TMI Blog2020 (5) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of right, and this issue was already dealt with by the Company at appropriate levels. And there is no requirement of shares to hold to become Directors of the Company, as per Articles of Association Company. And other reliefs as asked for are devoid of merits. The Petitioners failed to make out case that the Affairs of Company being conducted in a manner prejudicial or oppressive to the Petitioners or to the Company so as to invoke jurisdiction of this Tribunal under the extant provisions of Companies Act 2013. As detailed supra, the affairs of Company is being successfully run by the stewardship of Respondent Nos.2 3 and earning adequate profits and distributing substantial dividends. Subsequent to the filing of main Company Petition, I.A.No.649 of 2019 filed by the Petitioners, under Rules 11 34 of the NCLT Rules, 2016, by inter alia seeking to permit them to implead the proposed Seventh Respondent Company i.e. M/s. AKP Foundries Private Limited in the present proceedings. Since, the Tribunal finds that the main Petition itself lacks merits, there would not serve any purpose to allow the impleading Application. The instant Company Petition lacks of merits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Company, holding 60,833 (Sixty Thousand Eight Hundred and Thirty-Three) Equity Shares of Respondent No.1 Company of ₹ 100/- (Rupee One Hundred Only) each fully paid-up constituting 9.96% of the Company prior to impugned allotment. (3) Shri Pankaj Madhav Dhume (hereinafter referred to as 'Petitioner No.2') is a Shareholder of the Company. The Petitioner No.2 jointly with his wife, holds 75,833 (Seventy Five Thousand Eight Hundred and Thirty-Three) Equity Shares of Respondent No.1 of ₹ 100/- (Rupees One Hundred Only) each fully paid-up constituting (prior to the impugned allotment) 12.41 % of Respondent No. l's paid-up share capital. (4) Shri Sridar Swamy (hereinafter referred to as 'Petitioner No.3') is a Shareholder of the Company. The Petitioner No.3 jointly with his wife holds 91,666 (Ninety One Thousand Six Hundred and Sixty- Six) Equity Shares of Respondent No.1 of ₹ 100/- (Rupees One Hundred Only) each fully paid-up constituting (prior to the impugned allotment) 15 % of Respondent No.1's paid-up share capital. (5) Shri Anil Ramchandra Bakshi (hereinafter referred to as 'Petitioner No.4') is a Shareholder of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (10) Subsequently, due to project costs overrun and time overrun, the Petitioner Nos.1 to 3 and the Respondent Nos.2 and 3 decided to get additional investment in the Respondent No.1 Company. Accordingly, in the year 2008, the Petitioners No.1 to 3 and the Respondent Nos.2 and 3 approached the Petitioner Nos.4 and 5 to invest in the Respondent No.1 Company. After extensive negotiations, the Petitioner Nos.4 5 agreed to invest in the Company. The following terms were agreed between the parties:- Sl. No. Name of the Petitioner Amount invested Rs./Lakhs 1 Mr. Anil Bakshi 100.00 2 Mr. Ganesh Kamath 103.33 (11) By a registered Deed of Sale dated 16th January 2009 (hereinafter referred to as the Deed ) the Respondent No.6 (therein called the Vendor ) sold, transferred and conveyed the said land to the Company (therein called the Purchaser ). The following were its salient provisions: (i) The Agreement was executed at Belgaum; (ii) It records that the Respondent No.6 sold, transferred and conveyed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are effectively managed. During the meeting of the Board of Directors of the Company, convened on 6th October 2018, a Resolution was passed unanimously for appointment of the Petitioners as the Directors of the Company (in the category of Non-executive directors). The Petitioners also provided their consent to act as Directors and also submitted Form MBP 1 and DIR 8 disclosing their nature of concern and interest in other firms and companies as well as declarations to the effect that, none of them have incurred disqualification from holding directorship in the Company. (13) Despite the aforesaid meeting having been convened on 6th October, 2018 in which the Petitioners were appointed as Directors of the Company, the existing Board of Directors of the 'Company namely Mr. Ram Bhandare (Chairman) (Respondent No. 2) Mr. Parag Bhandare (Director) (Respondent No. 3) issued a letter dated 17th December, 2018 to the Petitioners informing them that the Petitioners could not be appointed as Directors on the Board of the Company due to the following reasons: (a) The Company had availed credit facility from Axis Bank, Belgaum (Congress Road, Tilakwadi Branch), which was sanctioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence sent a Special notice dated 8th January, 2019, requisitioning the Board of Directors to call an Extraordinary General Meeting of the Members of the Company proposing (i) appointment of the Petitioners as non-executive Directors on the Board of the Company and (ii) to propose the cancellation of the related party transaction of the sale of 4 acres of the land (owned by the Company) at the instance of Respondents No.2 and 3 in favour of AKP Foundries Private Limited, which was undertaken without the approval of the Shareholders. In Pursuant to this Special Notice, the Respondents issued the Notice dated 31st January, 2019, convening the EGM of the Company on 22nd February 2019. However, deviously, Respondents No.2 and 3 included only the proposal of cancellation of the sale of the Said Land, but the proposal for appointment of the Petitioners to the Board of Directors was not included in the Said Notice. The aforesaid conduct of Respondent Nos. 2 and 3 to unilaterally reject the proposal of Petitioners' appointment as Directors of the Company without even putting it to vote on the shareholders' meeting of the Company clearly show their mala fide intention of have undue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No.2 and Respondent No.3 convened an Extraordinary General Meeting on 22nd February, 2019. In the aforesaid Notice of EGM dated January 31st, 2019 calling for EGM of the Company to be convened on 22th February, 2019, the Board of Directors of the Company (Respondents Nos.2 3) on one hand deny the contention of the Petitioners that the market value of the 4 (four) acres of the Said Land as on date of the said Notice is not 4 (four) crores. On the other hand, in the same Notice itself, contradicting their own allegation admit that though the 14 acres 10 guntas of land was sold by the Respondent No.6 to Respondent No.1 Company at a meagre price of ₹ 70 lakhs (Rupees Seventy Lakhs Only) in the year 2009, the value of the said 14 acres of land was worth more than ₹ 11 (Eleven) crore at that time itself (i.e. in 2009). The Respondents are approbating and reprobating their stand with respect to the value of the said 14 acres 10 guntas of land as per their whims and fancies. (19) It is stated that in the EGM of the Company convened on 22nd February, 2019, the aforesaid proposal of cancellation of the related party transaction of the Said Sale of 4 acres of land made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Respondent No.6 was made for consideration in lieu of guarantee commission due to Respondent No.6 by virtue of an arrangement purported to have been existing between the Company and the Respondent No. 6, whereby Respondent No. 6 had furnished her personal guarantee and surety to the Company for loan borrowed by the Company from Axis Bank for loan and credit facilities aggregating to a sum of ₹ 18,45,00,000/- (Rupees Eighteen Crore Forty-Five Thousand Only) in the year 2007-2008, and the Company had promised to compensate the Respondent No.6 for her guarantee and surety by issuance of equity shares at par value of ₹ 100/- per share for the first 10 years and thereafter cash towards settlement of guarantee commission vide letters dated 10th January, 2008 and 14th January, 2008. (21) The aforesaid Articles of Agreement record that the total guarantee commission, which was payable by the Company to Respondent No.6 was ₹ 6,40,00,125 (Rupees Six Crore Forty Lakhs One Hundred and Twenty-five Only), but as the Company did not have sufficient authorized share capital to issue shares worth ₹ 6,40,00,125/- the Company was allotting shares to Respondent No.6 worth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to subscribe securities has been previously approved by the shareholders of the company, by a Special Resolution, for each of the Offers or Invitations: Provided that in the explanatory statement annexed to the notice for the general meeting the basis or justification for the price (including premium, if any) at which the offer or invitation is being made shall be disclosed: (22) As per the abovementioned applicable legal provisions of the Companies Act, 2013, the Company was required to convene a meeting of the Shareholders prior to the allotment of shares to Respondent No.6, in order to obtain the shareholders' approval by way of special resolution for the above said allotment. Admittedly by the Petitioners, no such meeting was convened by the Respondent No.1 Company and that the Respondent No.1 Company has illegally allotted shares to Respondent No.6 without passing a Shareholders' Special Resolution which is mandatory under the Companies Act. Let alone obtaining approval, the Shareholders were not even informed/communicated of such allotment of shares made to Respondent No.6. Further, the Respondent No.1 Company has not obtained the Valuation Report from a Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. In any event, Petitioners being majority Shareholders in the Company cannot allege oppression against these Respondents and in fact, by the highly questionable actions of Petitioners, they have caused oppression upon these Respondents and have caused prejudice to the Company. Furthermore, at a time when Respondent No.6 was a stranger to the Company, she provided Schedule-I Property as Primary Security to the Bank. It is pertinent to note that at that time when Respondent No.1 Company did not own any land to pledge as security, till Respondent No.6 sold Schedule-I Property to the Company in the year 2009. Upon acquiring the Western portion of R.S. No.663, Macche Village, Waghwade Road, Belagavi, Respondent No. 6 provided this property as Collateral Security to for the Company to avail credit facilities. Thus it is discernible that the entire 28 Acres 20 Guntas in R.S. No. Macche Village, Waghwade Road, Belagavi which belonged to Respondent No.6 was encumbered in 2008 by way of an Equitable Mortgage in favour of Axis Bank for the benefit of Respondent No. 1 Company, until 2018 for the period of around 10 years. Had it not been for the properties furnished by Respondent No. 6 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Respondent No.1, she was a complete stranger to the Company and was for intents and purposes, a third party-creditor and it was only in the year 2012 that Respondent No.6 became a Shareholder. Thus there was no need for the Company to appraise the shareholders of such an arrangement as it was their prerogative to take any such steps in the interests of the Company and it was only in 2018 that the said 10-year period came to an end, for which reason Respondent No.1 was obliged to comply with its contractual obligation to Respondent No.6, by issuance of equity shares. At this juncture, Petitioners cannot feign ignorance and question the commitment owed to Respondent No.6 after having enjoyed the benefits of the profits and dividends for a period of more than 10 years i.e., since 2007-08 till date, which also added to the net worth of Respondent No.1, all of which could not have been possible in the absence of the security and guarantee offered by Respondent No.6. (6) In the year 2008 at which time, Respondent Nos.2 3 were the only shareholders of Respondent No. 1 Company owning 100% of the shares, at a meeting of the Board of Directors held on 07.01.2008 wherein it was resolv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be aware of the aforesaid facts and they cannot be permitted to hoodwink and mislead this Hon'ble Court to suit their false and illegitimate claims by misrepresenting facts which are coated with falsehood. (8) It is stated that the Petitioners have proceeded on the wrongful assumption that Schedule-II Property was allegedly significantly undervalue, but they have failed to consider and acknowledge the fact that the Company gained incalculably by buying 14 acres 10 guntas of land at 6.33% the actual value in 2009, and the Company has sold 4 acres to M/s. AKP Foundries Pvt. Ltd. only to discharge a legal obligation, at the same proportionate rate. There is no question of addressing the said sale as either prejudicial or unfair to the Company and its shareholders, as the Company has neither suffered a loss nor have either of them made any unjust profit. In fact, a potential threat of claims for the entire 14 acres 10 guntas has been averted. The sale of Schedule-II Property was prompted to honour the commitment made to M/s.AKP Foundries to sell the land at the same price at which it was acquired from Respondent No.6 and in terms of the Deed of Reservation of Right of Fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares and shares can be allotted in various other manners, provided it is not contrary to the Articles of Association of the Company. In the instant case, the shares having been allotted in lieu of the guarantee commission payable (a fact that has been categorically admitted and agreed to by the Petitioners) to Respondent No.6 by Respondent No.1, pursuant to a contract, cannot be said to be in violation of the Companies Act or the Articles of Association of the Respondent No. 1 Company. (11) They have relied upon the following judgments in support of their case: (a) Jai Mahal Hotels (P.) Ltd. v. Raj Kumar Devaraj Singh [2015] 62 taxmann.com 241/132 SCL 627 (SC) (paras 16 to 18); (b) T. Vinayaka Perumai v. T. Balan [2012] 22 taxmann.com 261/115 SCL 260 (paras 16, 30-33 38); (c) K. Ravinder Reddy v. Alliance Business School [2016] 72 taxmann.com 193/137 SCL 314 (Kar.) (paras 33 to 38); (d) M. Kishan Rao v. Spectrum Power Generation [2019] 105 taxmann.com 73 (NCLT-Hyd.). (12) It is further stated that on 27.02.2019, an Extraordinary General meeting was convened whereby the motion to increase the authorized share capital of the Company from ₹ 8,00,00,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot in any manner within the contours of the Companies Act, 2013, be termed as a meeting of Board of Directors. Though on one hand, the Petitioners have claimed that the meeting held on 06.10.2018 is a meeting of Board of Directors, on the other hand, admittedly, no notice or agenda for scheduling the said meeting was circulated. Thus the pleas put forth by the Petitioners are mutually destructive or patently inconsistent of each other and cannot be looked into. There is no valid appointment of the Petitioners as Additional Directors. The visit was merely an informal get-together of the promoter- investors and moreover, there existed a legal embargo on appointment of any Directors/Additional Directors to the Board of Respondent No.1 in light of the Board Resolution dated 27.09.2009. Thus, the alleged appointment of the Petitioners at the meeting held on 06.10.2018 is non est in law. The minutes of the said meeting were not attested by Respondent No.3 as alleged by the Petitioners. Moreover, none of the pages of the minutes of the meeting held on 06.10.2018 are initialed, or signed by and the last page of the minutes' book is not signed by the Chairman of the stated Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent No.1 Company vide resolution dated 07.01.2008 passed resolution to accept the conditions laid down by the Axis Bank Ltd. in its sanction letter dated 19.12.2007. Thus without all the three guarantees provided for by the Respondent No.6, the availment of the loan of ₹ 18.45 crore from Axis Bank in 2007-08 was unthinkable. Further, the Respondent No.1 Company has become profitable as admitted by the Petitioners and the same is due to the Primary Security, Collateral Security and Personal Guarantee provided by the Respondent No.1 at a point of time when she was not even a shareholder of the Company. (3) It is further stated that the Respondent No.6 being a cancer patient and the equations in the home has changed, after the children getting married and she is deprived of income from her exclusive property (Stridhana) as the same was provided as Security to the loans borrowed by the Respondent No.1. However, the Respondent No.6 is deprived of allotment of shares as per the contract concluded between the Company and Respondent No.6. The act of the Respondents in not allowing the increase of authorized share capital and allotment of shares to Respondent No.6 is by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enderedin B.V Thirumalai v. Best Vestures Trading (P.) Ltd. [2005] 57 SCL 98 (CLB) (2) An increase in the shareholding of the minority by undertaking share issuance to the exclusion of the majority is an act of oppression and they have relied upon the decisions rendered in the case of Navin Patel v. Bhoomi Builders (P.) Ltd. [2005] 60 SCL 209 (CLB) (3) It is further stated that the Petitioners were never informed of the purported Articles of Agreement or the purported underlying letters dated 10.01.2008 and 14.12.2018. If such an arrangement indeed existed, being a related party transaction, it should have reflected in the financial statements of the First Respondent Company prepared commencing from the financial years ended 2008 till date, as an outstanding obligation/liability, which is a substantial amount to be taken into account. There is no mention of such a transaction in the financial statements of the First Respondent Company which have been prepared and filed with the Registrar of Companies till date. Further, any acknowledgment by the Second or Third Respondents with respect to any share allotments of ₹ 6,40,00,125/- (Rupees Six Crore Forty Lakh One Hundred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bhai Bhatia v. Vikram Silk Mills [2011] 103 CLA 233 (CLB) (h) Life Insurance Corporation of India v. Escorts Ltd. [1986] 1 SCC 264 7. The main issue arise for consideration in the case are: whether the Resolutions passed during Board of Directors meeting of Respondent No. 1, held on 23rd January 2019, authorizing and allotting the impugned allotment of 1,89,000 shares to Respondent No. 6 is in accordance with law or not; whether the impugned Sale Deed dated 26th September, 2018 is to be oppressive and seriously prejudicial to the interests of the Company, Whether the Petitioners are entitled for their appointment as Directors. If so, what is the relief the Petitioners are entitled for. 8. Before adverting the above issues, it is necessary to advert to undisputed facts of the case, which have bearing on the issues raised in the instant Petition: (1) The First Respondent Company was incorporated by the Second and third Respondents and they hold all shares of the Company, and they are continuous to be Directors and the second Respondent is Chairman and Director and third Respondent is Whole-time Director. Therefore, they are at helm of affairs of the Company during 2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss than 21 days' notice in writing. All other General Meetings maybe called by giving not less than eight days' notice, in writing but with the consent of the members holding not less than 75% or such part of the paid-up share capital of the Company as gives a right to vote at the meeting, a meeting maybe called by such shorter notice and in such manner as members think fit. A notice of the meeting of the Company specifying the place, day and hour with a statement of the business to be transacted at the meeting shall be served on every member in the manner prescribed in the Act. The accidental omission to give notice to or non-receipt of notice by any member shall not invalidate the proceedings at such meeting. All general meetings other than annual general meeting shall be called extraordinary general meeting a. The Board may whenever it thinks fit call an Extraordinary general meetings. b. If at any time there are not within India Directors capable of acting who are sufficient in number to form a quorum, any Director or any two members of the company may call an extraordinary general meeting in the same manner as nearly possible as that in which such a meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investors wish to be part of Executive Directors of the Company, because, firstly, they stay far away from Belgaum and that all of them have their business to look after. Taking this fact into consideration, the overall consensus that emerged out of the deliberations was to the effect that let all agreement with Banks and Financial Institution be over and thereafter the appointment of new Directors can be decided because if the appointment are made now, the Bankers and Financial Institutions would ask for them to join as personal guarantors, which could be avoided when they do not wish to be part of core Executive Directors for the Company. 12. Subsequently, Respondent No.6 addressed a letter dated 10th January, 2008 to the Director of R-1 Company inter alia stating that her lands worth more than ₹ 5 cr. each of her Eastern and Western land in question, was provided as equitable mortgage in favour of bank apart from personal Guarantee for the loan taken by the Company and thus demanded Guarantee Commission of not less than 1.5% and not more than 2%, on all three counts, urged to issue equity shares of the Company at par value being ₹ 100/- per share in her favour, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.95 crores (Rupees Ten crores and Ninety Five lakhs Only) 2. Purpose To part finance establishment of company's Greenfield foregoing unit at Belgaum 3. Security Primary: First charge on the entire fixed assets of the Company, present and future including 14 acres of land at Sy.No.663 situated at Vagavade Industrial Estate, Machhe, Off. Belgaum Khanapur Road, Belgaum, on which the proposed unit is coming up. Collateral: (1) Extension of charge on the entire current assets of the Company, present and future. (2) Equitable mortgage of 14 acres of land of Sy.No.663 situated at Vagavade Industrial Estate, Machhe, Off. Belgaum Khanapur Road, Belgaum, presently standing in the name of Smt. Roopa Bhandare. Personal Guarantee of Shri Ram Bhandre, Shri Parag Bhandre and Smt. Roopa Bhandare. 14. The Respondent No.1 Company has addressed a letter to the Petitioner dated 17.12.2018, by inter alia communicating that the Company was extended the credit facility by the Axis Bank. As the Company has availed of credit facility from Axis Bank to the tune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,89,00,000/- (Rupees One Crore Eighty Nine Lakhs Only) so, no separate valuation report is required. However based on the Net Worth i.e. Company's Paid-up share capital plus Reserves divided by the number of shares issued as on 31st March 2018, value of 1 (One) equity share of ₹ 100 each is arrived at ₹ 400/- (Rupees Four Hundred) per share but shares are allotted at par. 3. Issue and Allotment of 4,51,000 Equity Shares in Phase 2: As mentioned in the recitals, in respect of the balance sum of ₹ 4,51,00,125/-(Four Crores Fifty One Lakhs One Hundred Twenty Five Only) being the balance guarantee commission due to the guarantor, the Company shall issue and allot 4,51,000 (Four Lakhs Fifty One Thousand) equity shares of ₹ 100/- (One Hundred) each aggregating to a sum of ₹ 4,51,00,000/-(Four Crores Fifty One Lakhs) as soon as requisite compliances under the Companies Act, 2013 and the rules framed thereunder are made to enhance the authorized share capital to sufficient level to accommodate the proposed allotment as well as the needs of the Company in the foreseeable future but in any event before expiry of one year from the date of this agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emnify the Company fully 17. Similarly, another Ordinary Resolution for increase in Authorised Share Capital and two special Resolutions to carry out consequential alteration to the capital clauses in Memo and Articles of Association of the Company, were defeated by the Petitioners. Therefore, the Respondents could not allocate the remaining shares to the Respondent No.6 as promised in pursuant to Guarantee Commission due to her. 18. So far as the impugned Sale Deed dated 26th September, 2018 is concerned, it is to be stated that this Deed is executed Between R-1 Company and A. K. Foundries Pvt. Ltd., by transferring 4 acres of land out of total extent 14 Acres and 10 Guntas of the Scheduled property in question. As stated supra, the original Sale Deed dated 16.01.2009, executed by Mrs. Roopa (R-6) in favour of R-l Company, in respect of scheduled property in question is in question, vide O.S.No.119 of 2019 filed by Mrs. Roopa (Respondent No.6) before Principal Senior Civil Judge Chief Judicial Magistrate, Belagavi by inter alia seeking to pass judgment and decree against Defendants No. 1 to 21 jointly and or severally, to order for cancellation of said Sale Deed and other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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