TMI Blog1999 (9) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... administrator, for taking action against respondents Nos. 1 to 5 for falsification of the books of account with an intent to defraud, for a declaration that during the subsistence of the MoU and the shareholders' agreement, the petitioners are entitled to have three nominees on the board of the company and for removal of A. K. Bohre and Co. as auditors of the company. 2. Shri Dwarkadas, senior advocate appearing for the petitioner, submitted that the company is a closely held deemed public company and the petitioners form part of Ador group of companies. The company is dealing in the business of environmental engineering and with a view to enlarging the business through suitable strategic alliance, the respondents entered into an MoU with the petitioners on July G, 1997. As per the MoU, the petitioners were to acquire 60 per cent shares in the company from the respondents on a value to be decided by the parties on the basis of due diligence report and valuation report to be prepared by Dalai and Shah. On receipt of the valuation report, the petitioners entered into a shareholders' agreement on August 29, 1997, by which 60 per cent shares were to be purchased on a consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinary general meeting and to take a stand that the nominees of the petitioners had ceased to be directors is in violation of the undertaking given by the respondents before the Company Law Board and recorded in its order dated January 12, 1998. He submitted that the Company Law Board had already restrained the company from holding the annual general meeting till the disposal of the petition. According to him, in terms of Section 166 of the Act, the annual general meeting should be held once in a calendar year and the gap between two annual general meetings should not be more than 15 months and, therefore, the last date of holding the annual general meeting would be December 31, 1998, and, therefore, the stand of the company that the nominee directors had ceased to be directors by September 30, 1998, is not correct. For the proposition, he relied on Krishnaprasad Jwaladutt Pilani v. Colaba Land and Mills Co. Ltd . [ 1959] 29 Comp Cas 273 ; AIR 1960 Bom 312, B.N. Viswanathan v. Tiffin's Barytes Asbestos and Paints Ltd . [1953] 23 Comp Cas 29 ; AIR 1953 Mad 520 and Hindustan Co-operative Insurance Society Ltd., In re [1961] 31 Comp Cas 193 (Cal). Therefore, he submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be wound up on just and equitable grounds. Further according to him, unless otherwise, there are continuous acts of alleged oppression, the petition cannot be maintained. For this proposition, he relied on Palghat Exports Private Ltd. v. T. V. Chandran [1994] 79 Comp Cas 213 (Ker). The only purpose of filing the petition by the petitioners is to put pressure on the respondents to pay back whatever money the petitioners have invested in the company. In the suit in Bombay, one of the reliefs sought for is that the nominee directors of the petitioners should continue. The petitioners have also filed a criminal complaint for alleged falsification of accounts and they have also complained to the Institute of Chartered Accountants of India against the auditors of the company. He further submitted that after the alleged detection of the alleged fraud, the petitioners wanted reduction in the price of the share which was not acceptable to the respondents and in view of this, proceedings by way of a suit and the present petition were initiated by the petitioners. In other words, he submitted that this petition is for an oblique motive to put pressure on the respondents to refund the money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cancelling the MoU and the shareholders' agreement, while before the Company Law Board they are seeking implementation of the agreement, which should not be allowed. 6. We have considered the pleadings and arguments of counsel. Before dealing with the allegation, it is necessary to note that a number of attempts were made by us to bring about an amicable settlement between the parties. In our order dated June 22, 1998, we suggested that the money invested by the petitioners be refunded, over a period of time. While this suggestion was acceptable to the petitioner, the respondents submitted a different proposal claiming therein certain damages against the petitioners or in the alternative desired that the disputes be referred to arbitration. This was not acceptable to the petitioners and as such the compromise efforts failed. 7. The main grievance of the petitioners is that they were induced to purchase the shares of the company on the basis of incomplete/wrong information relating to the financial position of the company as well as the projection for future when Dalai and Shah did due diligence and prepared a valuation report on that basis. Various references were made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors on the board. May be, there is some force in his arguments, but, considering the facts that neither the MoU nor the shareholders' agreement has been fully acted upon by the parties, we are not in a position to accept his arguments, as an act of oppression under Section 397. We note that this petition is a composite petition both under Sections 397 and 398. In a Section 398 petition, if duly appointed directors complain that they are denied their right to function as directors, then, we are of the view that the same could be considered as acts of mismanagement in the affairs of the company and as such we treat this directorial complaint under Section 398. It is on record that respondent No. 8 was appointed as an executive director in the board meeting held on August 29, 1997, and respondents Nos. 6 and 7 as additional directors in the board meeting held on September 11, 1997. After the disputes started, there was an attempt to remove the nominee directors in an extraordinary general meeting convened on October 25, 1997, which could not be held due to the restraint orders passed by the Bombay High Court. Apprehending that they may be removed later, the petitioners sought fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting for 1997-98 should have been held. Counsel for the petitioners relied on the provisions of Section 166 and counsel for the respondents on the provisions of Section 210 to advance their respective stand. 10. Section 166(1) reads as follows: Every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it; and not more than 15 months shall elapse between the date of one annual general meeting of a company and that of the next. 11. Section 210 reads as follows: (1) At every annual general meeting of a company held in pursuance of Section 166, the board of directors of a company shall lay before the company (a) a balance-sheet as at the end of the period specified in Sub-section (3) ; and (b) a profit and loss account for that period. . . . (3). The profit and loss account shall relate-- . . . (b) in the case of any subsequent annual general meeting of the company, to the period beginning with the day immediately after the period for which the account was last submitted and ending with a day which shall not precede the day of the meeting by more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposes independent obligations on the company and the time limit fixed in Section 210 cannot override the time limit fixed in Section 166 as is evident from the provisions of Section 210 itself. Section 210(1) speaks of an annual general meeting convened in pursuance of the provisions of Section 166 and Section 210(3)(b) further says that the accounts could be laid later than six months if extension of time under the second proviso to Section 166(1) is granted by the Registrar of Companies to hold the annual general meeting. Therefore, for application of Section 260, the time limit fixed under Section 166 is alone relevant and not that of Section 210. Thus, the legal position is that a company could hold an annual general meeting even on the last day of a particular year, i.e., December 31, provided the gap between the earlier annual general meeting and the proposed annual general meeting does not exceed 15 months provided no extension has been granted by the Registrar of Companies, Viewing the present matter in this context, since the last annual general meeting was held on August 29, 1997, the next annual general meeting should have been held latest by November 30, 1998. Thus, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three nominee directors had been agreed upon, does not exist. In case other shareholders do not wish to approve the continuation of the nominee additional directors as directors in the annual general meeting, we cannot direct them to approve their appointment. By making a declaration as sought for by the petitioners, we would be allowing shareholders' holding 18 per cent shares to control the company contrary to the principles of corporate democracy. Therefore, we are not in a position to consider the prayer of the petitioners that they should continue to hold the majority control on the board with three of their nominees, However, on equitable consideration, taking into account the circumstances under which the petitioners became shareholders and also the fact that they have invested substantial amount as intercorporate deposits to tide over the financial difficulties of the company, in case the nominee additional directors are not appointed as directors in the next annual general meeting, then, we direct that the petitioners will have the right to have one nominee as a director on the board of the company as long as they hold 18 per cent shares in the company. This nominee w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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