TMI Blog2009 (6) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... siness as dealers, distributors, stockists, sellers, repairers, cleaners, storers, importers and to carry on business as advisers and or consultants on matters and problems relating to the industries administration, organisation, technical know-how, operation, purchase of goods and other activities in relation to any business, trade commerce, mine industry and the like. The company is engaged in plotting of land and development of commercial and residential complexes called Dayal Tower a residential colony called Dayal Enclave both at Varanasi. 3. The company secretary in practice representing the petitioner pointed out that the claim of respondents Nos. 2 and 3 that they were in control of the company is baseless and hollow. It was contended that at the very board meeting under the chairmanship of Shri Dinesh Singh held on January 15, 1996, a resolution was passed that the director holding maximum number of equity shares in the company shall be the chairman of the board of directors and elaborately defined the powers of the chairman and provided for rotation of chairmanship between the directors in case of equality of shareholding. It was also resolved that the chairman of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... looking after the business of respondent No. 1 company as the chairman of the board. It was contended that respondent No. 2 has on February 20, 2004, filed a false Form No. 32 with the Registrar of Companies showing therein the removal of the petitioner from the directorship of respondent No. 1 company with effect from January 17, 2004, purportedly under the provisions of Section 283(1)(g) of the Act, for not attending three consecutive board meetings of respondent No. 1 company, which meetings were not held at all. It was contended that his removal is illegal, unlawful and made with the mala fide intention of usurping the management of respondent No. 1 company. This is very clear from the fact the petitioner, who held 48 per cent, of the paid-up share capital of respondent No. 1 company, and who was its designated chairman, and who was handling the business of the company without any help from the respondent, was removed without notice and came to know of the misdeeds of the respondent only on March 21, 2004, after coming across the notice of his illegal removal in Dainik Jagran. It was contended that no board meetings of respondent No. 1 company was even held as alleged and in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aordinary general meeting of respondent No. 1 company was held on February 14, 2004, wherein the authorised capital of respondent No. 1 company was raised from ₹ 5,00,000 to ₹ 10,00,000 is totally false and incorrect. It was pointed out that no notice of the meeting allegedly held, if held at all, was given to the petitioner, even though he was the 48 per cent, shareholder in respondent No. 1 company, rendering it null and void ab initio, since it was not convened as per the provisions of the Act. It was contended that respondents Nos. 2 and 3 have irregularly allotted the increased authorised share capital to themselves in equal proportion, solely to increase their collective shareholding in respondent No. 1 company from 50 per cent, to 75 per cent, in order to grab the majority voting power in respondent No. 1 company and to push the petitioner to minority. Post dilution, the petitioner's shareholding has been diluted from 48 per cent, to 24 per cent, of the total issued, subscribed and paid-up capital of respondent No. 1 company, in an absolutely illegal, arbitrary and mala fide manner. The allegation that respondent No. 1 company was on the threshold of major ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n January 17, 2004, without prejudice to the general proposition of validity of notice of extraordinary general meeting/it was argued that no notice of the extraordinary general meeting was given to the petitioner who is the majority shareholder of 48 per cent, shares. Respondents Nos. 2 and 3 then allotted shares to themselves thereby increasing their shareholding to 75 per cent, and the petitioner's shareholding was reduced to 24 per cent, no evidence of holding of extraordinary general meeting was produced except the UPC for issue of notice of the meeting, which was never ever received by the petitioner, and a copy of the minutes of the meeting. No signed minutes book was placed on record and no other evidence such as attendance register, notice of the meeting, despatch register, etc., was submitted that respondents Nos. 2 and 3 met the senior officer of their banker and the bank desired that respondent No. 1 company should increase their capital base and the same should be commensurate with the size and magnitude of its project being undertaken by them. But no evidence of the bank's desire has been placed on record. It was contended that the increase in the shareholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers. In the board meeting held on October 13, 2005, the reason given for withdrawal of the power was that the registered office had been shifted. Only in the pleading that too in the sur-rejoinder, allegations have been made that she had misutilised the cheque signing powers. Normally, the validity of the decision of the board must be judged by the reasons mentioned in the minutes and the same cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, a decision which is bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. Time and again this Board has held that the decisions/actions taken during the period of cordial relationship cannot be challenged after the relationship had become sour. There is nothing on record that at any time Ms. Poonam was confronted with the alleged misutilisation of powers. It is not made clear as to how shifting of registered office has any relation to the cheques signing powers. It is to be noted that the alleged misutilisation of the cheque signing powers occurred in 2002 when the parties had cordial relationship. Since Ms. Poonam has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r against the respondents, the respondents have indulged in making baseless allegations of siphoning off of funds by the petitioner. Though the petitioner is not required to reply to such frivolous and baseless allegations, these allegations have been made only to sidetrack the issues raised by the petitioner in his petition. 11. As regards the petitioner's wife shown as a nominee in the bank account of respondent No. 1 company, it was argued that she has been shown nominee in the bank account under the signature of all the then three directors, namely, the petitioner, respondents Nos. 2 and 3, the respondents can, therefore, have no grievance in this regard. As regards the concealment of bank account with Oriental Bank of Commerce, Varanasi, it was contended that the main grievance of the petitioner was against withdrawal of authority of the petitioner to operate the bank account in Union Bank of India, therefore, non mentioning of the current account in OBC in the petition cannot be termed as concealment, a company may have any number of bank accounts having regard to its requirements. Further, as regards the complaint made to the Registrar of Companies by the petitioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the petitioner's claim that respondent No. 2 and respondent No. 3 had agreed for appointment of his wife as director in December, 2003, is wrong as serious disputes had arisen between the two groups in July, 2003, itself and in the absence of respondent No. 2 and respondent No. 3, the petitioner, being only one person, could not form a quorum for the board meeting to appoint his wife as director. 14. Further, it was contended that it is also the case of the petitioner that he was the sole signatory to the bank accounts of respondent No. 1 company and neither respondent No. 2 nor respondent No. 3 were operating the bank account, therefore, all the acts of siphoning off of funds and also criminal misappropriation is attributable to the petitioner. Further, it is a case of the petitioner that he was in the day-to-day functioning of the company till December, 2003. 15. It was pointed out by counsel for the respondents that the petitioner had withdrawn a sum of ₹ 50 lakhs in cash from the bank account. The petitioner has admitted having withdrawn ₹ 36.15 lakhs, but, however, he has alleged that cash payments, which, however, are without any bill, invoice, vou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious amounts, which had been withdrawn by the petitioner from the bank as well as received out of execution of sales deeds. However, the petitioner failed to submit the account. In the subsequent board meeting held on October 8, 2003 and December 9, 2003. However, the petitioner failed to submit the account as well as refund the money illegally withdrawn from the bank account as well as pocketed the money received by him while executing the sale deeds in favour of his relatives and to other parties. The petitioner after attending the board meeting of July, 2003, started avoiding the respondents as it has suited him for the simple reason that by January, 2004, he had already pocketed more than ₹ 5 crores as against his investments of only ₹ 2,50,000 for acquiring the paid-up share capital of respondent No. 1 company and virtually abandoned the operations of respondent No. 1 company. It was argued that the petitioner has pocketed more than ₹ 5 crores which, admittedly, belonged to respondent No. 1 company and has not rendered, account of the same and, therefore, the said amount is a deemed loan in the hands of the petitioner within the meaning of Section 295 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance-sheet as on March 31, 2003, filed by the petitioner with the Registrar of Companies and certified by the Registrar of Companies there is a signature of the petitioner only with aibber stamp of the auditor but without his signature. In fact, the petitioner had filed copy of this balance-sheet with the Registrar of Companies. But in the rejoinder the petitioner filed a copy of the balance-sheet in which the petitioner forged the signature of respondent No. 2 on which there is neither rubber stamp nor signature of the auditor. In the reply filed on August 15, 2008 by respondent No. 4 (wife of the petitioner), the said balance-sheet is shown to have the signature of the petitioner and respondent No. 2 as well as the signature and rubber stamp of the auditor. It was argued that this demonstrates how the petitioner is forging, fabricating and tampering with the balance-sheet as on March 31, 2003 of respondent No. 1. Further, in the petition, the petitioner has alleged that there was only one bank account with the Union Bank of India, Varanasi, there is no mention of another bank account with the Oriental Bank of Commerce, Varanasi, which again was solely and exclusively oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has been wrongly removed without holding any board meeting, annual general meeting and there are no evidence for holding of board meeting, general meeting and allotment of shares to respondents Nos. 2 and 3 and allotment of shares is not in accordance with the procedure established under the Act. Upon receipt of the complaint the Registrar of Companies wrote a letter to the respondents who produced all records, papers and documents and have shown the same to the Registrar of Companies personally. The Registrar of Companies after having satisfied that all the board meetings, general meetings and all allotment of shares were in accordance with the law and, therefore, did not pursue the matter further. 23. Counsel for the respondents drew my attention to a sale deed wherein the petitioner has shown himself as the managing director, however, in the very same sale deed, the petitioner signed the said sale deed as the director and neither as the chairman nor as the managing director. There is a communication from the UP Electricity Board addressed to the petitioner wherein he is shown simply as a director. In the annual return as on September 30, 2003, the petitioner is shown merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure' would mean 'to make others aware of which they were not aware' to mean that if the other directors of the board are otherwise generally aware of the interest of a director in an arrangement or a contract, then the non-disclosure in a board meeting would not attract the penal provisions ; A. Sivasailam v. Registrar of Companies [1995] 83 Comp Cas 141 (CLB), wherein it was held that (page 144) : The disclosure of interest by a director has been provided for in Section 299 only with a view to ensure that a director who occupies a fiduciary position in the company should disclose his interest in any arrangement or contract either directly or indirectly so that the company is in a position to know whether he is acting in any way prejudicial to the interest of the company or for his own benefit ; Totalal v. State AIR 1963 Raj 6, wherein it was held that (page 8) : when the amount is taken by the Karta of a joint Hindu family concern, it is a loan to him though the members of the family may also be liable to pay it. Since Motilal Raniwala, who was the Karta of the joint family concern of Champalal Ramswaroop, was also a director of the Mills, the provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of oppression, a member has to specifically plead on five facts--(a) what is the alleged act of oppression; (b) who committed the act of oppression; (c) how it is oppressive; (d) whether it is in the affairs of the company; and (e) whether the company is a party to the commission of the act of oppression. On considering the present case on merits, I find that all the five aspects mentioned above have not been covered the petitioners have not established any act of oppression. Rather, admittedly, the respondents have been treating the petitioners very fairly and in a considerate manner; despite his making complaint to the Pune Municipal Corporation (PMC). . Furthermore , in the case of Sunil Kalra v. Baiva Shoes Leather Guild P. Ltd. [2007] 81 CLA 184 : [2008] 142 Comp Cas 350 (CLB), wherein it was held that (page 360 of 142 Comp Cas) : 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. In Srikanta Datta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Enterprises P. Ltd. [1991] 72 Comp Cas 211 (Karn) : [1991] 3 Comp. LJ 336, it was held that the petitioner see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in this regard. The respondents have claimed sending notices having UPC. 26. Regarding service of notices it is settled law that the onus to prove service rests on the sender. Meetings held without notice to all directors are invalid. The company must give notice of board/general meetings to directors/members so long as they continue to remain so. Requirement to issue notice under Section 53(1) to every director for a meeting of board of directors is mandatory. The notices are stated to have been dispatched by UPC. Non-service of notice, of meetings and dividend warrants have serious consequences and consequently even though not required companies send them under certificate of posting as this would help them in establishing that the notices and the dividend warrants are so posted. Mode of posting notices under certificate of posting has come up for review before various courts including the Supreme Court and before the Company Law Board. In Goldmark Enterprise Ltd. v. Pondy Metal and Rolling Mills P. Ltd. [2007] 136 Comp Cas 598 : [2008] 88 CLA 219, the Company Law Board has the following to say with regard to posting under certificate of posting (page 616 of 136 Comp Cas): ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is sought, no record is maintained by the post office either about the receipt of the letter or the certificate issued. The case with which such certificates can be procured by affixing antedated seal with the connivance of any employee of the post office is a matter of concern. The Department of Post may have to evolve some procedure whereby a record in regard to the issuance of certificate is regularly maintained showing a serial number, date, sender's name and addressee name to avoid any misuse. In the absence of such a record, a certificate of posting may of very little assistance, where the dispatch of such communication is disputed or denied as in this case. Be that as it may. 29. In view of the foregoing observations of the Supreme Court and of the Company Law Board sending of notice under certificate of posting could be an effective tool and deemed to be service under Section 53 if proper entries are made in the dispatch register and the expenses on this account is distinctly recorded in the books of account. Further, a declaration to the effect of so sending the document is made by the in charge of the dispatch section and countersigned by the company secretary and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate limited companies, the directors in a private limited company are expected to make a disclosure to the shareholders of such a company when further shares are being issued. This requirement flows from their duty to act in good faith and make full disclosure to the shareholders regarding affairs of a company. The acts of directors in a private limited company are required to be tested on a much finer scale in order to rule out any misuse of power for personal gains or ulterior motives. While applying the extraneous purpose test or ulterior motive test, the court noticed Piercy v. S. Mills and Co. Ltd. [1920] 1 Ch 77 (Ch. D), wherein it was held (page 84): The basis of both cases is, as I understand, that directors are not entitled to use their powers of issuing shares merely for the purpose of maintaining their control or the control of themselves and their friends over the affairs of the company, or merely for the purpose of defeating the wishes of the existing majority of shareholders. 32. In the facts and circumstances of this case I do not find any way to uphold the board meeting dated January 17, 2004, as valid, nor do I find any justification for upholding the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith clean hands and good conduct, failing which the petitioner would constitute a gross abuse of the process of court, and the petitioner is not entitled for any relief under Section 397. It is also held that the conduct of the parties in other proceedings could also be taken into consideration. In the present case the instances pointed out are in the affairs of the company. Even otherwise, the instances of unclean hands of both the petitioner and the respondents are several. The settled principle of law is that when a person seeks equity he must come with clean hands. In the present case, the conduct of the petitioner showed that he had not come with clean hands, in the sense, he had acted in a manner prejudicial to the interests of the company as well as the shareholders and it was he who had acted in violation of the natural trust and confidence. When an action is taken against a wrongdoer, he cannot seek remedy in equity. The respondents have drawn my attention to several documents to substantiate their allegations of siphoning off of funds by the petitioner from the moneys received from execution of sale deeds and withdrawals from bank accounts. The allegations regarding forgi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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