TMI Blog2018 (4) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... ll knowledge of the board of directors. The Company Law Board has in its order noted these responses at Para 17: Re sale of Spectron Shares to KSB engrs , Para 19 : Re Barkha lnds , Para 20 : Re SCA International and Para 21 : Re the encashment of the fixed deposits and at Para 18 : Re the facts , figures and explanation re catering expenditure. However, thereafter in Para 50 of its order the CLB merely records a bald finding that “As regards the allegation of misappropriation of fund and siphoning off of funds to the Respondents own concerns, the Respondents hove failed to refute the specific allegations made in that regard.” It has to be noted that even the allegations of misappropriation and siphoning off by respondent no.2 were generally bald unsubstantiated allegations. Moreover, the CLB has, in the order noted and recorded responses/explanations offered by appellant no.1. Thereafter, without dealing with the same, the CLB has in an error apparent concluded that “the Respondents have failed to refute the specific allegations made in that regard”. In the aforesaid context of facts, allegations and pleadings, the CLB's finding is totally unreasoned, discloses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointed as a Director. (iii) Between 1998 -2004 appellant no.1 was taking care of respondent no.1. During this period, the business of respondent no.1 also improved and the net worth as on 31st March, 2005 was about ₹ 207.95 lakhs. (iv) It was the case of respondent no.2 in the CLB that towards the end of 2005, respondent no.2 came to know about certain illegal activities carried out by respondents therein and in particular, appellant no.1 in connivance with respondent no.5 herein. Hence, on 14th November 2005, respondent no.2 removed appellant no.1 from the board of respondent no.1 company. Appellant no.2 was also removed from the board on 2nd January 2006. On 22nd December 2006 respondent no.2 received a notice of EOGM requisitioned at the behest of appellant no.1, inter alia, for removal of respondent no.2 from the board of respondent no.1. On receipt of the said notice, it is the case of respondent no.2 that he undertook a search at ROC office and discovered that there has been an illegal increase and subsequent allotment of shares in favour of appellant nos.1 and 2 resulting in respondent no.2 being reduced to a minority. Hence the petition was filed in CLB. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany appellant no.3 Spectron Engineers Private Limited, contracts with BG Exploration and Production India Limited (value ₹ 4.03 lakhs), Hyundai Heavy Industries Company Limited (value ₹ 5.02 lakhs), Oil India Limited and Cairn Energy Limited and had put in a competing bid for a contract with ONGC Ankleshwar. Respondent no.2 had also averred that funds were taken out of respondent no.1 in different modes during 1999- 2001 and brought back as unsecured loans from outsiders and were finally converted into equity shares and further that many outflows in the company's books have been shown which are fictitious having no supportings. One of the many examples is ₹ 63.85 lakhs on 31st March 2001 to Barkha Industries Limited whose business is sub brokerage and commission. 5. Respondent no.2 also alleged that appellant no.1 had misappropriated two fixed deposits of ₹ 1 crore and ₹ 50 lakhs of respondent no.1. Prayer (d) of the petition accordingly required appellant no.1 to pay to the company the two fixed deposits totaling to ₹ 1,50,00,000/ and ₹ 1,50,58,768/ being profit misappropriated for six years. 6. It is well settled, as held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rightly gone into the depth of the matter. As already stated the controversy in the case revolved around alleged allotment of additional shares in favour of Ramanujan and whether the allotment of additional shares was an act of oppression on his part. On the issue of oppression the finding of the Company Law Board was in favour of Prathapan i.e. his impugned act was held to be an act of oppression. The said finding has been maintained by the High Court although it has given stronger reasons for the same. 37. We find no merit in the argument that the High Court exceeded its jurisdiction under Section 10F of the Companies Act while deciding the appeal. 7. Therefore, it is clear that the scope of jurisdiction of this Court is restricted to a question of law and if it can be held that a finding(s) of fact(s) are perverse and based on no evidence, then that perversity itself may be treated as a question of law. This Court would truly be required to assess the judgment of the CLB holistically to ascertain whether the judgment is perverse. 8. Mr. Chinoy submitted that the findings of the CLB were ex facie perverse because the CLB, though has reproduced submissions made by ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that respondents have not been able to meet petitioner's contentions challenging the increase and allotment of shares and it is difficult to give credence to respondents' explanation and documents relied upon by them which have been challenged to be fabricated and manipulated to achieve respondents' ulterior motive to gain control over respondent no.1 reducing petitioner's 97.33% shareholding to 19.20% and expecting petitioner to give his consent which would be nothing short of suicide, the documents referred to and relied upon do not make a fool proof case ........ No credence can be given to the contention that the petitioner has acquiesced to the increase and allotment as he has not challenged allotment of 46,000 shares to himself ....... In the totality of the facts and circumstances of the case, petitioner's contention that blank documents were got signed from him cannot be disbelieved . 12. Infact the records established that respondent no.2 had approached the CLB with a false case that he had not approved the issue of the said additional shares and he was not aware of the same till he received the EOGM notice in December 2006. In fact the docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, etc on the ground of alleged urgency to submit the same to the ROC and that these had subsequently been misused to show appellant no.1 as major shareholder of the company; (ii) He had not signed the balance sheet of respondent no.1 for the year ended 31st March 2005; (iii) Respondent no.2 had annexed a copy of the balance sheet which was signed only by appellant no.1 and respondent no.5 and (iv) That only when he received the EOGM Notice dated 22nd December 2006, he had made a search at ROC and discovered that there has been an illegal increase and subsequent allotment of shares in favour of respondents and that he accordingly filed the petition on 15th January 2007. 15. In reply, appellant no.1 in his affidavit dated 30th March 2007 and affidavit of respondent no.5, pointed out that : (i) The annual accounts of the company established that till 1997 turnover and profits of respondent no.1 were minimal, the accumulated profits was ₹ 331,784/ , i.e., an average of ₹ 25,521/ per year, the net worth of respondent no.1 as on 31st March 1998 was ₹ 29.34 lakhs; (ii) Appellant no.1 had been successful in getting contracts for respondent no.1 from (1) O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being brought in as shareholders funds by 2002- 2003. Not once has respondent no.2 protested. 17. In the affidavit of 14th February 2007, appellant no.1 has averred that on 19th August 2003, 850,000 additional shares were duly issued and allotted, after necessary resolutions had been passed and that a return of allotment dated 2nd September 2003 was filed by respondent no.1 with the ROC. The annual return of respondent no.1 for 2003, was also signed by respondent no.2 as the Managing Director. This annual return reflected that the issued capital of the company had been increased to 10,00,000 equity shares of ₹ 10/ . The annual return of respondent no.1 for 2004 was also signed by respondent no.2 as Managing Director. This annual return also reflected that the issued capital of the company had been increased to 10,00,000 equity shares of ₹ 10/ each. The explanation of respondent no.2 for having signed the said annual returns, was that his signature had been taken on various company law forms like blank annual return forms, on the ground of urgency to submit the same to the ROC and that these had subsequently been misused to show appellant no.1 as major shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffidavit dated 6th June 2007. In that affidavit, respondent no.2 changed his stand but confirmed that he had signed one copy of the balance sheet as at 31st October 2005, which had duly reflected the increased share capital of 10,00,000 shares and that he had got the said balance sheet filed with the Income Tax Department and that the signed balance sheet was only available with the Income Tax Department. However, he still alleged that the signature on the balance sheet for the year ended 31st March 2005 which had been produced with affidavit of respondent no.5 were forged. 21. Appellant no.1 filed a further affidavit dated 3rd September 2007 pointing out that the copy of the balance sheet as at 31st March 2005 which he had annexed to his affidavit had been obtained from the Income Tax Department and that the allegation of respondent no.2 that his signature was a forgery was ex facie false. Subsequently pursuant to an application made to this Court, the balance sheet as at 31st March 2005 which had been filed by respondent no.2 with the Income Tax Department was produced from the custody of the Income Tax Department/the Police which had seized the same in the course of investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) that the company s increased turnover and new contracts necessitated additional bank facilities and the banks had insisted on an increase in the company s paid up capital; (b) that the balance sheets from 1999 to 2004, which recorded the increase in the share application money/shareholders funds to ₹ 100 lakhs, had all been signed by respondent no.2, which established that the increase in capital had been done with the consent and approval of respondent no.2 and respondent no.1; (c) that respondent no.2 had signed the annual returns of 2003 and 2004 which recorded the increase in the share capital effected in August 2003 and thereafter sought to explain the signatures by a false case that he had only signed blank forms; (d) that respondent no.2 had signed the balance sheet of 2005, which recorded the increase in the issued capital to ₹ 100 lakhs and had also filed the same with the Income Tax Department but had come to Court with a false case that he had not signed the same; (e) that the said signatures of respondent no.2 on the balance sheet and annual returns established that the share capital had been duly increased after passing necessary resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that : (a) Respondent no.2 had never disputed signing the balance sheets from 1999 to 2003, which had recorded the increase in the shareholder s funds/share application money by 2002 to ₹ 100 lakhs; (b) Explanation of respondent no.2 for having signed the annual returns of 2003 and 2004, which recorded the increase in share capital, i.e., that he had been pressurized into signing blank annual return forms, was ex-facie untenable inasmuch as the annual returns had been filled in and printed on the computer and respondent no.2 had signed/initialed every page thereof; (c) Respondent no.2 had expressly admitted in his subsequent affidavit that his statement in the petition that he had not signed the balance sheet as 31st March 2005, which recorded the increased capital of 10,00,00 shares, was incorrect. Respondent no.2 had in his subsequent affidavit confirmed/accepted that he had signed the balance sheet as at 31st March 2005 and had also filed the same with the Income Tax Authorities; (d) That the aforesaid documents/record established that respondent no.2 was at all times aware of the increase in share capital and the fact that the increase in share capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted several contracts to himself. The contracts according to respondent no.2 were : (a) A contract with BG Exploration Production lndia Limited dated 2nd February 2005 for ₹ 4.03 lakhs; (b) A contract with Hyundai Heavy Industries Company Limited dated 31st May 2005 for ₹ 5.02 lakhs ; (c) A contract with Oil lndia Limited Jodhpur which had been earlier undertaken by respondent no.1 till 2002 2003; (d) A contract with Cairn Energy Limited which had earlier been undertaken by respondent no.1 till 2004; and (e) By putting in a bid for a Tender re: ONGC Ankleshwar dated 11th October 2006. 30. In his affidavit in reply, appellant no.1 had pointed out that there was no wrongful diversion of business or profits. It was the contention of appellant no.1 : (i) Regarding Detector Electronics, BG Exploration and Hyundai Heavy Industries, appellant no.1 had pointed out in affidavit dated 14th February 2007 that the MOU with Detector Electronic was dated 28th March 2001 and had been negotiated and signed by appellant no.1; that Detector Electronics had severed relations with respondent no.1 company in June 2004 in view of the interference/involvement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant no.3. In the affidavit dated 29th March 2007 of respondent no.2 in rejoinder, these statements have not been denied. 31. Therefore, I cannot accept that there was any wrongful diversion of business, inasmuch as (i) Detector Electronics had not been willing to deal with respondent no.1 due to the involvement/ interference by respondent no.2; and (ii) the other contracts were bid for/ obtained by appellant no.1 much after respondent no.2 had purported to oust appellant no.1 from respondent no.1 and purported to remove him from directorship and filed Form 32. 32. Respondent no.2 had produced additional documents (i) at Vol III Pg. 728, (ii) At Vol IV Pg.1036 to 1126 alongwith a one page affidavit dated 16th October 2007 and (iii) At Vol V Pg.1128 to 1165 alongwith a one page affidavit dated 20th December 2007. None of these affidavits, however, had any additional plea or statement on oath. 33. The CLB has in the impugned order, totally failed to atleast consider the aforesaid response/explanations of appellant no.1 and has recorded a bald conclusion that The specific allegations of diversion of business and funds have not been refuted by respondents . This is tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In fact respondent no.1 company had billed Oil India ₹ 210/ per head per day in 1998 and ₹ 290/ per head per day from 2003 for catering services provided to visitors at the site; that in the year 1998 1999 M/s. Tanna Enterprises/M/s. Global Enterprises had charged respondent no.1 company ₹ 35.43 Lakhs for catering services; that accordingly billing by appellant no.3 [Spectron] for catering at ₹ 26 Lakhs to ₹ 36 Lakhs per year for the period 2001- 2005, was fully justified and could not lead to any inference of siphoning off money. 36. In the said note, respondent no.2 had also alleged that the fixed deposits of ₹ 1.5 Crores were encashed and the amounts siphoned off by fictitious bills in favor of Barkha Inda, KSB Engrs SCA International, a bogus entry of ₹ 19,50,000/ was made of a software sale by M/s. Barkha lnds, which does not appear to be genuine , M/s. SCA International had been debited with ₹ 397,817/ for commission receivable from it, without any supportings. Appellant no.1 had responded to these allegations vide note annexed to his affidavit dated 3rd September 2007 and had pointed out that the payment to Barkha ln ..... X X X X Extracts X X X X X X X X Extracts X X X X
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