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TMI Blog2020 (6) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... han one-tenth of the total members of respondent No. 1-company and hence satisfies the condition prescribed under section 244 of the Act for maintaining a petition under relevant provisions. 3. The respondent-company, namely, Gurukripa Ayurvedic Heritage P. Ltd., was incorporated on January 31, 2005 under the provisions of the Companies Act, 1956 as a private limited company having its registered office at NP-1/1043A, Peringode P. O, Palakkad-679 535, Kerala. The said company was promoted and incorporated by Mr. K. V. Unnikrishanan and Mr. K. Balagangadharan with the main objects as reflected in clause III(A) of the memorandum of association of the company which is as under : "to establish, run, maintain, operate and to carry on the business of ayurveda centres, ayurveda health clubs, hospitals. Nursing homes and facilities for treatment of patients, or of persons who require treatment and to manufacture, prepare, develop ayurvedic medicines, formulations and products and to undertake research and study in different sciences specially in ayurveda and other connected forms of traditional medication." 4. The first petitioner is one of the two promoters of the respondent-company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding fabrication of records and accounts. Respondent No. 7, who was the chairman of the company, was working as a clerk in the Peringode Government High School, while also working as a whole-time paid director of the respondent-company, which was against his service rules. In the context of some complaints in this regard from some quarters and apprehending further enquiry in the matter, respondent No. 7 resigned from the board with effect from August 28, 2008 and in his place, his wife respondent No. 6 was appointed as director of the company with effect from April 30, 2009. The appointment of respondent No. 6 was wholly unnecessary, illegal and prompted by partisan selfish interests, prejudicial to the interests of the company and is legally unsustainable. The petitioners had objected to the appointment of respondent No. 6 as a director of the company and she is not a shareholder of the company and a matriculate ; she has absolutely no special knowledge in any field relating to the business carried on by the respondent-company. 7. Respondent No. 2 and his colleagues on the board have committed large-scale misappropriations, siphoning off the funds of the respondent-company to fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Form No. 32 filed by the company before the Registrar of Companies intimating cessation of office of the petitioners as directors of the company for failure to attend three consecutive meetings is filed as annexure A10. The proximity of the dates of the board meetings as shown in (annexure A9) itself betrays the impropriety and illegality of the action taken against the petitioners. The petitioners have also pointed out the discrepancies in the time mentioned in the copy of minutes (annexure 9) and time mentioned in the filings made with the Registrar of Companies (annexure A10), which clearly establish the fabrication of documents. 10. It is submitted that the removal of the petitioners from the board of the company was a fraudulent and unlawful act. The petitioners had attended the board meeting held on June 15, 2008 and had also signed the attendance register. The petitioners further submitted that the resolutions passed at such board meetings without serving notices thereof on the petitioners are non est in law and not binding on the petitioners, liable to be set aside by this Bench. 11. It is also submitted that the first petitioner filed a suit, O. S. No. 15 of 2010, bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany from Rs. 1,00,000 to Rs. 3,00,000 (annexure A14). Thereafter in its successive annual reports the company started showing the share capital as Rs. 3,00,000 (annexures A15 and A16). The petitioners also claimed that respondents Nos. 2 and 7 have not made any payments to the company towards the price of the additional shares apportioned by them fraudulently, after effecting an illegal and unsustainable increase of capital. After removing petitioners from the board of the respondent-company, respondent No. 2 has been running the company as a proprietary concern. Thus, respondent No. 2 has filed various false and fabricated returns, reports and forms before the Registrar of Companies after the illegal removal of the petitioners from the board of the company. These include resolutions/ returns/forms pertaining to illegal removal of the petitioners as directors by falsely showing that they had vacated office, appointment of respondent No. 6 a director, fixation of remuneration for himself and others, unauthorised increase of capital of the company, allotment of further shares in the names of respondents Nos. 2 and 7, manipulated and fabricated annual accounts of the company, falsif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the first respondent-company to disburse to the petitioners the amounts due to them towards directors' remuneration. (i) An order appointing an independent practising chartered account ant to verify the books of account of the first respondent and ascertain the extent of fraud, manipulation and falsification of books of account perpetrated by respondents Nos. 2 to 7. (j) An order directing the Central Government to carry out an investigation into the affairs of the first respondent-company in the light of the submissions made in this petition. (k) Such other further orders as may be deemed fit by this hon'ble Tribunal Bench on the fact and in the circumstances of the case. Counter filed by the respondents 15. Respondents Nos. 1 and 2 have filed a common counter perusal of which in a nutshell shows that the petitioners stand vacated the office as directors since they have failed to attend board meetings dated June 22, 2008, July 12, 2008, August 2, 2008 and September 15, 2009 as per the provisions of section 283(1)(a) and (g) of the Companies Act, 1956. They further, claimed in the counter that due notice was sent to all the directors including the petitioners. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h amount, as may be specified in the resolution." By virtue of the above regulation, and also article 2 of the articles of association, the respondent-company at a general meeting increased the share capital beyond the limits prescribed in memorandum of association by an ordinary resolution providing for the issue of new shares. It is further submitted that the share capital referred in article 4 and regulation 44 of Table A to Schedule 1 is the very share capital referred to in the memorandum of association as well as articles of association. In view of this pro vision, it is open to the company to increase the authorised share capital by passing an appropriate ordinary resolution, on passing of such resolution the memorandum of association would automatically stand altered in accordance to the regulation. Thus, an ordinary resolution was passed expressly altering clause V of the memorandum of association : "the authorised share capital of the company is Rs. 3,00,000 (rupees three lakhs) divided into 3,000 (three thousand) equity shares of Rs. 100 (one hundred) each." Therefore, the contention of the petitioners that the increase of the authorised share capital was illegal d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to see that the petitioners are re-instated as board members. Respondents Nos. 3 to 5 are not privy to any oppression against the petitioners or large scale mismanagement of the affairs of the company as alleged in the petition. 24. Respondents Nos. 6 and 7 have jointly filed their reply to the main petition. Perusal of the averments contained in the said reply shows that the first petitioner resigned from the post of managing director in the month of June, 2008 and subsequently he was removed from the post of director of respondent No. 1-company since he failed to attend 3 consecutive director board meeting of the company hence violated the provisions of articles of association and memorandum of association. The first petitioner was constrained to resign from the post of managing director of respondent No. 1-company since the other directors of the company raised complaints and concern with regard to the immoral behaviour of the first petitioner who used to come to the company under alcoholic intoxication and resulted misbehaviour to the staff of respondent No. 1-company. 25. It is also submitted that in the annual general meeting dated September 26, 2009 one of the agenda was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting is filed as annexure R6(a), (b) and (c). 29. They further contended that the allegation that the resolution attached to (annexure 10) stated to have been passed at the board meeting does not find a place in (annexure 9) minutes of the meeting is irrelevant, misleading and incorrect. Annexure 9 clearly shows the decision taken in the board meeting and annexure 10 has nothing but a legally valid reflection of annexure 9 as mandated under the provisions of the Companies Act, 1956. 30. It is further contended by the respondents that O. S. No. 15 of 2010 is preferred before the Subordinate Judge, Ottapalam seeking a decree declaring that the removal of the first petitioner from the board of the company with effect from September 15, 2008 was illegal and further that all the subsequent decision taken by the board after the said date were not binding on the first petitioner and also for a decree for payment of arrears of the directors remuneration which was not paid to him so far. The suit was decreed only to an extent of payment of the remuneration that is allegedly due before September 25, 2008 annexure R6(d). Thereafter after lapse of another three years from the date of filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners. The respondents perpetrated further illegalities of allotting the entire additional shares to respondents Nos. 2 and 7 to the exclusion of other members of the company. Therefore, further allotment of shares in favour of respondents Nos. 2 and 7 is non est in law. 35. The induction of respondent No. 6 which was made to compensate for her husband, respondent No. 7 who had to resign to save his skin from departmental disciplinary proceedings was clearly illegal. Further, payment of substantial amounts to her as remuneration for no work done for the company, is still more illegal amounting to misappropriation and siphoning of company funds. 36. In the rejoinder reply to the counter filed by respondents Nos. 6 and 7 it is stated that in annexure 13 the resolution proposing to amend the memorandum of association and articles of association for the purpose of increase of the capital was not passed at annual general meeting with the requisite majority prescribed by law. The resolution itself was defective in that it was a composite one for amendment of both memorandum of association and articles of association of the company, whereas the law requires separate resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts regarding delay of filing petition is the sole reason to be considered before going into the allegations raised by the petitioners. Abdul Wahid Abdul Gafor Khatri v. Safe Heights Developers, while dealing with the case the hon'ble High Court of Bombay, inter alia, stated that : "14.... Even otherwise there is no justification for the gross delay in approaching the Company Law Board, and the Company Law Board in the exercise of its discretion has held that the delay was excessive. This exercise of discretion by the Company Law Board ought not to be interfered with by this court in their narrow juris diction under section 10F of the Companies Act, 1956. 15. Therefore, I find nothing wrong in the Company Law Board concluding that on the ground of delay and laches alone, the petition could have and ought to have been dismissed even without going into the allegations raised by the appellants." Learned counsels for the respondents also cited the below mentioned judgment of the hon'ble Supreme Court in State of Madhya Pradesh v. Bhail Lal Bhai, AIR 1964 SC 1006, wherein it was held that (page 1012) : "The court may consider the delay unreasonable even if it is less tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable to appeal made to the Appellate Tribunal. 43. They further averred that even assuming that there was delay in filing the petition, it cannot negate a continues act of oppression and mismanagement by the respondents. To get clarity on this issue, we considered the judgment delivered by the hon'ble Supreme Court in V. S. Krishnan v. Westfort Hi-Tech Hospital Ltd. [2008] 142 Comp Cas 235 (SC) ; [2008] 3 SCC 363 (page 245 of 142 Comp Cas) : "In a number of judgments, this court considered in extenso the scope of sections 397 and 398. The following judgments could be use fully referred to : (a) Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC) ; [1981] 3 SCC 333. (b) M. S. Madhusoodhanan v. Kerala Kaumudi P. Ltd. [2003] 117 Comp Cas 19 (SC) ; [2004] 9 SCC 204. (c) Dale and Carrington Invt. P. Ltd. v. P. K. Prathapan [2004] 122 Comp Cas 161 (SC) ; [2005] 1 SCC 212. (d) Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 Comp Cas 566 (SC) ; [2005] 11 SCC 314. (e) Kamal Kumar Dutta v. Ruby General Hospital Ltd. [2006] 134 Comp Cas 678 (SC) ; [2006] 7 SCC 613. From the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners from the board of directors in the respondent-company on September 25, 2008 learned counsel for the respondents vehemently argued that the petitioners have never raised the issue of non-receipt of notice which was all along sent through "certificate of posting" for earlier board meetings. The first petitioner who has resigned from the managing director in the month of June, 2008 has chosen to raise the issue of non-receipt of notice for board meeting which was never raised earlier which he has attended. They also submitted that sending notice through certificate of posting is allowed as per the Companies Act. Thus, the petitioners cannot now raise the issue to suit their convenience. The petitioners were ceased to be directors of the company on September 25, 2008. The respondents cited the following judgment in support of their contention : In V. S. Krishnan v. Westfort Hi-Tech Hospital Ltd. [2008] 142 Comp Cas 235 (SC) ; [2008] 3 SCC 363, the hon'ble Supreme Court held that (page 250 of 142 Comp Cas) : "Section 172 as well as section 53 emphasised 'giving notice'. We have already adverted to how notice should be given for annual general meeting as per section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of the meeting as the matter involving the cessation of the directors. To substantiate his arguments learned counsel cited various judgments which are quoted hereunder : In Tarlok Chand Khanna v. Raj Kumar Kapoor [1983] 54 Comp Cas 12 (Delhi), the hon'ble Delhi high court held that (page 27) : "It has often been pointed out that though the requirement of the Companies Act is satisfied by posting a communication under certificate of posting, service by this mode is the easiest stand for anyone to take at any time and it is not a sheer coincidence that in practically all controversial meetings, the party claiming to have held the meetings and to have notified the others almost always relies on a certificate of posting clearly pointing to the possibility that such meetings are invariably managed rather than held. This is because of the unfortunate circumstance that certificates of posting are readily available. If the meeting of the Board had, therefore, been held, I see no reason why a registered A. D. notice was not sent to Khanna even though that may not be the strict legal requirement. The so-called certificate of posting also does not appear to meet the requirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Office is a matter of concern. The Department of Posts may have to evolve some procedure whereby a record in regard to the issuance of certificates is regularly maintained showing a serial number, date, sender's name and addressee's name to avoid misuse. In the absence of such a record, a certificate of posting may be of very little assistance, where the dispatch of such communications is disputed or denied as in this case. Be that as it may." The above judgments clearly pointed out that "certificate of posting" is of little assistance where serious allegations are made and where the des patch of such communications is disputed, as in this case. 47. We have considered the averments made by learned counsel for both parties. From the records we observe that the first petitioner is the promoter of the respondent-company who has put his signature on the memorandum of association along with respondent No. 7. The first petitioner was also the managing director of the respondent-company till June, 2008. While deciding the issue of removal of petitioners as directors for not attending the boards meetings continuously, we have considered the proximity of board meetings, i. e., 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution. In this connection reference may be made to the observations in Palmer's Company Law, Twenty-Third edition, at page 747 in paragraph 56-04. This paragraph is under the heading 'Ordinary Resolutions', and the relevant observations run thus : Where it is provided that 'the company in general meeting may' do some act, this means that an ordinary resolution is required to be passed. There is no definition in the Acts of 'ordinary resolution'. It means a resolution which requires a simple majority of the persons who, being present and entitled to vote upon the resolution, do vote. We may also refer to the observation in GoreBrowne on Companies, Volume I in paragraph 15.2, which deals with the topic of Increase of Capital. This observation is very material and runs as follows : 'Where a company does not by its articles specify the kind of resolution required to increase its capital, it is unnecessary to do more than pass an ordinary resolution. Where a company had no power to increase its capital, it was held that a single special resolution, purporting to make the increase, sufficed, for this in substance effected the alteration of the articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be set aside. Even the Company Law Board found that the allotment of additional shares by Ramanujam to himself was an act of oppression on his part. The Company Law Board drew this conclusion solely for the reason that no offer had been made to the majority shareholders regarding issue of further share capital. The High Court accepted the finding of oppression. However, it placed it on a much broader base by taking into consideration various other factors. The High Court's finding is based on a much stronger footing. In fact, the High Court has gone on to conclude that Ramanujam has played a fraud on the minority shareholders by manipulating the allotment of shares in his favour. We find no reason to differ with the finding of the High Court." 50. Finally, we considered the argument of both parties and gone through the records pertaining to this subject matter and came to the conclusion that the company while increasing its share capital from Rs. 1,00,000 to Rs. 3,00,000 have not followed the law. The notice given for the annual general meeting enclosing the agenda item for increase of share capital reads as follows : "4th annual general body meeting The annual gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company has also not mentioned the purpose for which the increase in share capital is being done except mentioning that the company need funds, which is very vague. 51. As regard to the other question in the increase of share capital of the respondent-company is that whether the apportionment of share capital between respondents Nos. 2 and 7 amounts to oppression and mismanagement to other members of the company. We have gone through the records before us to find out whether the increased share capital was offered to all the shareholders of the respondent-company. However, we have not come across any document or record showing the increased share capital offer was made to other shareholders also. No proof was also shown to us that it was offered to other shareholders. Respondents Nos. 2 and 7 has apportioned between them the entire increased share capital which clearly led to the conclusion that the entire act of increase in share capital of the respondent-company and also apportionment done between respondents Nos. 2 and 7 clearly raises doubts whether the Act was done with bona fide intention. The petitioners have clearly mentioned that they have been deprived of subscribing to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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