TMI Blog2007 (5) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... enancy or in exchange hire, renew, otherwise acquire and hold any estates or interests and to let or sublet in whole or in part, develop, manage and exploit any lands, buildings, machinery, plant and any real and personal property of any kind; to carry on fabrication jobs such as trusses, purlins, columns, frames and other structurals. The authorised share capital of the company was ₹ 25,00,000 comprising 25,000 equity shares of ₹ 100 each. The petitioners hold 12,250 shares working out to 61.25 per cent of the paid up share capital of the R-1 company. 3. Shri Virender Ganda, the Counsel for the petitioners alleged that the appointment of R-4,5 and 6 as directors was made on 1-12-2004 with effect from 1-3-2005 without complying with the provisions of law; it aims at creating new majority in the Board of Directors; the petitioners admittedly hold more than 60 per cent of the equity shares and, therefore, it was unlikely for them to allow the appointment of Directors as alleged; the appointment deserves to be set aside. 4. As regards the removal of P-1 as Director, Shri Ganda contended that sections 190 and 284 of the Act were not complied with; the petitioners admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the petitioners argued that the Annual return dated 30-9-2005 (as per page 93 of the petition) clearly indicates the forgery showing the changes made in the shareholding of Mr. J.K. Paliwal, P-2 (from 5,100 to 0100) and of Mr. Ajay Kumar Paliwal, R-3 s (from 3,255 to 8,255) both in words and figures; the transferees are indicated as R-3 and R-5 in para 21, pages 24 and 25 of R-3 s reply, whereas the share transfer deed as produced and the Annual Return shows the transferee as R-3 only; no share transfer deed was produced till 31-5-2006 despite repeated insistence by the petitioners; no original share transfer deed has been produced till date; so called certified true copy of share transfer deed by Notary Public which produced across the Board was without any index or supporting affidavit. It suffered from several defects; (i) signatures of petitioner No. 2 are materially different and apparently forged; (ii) there is overwriting on the date of execution and the value of share transfer stamps; (iii) stamp duty was not paid as per law; and (iv) there is no endorsement on behalf of the company on the share transfer deed approving or rejecting the share transfer. 7. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is without any reply/document from Respondent No. 1, Company or Respondent No. 3 on record) cannot be relied upon. (ii)Respondent Nos. 2 and 4 have said that Respondent No. 1 had given the Restaurant on contract to an ex-employee. There is no reply or statement or affidavit from Respondent No. 1 (Company) to this effect. (iii)The expenses on a private function have allegedly been incurred by Respondent No. 3 and charged to Respondent No. 1. There is no reply/document/affidavit on record from Respondent No. 3. (iv)The explanation given by Respondent Nos. 2 and 4 cannot be relied upon and that, there is no reply from any of the respondents till date leading to the admission of siphoning off funds. 10. Shri Virender Ganda, Counsel for the petitioners while replying to the respondents contention regarding defects in verification of this petition pointed out that the contention has been raised without any averment/statement made by any of them in any of the pleadings. The objections have, however, been rectified by filing a supplementary affidavit. (Reliance was placed upon the judgment by the Apex Court in Associated Journals Ltd. v. Mysore Paper Mills Ltd. [2006] 69 SCL 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, it was pointed out that even at the time of inspection of the records of the other company, i.e., Paliwal Steels Limited under the CLB s orders dated 13-9-2005 statutory Books only up to 1999 were made available to the respondents and allegations were made that other books have been removed by the respondents. The fact is, it was stated, that the statutory Books are in possession of the petitioners and just to protect their misdeeds the same are not being shown to the respondents and to the CLB. 13. Responding to the allegation of illegal removal of the P-1 as director of the company, it was contended that the said director was legally removed from the post after complying with the due procedure usually adopted by the company for the said purpose. It was pointed out that the company as per its own practice, evolved for its business affairs and administration thereof never issued any notices for calling board meeting through postal circulation and, accordingly, on the occasion of removal of above named petitioner from the post of directorship of the company no notice through postal means was circulated. However, this factum is duly recorded amidst the contents of minut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6), (7) and (8); (ii)The affidavit along with the petition has shown the petitioners as resident of Uttar Pradesh, however, the affidavits have been purchased and sworn-in Delhi and since the deponents signing the affidavits are residents of Uttar Pradesh it is presumed that the said affidavits have been signed in Uttar Pradesh and not in Delhi; (iii)Further, the supplementary affidavits verifying the petition are liable to be ignored as the same have not been filed with the permission of the CLB and cannot be taken on record. Further, it is a settled law that once the affidavits have been found to be defective, then in such a case the filing of the subsequent affidavits cannot cure the defect and the petition is liable to be dismissed. Therefore, in the above facts and circumstances the present petition is liable to be dismissed on this ground alone; (iv)Otherwise also the supplementary affidavits are liable to be ignored as they also suffer from various discrepancies. It was pointed out that the stamp papers for filing the supplementary affidavits have also been purchased and sworn-in Delhi. However, the deponents signing the affidavits are residents of Uttar Pradesh and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and invalid and are nullity in the eyes of law and the present petition is liable to be dismissed on this ground alone. 18. Shri Chaudhary argued that the petitioners are guilty of suppression of material facts from the CLB. It was pointed out that the petitioners have filed the Memorandum Articles of Association of the respondent No. 1 company. However, the petitioners have deliberately omitted/concealed the article 6 relating to the Board of Directors of the Company for the reasons best known to them. However, it is presumed that the said article has been omitted/concealed due to the fact that since the petitioners were very well aware that the additional directors appointed by the respondent No. 1 company are in consonance with the articles of association and they cannot challenge the appointment on the ground that the said appointment are in violation of the Articles of Association. The respondents have subsequently filed the correct affidavit duly certified by the Registrar of Companies to show the correct articles of association of the respondent No. 1 company. Therefore, the petitioners are guilty of suppression and are not entitled to seek any equitable relief from thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner in presenting these company petitions. The question of good faith has to be tested by the conduct of the petitioner as reflected not only in the proceedings before this Court but also in parallel proceedings in the civil courts and in other civil litigations in other courts. (p. 232) Thus, it was argued, the present petitioners are not entitled to any relief from this Hon ble Board and the present petition ought to be dismissed in limine without going in to the merits of the case. 21. Coming to the arguments on merits, Shri Chaudhary pointed out that the petitioners are guilty of forgery of various documents filed before this Hon ble Board. The allotment of shares and appointment of directors is valid because (i) it is an admitted case of the petitioners that their was a Board Meeting of the respondent No. 1 company on 1-12-2004, however, the petitioners have shown an allotment of 4,800 shares and appointment of additional directors of their group on 1-12-2004, the petitioners have filed a Form 32 and Form 2 for the decisions taken on 1-12-2004 along with the receipt of filing with the Registrar of Companies, on the other hand the respondent No. 3 has also filed the Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and all the mandatory provisions in relation of transfer of shares were followed by the company. The transfer of shares is valid because, (a) Consideration of ₹ 5 lakhs for transfer of shares was paid by the respondent No. 3 to petitioner No. 2, the amount of ₹ 5 lakhs paid is evident from the pass book of the petitioner No. 2, wherein the consideration amount of ₹ 5 lakhs is duly reflected in the pass book. (Averments at pages 6-7, para 13 and also at pages 24-25, para 21 and pass book of petitioner No. 2 at pages 32-34 of reply of respondent No. 3 refer). Further, the said money was thereafter utilized by the petitioner No. 2 by way of an investment in Bhagwati Castings Private Limited, Kolkata. (Averments at pages 6-7 and letter from Bhagwati Castings at page 35 of the reply of respondent No. 3 refer); (b) Transfer deed was duly signed and executed by the petitioner No. 2 in favour of respondent No. 3 and all formalities for transfer including signatures, witnesses, date and stamp duty were duly completed; (c) Board of Directors of the company duly considered the transfer of shares and confirmed the said transfer; (d) The respondents in order to verify the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as pointed out that the said allotment was made by complying with all the provisions of the Act. Form 2 for allotment of shares was duly filed on the very next day, i.e., 4-2-2005 with the Registrar of Companies, further, the said resolution for allotment of shares was also approved by the Board of Directors and the consideration of ₹ 4,25,000 was received from the Respondent Nos. 3 and 7 respectively in the Respondent No. 1 Company. In this regard my attention was drawn to a copy of the Bank Statement of Respondent No. 1 Company from 1-4-2004 to 31-3-2005. Further, it was argued by Shri Chaudhary that on the contrary no consideration money for allotment of shares on 1-12-2004 by the petitioner to their group came into the company. Therefore, it was argued that it does not lie in the mouth of the Petitioner to state that the allotment of 4,250 shares on 3-2-2005 was invalid. 24. Further, the counsel for the respondents pointed out that the assertions regarding being in possession of the Account Books up to February, 2005 is also a false story as no books whatsoever have been produced before this Hon ble Board. On the other hand on the application moved by the respondents t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner No. 1, it was argued, had mischievously and malignantly kept silent with intention only to ruin the business of the Company as he (Petitioner No. 1) failed to give any particulars of transaction allegedly transacted by Vijay Laxmi and Sheshdhar Pandey to whom the aforesaid amount of money was advanced without fetching any interest thereon though on the contrary the respondent-company has taken loan of ₹ 90 lakhs from Directors, relatives and shareholders. Further, the petitioner No. 1 had also manipulated the bank operations of the respondent No. 1 company. Therefore, it was argued, the removal of Petitioner No. 1 as a Director was legal and valid. 26. Considering the facts and circumstances of the case as well as the pleadings and the documents filed therewith I find that the petitioners case is that the R-4, 5 and 6 were appointed Directors on 1-12-2004 without compliance with the provisions of the Act with an oblique motive of reducing the majority shareholders representation on the Board to acquire control on the affairs of the R-1; illegal removal of the P-1 as a director representing majority shareholders holding more than 60 per cent shares without holding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be dismissed on this ground alone as the affidavits are not in accordance with the CLB Regulations, 1991; the petitioners are shown as residents of U.P., the affidavits are purchased and sworn-in in Delhi; supplementary affidavits filed subsequently also cannot be considered as the same have been filed without permission from the CLB, and the supplementary affidavits also suffer from various defects and discrepancies and are not in accordance with the CLB Regulations, 1991; further, the consent letters filed by the petitioners for filing the petition are irregular, invalid as have been signed without application of mind, are similar and hence nullity in the eyes of law; furthermore, the petitioners have not come with clean hands, they have suppressed material facts, have deliberately omitted article 6 from the Articles of Association, they have several times acted against the interest of the R-1 - they have transferred an amount of ₹ 64,50,000 in favour of their nearest relatives who have now wilfully refused to confirm the receipt of the said amount, then the petitioners conduct in the proceedings in another matter which is under consideration in CP No. 71/05 is to be no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners (their shareholding has not been denied by the respondents, the shareholders have not objected to or denied the consent letters) when pitted against substantial justice, cannot be given preference. As regards the conduct of the petitioners in the proceedings in this petition as well as in CP No. 71/05 which has also been heard by me, I agree that it is a settled proposition of law that the conduct of the parties is a very relevant factor to be considered in the equitable proceedings under section 397/398 of the Act. The Court exercising equity jurisdiction cannot ignore the well known maxims of equity. Two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands. The circumstances of this case have been such that the father has turned against the son. Both the parties have endeavoured to get control of assets as well as shares in the R-1. As regards the conduct of the petitioners, the respondents have raked up old issues which they had already waived and acquiesced by their conduct in the past, instances given are of loan given to relatives in the year 2002 which has been questioned now when the petitioners filed CP No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly. However, this matter raised by way of contempt application has received due consideration in CP No. 71/05 being disposed separately on the same date. The petitioners have successfully explained their position and no case of contempt can be made against them. As regards transferring of factory land as alleged in CP No. 71/05 by the respondents to highlight the conduct of the petitioners, the petitioners reply in this regard deserves to be mentioned wherein they have contended that respondents had never ever objected to the aforesaid lease deed in 1999 for the last seven years, the respondents were fully aware of the transaction and decision was taken unanimously with the consent of all concerned in the interest of the company by one and all. Agitating this matter now after seven years after giving unqualified consent and agreement to the aforesaid lease taking shelter in this transaction is only an afterthought and a false alibi to justify their own wrongs. As regards the respondents contention that the petitioners directorial complaints cannot be entrained in a petition under section 397/398 of the Act, the respondents are very well aware that it is a composite company petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on just and equitable grounds becomes automatic. Shri Sarkar relevantly referred to the unreported judgment of Delhi Court in Prentice Hall case, wherein, the Court has held that once oppression is established, reliefs under section 402 could be granted. . . . (p. 107) In the present case the petitioners have succeeded in establishing a case that the affairs of the company are being conducted in an oppressive manner and that there is mismanagement as well, hence winding up of the company on just and equitable grounds becomes automatic, in this case. But, however, winding up would be prejudicial to the petitioners interests safeguard of which had been prayed for in this petition. 28. As I said there are allegations and counter allegations in this case, the petitioners have also complained of the unclean hands of the respondents in other proceedings in C.P. No. 71/05 against M/s. Paliwal Steels Ltd. alleging that the respondents have transferred Flat No. 105 in Golf Apartment for allegedly inadequate consideration at the back of the petitioners. I find that the petitioners contentions in this regard are correct and tenable. There was no authorization by the Board of Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of genuineness unless it is established that the appointment was done following the due procedure and law in accordance with the provisions of the Act, no evidence is given to prove that the so called meeting on 1-12-2004 was held in compliance with the provisions of the Act. The respondents contention that the two out of the three directors have confirmed the meeting is not acceptable as majority cannot turn black into white. As regards the petitioners allegation of removal of petitioner No. 1 for the reason that a loan of ₹ 64.50 lakhs was given to the relatives in the year 2002 this action also has not been justified by the respondents and the allegations stand unrefuted. The respondents contentions are not borne out from the records. The petitioners admittedly hold more than 60 per cent shares. By removing P-1 their representation on the Board is reduced and this action is oppressive besides being irregular and illegal. It has not been in compliance with the provisions of sections 190 and 284 of the Act. If the AGM had been held it was unlikely that P-1 would have allowed removal. The circumstances that the respondents themselves are not sure of the date of AGM whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thermore, the P-2 has alleged that his signatures have been forged on Form No. 2 wherein his shares numbering 5,001 have been shown as 0100 and R-3 s shareholding of 3,255 shares has been shown as 8,255 by fabrication of record. It is the respondent who have committed forgery by changing the shareholding by converting 5,001 to 0100 and 3,255 to 8,255. The respondents, reliance on handwriting expert s report regarding P-2 s signatures which he has denied also cannot be accepted in view of the several discrepancies pointed out in the expert s report by the petitioners. There is no endorsement on the certified share transfer deeds produced before me approving or rejecting the share transfers. The petitioners contention regarding non-payment of stamp duty on the alleged transfers is also found to be correct. The respondents have not been able to relate the sale consideration as allegedly reflected in the bank pass book of P-2. The bank pass book reflects several other entries as well. Further, it is not understood as to how a letter dated 7-3-2005 of Bhagwati Castings Pvt. Ltd., Calcutta addressed to P-2 of Muzaffarnagar could reach him the same day making it probable to acknowledge a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be exercised for the benefit of the company. The fiduciary capacity within which Directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company. And in the matter of issue of additional shares, the directors owe a fiduciary duty to issue shares for a proper purpose. The respondents have been oppressive to the petitioners by appointing R-4, 5 and 6 as directors and by removing P-1 from the directorship. Creating new majority by way of representation on Board of the R-1 and by way of further share allotment and remaining P-1 illegally are acts of continuous oppression to the petitioners. The respondents conduct has been burdensome, harsh and wrongful. Besides, the affairs of the company have been mismanaged as pointed out above. 34. Keeping these circumstances in view, to do substantial justice between the parties, I hereby order as follows:- (i)Appointment of Respondent Nos. 4, 5 and 6 as directors is hereby declar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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