respondent No. 8 (GOPI) and (b) to preempt any actions that the respondents may take against the petitioners and/or their nominees for their nominee's failure to perform as the CEO of respondent No. 1 and for violations and breaches of the terms and conditions of the shareholders' agreement. The present petition is an abuse of the legal process and machinery of sections 397 and 398 of the Act, and hence ought to be dismissed with costs. The petition suffers from suggestio falsi and sup-pressioveri The petitioner having come to this Bench with unclean hands is not entitled to any relief whatsoever, much less the discretionary, equitable and/or extraordinary relief under sections 397 and 398 of the Act. Without prejudice to the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 on July 17, 2008 as the alternate director to respondent No. 4. In view of the above, the current status of shareholding in respondent No. 1 is as follows : Name of shareholders Number of shares % of shares Divakar Gatti (R4) 1 0.00 Max Fysh (petitioner) 1,17,000 42.06 Joe Silva (R2) 35,999 12.94 Aboyne Mauritius (R3) 1,25,160 45.00 Total 2,78,160 100.00 16. Under clause 41(a), (c) of the articles of respondent No. 1 and clause 4.1(a), (b) of the SHA, the board of directors of respondent No. 1 was to comprise of a maximum of four directors, out of which respondent No. 3 as the investor and the petitioner and respondent No. 2 as promoters, were entitled to nominate two directors each. The nominee directors of respondent No. 3 (investor) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and construction so that at least some progress can be achieved and shown to respondent No. 3 under the SSA and SHA. It was also represented to these respondents that the land belonging to respondent No. 8 was required to be developed on/or before March 31, 2008 failing which it would lose the tax benefits that it had obtained. Since respondent No. 1 did not have any funds whatsoever, respondent No. 3 (Aboyne) was requested to invest further funds immediately for the development of the said 112 acres of land. Accordingly, the board of directors of respondent No. 1 in its meeting held on December 12, 2007 (with Max Fysh as CEO) resolved, inter alia, to acquire respondent No. 8 by taking over of equity of respondent No. 8, however, development and construction activity was to be undertaken through respondent No. 8 in order to avoid payment of additional stamp duty. It would not be out of place to mention that Max Fysh (as CEO and/ or executive director) also failed and neglected in dealing, negotiating and/ or concluding the acquisition of respondent No. 8 from Wearology Ltd. It was only due to efforts of respondent No. 2 that an escrow agreement was executed between Wearlogy Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors of respondent No. 1 then requested respondent No. 2 to run the business of respondent No. 1 until alternative arrangements are finalised by the board of directors. The board of directors of respondent No. 1 by its meeting held on March 20, 2008 resolved inter alia to complete the acquisition of respondent No. 8 by respondent No. 1 and develop the lands of respondent No. 8. The meeting of the board of directors of respondent No. 1 held on March 20, 2008 was the last meeting attended by Max Fysh (as executive director) in person. Thereafter Max Fysh despite being the executive director and substantial shareholder (through petitioner) of respondent No. 1 apparently forsook respondent No. 1 and left India for abroad. As such Max Fysh kept himself aloof from responsibility of the day to day management of respondent No. 1 notwithstanding that he was the executive director of respondent No. 1 because he had decided to exit totally from the projects and run away from any responsibility whatsoever. 19. The apparent withdrawal of Max Fysh from respondent No. 1 is highlighted by the fact that Max Fysh did not direct the board of directors of respondent No. 1 to appoint an altern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors of respondent No. 1 and the annual general meeting of members of respondent No. 1 for inter alia approval of audited accounts of respondent No. 1. Max Fysh, however, chose not to attend personally but participated by teleconference in the meeting on September 26, 2008 of the board of directors of respondent No. 1 and in the annual general meeting on September 29, 2008 of respondent No. 1. The board of directors of respondent No. 1 by its meeting held on September 26, 2008 duly resolved, inter alia, to approve the audited accounts of respondent No. 1 and obtain consent of all members (including petitioner (through its beneficial owner, Max Fysh)) of respondent No. 1 for holding the annual general meeting of respondent No. 1 at short notice. Respondent No. 1 by e-mail dated September 26, 2008 forwarded to Max Fysh the minutes of meeting of the board of directors of respondent No. 1 held on September 26, 2008 for confirmation. It is pertinent that Max Fysh, after receipt of e-mail dated September 26, 2008, not only refrained from responding to respondent No. 1 thereupon, but also did not allege against and complain to respondent No. 1 except by later filing of the petition whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing amongst other preliminary points, (a) The petitioner wilfully has not impleaded Max Fysh as a necessary and proper party, though he is the beneficial owner of the petitioner. As such the petition gravely suffers from non-joinder of Max Fysh who indispensably is a necessary and proper party, (b) The fact that Max Fysh (beneficial owner of the petitioner), has duly acknowledged his incompetence and resigned as the CEO of respondent No. 1 and, shortly thereafter, being disgruntled, has shirked from respondent No. 1 and/or respondent No. 8 by exiting India for abroad even though it was incumbent upon him to be a director in India or substantial shareholder, through the petitioner, of respondent No. 1 and/or respondent No. 8 which are closely held private companies, (c) The fact that the petitioner or Max Fysh, until the filing of the petition, has not alleged or documented/recorded about any interference by respondent No. 3 in affairs or business of respondent No. 1 and/or respondent No. 8. (d) The fact that the petitioner or Max Fysh until the filing of the petition, has not alleged or documented/recorded about any oppression in the affairs of respondent No. 1 and/or respondent N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti Prasad Jain v. Kalinga Tubes Ltd.) paragraphs 18 and 19. (3) [2008] 142 Comp Cas 235: [2008] 3 SCC 363, in the matter of (V. S. Krishnan v. West Fort Hi-Tech Hospital Ltd.) paragraph 14. 22. Respondents Nos. 1, 2, 7 and 8 have filed affidavits stating that whatever has been stated in the affidavit in reply dated January 19, 2008 of respondents Nos. 3, 5 and 6 the same is being adopted. Shri Jagtiani, learned counsel for respondent No. 8 during the course of oral submissions submitted that respondent No. 8 is a subsidiary of respondent No. 1. Respondent No. 1 holds 67.75 per cent, in respondent No. 8 and the third respondent holds 32.25 per cent, in respondent No. 8. In the board meeting held on December 12, 2007 of respondent No. 1, it was decided to acquire respondent No. 8. The contention of the petitioner that respondent No. 1 shareholding in respondent No. 8 was reduced because of issue of respondent No. 8's shares to respondent No. 3 is concerned the petitioner is not a shareholder of respondent No. 8 and he is not concerned with the affairs of respondent No. 8. He contended that before issue of shares to respondent No. 3 in respondent No. 8 company, responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Learned counsel further submitted that the director resides outside India, need not be issued notice as per section 286(1) of the Act and relied upon the following citations in his support : (1) [2004] 120 Comp Cas 560 (Bom), in the matter of (Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co.) at page 602. (2) [2005] 123 Comp Cas 566: AIR 2005 SC 809, in the matter of (Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad) paragraph 191. On the point of access to the books of accounts, learned counsel relied upon the following decision : (1) [1970] 40 Comp Cas 119 (Cal), in the matter of (Mohta Brothers P. Ltd. v. Calcutta Landing and Shipping Co. Ltd.) at page 128. In view of the submissions and reliances placed, learned counsel prayed this Bench to dismiss the petition. 23. Heard, learned counsel for the parties and perused the pleadings, documents and citations relied upon by them. After analysing the pleadings the following issues are felt for consideration and the same need to be addressed, (1) Whether any contravention of the provisions relating to notices for the board and general meetings as enumerated in the SHA and articles of association ? ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the nominee director of the petitioner attended the board meeting held on March 20, 2008, June 19, 2008 and for which meeting the petitioner admitted the receipt of notice for this meeting in the petition itself and the board meeting dated September 9, 2008 the respondents stated that they have given notice and the petitioner's nominee director sought for leave of absence and the leave of absence was granted as he was travelling. The board meeting dated September 26, 2008 the respondents stated that the petitioner is aware of the meeting and e-mail was sent to the nominee director of the petitioner on September 23, 2008. The annual general meeting dated September 29, 2008, the respondents contended that the petitioner is aware through e-mail sent on September 26, 2008. It is further contended that all the board meetings and general meetings are held regularly and the nominee director is aware of all those meetings. The respondents also contended that the nominee director of the petitioner, i.e., Mr. Max Fysh does. not have mailing address in India and the notices will have to be sent to the directors residing in India to their address as per section 286(1) of the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting, however, he did not participate for the reasons best known to them. It is also pertinent to note that the company petition filed before this Bench on December 12, 2008. Therefore, the petitioner cannot allege that notice has not been given to them. So far as the annual general meeting dated September 29, 2008, the company secretary sent notice of the annual general meeting and directors' report with annexure to the petitioner's nominee director by e-mail on September 26, 2008. From the minutes it is evident that the petitioner participated in the meeting through teleconference and the board has taken a decision to adopt the annual accounts dated March 31, 2008 and resolved to appoint directors and reappointment of Mr. Pravin Banavalikar as director. Therefore, it is presumed that the petitioner was given notice for the general meeting. As per section 286(1) of the Act, the notice is to be given to the directors who are in India and not to the directors who reside outside India. The respondents also relied upon the judgment of the Bombay High Court in the matter of Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co. [2004] 120 Comp Cas 560, wherein t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des for appointment of alternate director. Since the CEO resigned himself and the petitioner has not recommended any name for appointment of either the CEO or alternate director. Therefore, the company cannot be found to be at fault for their lapse. The company is not in deadlock situation as contended by learned senior counsel. Now I deal with issue No. 2 25. The other grievance of the petitioner is that the respondents allotted shares of respondents Nos. 3 to 8 without allotting to the petitioner which amounts to dilution of economic shareholding of the petitioner in the company. It is an admitted fact that respondent No. 8 is a subsidiary of respondent No. 1. Respondent No. 1 holds 100 per cent, shares in respondent No. 8 company and is only the shareholder. Respondent No. 8 is an independent entity having four directors on its board. Respondent No. 3 entered into an investment agreement dated April 2, 2008, thereby respondent No. 3 became 32.25 per cent, of the equity shareholding in respondent No. 8. Thus, respondent No. 8 is having two shareholders, i.e., respondents Nos. 1 and 3. It is contended that the board meeting of respondent No. 8 was held on April 2, 2008 for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominee director of the petitioner and the company and its representatives, it is unequivocal that the nominee director is corresponding with the company and through e-mail and by letters and updating the affairs of the company. Even otherwise allotment of shares by respondents Nos. 3 to 8 is exclusive domain of respondent No. 8 and will not amount to dilution of economic interest of the petitioner on the ground that the petitioner is not a member of respondent No. 8. Respondent No. 8 is an independent entity and the person who is not a shareholder does not have any right in the company. The contention of the petitioner that the article 20 provides restriction on transfer of shares without prior written permission of the other shareholders, (a) create an encumbrance on any of the shares held by them either in whole or part or (b) sell, transfer, grant any option or right to purchase or otherwise dispose of any of such shares or (c) enter into any agreement or arrangement in respect of the votes attached to the shares, (d) publicly announced their intention to sell, transfer, grant any option or right to purchase or otherwise dispose of any of such shares, and (e) enter into any swap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs as stated from (a) to (z) of the said clause. Sub-clause (a) of clause 29 reads thus : all decisions of the board shall be taken by majority, except that decisions on the following matters shall, whether at the board meeting or at the shareholders' meeting require, besides majority the affirmative vote of at least one nominated by the investor present at the meeting either by himself or through their alternate directors . Sub-clause (c) reads thus : acquisition and disposal of assets of other businesses, creation of joint ventures, partnerships, mergers, de-mergers and consolidations . From the above clause it is apparent that the management consisting of majority of board of directors can take decisions in the interest of the company. The board meeting in which the decision has been taken to allot shares to respondent No. 3 was attended by three directors out of four directors, therefore, the board meeting convened and transacted and taken decisions by majority of directors. Therefore, I do not find any illegality in allotting the shares to respondent No. 3 in the interest of respondent No. 8. It is also stated that the only project of respondent No. 8 is land for develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidiary in which he is not a member as there is no legal relation between him and the subsidiary company. I follow the judgement and it is fully applicable to the facts of the present case. Respondent No. 8 is a separate entity and its shareholding is also different. By allotting shares to respondent No. 3 there is no dilution of economic shareholding of the petitioner as alleged and the respondents have acted for the benefit of the company. Accordingly the issue is answered. Now 1 deal with issue No. 3 26. It is contended that the petitioner was not given the inspection of the records and was not provided the information. The respondent contends that the petitioner has for the first time addressed e-mail requiring the information. Whatever may be the reason, the petitioner is entitled to inspect the registers, records and other documents of respondent No. 1 company in the capacity as shareholder and director according to law and can obtain copies thereof. Now I deal with issue No. 4 27. The petitioner contended that respondent No. 3 is interfering with the affairs of the company and the petitioner intends to exit the company. As per the shareholders' agreement, it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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