TMI Blog2016 (12) TMI 1807X X X X Extracts X X X X X X X X Extracts X X X X ..... merits. For the purpose of maintainability of the Company Petition, therefore, it is sufficient to hold them eligible because the Petitioners have been issued share certificates, and the Meeting of Members and the Meeting of Board of Directors have approved the allotment of shares - There is no denial that the total number of shares thus decided to be transferred in favour of the Company Petitioners and also reflected in the share certificates issued to them is amounting to not less than one tenth of the paid up capital of the Company as on the date of filing of the Company Petition. Whether the questions involved in the Company Petition have to be decided by the Board for Financial Reconstruction? If so the jurisdiction of this Tribunal is barred? - HELD THAT:- Evidently, the facts of the case on hand do not show that the disputes arose but of the orders of BIFR. The dispute before us is obviously different from the BIFR orders. Thereby, there cannot be any confusion in the minds of the stake holders of the draft scheme formulated and approved by the Board for seeking any clarification or further direction. As per the documents of the Petitioners, they have become share hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead with Section 111 of the Companies Act, 1956. The core reliefs are: (1) to declare the Respondents 2 to 4 ceased as Directors of the Company due to illegal, fraudulent, deceptive and highly prejudicial acts; (2) to restrain the Company from alienating the properties, investments and other assets; (3) to restrain the Company and other Respondents from changing, altering, modifying the capital and board structure and suspend the operation of any Board resolutions or the General meeting of members; and (4) To direct Respondent No. 4 to restore the funds of One Crore to the Company; (ii) The Company Shefali Papers Ltd. (hereafter called Company) was incorporated inthe year 1991; and in 1999 it went to BIFR, having been declared as 'sick company'. The Respondents' group infused funds of Rupees one Crore as evidenced by the order of BIFR dated 23.5.2007 which was utilized for making one time settlement of loan due to Banks and Financial Institutions. As part of the arrangement, the Respondents have acquired shares in the Company as follows: Sl. No. No. Of Shares Date of allotment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are guilty of latches in complaining about the events occurred in the light of Order of BIFR dated 8.11.2005 and therefore, the Petition is barred by limitation. They urged to dismiss the Company Petition on the above grounds. (v) Responding to the said application-the non-applicants, have filed a detailed counter contending inter alia that they are having 54% of the total of the total paid up capital of the Company and that even if the 20 lacks shares (equal to 38%) allotted afresh to them in the EGM dated 14.6.2010 is excluded, the Petitioners are having 17% which is sufficient to maintain the Petition. It is contended that there was an understanding that after revival of the Company by the BIFR, it would be totally acquired by the Petitioners' group. They have shown in detail the dates and documents evidencing the allotment of shares claimed by them and asserted that even though the share certificates are given to them, the Respondents failed to show them in the Annual Return and balance Sheets fraudulently. The non-applicants therefore pleaded that they have adequate percentage of shares to maintain the Company Petition and that the other disputed facts have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther situations, the claims will have to be adjudicated in the course of the trial only. (Vide: P.V. Guru Raj Reddy rep by GPA Laxmi Narayan Reddy vs. P. Neeradha Reddy; Bhau Ram vs. Janak Singh Others. (2012) 8 SCC 701 (ii) Therefore, if on a meaningful, not formal, reading of the plaint it is manifestlyvexatious, and merit less in the sense of not disclosing a clear right to sue, the Court should exercise its power under Order VII Rule 11 of the Code taking care to sec that the grounds Mentioned therein are fulfilled. (iii) The Company Law Board in earlier cases has settled the position that an objection as to the maintainability of the Company Petition is only to be allowed at an initial stage if there is absolutely no doubt that the Petition is not maintainable and that it is a general principle that a petition is to be thrown out at an initial stage if it is unarguable on the demurrer and that the issue of qualification where being a question of fact and law, the correct position is required to be ascertained on hearing the parties on merits as well. (Vide: Desh Cam Technological Resources P. Ltd. and Others vs. Rajendra Keshwani and others. 2009) 150CompCa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Karuna Karanwal for a sum of ₹ 50,14,500/-. Page 178 and 179 shows the details of shares/debentures transferred in favour of Petitioners] group between 30.9.2009 and 30.9.2010 (Vide Annexure III). Likewise pages 191 and 192 contain the details of partly paid up shares transferred from Gagan Walia, Rupali Walia and 2 others (3,86,900 shares for a total consideration of ₹ 38,69,000 out of which a sum of ₹ 17,00,000 was paid by Petitioners' group) and page 192 contains the details of shares transferred between 30.9.2009 and 30.9.2010 in favour of Petitioners' group. Similarly, the Extract of the Minutes of the EOGM dated 14.6.2010 (page 313) reads: RESOLVED THAT....in accordance with and conformity to the draft revival scheme as approved by the Hon'ble BIFR vide its order dated 08.11.2005 and supplementary orders dated 23.5.2007 and 6.5.2009, consent of the Company be and is hereby accorded to the Board to create, offer issue and allot 20,0,000 equity shares of ₹ 5/- each on preferential basis to Mudit Goyal and his Associates, out of the unsecured loan/Share Application Money obtained by the Company from the said Mudit Goyal and his Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the years 2010 and 2013 (vide Page 6 of the Application). (iv) Except the above averments, we could not find from the Application of the applicants anything amounting to denial of the documents filed by the Company petitioners in support of the plea of their not possessing requisite shares to qualify the test of Sec. 1399. But, in the Rejoinder filed by the applicants (Respondents in the Company Petition) at paragraphs 5 and 6 they have pleaded as follows: 5. It is submitted that the alleged share transfer forms are incomplete and inappropriate, the said share transfer forms were never executed and no shares were issued/allotted to the Petitioners in pursuance of the alleged share transfer forms. That had there been any transfer in pursuance of the alleged shard transfer forms, the same would have reflected Annual Returns of Respondent No. 1 Company for the period ending 2010, 2011, 2012, and 2013, It is however an admitted position that the Annual Returns for period ending 2010, 2011, 2012 and 2013 do not reflect the name of any of the Petitioner as a shareholder in the Respondent No. 1 Company. 6. That the share certificates annexed with the Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner shall not pass the test of eligibility under Sec. 399. The following cases may add strength to this opinion. (ix) In Shri Balaji Textile Mills Pvt. Ltd. and Anr. vs. Ashok Kavle and Ors., (1989) 66 Company Cases 654 (Kar) a Division Bench of the Karnataka High Court took the view that the word member should be understood in the context in which it is used. It was held that allotment of shares is a matter of contract between the parties and such contract could be either expressed or implied. If a person is treated by the company as its shareholder, his right to membership cannot be questioned by the company at a later point of time on the ground that there was no compliance with the provisions of section 41(2) of the Act. When that finding of the Division Bench was challenged in Appeal before the Supreme Court the court refused to interfere with the findings of the High Court while deciding preliminary issue and held that only during the enquiry in the Company Petition, the Tribunal has to decide the question whether the Petitioners are members of the Company. (Vide: Balaji Textile Mills Private Limited vs. Ashok Kavle 1988 3 JT 2502) The observation of the Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how an undisputable and un-challengeable title to the membership of the company may file a petition under section 397/398, even though his name is not formally entered in the register of members. (xiii) It seems to us, in light of the authorities cited above, that the interpretation tobe placed on section 399 vis-a-vis petitions filed seeking relief from oppression and mismanagement should be governed not strictly by the requirements of the section, so long as in substance and effect the person complaining of acts of oppression and mismanagement has been recognized or treated as shareholder/member by the conduct of the company, and that in giving effect to the remedies against the grievance, considerations of equity and justice should be allowed to prevail. (xiv) Coming to the facts of the case, now that the Petitioners in the CP have propounded their case as members of the Company holding not less than one tenth of the paid up share capital as on the date of filing of the Company Petition and further contended that the Respondents have fraudulently and deliberately omitted to show the transfer of the shares in favour of the Petitioners' group in the Annual Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , without following the provisions of the Act and Rules and that dispute was between the co-promoters inter se, who became co-promoters only on the strength on the BIFR Orders and not otherwise. The dispute was as to who was a promoter as per orders of the Board. In that context, the High Court came to hold thus: 54. Once the legal position and scope of the two Acts is understood in the manner explained above, the irresistible conclusion would be that for all matters relating to the SS, it is the BIFR alone which shall have the jurisdiction. Notwithstanding, attempt is made by learned senior counsel for Mr. Raj Kumar Jain to contend that issues raised could be dealt with by the CLB... (iii) In fact, in the reported case, the parties have moved the BIFR seeking clarification of its order but the BIFR rejected that Petition. Then they moved the CLB which has ordered their Petition. Upsetting the order of CLB. The High Court commented in this background that: 69. Similarly, the CLB was wrong in rejecting the contention of the appellants herein that merely because the BIFR had rejected the application of the respondents for clarification on the ground of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed therein on the complaint of oppression and mismanagement. V. Question No. 3: Yet other grounds urged by the applicants to dismiss the Company Petition at the threshold are limitation, delay and latches. Limitation, delay and latches are lot pure questions of law but they are mixed questions of fact and law which cannot be decided summarily in an application to dismiss the main proceedings on preliminary grounds. Reference may be had from certain decisions cited a the Bar on behalf of the non-applicants viz., Re: Firebricks and Potteries Pvt. Ltd. and Others vs. Devraj Dhanaram (2008) 145 Comp Cas 106 (CLB) Crystal Island Port P. Ltd. vs. Ashok Chawla (2010) 156 Comp Cas 151 (CLB) Therefore, we find that these questions cannot be decided as preliminary issues but shall be heard and decided in the main Petition on merits only. VI. Result: In the result of the findings recorded above, the Company Application isdevoid of merits and it is dismissed. We direct that in the Company Petition the pleadings shall be completed within two weeks so that the Company Petition shall be listed for final hearing without further delay. No order as to costs in this Applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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