TMI Blog2019 (5) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent has not given any suitable explanation as to why the Respondent No.2 was allotted shares at par without premium and allot shares to the Petitioners at premium except simply stating that it is a mistake and unintentional but no action was taken to rectify it so far. The Respondents are resorting to acts of oppression and mismanagement which are further to be investigated by the Registrar of Companies and Principal Director of Income Tax (Investigation) with whom the complaints are already pending submitted by the Petitioner. It would be just and proper to prevent the present management to perpetuate further acts of oppression and mismanagement and to prevent misuse of funds, by making an interim arrangement by appointing independent Chairman as to see the affairs of the Company should be conducted in accordance with law. Prof. (Dr.) O.V. Nandimath, Professor of Law Registrar, National Law School of India University, Nagarbhavi, Bangalore-560242, are appointed as independent Chairman for M/s. World Schools Private Limited to look after the affairs of the Company, till the investigations are completed by the Statutory Authorities - Petitioners are hereby granted li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (8) To pass an order declaring that the Board Meetings and General Meeting held without issuing notices to the Petitioner Directors are null and void and the decision taken on the said meetings will not bind the Petitioner Directors and other individual investors and shareholders, etc. 2. Brief facts of the case, as mentioned in the Company Petition, which are relevant to the issue in question, are as follows: (1) M/s. World Schools Private Limited (hereinafter referred to as Company) was incorporated as a private Company limited by shares on 24.01.2005 under the Companies Act, 1956 ('Act') in the State of Karnataka, and at present, the Registered Office of the Company is situated at New No.76, Old No. 29, 1st Main Road, Chamrajpet, Bangalore - 560 018, which is also the residence of 4th Respondent, who is the mother of the 2nd Respondent. The Authorised Share Capital of the Company is ₹ 1,00,00,000/- (Rupees One Crore Only) divided into 10,00,000 Equity Shares of ₹ 10/- each and the paid-up capital of the Company is ₹ 95,58,060/- (Rupees Ninety-Five Lakhs Fifty-Eight Thousand and Sixty Only) divided into 9,55,806 Equity Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 shares by an allotment of 50,000 Equity Shares of ₹ 10/- each without any premium and as on the date of holding the AGM for the year 2007, he was holding 57,500 Equity Shares in the paid-up of the Company. However, he was allotted said 50,000 shares without any premium, whereas the allotment of shares made at premium of ₹ 50/- per share to the other 5 investors of the R-1 Company wherein the 1st and 2nd Petitioner were also allotted shares with premium. The 3rd Petitioner has been allotted shares 12,269. It is stated that allotting shares to the R-2 without premium was not discussed in any of the Board Meeting and it was decided by the R-2 unilaterally, who is being the MD of the Company. The disparity in the allotment of shares to the R-2 is challenged in the Petition. (6) At present, there are 9 Directors and out of which the R-2 is the Managing Director and he is a resident of USA. Though the 2nd Petitioner has given his local address in the Company, he is also residing at USA as such all the Petitioner Directors are residents of USA. Except R-4 and R-5, all other Respondent Directors are residents of USA. Since the Directors R-4 and R-5 alone are r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than the contesting Respondents. And this email, which has been sent by the R-3 had invoked serious repercussion in the affairs of the Company and number of Directors had questioned the action of the Respondent Directors. The 1st Petitioner had also requested the R-3 to call for a special meeting of all the investors to discuss the matter, however, for the best reasons known to him the said meeting was never called. Though the said act on the part of Respondents had not been carried out further, it would show the intention of the Respondent Directors. (9) The Respondents never sent any reply to the most of the mails sent by the petitioners except with regard to the audit and its scope. The Respondents were not bothered about the investors and never thought fit to send reply to the mails of the investors. It is also stated that the R-2 purposefully treated the investment made by the 3rd Petitioner as in IND currency to somehow take this for his personal advantage of RBI transaction in some ways. The 2nd Respondent has not taken seriously the emails sent by the 3rd Petitioner about the currency status. The R-2 has given very shorter notice to the investors and he had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks prior to 2012-13 and we were not provided with satisfactory explanation/information for the said years. d. There was no responsible person to provide complete and proper information with respect to the transactions entered into by the institution. It is stated that the audit was fixed with the consent of the contesting respondents and the above information provided by the Auditor would show that the contesting Respondents are not interested to divulge necessary information to the Auditor to finish the audit. This fact alone would show that the ulterior motive of the contesting Respondents. The Auditor in the report under the heading Sources of Funds and its utilisation had observed the following: e. Investors' funds comprising of monies received from existing and proposed shareholders towards equity shares allotted, share premium account, shares pending allotment unsecured loans. The monies received have been verified with the bank statements and the same is satisfactorily reflected in the books of account. However, the confirmation of total investment made by each investor was not available for review to confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in one of the Board Meeting held on 21.04.2007, the matter of Trust was taken up by the Board and in the said meeting, the 1st and 2nd Petitioner and Respondents 2, 3 and 6 were present. However, the Board has taken a decision about the Trust and it was decided by the Board that there would by 5 trust members on a yearly rotation, 3 from Board and one from US investor and one from Indian investor. The 2nd Petitioner, Respondents 5 and 6 volunteered to be the trust members, however, the 2nd Respondent recommended Dr. Eshwar as trust member subject to his approval and the member from the Indian investor was to be decided. Though the said meeting was held in the year 2007, no proposal of appointing trust members was received from the contesting respondents, in the back of the Petitioners, the contesting Respondents have appointed themselves as Trust Members and they are managing the affairs of the Trust also. They have misappropriated the money in the Trust also which has been reported by the Auditor. Therefore, it is inevitable to appoint an interim committee to manage the affairs of the Trust also. (13) It is stated that the affairs of the Company and the Trust are be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the only Director-Shareholder, who has mortgaged his personal property, to prevent the Company from being declared as non-performing asset. It is asserted that Respondent No.2, unlike the Petitioners, has always worked to promote and protect the best interests of the Company. (3) Whilst the Company was still facing the above financial difficulties, Petitioner No.1 instructed his lawyers to issue a legal notice dated 22.04.2013 to the Company questioning the allotment of shares made in favour of R-2 and certain other shareholders inter alia in 2008, during the period when Petitioner No.2 himself had been Chairman of the Board of Directors. This legal notice demanded that a review of the allotment of shares be conducted by a Consultant appointed by the financial committee in addition to the financial review which was already being undertaken. Pursuant to the said legal notice, the review by V K was also resumed. A sub-committee comprising of Petitioner Nos.1 and R-2 and 5 was formed to facilitate closure of this review. (4) It is stated that the present Petition has been filed as a reaction to Petitioners No.1 and 2's removal from the Board of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted. (9) It is a settled principle of law that for a Petition alleging acts of oppression the acts of oppression must be continuous; the Petitioner cannot rely on isolated incidents. The Petitioners have failed to establish any continuous acts of oppression, and this is because there have been none. R-2 has, at all times, cooperated with the Petitioners in resolving their concerns regarding the management of the affairs of the Company. The Petitioners are re-agitating their earlier grievances (which have been discussed at Board Meetings already) by disguising them as acts of oppression. R-2 suspects that the actions of Petitioners No.1 and 2 are a reaction to their removal from the Board of the Company in March, 2016. The present Petition was filed shortly thereafter in May 2016, even though the allegations made in the Petition relate to earlier years. (10) The Petitioners have suppressed material facts and made misleading statements in the Petition, and have not approached this Hon'ble Tribunal with clean hands. For example: a. Petitioner Nos. 1 and 2, in their capacity as Directors, were aware of the alleged illegal allotment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vil Court is conferred with the jurisdiction to adjudicate disputes relating to the Indian Trusts Act, 1882. Moreover, the said Trust is an independent entity and the Company does not supervise the management of the Trust. (13) The allegations that the Respondents have not rendered proper accounts and that there is a likelihood of Respondent No.2 manufacturing and fabricating documents are without any basis. It is stated that the financials of the Company have been audited by a statutory auditor appointed by the Board of Directors (of which Petitioner Nos. 1 and 2 were a part), and the financials were later approved by the Board and filed with the Registrar of Companies. The audited financials were further reviewed by a consultant (V K) who has also not made any findings of mismanagement; the consultant has merely sought clarifications. In any event the Petitioners have failed to provide any evidence to show that affairs of the Company are being conducted improperly. (14) The Petitioners have failed to provide any credible basis for seeking appointment of an interim management committee or for inspection of the affairs of the Company. In any event, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholding of the Petitioners. In any event, the various allotments made by the Board over time have not resulted in the Petitioner's shareholders being substantially reduced, as alleged. (4) The Petition alleges that the Petitioner Directors were deliberately not provided notices of meetings. It is stated that the Petitioner Directors and other Directors were throughout kept informed about the Board Meetings and the business of the Company. They were duly provided notices of Board Meetings and Minutes of meetings were also circulated to all Directors. Some of the allegations made by the Petitioners in this regard are patently false. For example, the Petitioners allege that they were not aware of the EGM held on 11.12.2015 and that they did not receive notices for the said meeting is not correct as notices were sent to the Petitioners on 19.11.2015. In addition, the date and Agenda for this EGM were also discussed at the previous Board Meeting held on 16.11.2015, the minutes for which were also circulated to the Petitioners. Similarly, for the Board Meeting held on 04.08.2014, notice was provided to the Petitioners vide e-mail dated 27.07.2014 but the Peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Shri Madhu N. Rao, learned Counsel for the Petitioner after arguing the case, has also filed written arguments dated 30.01.2018, by inter alia, contending as follows: (1) Till 30.11.2016, no shares were allotted inspite of reminders from the Petitioners. On 16.08.2006, in an allegedly and invalidly held Board Meeting (Conference Call), the then Chairman of the Company, R-6, took few invalid decisions for finalizing issue of sweat equity shares. The R-6 also justified his position vide email dated 12.10.2006. The Petitioner No.2 reverted back to those proposals vide email dated 20.10.2006 stating that investments were made on the understanding of equal footing and the decisions were contrary to the decision dated 26.04.2005. (2) Further, during the course of the running of the Company, the R-2 to 6 perpetuated many oppressive and mismanagements acts which were/are prejudicial to the interests of the Company and the Petitioners and other members. They have continued such acts even when the present Petition is pending. The term 'oppression' and 'mismanagement' are not defined in the Companies Act. Section 241(1)(a) deals with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors that the financials were not yet ready and hence the Board Meeting to approve the accounts need to be postponed by a day or two. In another email dated 22.09.2010 i.e. on the same day, the R-2 sends only a draft Balance Sheet and Profit and Loss Account for discussion in the Board and goes on to say that the final accounts can be done later. In a mail dated 26.09.2010, the R-2 states that there would be an investors meeting on 03.10.2010 at Chicago and sends the AGM notice and Accounts. If an investors meeting was held in Chicago on 03.10.2010 (Company Secretary Compliance Report states that AGM for the year 2010 was held on 30.09.2010), then how was the AGM held on 30.09.2010, that too when the accounts were only ready on 26.09.2010? It is hereby prayed before the Hon'ble Bench that the Respondents are directed to produce the Notices sent to the members for the AGM which was held on 30.09.2010. (5) There were no properly and validly held Board Meetings. The Notices were not served for many of the Board Meetings. It was held in P. Narayanaswamy case that the law does not discharge the Respondents from the burden of proving the actual service of notice and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not supported by bills/vouchers; e. No satisfactory explanation for transactions before 2012-2013; f. No explanations for proper CAPEX expenditures; g. The internal control mechanism was not satisfactory; h. Discrepancies in many expenditures incurred; i. Unauthorized cash transactions and no voucher or supporting for the same; j. Disparity in allotment of shares; k. Questionable Related Party Transactions. (7) It is further contended that the issue in question is a continuous cause of action and it is also within limitation as last legal notice was issued on 01.07.2014 and thus it is filed within a period of limitation. Moreover, latest act of oppression came to light as late as 30.09.2017 when the Respondent No. 2 stated that the accounts of MVP Institutions Private Limited and the Respondent No. 1 were merged for seeking loan from Banks and Financial Institutions and this decisions will have vide ramifications on the Company, its members and operations of the School and alleged fraud in it. (8) They have also relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... topped their acts of oppression and mismanagement even while the instant case is pending, as the Petitioners came to know their latest act of oppression on 30.09.2017 when the Respondent No. 2 stated that the accounts of MVP Institutions Private Limited and the Respondent No.1 were merged for seeking loan from Banks and Financial Institutions. Therefore, the plea of laches and limitation as contended by the Respondents would not applicable to the instant case and we hold it is continuous cause of action. 10. The learned Counsel for the Petitioners has filed a Memo of Documents dated 20.12.2018 by enclosing copies of the complaints given to various authorities i.e. Office of the Principal DIT (Inv.), Bangalore dated 07.11.2017; Registrar of Companies, Karnataka dated 08.01.2018 08.10.2008; Office of Registrar of Companies, Karnataka dated 12.01.2018, by making various allegations against the Respondents and thus sought to take appropriate action against them. However, it is stated that those complaints under consideration of those authorities. By fed up with lethargic attitude of authorities, the Petitioners have also addressed the Hon'ble Prime Minister office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o PMOPG portal complaint. As per the communication received from the PM's Office, it is stated that the Petitioner is stated to have made a complaint with the PMO Office with regard to the delay in making the investigation into the affairs of the Company by the Registrar of Companies, Principal Director of Income Tax (Inv.) and also the matter is pending disposal on the file of this Tribunal. However, the Tribunal could not get the latest developments on the stage of the investigation pending on the above complaints with the above authorities. In order to investigate into the complaints filed by the Petitioner by the Statutory Authorities, it is also necessary to dispose of the instant Company Petition to complete the inquiry. 14. In the result, C.P. No.7 of 2016 is disposed of with the following directions: (1) We hereby appointed Prof. (Dr.) O.V. Nandimath, Professor of Law Registrar, National Law School of India University, Nagarbhavi, Bangalore-560242, as independent Chairman for M/s. World Schools Private Limited to look after the affairs of the Company, till the investigations are completed by the Statutory Authorities; (2) W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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