TMI Blog2019 (6) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... - the continuation of 3rd respondent as additional director after 26th September, 2010, the date of Annual General Meeting, is not as per law. The action of the Respondent for filing Form No.32 with ROC regarding vacation of office by the appellant is not legal. Appellant s allegation is also that the notice of meetings were not received by him - HELD THAT:- The respondents were very well aware that the appellant is in U.K. and the respondents themselves or through their subordinates are corresponding with the appellant via emails, as is evident from the various emails which have been annexed in the appeal. Therefore, the propriety demands that the appellant should have been intimated notices of meetings also via emails and the appellant being the first founder/promoter of the company should have been asked his availability in India so that the meetings can be conducted while he was in India. Other issue raised by the appellant is that the allotment of 40000 shares to 2nd, 3rd and 4th respondent is illegal and invalid - HELD THAT:- As we have already held that the continuation of 3rd director is not as per law after 26.9.2010, therefore, the Board Meeting held on 27th Octo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest of the company or other stake holders to wind up the company - appeal allowed in part. - COMPANY APPEAL(AT) NO. 365 OF 2017 - - - Dated:- 8-2-2019 - Mr A. I. S. Cheema, Member (Judicial) And Mr Balvinder Singh, Member (Technical) For The Appellant : Dr. K.S. Ravichandran, PCS and Ms S. Manjula Devi, Advocate For The Respondents : Mr. B.V. Satish Kumar, Advocate and Mr. N. Sudheer JUDGEMENT BALVINDER SINGH, MEMBER (TECHNICAL) The appellant, original petitioner, have filed this appeal, under Section 421 of the Companies Act, 2013, being aggrieved by the impugned order passed in CP No.03/2012 (TP No.61/HDB/2016) filed in National Company Law Tribunal, Division Bench, Hyderabad Bench, Hyderabad (NCLT in short) whereby the Company Petition has been dismissed vide impugned order dated 29.8.2017. 2. 1st appellant filed the company petition under Section 111/397/398/402/403 of the Companies Act, 1956 originally before the Company Law Board and later on the matter was transferred to NCLT, Hyderabad Bench. 3. The brief facts of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral Meeting for the year 2010 was not conducted at all. 2nd and 3rd Respondent signed the account got it audited also. 7. 2nd and 3rd respondent had apparently colluded with each other and filed Form 32 on 18.10.2011 alleging cessation of directorship of the 1st appellant with effect from 20.01.2011 on account of non-attending three Board Meetings dated 20.5.2010, 27.8.2010 and 10.11.2010. 8. On 27th October, 2011 the Board Meeting was held and in the said meeting 40,000 equity shares of ₹ 10/- each totalling ₹ 4,00,000/- were allotted to 2nd to 4th Respondent. The particulars whereof are given below: S.No. Name of Allottee No.of shares Value of the shares in Rs. Status in the Appeal 1 Mr. Ramakrishna Reddy Raya 10,000 1,00,000 2nd Respondent 2 Mr Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 25th November, 2011. 1st appellant received notice for AGM on 2nd November, 2011 and he immediately issued letter dated 11th November, 2011 and stated that the AGM 2011 is unauthorised, invalid and illegal due to several reasons. Notice for AGM was not a proper notice. Further there was no valid Board of Directors existing at the relevant time for calling of the AGM not to speak about approving and authenticating the financial statements for the year 2010-11. 10. Subsequently the authorized capital of the Company has been increased from ₹ 5,00,000/- to ₹ 50,00,000/- (500000 shares) in the EGM held on 7th December, 2011. 11. 1st appellant levelled allegations of threatening him by respondents and one of his relatives Mr. Sridhar to transfer his shareholding to others. 1st appellant attended the AGM 2011 and marked his attendance by showing his protest and asked for copy of the audited accounts which was not provided to him. On 21st December, 2011 Board Meeting was held and 269634 shares has been allotted to 5th Respondent. Again on 16.1.2012 Respondent No.5 was allotted 180166 shares on 16.1.2012. The said allotment was further made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and further 3,30,000 shares were allotted to Respondent No.5 and thereafter further 168448 shares were allotted to Respondent No.5 on 6.6.2013. The shareholding pattern of 1st respondent after allotment of 498448 shares (33000+168448 shares =498448 shares) as on 6.6.2013 is as under:- S. No. Name of Allottee New No.of shares allotted Total shares (existing + new shares) Percentage of shares Status in the appeal 1. Venkat Sudhakar Sattur Nil 9900 0.99 1st appellant 2 Ramakrishna Reddy Raya Nil 10100 1.01% 2nd respondent 3. Mr Eturi Jageswara Rao ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn their bonafide by their willingness to allot as many shares to the petitioner to subscribe at nominal value of a share, or Sell all the respondents shares to the petitioner at a fair value, or Buy all the petitioner s shares at a fair value. Any way, it is for petitioner and respondents to settle their issue mutually and we are not expressing anything on this offer. 20. After perusing all the records especially with regard to conducting of meetings of Board where, the petitioner was absent, we are convinced that the petitioner was terminated his Directorship in accordance with law. We are of the view that as per Law, managing Director of a company should be available in the Country to take care of day to day affairs etc. It is relevant to point out here that the petitioner claimed that he is also promoter and Managing Director of the Company. So if he is MD of the Company, he is not expected to live in the other Country unlike a Director. The petitioner failed to make out any case so as to interfere in the case and this it is liable to be dismissed. 21. In view of the above facts and circumstances of the case, the Petitioner has miser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous and malicious removal, 10000 shares were allotted to 2nd respondent, 20000 shares to 3rd respondent and 10000 shares to 4th respondent (Page 379) on 27.10.2011. 1st appellant stated that this date i.e. 27.10.2011 was chosen after creating records and filing of Form 32 on 17.10.2011 for the alleged cessation of directorship of appellant. 1st appellant submitted that any allotment of shares made without the consent of 99% shareholder in any company is unimaginable and is per se oppressive. 1st appellant stated that the board constituted by 2nd and 3rd respondent to make this allotment is invalid board as 3rd respondent has lost his directorship on the date of AGM as he was not appointed at the AGM (Page 278). Further by allotting 40000 shares to themselves and 4th respondent being the wife of 3rd respondent is perfectly a violation of fiduciary duties and breach of trust. No proof was furnished to say that this sum of money was urgently in need. Even if there was a need appellant should have had the opportunity to use is Right to subscribe to additional shares. 23. 1st appellant submitted that the authorised capital consisted of 40000 unissued shares. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fiduciary duties. Therefore, any resolution passed with 3rd respondent forming quorum will have to be set aside. 27. 1st appellant stated that the AGM 2010 was held without valid notice to the appellant and in view of the invalidity of the impugned allotment made on 27.10.2011 to 2nd, 3rd and 4th respondent, the quorum for the AGM 2011 with the presence of 2nd, 3rd and 4th as shareholders is not valid. 28. 1st appellant stated that the notice dated 28.11.2011 for the EGM dated 7.12.2011 was received by him only on 7.12.2011. 1st appellant sent a letter dated 7.12.2011 (Page 442) in this regard. Therefore, the notice is not valid and consequently the meeting is also invalid. 1st appellant further stated that there was no requirement of increasing the authorised capital. The explanatory statement is inadequate (Page 474 and 580). 29. 1st appellant stated that the allotment of shares made on 21.12.2011, 16.1.2012 and 3.8.2012 and 6.6.2013 are oppressive, invalid and illegal. 1st appellant stated that the allotment of shares was made by the invalid Board and without any bonafide reasons for further issue of shares. The shares wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge No.846. 33. 1st appellant stated that by altering the composition of Board of Directors, shareholding pattern, by removing the directorship of appellant w.e.f. 20.1.2011 and allotting shares on 27.10.2011 and constituting the Board of Directors and allotting shares to 5th Respondent on 21.12.2011, 16.1.2012, 3.8.2012, 6.6.2013 and transferring shares on 3.10.2013 and resignation of directorship of 3rd Respondent on 12.11.2014, there has been material change in the company which is against the interest of the shareholders and the company. It is stated that the status of 5th respondent whom the shares were allotted frequently is unknown as per the Dun and Bradstreet India report (Page 540). 34. At last the 1st appellant stated that the NCLT has failed to appreciate these facts and circumstances and apply ordinary rules to adjudicate the issues and evidence. NCLT has failed to appreciate that in the above facts and circumstances even if the meetings had been called and held as per law, the acts would still remain oppressive and would have been set aside. 35. Reply has been filed on behalf of 1st to 7th Respondent. Respondents in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 2011 is absolutely valid and legal. Form 2 with respect to the said allotment was also duly filed with the ROC, Hyderabad. The company, in the course of its business had to raise additional capital and it is the prerogative of the Board to decide as to in what form funds would be raised. Clause 4 of Articles of Association (Page 265) provides that the shares shall be under the control of the Directors, who may allot or otherwise dispose of the same to such persons on such conditions. Respondents stated that Section 81 of the Companies Act, 1956 is not applicable to the Private Limited Companies. Respondents stated even if the appellant was on the Board on the date of allotment, by majority on the Board the shares would have been issued. The appellant could have only protested on the same. Respondents stated that Section 36 of the Companies Act, 1956 provides that the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles. The appellant being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 2010, he did not take any interest in convening the next board meetings which proves that he had handed over the management and operations before leaving for the UK. 41. Respondents stated that Clause 4 of the Articles of Association provides that the shares shall be under the control of the directors, who may allot or otherwise dispose of the same to other persons. (Page 265). Respondent further stated that the provisions of Section 81 of the Companies Act, 1956 is not applicable to the Private Limited Companies and the Articles of Association provides the power to the Board to allot shares. Respondent stated that even if the appellant was on the Board on the date of allotment, by majority on the board the shares would have been issued and the appellant could have only protested on the same. 42. Respondents stated that there has been email correspondence between the parties during the relevant period as the appellant was working for the client company as its employee. Respondent stated that if the emails are observed the 2nd and 3rd Respondent have used their official email ID like ireturi@dictasol.in but the appellant had used both his perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he affairs of the company whether directly or indirectly. Respondent lastly submitted that the NCLT has done natural justice by dismissing the company petition. 45. We have heard the learned counsel for the parties and perused the record. 46. Appellant has argued that 3rd respondent is invalidly continuing as an additional director or alternate director. We have noted that 3rd respondent was appointed as an additional director on 20.2.2010 under an arrangement as per Article 30 of the Articles of Association of 1st respondent (Page No.269 of Vol.II). Further as per Section 260 of Companies Act, 1956, the Act applicable at that time, 3rd respondent shall hold office only up to the date of the next AGM of the 1st respondent. After the appointment of 3rd respondent as additional director on 20.2.2010, the AGM of 1st Respondent was held on 26th September, 2010. Notice for the AGM was issued on 27.8.2010 (Page 296). We have observed from the said Notice dated 27.8.2010 that there is no agenda item for appointing 3rd respondent as a regular director. Respondent stated that 3rd respondent has been appointed as a director and not as additional director. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st appellant has vacated the office under Section 283 of the Companies Act,1956 with effect from 20.01.2011 for not attending three consecutive meetings i.e. 20.5.2010, 27.8.2010 and 10.11.2010. We have also observed from para 9 of the counter filed by Respondents No.1 to 7 (Page 9) in which the Respondents have stated that the extract of the meeting dated 20th May, 2010 were signed by the appellant. The respondents have further stated that it is proved that he was aware of the meetings and its agenda. We have seen the said extract, Annexure P-30 at Page 529 and find that the same has been signed by the appellant. Therefore, we have come to the conclusion that when the extract of meeting dated 20.5.2010 has been signed by the appellant, it also establishes that impliedly the leave of absence in defacto is given to the appellant for 20.5.2010. It also proves that the appellant had a cooperative attitude when signing an extract of the meeting dated 20.5.2010 as it will be in the interest of the company. Respondents having asked the appellant to sign the extracts of meeting for the benefit of the company and also denying the leave of absence as having not been formally applied an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters, it is having its business with the foreign countries. 51. The other issue raised by the appellant is that the allotment of 40000 shares to 2nd, 3rd and 4th respondent is illegal and invalid. Appellant argued that 10000 shares were allotted to 2nd respondent, 20000 shares to 3rd respondent 10000 shares to 4th respondent on 27.10.2011. Appellant argued that this date i.e. 27.10.2011 is crucial as the Respondent has cleverly, after creating records and filing of form 32 on 17.10.2011 for the cessation of directorship of appellant, allotted the shares to Respondents. Appellant further argued that the Balance Sheet of 1st respondent for 2010-2011 shows that there was no need of funds and by allotting 40000 shares to themselves and 4th Respondent, being wife of 3rd respondent, is a violation of fiduciary duties and breach of trust. 52. Counsel for the Respondent argued that the company in the course of its business had to raise additional funds and it is prerogative of the Board of the company to decide as to and in what form funds would be raised. Clause 4 of Articles of Association provides that the shares shall be under the control of Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was held on 26.9.2010 and his appointment as additional director was not regularised. Therefore, we have already held that his continuation as additional director after 26.9.2010 is not as per law. Further, as per Section 287 of the Companies Act, 1956 the quorum for a meeting of the Board of Directors of a company shall be one-third of its total strength or two directors whichever is higher. As we have already held that the continuation of 3rd director is not as per law after 26.9.2010, therefore, the Board Meeting held on 27th October, 2011 in which the decision was taken to allot 40000 shares to 2nd, 3rd and 4th Respondent is not as per law as for conducting the Board Meeting the quorum should be complete and one Director cannot hold the Board Meeting. Similarly the subsequent decisions to allot 268834, 168448 and 330000 shares to 5th Respondent on 20.12.2011, 16.1.2012 and 3.8.2012 were taken. It is noted that on removal of appellant on 20.01.2011 and filing the same with ROC on 17.10.2011 ( almost 9 months after removal) (Page 374), immediately allotment of shares has been made in a very short period thereafter. In fact, allotment of shares has taken place on 27.10.2011, me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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