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Alibante Developments Ltd. Versus Matheran Realty P. Ltd. and Others

2011 (10) TMI 713 - COMPANY LAW BOARD, MUMBAI

Company Petition No. 116 of 2008 - Dated:- 3-10-2011 - MR. Kanthi Narahari (Judicial Member) ORDER Kanthi Narahari (Judicial Member) 1. The present petition is filed by invoking various provisions of the Companies Act, 1956 ("the Act") alleging certain acts of oppression and mismanagement in the affairs of the company and sought various reliefs as prayed in paragraph VII of the petition. Shri Kamdar, learned senior counsel appearing for the petitioner narrated the brief facts. He submi .....

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ondent No. 3 being an investment company 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 .....

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mpany 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 respondents Nos. 2 to 7 the strategies for enhancing shareholder value in the company using external finance. Mr. Fysh had already identified potential investors and suggested to invite the said potential investors for financing the project of the company. Respondents .....

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interests of the company. As per the SHA and articles of association of the company, the directors appointed by respondent No. 3 were the nonexecutive directors and would not be responsible for the day to day management of the company and the directors appointed by the petitioner and respondent No. 2 would be executive directors and would be responsible for the day to day affairs of the company. Respondents Nos. 2 and 3 being in majority were taking all the decisions of the company without prior .....

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No. 8 by the company was done keeping in view the assets owned by respondent No. 8, viz. 100 acres of land in Karjat, in the State of Maharashtra. 2. On March 20, 2007 a board meeting of the company was held, wherein the petitioner's nominee director was also present. At the said meeting it was agreed by the board to pursue the projects at Karjat and Kasara and expansion of land acquisition as per the SHA with the funds of the company. After the said board meeting, respondents Nos. 2, 4 to .....

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ed 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 r .....

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dents Nos. 3 and 8 wherein respondent No. 3 had directly invested some money in respondent No. 8. The petitioner's nominee director also requested the company to provide the minutes of all the board meetings held after March 20, 2008 and also a copy of the purported investment agreement entered into between respondents Nos. 3 and 8, neither of which has been provided despite being material subject-matter of the business of the meeting. 3. It is further submitted that as per the articles of a .....

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ny and the auditor's report were approved. No proper notice or information of the said meeting was served upon the petitioner or its nominee director. However, the petitioner came to know about the said meeting and the petitioner's nominee director attended the said meeting via teleconference. The agenda and information of the meeting was not provided to the petitioner. After repeated requests to respondents Nos. 4 to 7 by the petitioner, the said purported investment agreement was forwa .....

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irectly to the shares of respondent No. 8. The petitioner is given to understand that the board meeting of respondent No. 8 was called on April 2, 2008 wherein in furtherance of the said investment agreement, respondent No. 3 was 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 .....

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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 was provided. The minutes of the said annual general meeting held on Sept .....

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e directors were requested to attend the meeting in person. The agenda and the note on item No. 3 of the agenda were attached to the said e-mail. It is significant to note that in the said agenda, it is proposed inter alia that to confirm the minutes of the previous meeting held on September 26, 2008. 4. It is submitted that this Bench was pleased to pass an ex parte interim order dated December 15, 2008 whereby the meeting of the board of directors of respondent No. 1 dated December 15, 2008 wa .....

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urpose of availing loans and without any serious discussion on the issue. On March 9, 2009, the meeting of the board of directors of respondent No. 1 was convened vide which respondent No. 1 sought to confirm the minutes of the previous board meeting held on September 26, 2008. The representative on the board of respondent No. 1, Max Fysh, pointed out that the said meeting held on September 26, 2008 was the subject-matter of Company Petition No. 116 of 2008 filed by the petitioner before this Be .....

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al 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 .....

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ther properties on the said land, in favour of MMRDA, subject to such restrictions and limitations as he may deem fit and proper in the interest of the company". Despite the dissent of Max Fysh the said agenda items were assented to by all the other directors, showing scant regard to the orders of this Bench and interests of respondents Nos. 1 and 8. The respondents were aware that this Bench vide its order dated December 15, 2008 and February 10, 2009 had ordered the respondents to maintai .....

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8 ignoring the valid objection of Mr. Max Fysh, approved the resolution appointing Mr. Altekar as the director of respondent No. 8. When the same matter was brought to the notice of this Bench, the Bench allowed the appointment of Mr. Altekar only on the board of respondent No. 1 and not on the board of respondent No. 8. Despite the orders of this Bench, Mr. Altekar has been projected as the director of respondent No. 8 and has been participating in the board meetings of respondent No. 8 despite .....

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of respondent No. 8 and thereby underlining the gross mismanagement of respondent No. 8. Mr. Max Fysh, inter alia, pointed out to the board that the purported supporting documents circulated along with the said circular resolution, revealed very little information about the advance disbursement and did not contain crucial information in relation to respondent No. 8's financial, accounts, land titles, personnel, agreements, master plans, development option documentation and financial forecast .....

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nd 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 o .....

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ous cause of concern for both the petitioner as a major shareholder of respondent No. 1 and Max Fysh who is a director with fiduciary duties to discharge. However, for reasons best known to them, the respondents have till date not furnished any information requested made by the petitioner. A meeting of the board of directors of respondent No. 1 was convened on June 26, 2009. During the meeting in relation to the discussion on the "Progress of the TMC Project", Mr. Fysh pointed out that .....

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ar Gatti and Mr. Nirav Shah were proposed as the signatories instead of Mr. Jose Mathew. The nomination of Mr. Gatti and Mr. Shah to be the signatories of respondent No. 1 reflects the state of gross mismanagement of respondent No. 1. During the meeting on June 26, 2009, Mr. Fysh dissented to the names of Mr. Gatti and Mr. Shah. However, on such dissent, Mr. Anto Jacob and respondent No. 7 Mr. Pravin Banavalikar, were appointed as signatories despite respondent No. 7 being in a massively conflic .....

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ed as the nominee of respondent No. 3 on the board 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 t .....

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ismanagement 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 that attendance by teleconference would not be allowed by him and said that attendance of board meetings of Indian companies by teleconference was not allowed in Law. Mr. Fysh disagreed with respondent No. 6's proposal. Re .....

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nts Nos. 1 and 8 and are oppressive and detrimental to the interests of the petitioner. In fact, Mr. Max Fysh despite repeated oral and written requests for vital information in respect of the functioning and business of respondents Nos. 1 and 8 has been repeatedly denied such information and therefore has not been in any position to constructively take part in any decision making of respondents Nos. 1 and 8. 8. It is submitted that subsequent to filing of the first amendment application, vide t .....

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. Vide the said circular resolution, it is pertinent to note, that it was claimed that "because of pre-occupation, it may not be possible for Mr. Pravin Banavalikar to be in office, all the time, cheques are to be issued to customers/ creditors/for expenses, in time. Hence it is proposed that one more person should be authorised to operate the bank accounts of the company". As Mr. Banavalikar's alternative, the name of one Mr. Prakash K. Bangera was proposed. The petitioner submits .....

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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, no .....

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ral meeting. The petitioner vide his letter dated December 21, 2009 dissented to this transaction as the documents and information required by it to check the correctness of the balance-sheet and the reports were not provided. The above facts clearly reflect the oppression tactics being used by the respondents. 9. The petitioner states that it received the construction agreement from respondent No. 8 very recently which was entered into on August 1, 2009 between respondent No. 8 and Sterling Con .....

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o enter into the said construction contract on behalf of respondent No. 8. Further the petitioner vide its letter dated December 22, 2009 addressed to respondent No. 8 brought some of the discrepancies to light in the said construction contract clearly envisaging the instability of the said construction contract and also requested for all those documents relating to the said construction contract which have been mentioned in the said construction contract but have not been provided to it till da .....

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the company. (c) Breach of the articles of association of the company with regard to the preparation of the minutes of the board meetings and the annual general meeting. (d) Divesting the assets of the company. (e) Diluting the economic shareholding of the 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 al .....

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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 company. The SSA dated July 26, 2007 is between petiti .....

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ds 100 per cent, shares in respondent No. 8 company. Respondent No. 3 entered into an investment agreement dated April 2, 2008 with the said agreement respondent No. 3 became 32.25 per cent, of the equity shareholding in respondent No. 8. The shares of respondent No. 8 have not been offered to the petitioner. Respondent No. 8 company was having four directors and the petitioner is one of the directors in respondent No. 8. The board meeting of respondent No. 8 was held on April 2, 2008 for which .....

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directors was essential for the validity of any resolution passed at the meeting and that as, admittedly, no notice was given to Mr. Khaitan one of the directors of the company, the resolution passed terminating the services of the appellant was invalid." It is submitted that respondent No. 3 entered into agreement with respondent No. 8 surreptitiously. The agreement dilutes the shareholding of respondent No. 1. Respondent No. 1 is only a paper company whereas respondent No. 8 is the real c .....

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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-su .....

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ons operating the bank account viz. Mr. Prakash, who is not an employee of the company, which constitutes an act of mismanagement. The respondents want to hold the board meetings at the site and the respondents creating problems to the petitioner who holds more than 40 per cent, stake in the company. Learned senior counsel relied upon the following citations on mismanagement : (1) [1981] 51 Comp Cas 743: [1981] 3 SCC 333, in the matter of (Needle Industries (India) Ltd. v. Needle Industries Newe .....

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d. v. Barendra Krishna Bhowmick). It is held (page 782) : "It should be borne in mind that when a court passes an order under sections 397, 398 and 402 as has been done in the instant case, there could be no limitation on the court's power while acting under the sections. Instead of the winding up of a company, the court under the abovementioned sections has been vested with ample power to continue the corporate existence of a company by passing such orders as it thinks fit in order to .....

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xercising its discretion is not bound by the terms contained in section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the court may deem fit and proper are warranted. Moreover, in a given case the court despite holding that no case of oppression has been made out, may grant such relief so as to do substantial justice between the parries." In the circumstances he prayed this Bench to grant reliefs. 15. Respondents Nos. 3, 5 and 6 have filed their .....

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ay 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 w .....

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owner of one Wessex Capital Limited (Wessex) and the said Wessex is the majority owner of the petitioner herein. Max Fysh identified respondent No. 1 as the Indian company for investment in the development of affordable housing in India. Max Fysh further represented that respondent No. 1 would carry out projects to develop and construct low income housing units for weaker sections of the society on outskirts of Mumbai and required investment of monies for the said projects. As such said Max Fysh .....

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ich respondent No. 3 was to make the investment in tranches. As a matter of record till date respondent No. 3 has already invested a sum of ₹ 82 crores as against ₹ 1.73 crores which was brought in originally by Max Fysh. Respondent No. 3 has invested substantial amount in respondent No. 1 on the false assurance and representations given by Max Fysh. The shares of respondent No. 1 were initially subscribed by Mr. Divakar Gatti (respondent No. 4) and by Mr. Prakash Bangera. Pursuant t .....

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bsequently respondent No. 7, i.e., Pravin Banavalikar was appointed on the board of respondent No. 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 article .....

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oters), are to be executive directors of respondent No. 1, and responsible for the day to day management of respondent No. 1. Mr. Max Fysh was nominated by the petitioner to the board of directors of respondent No. 1 on and from January 24, 2007 as the executive director. By an agreement dated July 27, 2007 respondent No. 1 appointed Max Fysh as its the chief executive officer (CEO). Max Fysh in spite of being a promoter of respondent No. 1 demanded salary, reimbursements, etc. as alleged servic .....

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engaged in the business of real estate construction and development, more particularly low cost housing units under the brand "Tanaji Malasure City" for weaker section of the society in collaboration with MMRDA (as statutory body). The current board of directors of respondent No. 8 comprises of the following : Name of director Date of appointment Max Fysh March 24, 2008 Respondent No. 6 March 24, 2008 Respondent No. 5 March 24, 2008 Respondent No. 7 September 9, 2008 Nirav Shah Septemb .....

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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 e .....

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respondent No. 1 for acquisition by respondent No. 1 of respondent No. 8. Under the escrow agreement, an advance of ₹ 8 crores was paid by respondent No. 1 to Wearlogy Ltd. and balance amount of ₹ 32 crores was required to be paid by respondent No. 1 to Wearlogy Ltd. on or before March 6, 2008, failing which the advance of ₹ 8 crores would be forfeited by Wearlogy Ltd. which amounts and investments were brought in by respondent No. 3. The directors of respondent No. 8 in their .....

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ndent No. 3 and respondent No. 1 to record inter alia the terms and conditions for the financing operation and management of respondent No. 8 and their mutual rights and obligations as shareholders of respondent No. 8. Also the board of directors of respondent No. 8 by its meeting held on April 2, 2008 duly resolved inter alia to and did issue to respondent No. 3, 476 class A ordinary voting rights equity shares and 19,99,524 class B non-voting participating equity shares of ₹ 100 each of .....

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tee of respondent No. 1 that Max Fysh was not suitable to perform or handle the projects of respondent No. 1 as the CEO of respondent No. 1. Max Fysh acknowledged the said findings and offered to resign from the post of the CEO of respondent No. 1. As such the board of directors of respondent No. 1 duly resolved to accept the resignation of Max Fysh as CEO of respondent No. 1. The board of directors of respondent No. 1 then requested respondent No. 2 to run the business of respondent No. 1 until .....

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bstantial 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 tha .....

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nable the board of directors of respondent No. 1, to formally correspond with him. The board of directors of respondent No. 1, however, periodically kept Max Fysh notified or updated telephonically about the administration of respondent No. 1. The impropriety of such forbearance by Max Fysh is more so as under clause 28(a) of the articles and clause 4.2(a) of the SHA, the meetings of the board of directors are to be held at least once in every three calendar months and at least four such meeting .....

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rative duties, but no avail. It is pertinent that Max Fysh whimsically participated in some of the meetings of the board of directors of respondent No. 1 by teleconference pursuant to clause 28(j) of the articles and clause 4.2(g) of the SHA. However, all attempts made by respondent No. 1 to seek confirmation from Max Fysh of the resolutions passed by the board of directors of respondent No. 1 were avoided and the resolutions disregarded by Max Fysh. Max Fysh had concluded his exit from responde .....

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espondent 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, .....

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mber 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 which is reflective on the petition as an afterthought stratagem. Max Fysh, however, chose not to personally attend but participated by teleconference in the annual general meeting of respondent No. 1 on September 29, 2008. The members of respondent No. 1 by the annual general meeting held on September 29, 2008 du .....

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ctors of respondent No. 1 to every director present and having address in India, pursuant to section 286 of the Act. Also respondent No. 1 after receipt of the said e-mail from Max Fysh had forwarded by e-mail on September 27, 2008 to Max Fysh copies of the minutes of meeting of the board of directors held after March 20, 2008. Moreover, Max Fysh participated by teleconference in the board of directors meeting held on September 26, 2008 and the annual general meeting held on September 29, 2008 f .....

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rch 26, 2008 have been engaged in due and regular construction of low cost housing units under the brand "Tanaji Malasure City" on the land of respondent No. 8 for weaker section of the society in collaboration with MMRDA. Respondent No. 8 and/or respondent No. 1 through a system of computerised lottery, already accepted applications and have issued more than 3,500 letters of allotment for consideration, for such low cost housing units. The petition and its proceedings are not only mis .....

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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 an .....

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(f) The fact that although the petition in its paragraph No. 25 vaguely refers to the "terms of separation" but suppresses receipt by its beneficial owner Max Fysh from respondent No. 2 and his associates, substantial amounts towards complete exit by the petitioner and Max Fysh from respondents Nos. 1 and 8, under the understanding arrived at between the petitioner and/or Max Fysh and respondent No. 2 (on behalf of respondent No. 1 and/or respondent No. 8). The fact that the petitione .....

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ly valued at ₹ 1.70 crores, whereas the investment of respondent No. 3 is approximately ₹ 82 crores, thus, the main interest was that of respondent No. 3 in respondent No. 1 which would have been severely jeopardised. 21. Learned counsel for the respondents in nut shell contended the oppressive acts as alleged by the petitioner are that (a) no notice was given for the board meetings, (b) dilution of investment in the company, (c) too much interference by respondent No. 3, nominee dir .....

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Cas 207: AIR 1962 Cal 127, in matter of (Maharani Lalita Kajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd.) (paragraph 6). (2) [1965] 35 Comp Cas 351: AIR 1965 SC 1535, in matter of (Shanti 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 .....

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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, respondent No. 1 was holding 100 per cent, shares in respondent No. 8. The petitioner had invested only ₹ 1.6 crores in resp .....

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cation. The petitioner or respondent No. 2 have no affirmative vote. However, respondent No. 3 being the investor has affirmative vote. Learned counsel for respondent No. 8 relied upon the propositions on the points that to file a petition under section 397 and 398 of the Act (a) rights as shareholder must be affected; (b) though the petitioner is not a shareholder in respondent No. 8, however, the reliefs were sought against respondent No. 8, hence the company petition should be dismissed; and .....

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5; AIR 1959 SC 775, in the matter of (Howrah Trading Co. Ltd. v. CIT) paragraphs 8 and 9. (2) Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp Cas 563: AIR 1985 SC 520 paragraph 15. (3) [1983] 2 Bom. C. R. 631: [1985] 57 Comp Cas 831, in the matter of (Killick Nixon Ltd. v. Bank of India) paragraph 5. (4) [2004] 122 Comp Cas 696: AIR 2005 SC 83, in the matter of (J.P. Srivastava and Sons P. Ltd. v. Gwalior Sugar Co. Ltd.) paragraph 46. On the third point the following propositions relied .....

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(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 re .....

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shares in respondent No. 8 company and whether any dilution of economic shareholding of the petitioner ? (3) Whether the petitioner was provided inspection of documents ? (4) To what relief ? Now I deal with issue No. 1 : 24. The petitioner is challenging the board meetings dated September 9, 2008 and September 26, 2008 and December 15, 2008 and the annual general meeting held on September 29, 2008 and also sought directions to serve notice to the petitioner for all the future board meetings and .....

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ioner and respondent No. 2 as promoters and respondent No. 3 as investor and respondent No. 1 is the company. Clause 28 of the articles provides the board meetings. As per sub-clause (a) of clause 28 of the articles of association the board meeting of the company shall be held at least once in every three calendar months and four such meetings in every year. Sub-clause (b) of clause 28 of the articles of association provides for notice. According to the said clause the notice of any meeting shal .....

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ated July 26, 2007, the board consists of four directors, the investor, i.e., respondent No. 3 and the promoters, i.e., petitioner and respondent No. 2 shall be entitled to nominate the directors. The petitioner nominated one Mr. Max Fysh as its director and was appointed as the chief executive officer in July, 2007. The respondents contended 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 .....

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l 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 a .....

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ed March 28, 2008 and attended the board meeting dated June 19, 2008. The petitioner is challenging the board meetings dated September 9, 2008 and September 26, 2008 and December 15, 2008 and the annual general meeting dated September 29, 2008. The board meeting held on September 9, 2008 from the minutes it is apparent that the leave of absence was granted to the nominee director of the petitioner as he was travelling. In the board meeting it was resolved that one Mr. Pravin Banavalikar was appo .....

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titioner wherein it is categorically stated that the board meeting to be held and also will adopt the accounts for the year ended March 31, 2008. After the meeting the company secretary sent mail to the petitioner duly attaching the final accounts of respondents Nos. 1 and 8 company. Therefore, the decisions taken in the meetings are binding on the petitioner and I do not find any illegality in conducting the said meeting. The board meeting held on December 15, 2008 the notice was sent to the pe .....

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ate 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 th .....

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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 the Bombay High Court is of the view that (page 603) : "... section 286 requires that the notice to be given to those directors who are for the time being in India." In view of the clear provisions of law and also supported by the judgment of the Bombay High Court, I fully agree with the submissions of the respondents. I do not .....

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ided with the consent of all the directors in the articles, it appears the company followed the same procedure and there was no quarrel in that regard. Therefore, it cannot be said that the company contravened the provisions. I do not find any contravention of the provisions of the shareholders' agreement or the articles relating to issue of notices for the board and general meetings. Therefore, the board and general meetings are not illegal. Accordingly the issue is answered. Nevertheless, .....

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he SHA the nominee director of the promoter shall be the executive director and shall be responsible for the day to day management of the company. He submitted that from the petitioner's side there is only one director. The CEO supposed to be from the petitioner's side, however, the CEO resigned in February, 2008 and the company is in deadlock situation. The respondents contended that the CEO resigned himself and did not direct the board to appoint an alternate director in his place, eve .....

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otted 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, the .....

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e meeting is held without notice to the directors, it is invalid as held by the Supreme Court in the matter of Parmeshwari Prasad Gupta v. Union of India [1974] 44 Comp Cas 1. It is also contended that the respondents have breached the article 20 of the articles of association and clause 3.1 of the SHA. The respondents contended that the petitioner had invested only a sum of ₹ 1.60 crores and whereas respondent No. 3 had invested ₹ 82 crores in the company. Respondent No. 3 further i .....

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the board meeting of respondent No. 8 dated April 2, 2008 wherein three directors participated in the said board meeting and resolved to adopt new set of articles of association pursuant to section 31 of the Act, and also resolved allotment of 476 class A shares and 19,99,524 class B shares. The respondents stated that in the past for all the previous board meetings the nominee director of the petitioner accepted oral notices as he did not have any mailing address in India. The petitioners in th .....

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titioner is not a party to the petition and in his absence it is difficult to find out the veracity in the allegations. However, from the correspondence between the nominee 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 .....

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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 or other agreement or any transaction that transfers in whole or in part, directly or indirectly the economic consequences of benefic .....

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gs by its majority directors as contemplated under clause 29 of the articles of association. I have perused the clauses of the articles and the SHA. There is no dispute that the clauses specifically restrict to sell, transfer, create an encumbrance and enter into any agreement. However, learned counsel for the petitioner stressed that sub-clause (e) of clause 20 of the articles restricts to enter into any swap or other agreement or any transaction that transfers in whole or in part directly or i .....

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the petitioner. Clause 20(e) states the beneficial interest of respondent No. 1 only and not respondent No. 8. The petitioner can seek relief against respondent No. 1 in case any allotment of shares in violation of the above clause. However, he is not a shareholder in respondent No. 8 and the beneficial interest cannot be said to be adversely affected. The beneficial interest always will be the upper level, because respondent No. 8 does not own respondent No. 1 whereas respondent No. 1 owns res .....

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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 d .....

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s not proceeded further lack of funds. It is also contended that respondent No. 1 is only a paper company. The decision taken by the board is perfectly valid. Clause 20 of articles of association clearly envisages that none of the shareholders shall directly or indirectly without the prior written permission of the other shareholders sell, transfer, encumber etc. Admittedly, respondent No. 8 is only one shareholder, i.e., respondent No. 1 prior to its allotment. The shareholder, i.e., respondent .....

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is an admitted fact that the petitioner is not a shareholder of respondent No. 8 and need not be offered any shares to them and the petition is not maintainable against respondent No. 8 in which he is not a shareholder. Counsel for respondent No. 8 also contended that to file a petition under sections 397 and 398, right as shareholder must be affected and relied upon the proposition of the apex court in the matter of Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351. The apex cour .....

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amations Ltd. v. Shankar Sundaram [2011] 168 Comp Cas 68 (Mad), at paragraph 29 wherein the hon'ble High Court held that (page 90 of 168 Comp Cas): "Therefore, when a person is not a member of a company, his alleging oppression and invoking the provisions of section 397 against that company does not arise. Therefore, a shareholder of a holding company cannot complain of oppression by a subsidiary in which he is not a member as there is no legal relation between him and the subsidiary co .....

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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 comp .....

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