TMI Blog2018 (9) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... shares was made to Respondent No.4, an outsider. Having gained in numbers in such manner and having brought in Respondent No.4 with token shares, Respondents 2 and 3 appear to have then proceeded to get rid of directorship of Appellant. Thus, calculatively, Appellant was oppressed. In the process, Company was mismanaged by illegal increase and distribution of capital. Winding up of the Company would unfairly prejudice the Appellant who is a member, but otherwise the facts justify the making of a winding up order on the ground that it is just and equitable that the Company should be wound up. We pass the following order:- A. We hold that the Board Meeting Resolutions dated 31.10.2016 and 26.11.2016 and the Resolution of EOGM dated 25.11.2016 cannot be maintained regarding increase of share capital and the allotments made. These Resolutions are quashed. The increase of share capital from ₹ 15 lakhs to ₹ 40 lakhs and the subsequent allotment of shares to Respondent Nos.2 and 4 are quashed and set aside. B. Consequent to the above directions, further steps taken by Respondents 2 and 3 to induct Respondent No.4 as Director and the Resolution taken pending litig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of Respondents 2 and 3 couple (hereafter also referred as Respondents ) went beyond 50% of the total. In the Company Petition brought by the Appellant, she questioned this issue of shares to Respondent No.3. c) The Appellant then in the Company Petition, impugned Board Resolution calling for EOGM dated 30th September, 2015 to increase authorized share capital of the Company and the EOGM held on 30th September, 2015, by which authorized share capital of the Company was increased from ₹ 5 lakhs to ₹ 15 lakhs. She challenged the distribution of the shares after the EOGM (dated 30th September, 2015) in Board Meeting said to have been held on 30th September, 2015 after the EOGM. The division of shares done on 30th September, 2015 questioned by Appellant is as under:- 1. Respondent No.2 - 39.08% (58615 shares) 2. Appellant 28.58% (42,875 shares) 3. Respondent No.3 32.34% (48510 shares) (Impugned transfer) She has impugned the number of shares issued to Respondent No.3 on the basis that there was no equitable distribution between the shareholders and the shareholding of the Respondents 2 and 3 couple went up to 71.42%. She also claimed that she ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the petition and according to her due to such promises she went for attending the Board Meeting on 15.03.2017 but was not allowed to enter into the venue of Board Meeting. The Company Petition claimed that the Appellant Petitioner then received Notice dated 15.03.2017 of EOGM to be conducted on 10th April, 2017 with the agenda of removing her from the post of Director. She then filed the Company Petition on 19.03.2017. f) The Company Petition raised these aspects as acts of oppression and mismanagement. 3. The Impugned Order shows (in para 11) that NCLT had passed Order dated 06.11.2017 inter alia directing not to give effect to Resolution on the issue of removal of the Appellant as Director. The learned NCLT while rejecting other claims of the Appellant regarding oppression and mismanagement, on the basis that she had been attending the concerned meetings, did not find fault even with the decision taken by Respondents to remove the Appellant from the post of Director and observed that the Company was free to take appropriate decision according to law. 4. We have heard learned counsel for both sides and perused the Impugned Order as well as the record placed before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them. 7. Thus the Notice issued by Respondent No.2 under Orders of the Board of Directors, itself mentioned and showed that there was share application money lying and share capital was to be increased so as to allot shares to the extent of share application money contributed. At the time of arguments, the learned counsel for the Appellant submitted that the Appellant is not disputing the fact that AGM dated 30th September, 2015 took place and there was increase in the share capital but according to him, the Appellant was disputing the manner in which distribution of the increased share capital was made. According to the counsel, the Appellant had no Notice of alleged Board Meeting dated 30th September, 2015. To recall, the Appellant had pleaded in the Company Petition that she had merely signed documents given by Respondent No.2 in good faith. At Page 295, there is Board Meeting Resolution dated 30th September, 2015 which has signatures of the Appellant as Director along with the Respondent No.2 as Chairperson. The first page of the Resolution mentions that the AGM had been held on the same date and Resolution had been passed regarding increase of share capital from ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. P. Shekar 58615 24995.00 24995 2. P. Malathi 42875 24995.00 24995 3. P.Salalitha 48510 0.00 0 10. Appellant is more aggrieved by shares allotted to Respondent No.3. Looking to such documents signed by the Appellant herself, only by turning around disowning contents saying that she signed in good faith is not enough. The Appellant is stated to have been a full-time Director. When this is so, official records cannot be simply wished away. 11. It has been argued by the learned counsel for the Appellant that after passing of the Companies Act, 2013, Section 74 was introduced in the New Act requiring repayment of deposits accepted before commencement of the Act. According to him, the deposits received towards share application money were thus required to be refunded. The counsel then referred to Notification No. GSR 241(E) (Appeal Page 298) issued by the Ministry of Corporate Affairs exercising powers under Sections 73 and 76, dated 31st March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same. There is no dispute that the share application money was lying with the Company and in view of Section 74 of the New Companies Act, 2013, read with window opened by the above Notification, Company was required to act either return the money or allot shares. The Company took decisions (may be, late) as mentioned above and against the share application monies received the shares were allotted. The Appellant who was herself party to the acts cannot be heard questioning the same. R.O.C. however, will have option to take action deemed fit regarding violating Deposit Rules. 14. The learned NCLT discarded the claim of the Appellant with reference to the EOGM held on 30th September, 2015 and subsequent allocation of the shares on the basis of share application monies which had been received. We do not find any reason to interfere with this part of the Judgement of the learned NCLT. Further increase of Share Capital from 15 Lakhs to 40 Lakhs and allotments 15. The 3rd issue relates to Respondents holding Board Meeting dated 31st October, 2016 and calling of EOGM on 25th November, 2016 to further increase the share capital from 15 lakhs to 40 lakhs and then in Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f equity shares, the Resolution was as under: ALLOTMENT OF EQUITY SHARES OF THE COMPANY The Chairman informed the Board that the Company has received share application money from applicants of the Company towards the Share Capital. The Board discussed further and passed the following resolutions unanimously. RESOLVED THAT the consent of the Board be and is hereby accorded for the allotment of 1,50,100 (One Lakh Fifty Thousand One Hundred) Equity Shares of face value of ₹ 10/- (One Ten Only) each at par per share aggregating to ₹ 15,01,000/- (Rupees Fifteen Lakhs One Thousand) to the applicant mentioned below from whom the money had been received by the Company and the entries be made in the Register of Members of the Company. S No. Name Occupation of allottee Address No. of Shares Amount Rs. Face Value per Share in Rs. 1. Sekhar Pendam Occupation: Business S/o. Narayana Pendam, Plot No.14,Prasanna Apts, D-5 Saibaba Colony, Sitarampur, Bowenpally Secunderabad 5000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n preferential basis if the price of the shares has been determined by the Valuation Report of the registered Valuer and it is further subject to such conditions as may be prescribed. According to the counsel in this regard, the legislature has passed Companies (Share Capital and Debentures) Rules, 2014 ( Rules of 2014 in short) and procedure has been prescribed under Rule 13. It is also submitted by the learned counsel that the Rules further require compliance with provisions of Section 42 of the Act. According to him, neither these Rules nor provisions of Section 42 of the new Act were complied to increase this subscribed capital by issue of further shares nor preferential allotment was made to Respondent No.2 complying the provisions and the procedures were not followed for private placement when at par shares were issued to Respondent No.4, an outsider by picking him up and allotting shares at par. The counsel argued that there is nothing to show as to how Respondent No.4 was picked up for preferential allotment of shares at par. This being legal issue, we have heard parties with regard to the same and take it up for consideration. 23. The Judgement of the learned NCLT do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of this right; ( iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not disadvantageous to the shareholders and the company; ( b) to employees under a scheme of employees stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed; or ( c) to any persons, if it is authorised by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed. 24. Thus, as per Sub-Clause (c) of Sub-Section (1) of Section 62, if the shares are to be issued to any person who is not included in Clause (a) or Clause (b) it can be done provided the pricing of such shares is determined by the valuation report of a registered Valuer. The provision is further subject to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognized stock exchange, such preferential offer shall be made in accordance with the provisions of the Act and regulations made by the Securities and Exchange Board, and if they are not listed, the preferential offer shall be made in accordance, with the provisions of the Act and rules made hereunder and subject to compliance with the following requirements, namely:- ( a) the issue is authorized by its articles of association; ( b) the issue has been authorized by a special resolution of the members; [( c) ***] ( d) The company shall make the following disclosures in the explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 of the Act. ( i) the objects of the issue; ( ii) the total number of shares or other securities to be issued; ( iii) the price or price band at/within which the allotment is proposed; ( iv) basis on which the price has been arrived at along with report of the registered valuer; ( v) relevant date with reference to which the price has been arrived at; ( vi) the class or classes or persons to whom the allotment is proposed to be made; ( vii) int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfies the conditions specified in this section. 28. Sub-Section (5) of Section 42 reads as under:- ( 5) All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash. 29. Sub-Section (7) of Section 42 is as follows:- ( 7) All offers covered under this section shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe, and that such persons shall receive the offer by name, and that a complete record of such offers shall be kept by the company in such manner as may be prescribed and complete information about such offer shall be filed with the Registrar within a period of thirty days of circulation of relevant private placement offer letter. 30. Companies (Prospectus and Allotment of Securities) Rules, 2014 requires under Rule 14 dealing with private placement that for the purposes of Sub-Section (1) of Section 42, a company may make an offer or invitation to subscribe the securities through issue of a private placement offer letter in format PAS 4. There are further compliances specified in this Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution dated 26.11.2016 (Page 265) does not show how money had been received and if Section 42(5) had been complied. Records do not show that for Respondent No.4, compliances as per Section 42(7) had been made. 34. For the view, we are taking, need to discuss further arguments of parties regarding Board Meetings dated 31.10.2016 and 26.11.2016 and EOGM dated 25.11.2016 is not there. 35. We find Respondents 2 and 3 to have acted in an oppressive manner with the Appellant, when such Board Meetings dated 31.10.2016 and 26.11.2016 and EOGM dated 25.11.2016 were conducted. Acting on the basis of their majority shareholding, Respondents 2 and 3 went ahead with the EOGM against the provisions of law and made preferential allotment of shares to Respondent No.2 and private placement of shares was made to Respondent No.4, an outsider. Having gained in numbers in such manner and having brought in Respondent No.4 with token shares, Respondents 2 and 3 appear to have then proceeded to get rid of directorship of Appellant. Thus, calculatively, Appellant was oppressed. In the process, Company was mismanaged by illegal increase and distribution of capital. Winding up of the Company would un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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