TMI Blog2006 (12) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... o acquire and possess space in the commercial complex arose out of the shareholding in the company. The 1st petitioner was appointed as a director and he was made in charge of the administration of the company and also of execution of the project of construction of a commercial building on the plot of land allotted by DDA. The construction of the building was completed in 1991 with 5 floors' including the basement and ground floor with a total area of 15540 sq. ft. In 1994/1995, 48 out of 56 flats /spaces were handed over to the allottees subsequent to the builders' agreements entered into between the allottees and the 1st petitioner on behalf of the company. As per, the understanding that each group would be entitled to be allotted space in the building, the entire lower ground floor comprising of LG-1, LG-2, LG-3 and LG-4 were allotted and purchased by the petitioners' group. While, on behalf of the company, the builders' agreement in respect of LG-1 was signed by the 3 rd respondent, builders' agreements relating to the other 3 flats were signed by the 1st petitioner. In pursuant to the advertisement in Hindustan Times, the 1st petitioner offered the premis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of the company. The main purpose and idea of the petitioners acquiring 1/3rd shares in the company was with the understanding that all the three groups would be allotted space in the commercial complex. In other words, the right to acquire and possess space in the commercial complex arose out of the shareholding in the company. Accordingly, the petitioners' group was allotted 4 flats in the basement totally measuring to 3108 sq. ft. and 1 flat in the ground floor and further 1/3rd share of flat in the ground floor. The entire consideration was paid and the company also executed builders agreement. The company had also issued No Dues Certificate and also possession letters. In the year 1998, the petitioners leased out 4 flats in the basement to Oriental Bank of Commerce on a monthly rent of ₹ 69,149.81. A tripartite agreement was entered into between the bank, petitioners and the company by which of the-monthly rent payable by the bank, a sum of ₹ 6992/- would be paid to the company for use of common corridors and removal of walls. In a board meeting held on 2.2.1998 (Annexure P-1), the board of directors approved signing of the agreement as Confirming Lessor . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the bank had stopped paying further monthly rent. The malafide intention of the respondents in this regard is evident from the fact that while they have alleged that the basement could not be rented out for commercial purposes, they themselves had issued an advertisement on 21.2.2004 (Annexure P-38) inviting offers for licensing the same space for commercial purposes. 3.The learned counsel further, submitted: The 2nd respondent has unilaterally appointed himself as MD on 27.11.2002 and has cornered all the powers of day to day management. The 1st petitioner did not receive any notice for the alleged board meeting on that day and therefore there was no valid quorum. Even though the 1st petitioner continues as director, yet, he has not been receiving any notice for board meeting in spite of the fact that he has deposited a sum of ₹ 150/- with the company seeking for notices by registered post (Annexure P-16). Except for 3 meetings in the year 2003, the petitioner has not received any notice for subsequent meetings. Thus, the 1st petitioner has been kept in dark about the affairs of the company. There are lot of contradiction about the stand of the 2nd respondent about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares by transfer in 1984, were not properly stamped and therefore the registration of transfer was in violation of Section 108 of the Act. No notice or prior intimation was given to the petitioner regarding the same. The said action of the 2nd respondent is malafide, illegal and abinitio void. No notice for the board meeting in which this decision was taken was given to the 1st petitioner. The said action has been taken on the basis of the transfer instruments, copies of which had been kept with the petitioner and annexed with the rejoinder. It is not the case of the respondents that the original transfer instruments in the custody of the company were unstamped. At the time of registration of transfer, fully completed transfer instruments were placed before the board and on that basis only the transfers were registered. After having recognized the petitioners as members for about 21 years, removing their names on the basis of copies annexed by the petitioner is not only a grave act of oppression but also malafide. Further in terms of Article 24 of AOA, the registration of transfer shall be conclusive evidence of the approval of the board of the transfers. 6.It was further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was purely a commercial decision involving contractual rights which cannot be enforced through a petition under Sections 397/398 of the Act. 10.The learned counsel further submitted: Even otherwise, the petitioner has sought for only three reliefs in the petition. One is the proportionate representation on the board. The 1st petitioner is already a director on the board and as such the petitioners' group is proportionately represented on the board. The second relief is for declaration that the appointment of the 2nd respondent as MD is illegal, null and void. The petitioner himself has recognized the appointment of the 2nd respondent as MD and therefore this prayer cannot be granted. The third prayer is for an investigation into the affairs of the company. The respondents are agreeable for an investigation. Therefore, the petition could be disposed of with the above observations/directions. 11.Dealing with merits of the case, the learned counsel submitted: The 1st petitioner was in management of the company for nearly 20 years and during this period he had siphoned of enormous funds of the company. During this period, he had transferred the registered office of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter, they came to know that instead of charging higher licensing fee, the 1st petitioner had charged lower licensing fee. When the company demanded the balance amount, the petitioners failed to pay the balance and since they had also misused the premises by letting out to the bank, the company had revoked all the licensing agreements. 13.In so far as the appointment of the 2nd respondent as MD is concerned, in a board meeting held on 27.11.2002, two resolutions were passed - one regarding the appointment of the 2nd respondent as the MD and the second related to waiver of interest on arrears of dues ;on account of maintenance charges. It is to the knowledge of the petitioner that the decision regarding waiver of interest has been implemented and he has not challenged the same. Therefore, he cannot allege that there was no board meeting on 27.11.2002 to contend that the 2nd respondent was not appointed as the MD on the day. Further, the 2nd respondent, by styling himself as the MD, had convened a board meeting on.30.8.2003 by a notice dated 6.8.2003. By a letter dated 29.8.2003, the 1st petitioner sought for leave of absence without questioning the authority of the 2nd respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' rights can be agitated. Further, the petitioners have not established that the company is liable to be wound up on just and equitable grounds which is a pre condition in a petition under Sections 397/398 as held in Hanuman Prasad Bagri v. Bagress Cerals Private Ltd. (2001 4 SCC 480). 17.I have considered the pleadings, arguments and written submissions. The respondents have submitted that the petition could be disposed of on the basis of the prayers in the petition on the ground that since the 1st petitioner is already a director, there is no further direction required in regard to the directorship as sought for as prayer no.1 since that the 1st petitioner has acquiesced to the appointment of 2nd respondent as MD, the second prayer in the petition could be rejected and investigation as sought for in prayer no.3 could be granted. Unfortunately, the case is not that simple as the respondents have tried to make out. /When the proceeding on the petition was pending, the company had cancelled the membership of the petitioners even without seeking the leave of this Board. Therefore, the first issue for determination is regarding the membership of the petitioners. It is an admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of 20 days from the date of this order. 18.In regard to the various claims of the petitioners in relation to the space/flats allotted in their favour are concerned, it is necessary to refer to the order of this Bench dated 29.7.2004. In that order, it is recorded As far as this instant application is concerned, in a petition under Sections 397/398, only grievances qua a member's right can be agitated. Recourse to the provisions of these Sections cannot be taken to enforce contractual rights. According to the learned counsel for the petitioners, the right to the premises has arisen out of the membership of the company and in the absence of any affidavit to the contrary by the respondents, in spite of sufficient time given to them, I am considering the application on the basis of the said averment of the learned counsel for the petitioners . I had kept the issue whether the entitlement of flats/spaces in the building arose out of the membership, open. It is a settled law that the provisions of. Section 397 can be invoked only when a shareholder feels aggrieved that he is being oppressed in his capacity as a member. Contractual rights divorced of the membership rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and over the key of the premises to the petitioners. Since I have held that the issues relating to the premises is a contractual matter, it is for the bank to decide as to whom the rent kept in deposit should be paid. 19.In so far as the directorship of the petitioner is concerned, it is the stand of the respondents that the 1st petitioner continues to be a director. Since I have already held that he and his group continue to hold 1/3rd shares in the company, the petitioner will continue as a director and the respondents shall not take any action to remove him from the directorship. I further direct that for all board meetings, he should be given 10 days notice by registered post with acknowledge due together with agenda. Since there are 3 directors each representing one group, the bank operations should not be handled only by one director but by two directors jointly, which was the practice for a long time. Accordingly, I direct that with immediate effect, the bank operations shall be by 2 directors jointly. 20.In so far as the appointment of the 2nd respondent as the MD is concerned, the admitted fact is that effective from July, 1997, the 1st petitioner ceased to be a func ..... X X X X Extracts X X X X X X X X Extracts X X X X
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