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TMI Blog2019 (7) TMI 1673X X X X Extracts X X X X X X X X Extracts X X X X ..... ent-company. 2. The authorised share capital of the first respondent-company is Rs. 15,00,00,000 (rupees fifteen crores only) consisting of 15,00,000 (fifteen lakhs only) equity shares of Rs. 100 each. Petitioner No. 1 is a founder promoter and one of the first directors of the company and holds 2,53,730 equity shares aggregating to 19.55 per cent. shares in the capital of the first respondent-company. Petitioner No. 2 is the wife of petitioner No. 1 and holds 30,000 equity shares aggregating to 2.31 per cent. shares in the capital of the first respondent-company. Therefore, the petitioners are satisfying the requirements as prescribed under section 244 of the Companies Act, 2013 for maintaining the present petition. 3. The facts of the case are that the first respondent-company was formed and promoted by petitioner No. 1 and the respondents in the nature of a partnership firm, with specific shares for each group. Ever since the incorporation of the company, petitioner No. 1 has been part of the management of the day-to-day affairs of the company. All the forms and returns filed with the Registrar of Companies were signed and filed by petitioner No. 1. 4. The petitioners have su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank only on August 29, 2016. It is also submitted by the petitioners that the respondents have fabricated the records as though on August 22, 2016 as if the mandate for operating the bank accounts of the company has been changed under the authority of the board. 9. It is further submitted by the petitioners that prior to the alleged board meeting, the power and authorisation to operate the bank accounts was with petitioner No. 1 along with any one of the directors of the first respondent-company. But in the alleged board meeting the mandate for signing the cheques/operating the bank account was modified that any two of the directors can operate the said bank account of the company. 10. The petitioners have submitted that the respondents have not only sidelined petitioner No. 1 from managing the affairs of the company but have played a fraud on him and have also oppressed him. In a closely held company, doing such things behind the back of the petitioner who is a founder promoter and who has been managing the affairs of the company to the best of his ability, constitutes a grave act of oppression and its effect is serious and overwhelming. It is further submitted that without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent. Therefore, there are not less than 3 directors who hold 10 per cent. or less and still enjoy a directorship. The petitioners have further submitted that in this situation a proportional representative is an appropriate remedy to operate as a check when the majority control showing tendencies to run the management of the affairs of the company according to their whims and fancies excluding the petitioners from the management though they are rightfully entitled to the same. 15. The petitioners have submitted that on August 21, 2017, the petitioners have received the notice and agenda of the board meeting dated August 31, 2017 to which petitioner No. 1 sent a letter on August 25, 2017 to the board of directors of the company raising various objections with regard to the meeting. 16. The petitioners have submitted that on August 29, 2017 petitioner No. 1 received a letter from the State Bank of India stating that with reference to the credit facilities sanctioned to the company for which petitioner No. 1 has extended his personal guarantee and properties as collateral, petitioner No. 1 has to sign the recent arrangement letter and other documents. Petitioner No. 1 in his re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gedly held on August 22, 2016 and resolutions passed threat as invalid, illegal and consequently set aside the proceedings thereof. (c) To declare the annual general meeting 2016 allegedly held on September 30, 2016 and resolutions passed thereat as invalid and illegal and consequently set aside the proceedings thereof. (d) To direct signature of petitioner No. 1 as mandatory to operate the bank account of the company. (e) To direct respondent No. 1 company and respondents to alter the composition of the board of directors giving a proportional representation to the shareholders groups so that each group has a proportional representation ; for instance, if 6 directors represent 77.5 per cent., the petitioners' side would have 2 directors. (f) To direct the company and the respondents to follow the applicable regulations and secretarial standards with reference to board meetings and general meetings so that the management of the affairs of the company is regulated and conducted in a transparent manner without put ting into jeopardy the interest of any shareholders or other stake holders. (g) To direct the respondents to frame necessary regulations for the purpose of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re apparently contrived, superfluous, and without any substance. The respondent has further submitted that the hon'ble Tribunal cannot be expected to intervene on a grievance related to the said issue. Legitimate expectation of shareholder cannot be stretched even in the absence of any agreement to stake a claim that all bank account operations should pass only with his signature. A single shareholder cannot override the will of the majority on the issue as to who will operate a bank account of the company. Such legitimate expectation or a right in minority to overrule the majority on such a subject is unknown to law. 25. The respondent has contended that the first petitioner appears to make grievance only because the cotton appears to have been supplied from a station different from the one contracted. The fact remains that the type of cotton contracted and supplied was Shankar 6. It is not even the case of the petitioner that any inferior quality cotton was purchased or that the company suffered any quality claim against the yarn manufactured there from. In the circumstance, it is apparent that the allegation in this regard is contrived allegation. 26. The respondent has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge the mandate. At such meeting, the mandate for operating the bank account of the company was changed to enable any two directors to operate the accounts, including the first petitioner. 30. The respondent has submitted that the first petitioner is also authorized to sign cheques, etc., and it is the first petitioner, who on his own accord is refusing to co-operate with the other promoters in jointly operating the bank account. The first petitioner on his own accord has stopped coming to the mills and has written, by his own admission, to the bank to stop operation of the bank account. The respondent has submitted that such stoppage of bank account operation owing to the communication of the petitioner led to default in payment to TNEB. The payment to TNEB could be made only after delay of about a month, after restoration of the bank account, when such is the conduct of the petitioner, he cannot be trusted with power of being a compulsory/mandatory signatory. 31. The respondent has contended that even assuming without admitting that there was any irregularity in the manner in which the meeting was convened or held, the resolution cannot be invalidated since it is bona fide, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that owing to this unconscionable conduct, the petitioner is equitably not entitled to continue as a director of the company. In the circumstances the first petitioner has become an oppressor of the company. 36. During the pendency of petition, the petitioners have filed a memo along with affidavit stating therein that some significant event has taken place in the company. The first petitioner deposed in the affidavit as follows : "It has come to the knowledge of the petitioner that the portion of the land which does not belong to the company is known as porampokku land (Kallang Kuthu) is being used for constructing buildings and superstructures using the funds of the company. When the petitioner had met the VAO for some other purpose, it has come to the knowledge of the petitioner that this unauthorized and illegal activity has been going on for some time. The petitioner is aware that there is a portion of land in Survey No. 357/2 which falls within the compound wall of the company but which belongs to the Government. The online information of the land is enclosed as annexure 1. Therefore the petitioner states that the respondents have commenced an activity by spending cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention concerning enumeration of subject relating to remuneration to directors under caption ordinary business, the respondent has submitted that it is only an error committed by oversight and is not an act of oppression or mismanagement. 43. The respondent has submitted that writing off the bad debts is only to reflect true view of affairs of the company in the accounts, and the company is still taking steps and following up for recovery of the said sums. The respondent has further submitted that the petitioner had attended the annual general meeting on September 26, 2018 but deliberately refused to sign the attendance register. 44. The respondent has further submitted that there was a subsequent board meeting of the company held on November 22, 2018 for which notice was sent by RPAD to the petitioner(s). However, the petitioner(s) did not attend the meeting. The respondent has also submitted that notices for board meetings on April 21, 2018 and August 17, 2018 were received by the petitioner(s) and he attended the meetings, but did not sign the attendance sheet. 45. From the pleadings of the parties, the issues that need the consideration of this Tribunal are as follows : ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing register. However, he denied to have attended the board meeting, but did not deny the signatures put on the entry register. It is noted that the presence of the first petitioner at the registered office of the first respondent-company, where the board meeting was conducted is sufficient proof of the fact of his participation in the board meeting held on August 22, 2016, as claimed by the respondents. In the case on hand the resolution passed by the majority of the directors is only to regulate the procedure pertaining the signatories to the bank accounts of the first respondent-company, which in no way can said to be oppressive, as contended by the first petitioner. In this connection reliance is placed upon the judgment of the hon'ble High Court of Madras given in the case of V. M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp Cas 20 (Mad), wherein the hon'ble High Court has held that "it must be established that oppression complained of affected a person in his capacity as a member, as harsh and unfair treatment in any other capacity such as director is outside the purview of oppression". It is settled legal position that the Tribunal cannot interfere with the day to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the articles of association can prescribe the method to appoint any and all directors. In case the articles are silent, the directors must be appointed by the shareholders. In the case on hand the articles of the first respondent-company provide that any person whether a member of the company or not, may be appointed as director of the company and no qualification by way of shareholding shall be required from any director. Therefore, in the absence of any provision in the articles of association or shareholders ? agreement, the first respondent-company cannot be forced to have a proportionate representation of the shareholders or their nominees on the board. In this connection, reliance is placed on the judgment of the Company Law Board given in Dr. Francis Cleetus v. Rashtra Deepika Ltd. reported in [2013] 178 Comp Cas 206 (CLB), wherein the articles of association was containing the same provision as is contained in the articles of the first respondent-company. In the above noted case the prayer made was for making an alteration in the articles of association of the company to provide for proportionate representation on the board. The Company Law Board after examining the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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