TMI Blog2017 (5) TMI 1661X X X X Extracts X X X X X X X X Extracts X X X X ..... taken place. Respondent Nos. 3 to 5 are neither shareholders nor directors as held supra. The petitioners are admittedly holding sufficient number of shares as per documents filed, and it was also examined by CLB at the initial stage itself. We are satisfied that powers of Attorney in question have been duly executed in accordance with law and the petition is properly instituted and it is maintainable. Acts of oppression and mismanagement are not specifically defined in the Companies Act, and it should be inferred from facts of each case. In the instant case, the following acts constitute acts of oppression and mismanagement on the part of respondent Nos. 3 to 5 apart from others: a. Acts of respondent No. 3 by promising several things for beneficial interest of Company and thereby forcing the second respondent deceitfully to enter into agreement dated 9.10.2003 and then did not comply with those terms, which ultimately ended in its termination, even though second respondent has no authority to enter into such an agreement; b. Taking management of Company by Respondent No. 3 in an illegal manner by making nominal investments in it; c. Filing of several civil and crimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 09.02.2012/21.02.2012 and also granted stay of all further proceedings of BIFR till the main appeal was finally disposed of. It is to be mentioned herein that by virtue of promulgation of new Companies Act, 2013, all proceedings pending before BIFR/AAIFR stands abated. After suffering two decrees as stated above and also in view of interim order dated 16.7.2008, the respondent Nos. 3 to 5 do not have any locus standi to continues as MD/Directors and to interfere in the affairs of Company. And the alleged allotees out of shares of alleged increased share capital would not get any rights and when Respondent Nos. 3 to 5 themselves have no right to pass any resolution to increase the same. So the impugned increased share capital and subsequent allotment of those shares would not bestow any rights on those allottees. Hence, there is no necessity to implead those alleged allottees of shares and the Tribunal is fully empowered to interfere with this issue. It is relevant to point out general principle of law which says 'Nobody can convey a better title that what one has'. In the instant case, the Respondent Nos. 3 to 5 themselves have.lost all rights in the Company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the other at the request of parties. They have insisted the Tribunal to decide Company Applications, which are pending in this case, before deciding the main case. Accordingly, we have appointed an Advocate Commissioner vide order dated 19.10.2016 passed in C.A.No.1/2016 in C.P.No.87/2007 to take inventory of fixed assets of M/s Priyaranjani Fibers Limited (R1 Company). After hearing both the parties, orders were reserved on 9th March, 2017. 2. Since several developments takes place after filing the present Company Petition, the Petitioners have filed C.A.No.43/2009 by seeking to add some more prayers to the existing prayers already sought in the main Company petition. The CLB allowed said Company application on 09.08.2012. It would be appropriate to extract all main prayers in Company petition, after amendment. Existing main Prayers in Company petition. a. To declare the Appointment of the 3rd Respondent as the Managing Directors/Director, and 4th 5th Respondents as Directors of the Company as illegal, and the actions and omissions on their part does not bind the company or the Shareholders, in any manner. b. To declare as void abnitio, illegal, not binding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llage, Ibrahimpatnam, R.R. District, Telangana. The authorized share capital of the Company is ₹ 23,00,00,000/- divided into 2,30,00,000 equity shares of ₹ 10/- each and its paid-up share capital is ₹ 11,70,00,000/- divided into 1,70,00,000 equity shares of ₹ 10/- each. The object of the Company is to carry on business of spinning and weaving mills and of spinners, weavers, bleachers, dyers of cotton, silk, wool, rayan, Dotusal and Synthetic fibers and fibrous substances of all kinds. (b) All Petitioners are shareholders of the Company, and all of them have duly executed their Power of Attorney (POA) to the first petitioner to file this petition on their behalf also. (c) The Company is 100% export oriented and an entire premises of the factory is bonded with the Customs and Central Excise Department, Government of India. The Company has availed several loans and commenced its commercial production. However, the Company could not make any profits due to the recession in the international market about the price of cotton yarn. In spite of that, the Company continued its production, and other activities till December, 1999. (d) The Company has also tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors of the Company and the 3rd Respondent was further appointed as Managing Director of the Company for a period of five years w.e.f. 03.09.2003. In fact, there was no meeting of the Company held, and no notice whatsoever was given to existing shareholders to such appointments. And all these documents are alleged to have been fabricated by the 3rd Respondent. (h) The 3rd Respondent, basing on the said agreement and alleged resolutions, has entered into the factory of Company and made small payments to various authorities, and started production of the Unit. And it was also understood that the Company was running continuously for a period of about four years, and made huge profits without bothering about overheads and maintaining accounts. The 3rd Respondent has paid at least ₹ 3 lakhs per month for four years towards electricity bill to AP Transco Limited. So it is alleged that third Respondent, without investing any substantial amount into the Company has earned substantial amount and usurped it. (i) It is further stated that BIFR did not recognize 3rd Respondent and thus directed the 2nd Respondent to attend further hearing personally, as it is only second respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No.2 herein) by declaring that the notice dated 03.08.2007 was illegal, null and void and non est in law and to further declare that second respondent was not entitled to act as Executive Vice chairman as he was no more a Director and also sought a perpetual injunction restraining him or his agents, representatives, nominees etc. from holding any meeting of the shareholders of the 1st Plaintiff Company. Accordingly, Respondents No.3 to 5 were able to obtain an ex parte interim injunction dated 28.08.2007 in I.A.No.3166/2007 in O.S.No.469/2007, by restraining the respondent, his agents etc. from conducting the proposed EGM on 03.09.2007. Subsequently, these interim orders were vacated on 06.11.2007. Aggrieved by the Order dated 6.11.2007, the Company and Respondent Nos. 3 to 5 have filed CMA MP No. 2391/2007 in MA.CMA No. 1015/2007 before the Hon'ble High Court of Andhra Pradesh by inter alia seeking to grant interim injunction restraining the respondent (second respondent herein) and his agents etc., from conducting EGM of 1st petitioner Company pursuant to alleged notices dated 03.08.2007 and 07.12.2007 by suspending order dated 06.11.2007 passed in IA No.3166/2007. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act, 1956. After hearing those appeals, the Hon'ble High court by an order dated 28th January, 2009 dismissed those appeals by upholding the said order of the CLB. Subsequently, amendment petition has been filed by petitioner amending the prayer and pleadings. (r) It is further alleged that the Respondent Nos.3 to 5 alleged to have conducted EGM dated 01.05.2004 for a purported issuance of 12 crores of equity shares to friends and relatives of Respondents No.3 in order to make the petitioners stake below 10% with a mala fide intention to disqualify them from invoking Section 397/398 of the Companies Act, 1956. The resolutions dated 31.04.2004 and 31.05.2004 are also cooked up and fabricated and those resolutions were filed by way of Forms No.23 and 2 with RoC. In fact there was no money received from the alleged allottees by the Company for the so-called allotment of 1,13,00,000 equity shares of ₹ 10/- each. Likewise, the Board resolution dated 02.06.2004 was also cooked up resolution, which authorized Respondents No.3 to sign the share certificates for alleged new allotments In fact, enhancement and allotments of shares cannot be taken without permission of BIFR. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Petitioners 8 14 were purportedly were the directors of the company and further re-appointed as directors on 26.12.2006 and the same is not borne out by their affirmation affidavit signed in March, 2010. (vi) They have further denied that D. Srinivasa Rao, Respondent No.2, is working as Executive Chairman. It is stated that he is an outsider and does not hold any position as on date of filing of CP. The Petitioners do not satisfy the criteria of requisite value of shares as well as numbers as contemplated under section 399 of the Companies Act, 1956. It is further denied that the Petitioners hold about 10.33 % of the total paid-up share capital of the company. Even the purported shares held by them were pledged to IDBI/SASF and they are the rightful legal owners of the shares. (vii) The Respondent No.2 is Ex-Executive Chairman of the Company, and he has resigned it long-time back in the year 2003, and today he is only an outsider and he neither a shareholder nor a Director of the Company. (viii) It is conceded that though R3 is a Chairman and MD and Respondent No. 4 5 are Directors of the Company, they are not acting as Directors for and on behalf of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a reply statement dated 22nd February followed by his written submissions dated 6th March, 2017. The following are his material submissions in those pleadings: (a) He is a M.Tech Degree holder in structural engineering from IIT Madras. Around March 1991, some friends had pursued him to invest in the Company. Accordingly, he has invested about ₹ 0.93 crores over a period of time in the Company. Even, though he holds a major stake in the Company along with family, friends and associates, he was not at helm of affairs of Company from the beginning. He has brought one Sri. V. Raman, a textile expert into the Company as Managing Director .Though Raman held very few shares in the Company; he used to manage the Company, which ultimately led the Company to losses and also in litigation. Ultimately, when all the court cases are over, the Company was left with no funds except crores of accumulated losses. (b) Due to the miscellaneous acts of Ranganathan CA, he has entered into the agreement dated 09.10.2003 in question with Respondent No.3. Due to failure of compliance of terms and conditions of the agreement on the part of Respondent No.3, it was ultimately terminated vide let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No.3 cooked up records projecting further issue of shares. (j) The petitioners are eligible to file present petition. It is alleged that Respondents Nos. 3 to 5 are committing various illegal acts and misrepresenting the Company before various judicial forums. They have not produced any documentary evidence to show they were duly appointed in accordance with law except to rely on terms of agreement dated 09.10.2003. (k) The agreement dated 09.10.2003 is a private agreement between him and respondent No.2 and 3, and it was not adopted by Memorandum Articles of Association. Therefore, the Company and shareholder are not bound by terms of agreement. The agreement was ultimately terminated on 14.10.2006, and shares including that of petitioners of 10% shareholders were not transferred to Respondent No.3 due to failure of fulfilling terms and conditions of agreement. In fact, this fact was also admitted by Respondent No.3 in an answer U/Q 9 of 313 of Cr.PC examination in Economic Offence Court in CC No. 241/2012. (l) The respondent No. 3 did not question termination of said agreement and thus it cannot be relied upon by Respondent No.3. Moreover, the shares in question are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. (r) It is also stated that Sections 22(2) r/w section 18 of SICA Act is not in conflict with right of shareholders herein since scheme of revival was not yet been sanctioned by BIFR. (s) It is alleged that Respondent Nos. 3 to 5 have fabricated balance sheets showing enhanced capital of ₹ 11.30 crores, K. Ranganathan was never appointed as Auditor by Shareholders of Company in any AGM and thus all proceedings with his association are invalid and illegal. It is alleged that fictitious enhanced capital is void ab nitio as per section 69(3 4) of the Act. (t) Therefore, he prayed the Tribunal to pass appropriate orders as per law. 6. Mr. S. Ravi, learned Senior Counsel for the Respondent Nos.l, 3, 4 5 has filed written submission dated 13.03.2017. The following are his main contentions:- (a) It is contended since Respondent Nos. 3 to 5 are already restrained by the CLB vide order dated 16.07.2008, which is upheld by Hon'ble High Court, hence no directions need to be given again for restraining them as per one of main prayers However, it is contended that CLB has not passed any directions/order as to removal of Respondent Nos. 3 to 5 as Director nor direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition. Similarly, no relief can be granted with regard to statutory Auditor namely Ranganathan as he was not a party to this petition. (h) It is alleged that Company petition is a surrogate petition filed for and on behalf of Respondent No. 2 through his son, daughter, wife (deceased), brothers-in-law and other close relatives and it is nothing but pure abuse of process of law. (i) It is contended that BIFR has ordered Operative Agency (OA) to appoint an Independent professional to verify the claims/counter-claims of both the groups and submit an independent report. Accordingly, Y. Koteswara Rao, a Practicing Company Secretary was appointed and has submitted his report in October, 2008 dealing with everything in issue and the same is after the CLB order dated 16.7.2008. The said report was not controverted nor challenged either by petitioners or Respondent No.2. (j) It is also contended that Respondent No.2 has no authority to conduct any meetings in question as he was no more a MD/Director and all proceedings conducted under his supervision are invalid. There was no notice issued to conduct EGM dated 02.01.2008, and it not also not deposited at the Registered office of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Punnaiah and AMP v. Jeypore Sugar Co. Ltd. [1994] 1 SCL 180 (SC). (d) It is further contented that Company is declared as sick industry and the matter is pending with BIFR vide Case No.366/2001, which is referred to by the second Respondent in his capacity as Vice Chairman and Managing Director. (e) Though, it is mentioned in the agreement dated 09.10.2003 that Respondent No.3 and his nominees would be co-opted into Board of Company later, there is no whisper in it that Respondent Nos.3 to 5 were already inducted as Managing Director/Directors. The agreement just speaks of an agreement to transfer shares from Respondent No-2 to Respondent No-3, however subject to fulfilment of certain conditions. However, Respondent No-2 has no authority to sell shares of his friends and Relatives to the Respondent No-3. It is also not in dispute that the shares in question are pledged with IDBI as per collateral security and it cannot be transferred to anybody without permissions from IDBI. So the agreement to transfer shares in question is not at all tenable, either in facts or in law. (f) The Respondent Nos.3 to 5 by taking advantage of the said illegal agreement has taken possession o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be about ₹ 2,65,00,000/- and it would require about ₹ 4.50 crores to bring back original condition of machines that are existed in the year 2003. (j) It is alleged that acts of filing of several forms illegally with RoC not minding the Orders of CLB and Hon'ble High Court, representing the Company in place of Original Board of Directors constitute oppression under Section 397 of the Companies Act, 1956. Running the factory without showing accounts, illegally making profits, selling away Machines, Yarn and other valuable Assets of the Company constitute mismanagement. (k) It is further stated that interim orders passed by the City Civil Court in OA No. 468/2007 were subsequently vacated on 06-11-2007 and it was also upheld by the Hon'ble High Court, while dismissing CMA No. 1015/2007 filed by the Respondent No.3 to 5. Respondents Nos.3 to 5 were removed as Directors of the Company and original Board of Directors were restored in accordance with law. (l) It is also stated that the Respondent No-2, in his capacity as Executive Vice Chairman, has filed OS No.86 of 2008, before III Addl. Sessions judge by seeking perpetual injunction against the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company petition, it is necessary to refer brief history of Company as to its origin, and up and down. As stated supra, M/s Priyaranjani Fibres Limited (R1 Company) was incorporated on 14th day of February, 1991 as a Public Limited Company. It was promoted as 100% Export Oriented Unit (EOU) Spinning unit. The second respondent, who is an M. Tech degree holder in structural Engineering from IIT, Madras, at the instance his friends, has invested about ₹ 0.93 crores in the year 1991, along with his family, friends and associates in the Company. Though his group held major stakes in the Company, he was not at helm of affairs for so much time and one Mr. V. Raman, a Textile Expert was initially brought into the Company as Managing Director, who held very few shares in the Company. It is closely held Public Company and no public issue had ever taken place. Subsequently, the second respondent was appointed as Director in the year 1994 and also became Executive Vice Chairman in the year 1998. Due to financial losses in the Company, he made a reference to BIFR and the same was registered as Case No. 366 of 2012. The details of shares held by second Respondent and his family members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brother-in-Law 2076 other 22375' 2,23,750 16 G. Appa Rao Brother-in-Law 2116 other .16100 1,61,000 17 KornuNaran Naidu Brother-in-Law 2122 other 12100 1,21,000 18 Kornu Mohan Rao Brother-in-Law 1636 other 10300 1,03,000 19 D. Rama Murthy Co-Brother 1516 other 28385 2,83,850 20 G.V. Ramana Son-in-Law 1600 other 28525 2,85,250 21 D. Lakshmi Niece 3442 3980 6000 60,000 22 M/s Siri Office 1901 5000 50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorized the second respondent to execute the said agreement. So the Agreement in question would not confer any rights automatically on respondent No.3, and at the most, individual rights of second respondent can be transferred to respondent No.3, however, subject to fulfilling required conditions prescribed under law and Articles of Association of the Company. 13. It is not in dispute that shares in question referred to in the said agreement, in principle, do not belong to him and the second respondent has no authority to enter said agreement on behalf of Company with third respondent and neither the Company nor its shareholders have given any authority to transfer those shares. Secondly, those shares are under pledge with IDBI and other financial institutions. There is a prescribed procedure prescribed under Articles of Association of the Company with regard to transfer and transmission of shares. Article 16(a) (b) of Articles of Association of the Company are relevant now and it reads as under: The instrument of transfer of any share in the Company shall be executed by or on behalf of both the transferor and transferee. The Transferor shall be deemed to remain a hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 and falsely claiming himself as Executive Vice Chairman although he had resigned from the Board of Directors of the 1st Plaintiff Company. Further in the alleged notice, the respondent herein stated that an EGM was held on 26.12.2006 restoring the position original directors in the Board. It is respectfully submitted that such an EGM was never held and no notices were received by any of the Directors or shareholders of the 1st Petitioner/Plaintiff Company . In order to settle disputes between the Company and Respondent Nos. 3 to 5, in exercise of powers of the Shareholders of Company u/s 169 of Companies Act, 1956, the Shareholders requisitioned Extraordinary General Meeting of Company by inter alia proposing to remove respondent Nos.3 to 5 as MD/Directors of Company, to recover rentals from Respondent No.3 etc. Accordingly, the Company has issued a notice dated 03.08.2007 (page 113Annexure XIII with CP). Aggrieved by this notice, above suit was filed by seeking declaration to declare the said notice dated 03.08.2007 as illegal, null etc, to declare defendant (Respondent No.2) was not entitled to act as Executive Vice Chairman as he was no more a Director and further inj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions raised are whether present Company petition is maintainable and any acts of oppression and mismanagement is alleged to have been committed by Respondent Nos 3 to 5. The respondents Nos. 3 to 5 have raised several pleas about maintainability of petition including holding minimum shareholding as per Companies Act, 1956 and it was not properly authorized and filed in accordance with law etc. It is not in dispute that in order to file a petition under sections 397/398 of Companies Act, 1956, one of prerequisites is that party is supposed to hold either not less than one hundred members of company or not less than one-tenth of total number of its members as prescribed under section 399. As stated supra, it is settled position of law that one has to satisfy requirement(s) of statute at the time of filing petition/application. The contention that shares totalling 4,23,250 as held by Smt. D. Umavathi (16th petitioner) should not be counted for the purpose of constituting minimum percentage , due to her death, is not at all tenable. Moreover, her legal heirs are admittedly petitioners in the Company petition. As stated supra, the Company is a closely held Company, and no issue of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r wishes of shareholders of Company on the pretext present Company petition is pending disposal. 20. The Respondents No.3 to 5 by raising several frivolous litigations before various Courts/Authorities, have caused so much hardship to the Petitioners as well as to the Company. They are bent upon to abuse the process of law and thereby got so much financial advantage out of the running of the affairs of the Company. As explained above, the Respondents No.3 to 5 have not stopped in interfering with the affairs of the Company, even when, they have suffered two decree and also CLB Order dated 16.07.2008. They were also removed from the Board of Directors as per the EGM conducted on 02.01.2008 and the agreement dated 03.10.2003 was also terminated. Hence it is a fit case to award costs against Respondents No.3 to 5. 21. The order dated 22.11.2011 passed by BIFR by directing '3(1) Reddy Group to continue to manage affairs of the Company and to submit fully tied up DRS to IDBI(OA) within six weeks on behalf of the Company and (ii) IDBI(OA) to examine the DRS and convene the joint meeting of all concerned, and submit fully tied up DRS, if emerges to the Board within next six week ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances as mentioned above would indicate that ordering winding up of Company would be just and equitable but it would unfairly prejudice and burdensome to shareholders of the Company and it is also against public interest. Hence, it is necessary to put an end the illegal interference of Respondent Nos. 3 to 5 in the affairs of Company so as to see that its affairs are being conducted by legally constituted Board of Directors as stated supra. Therefore, it is a fit case for this Tribunal to exercise its jurisdiction and powers conferred on it, under Sections 397, 398 and 402 and other applicable provisions of Companies Act, 1956, read with relevant comparable provisions under new Companies Act, 2013. 23. In the result, the Company petition bearing CP No. 87 of 2007 is disposed of with the following directions: (a) We hereby declare that the agreement dated 9.10.2003 deemed to be terminated, and it would not confer any rights to respondent Nos. 3 to 5 in respect of any terms and conditions mentioned therein; (b) We hereby declare that holding of Board Meeting and passing of resolutions dated 30.04.2004, 2.6.2004, and subsequently by Respondent Nos. 3 to 5 are illegal an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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