9911796707
TMI Blog2020 (11) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated as 3A Capital Services P. Ltd., on February 28, 2005 has later been converted into a public limited company. Consequently, a fresh incorporation was obtained from the Registrar of Companies, Mumbai on March 1, 2006. 3. The main object of the petitioner is to carry on the business of investment and to buy, sell, trade, invest in, acquire, underwrite, hold, subscribe in shares, stocks, bonds, units, debentures, debenture stock, commodities, deposits, promissory note, warrants, obligations, rights, bills of exchange and other financial instruments. 4. The registered office of the petitioner is mentioned in the cause title. Certificates of incorporation, memorandum of association and articles of association of the petitioner are at annexures A1 and A2 to the petition. 5. Respondent No. 1 is a public limited company registered under the provisions of the Companies Act, 1956 bearing CIN : U18100AP1992PLC013686. The main object of the respondent-company is to carry on the business of processing, spinning cotton, viscose synthetics and blended yarn in cone and hank form. Respondents Nos. 2 to 13 are its managing directors/directors. Its registered office is situated at the addr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner's favour directing the respondent No. 1 to transfer 2,40,70,000 equity shares in the name of the petitioner and rectify the register of members within 30 days, and further providing that the petitioner is entitled to the benefits attached to 2,40,70,000 equity shares including but not limited to dividend and bonus shares. 7.6 Several notices issued to respondent No. 1 seeking compliance of the said order dated August 16, 2013 did not yield result, hence the petitioner filed company application in Company Petition No. 3 of 2013 under section 634(4) of the Companies Act, 1956, wherein the hon'ble Board has passed order dated April 29, 2015 directing respondent No. 1 to transfer and register 2,40,70,000 equity shares in the name of the petitioner within a month. 7.7 Around May 20, 2015 respondent No. 1 has transferred and registered 2,40,70,000 equity shares in the name of the petitioner (40 per cent. of total issued and paid-up share capital of respondent No. 1). Thus, the petitioner has become member of total issued and paid-up share capital of respondent No. 1, only after about four years of pursuit. 7.8 As a member of respondent No. 1, the petitioner has issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckoner price of land of respondent No. 1, relevant in 2015 is at annexure J. List of signatories of M/s. Samruddhi Investors Services P. Ltd., extracted from the official website of Ministry of Corporate Affairs, proving the act of mismanagement is at annexure K. (ii) General meeting for approval of members of respondent No. 1 before entering into the said transaction of sale was not convened. Nor a resolution was passed. (iii) Newspaper advertisement has not been issued calling interested parties to bid. It is submitted by the petitioner that all the above amount to acts of oppression. 9. Action taken by the petitioner on the alleged acts of oppression by respondent No. 1 : (i) The petitioner has issued notice dated March 7, 2016 (annexure (L1) to respondent No. 1 for its acts of oppression. Respondent No. 1 gave reply dated March 28, 2016 (annexure L2). The petitioner issued notice dated March 2, 2016 (annexure M) to respondent No. 1 under section 110 of the Companies Act, 2013, calling upon it to convene extraordinary general meeting to reconstitute board of directors of respondent No. 1. Though respondent No. 1 has received the said notice, has not acted upon. The petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d December 31, 2016 (annexure U2) allowing the impleadment application. (d) Respondent No. 1 had 1 lakh spindles earlier, which has now been reduced to around 60,000 spindles (photograph is at annexure R). This proves that the machinery of respondent No. 1 is being sold off. (e) It is alleged in paragraph 27 of the petition that audited and unaudited financials of respondent No. 1 (annexures W1 and W2) show the oppression and mismanagement and also contravention of the Companies Act, 2013. Learned counsel for the petitioner has filed C. A. No. 84 of 2018 in this petition on January 25, 2018 requesting the Tribunal to incorporate an additional prayer clause, as "clause (c)(i)" of the petition, which reads as under : "(c)(i) Further or alternative to prayer clause (c) above, that this hon'ble Tribunal be pleased to direct that respondent No. 1-company be would up on just and equitable grounds and due to oppression and mismanagement of the respondents." The petitioner has also filed a memo dated May 18, 2018 for the same purpose, viz., to incorporate additional prayer clause. 12. Additional counter dated July 5, 2018 filed by respondents Nos. 1 to 4. 12.1 In paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction of Financial Assets and Enforcement of Security Interest Act, 2002 claiming a sum of Rs. 611,51,76,001 as due and payable as on June 30, 2008. In 2011, one of the lenders, viz., ICICI Bank Ltd., offered to sell 1,99,79,000 equity shares of respondent No. 1 held by them and the petitioner bought these shares at a price of Re. 1 per share (face value of Rs. 10 per share). Even other lenders followed the suit and the petitioner has bought at a throw away prices. Copies of transfer deeds are at annexures 2 and 3). Thus, the petitioner has acquired 2,40,70,000 shares at a total cost of Rs. 2,69,44,000, viz., Rs. 11 per share (face value of Rs. 10 per share). 13.5 In paragraph (II)(vii) and (viii) of the counter it is averred that Land Reforms Tribunal has passed order dated August 10, 2007 (annexure 6 to the counter) that respondent No. 1-company is holding land in excess of ceiling limit and it is liable to surrender the same. Respondent No. 1 has filed before the Appellate Land Reforms Tribunal-cum-ADJ, RR District, which has remanded the matter to Revenue Divisional Officer vide order dated October 10, 2011 (annexure 7). Against the said order the State Government has carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz., Ravi Sanghi and Girish Sanghi and that led to filing several company petitions. It is also admitted that interim order dated October 23, 2008 was passed by the Company Law Board, Chennai Bench. However, it is contended that the said order pertains to amicable settlement and it does not make respondent No. 1-company to maintain status quo in regard to shareholding. 13.11 In paragraph (III)(11) of the counter it is denied that Ravi Sanghi has joined hands with respondents Nos. 2 and 3 and entered into arrangement of selling of land of respondent No. 1-company despite the orders of the Company Law Board, Chennai. 13.12 In paragraph (III)(18) of the counter it is submitted that order dated October 23, 2008 passed by the Company Law Board, Chennai Bench does not apply to respondent No. 1-company. Even then respondents approached the Company Law Board, Chennai Bench and sought modification of the order. In the meantime respondent No. 1 was facing action under the SARFEASI Act and to avoid liquidation the respondents pooled up funds to save respondent No. 1-company from collapse. 13.13 In paragraph (III)(20) of the counter it is submitted that in contrast to the claim made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreeing to sell such a huge portion of land. It submitted that the said factors, therefore, establish oppressive act by the respondents. The petitioner has demonstrated in a tabular form that the land admeasuring 400 acres, which had market value of Rs. 120 crores had been sold at Rs. 4 lakhs per acre, viz., for value of Rs. 16 crores. 14.3 In paragraph 3(b) of the rejoinder the petitioner has offered to con tribute towards the total liabilities of respondent No. 1 to the tune of its shareholding in respondent No. 1, viz., 40 per cent. or any per cent. as decided by this Tribunal. 14.4 In paragraph 3(d) of the rejoinder it is averred that publication of advertisement is mandatory for receiving highest bid. In the present case irreparable loss has been caused by not publishing advertisement. 14.5 In paragraph 3(e) of the rejoinder the petitioner has alleged that due to non-co-operation of the respondent with the learned Advocate Commissioner appointed by this Tribunal could not finish the inspection. The learned Advocate Commissioner has filed an application seeking extension of 4 to 6 weeks. Even during the extended period he could not submit his report because of non-co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant/factory and immovable proper ties of respondent No. 1 to sell respondent No. 1-company to prospective buyers. Nothing fruitful has come in this regard. The petitioner has ruled out the possibility of respondent No. 1-company growing as an industry. 14.10 In paragraphs 21 and 22 of the rejoinder the petitioner averred that the petitioner has purchased 2,40,70,000 shares from reputed bankers like ICICI, IDBI, UTI. Respondent No. 1 could have sent 15 days' notice to such banks to confirm the sale of said shares to the petitioner and after getting confirmation respondent No. 1 could have transferred said shares in the name of the petitioner. However, respondent No. 1 failed to transfer the said shares for four years. 14.11 In paragraph 30 of the rejoinder the petitioner averred that the petitioner has issued notice to the respondents about oppression and mis management, which was not replied so far. It is therefore, submitted such non-response to the notice issued by the petitioner can be deemed to be an admission of the allegations. 14.12 In paragraph 31 of the rejoinder the petitioner averred that section 164(2)(a) of the Companies Act, 2013 provides that no person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(c) of the counter it is averred that respondent No. 1 has sold part of its assets in favour of respondent No. 14 as is reflected in the financial report of respondent No. 1. Said transaction had taken place prior to the petitioner becoming member of the company. Thus, the petitioner has no locus to question about the said transaction. 15.4 In paragraph 3(f) of the counter it is averred that the petitioner has no right to issue notice dated May 11, 2016 to respondent No. 14 and its director Ravi Sanghi about purchase of immovable properties of respondent No. 1. It is submitted that the petitioner has no locus to point out the interim orders passed by the Company Law Board filed by Sanghi Brothers. 16. Rejoinder dated October 16, 2017 (RJ-2) filed on behalf of the petitioner against reply filed by respondent No. 14 16.1 In paragraph 3(a) of the rejoinder it is averred that the petitioner has purchased shares of respondent No. 1 as under : Date of purchase Name of seller Quantity 16-3-2011 ICICI Bank Ltd. 1,99,70,000 21-2-2012 IDBI 27,60,000 29-3-2012 UTI a/c Vecause-I 13,40,000 Total 2,40,70,000 16.2 It is averred that though the petitioner has purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppointed Shri K. Ram Murthy, advocate as Advocate Commissioner to visit the factory of respondent No. 1 and report the actual position, take inventory of movable and immovable properties. The learned Advocate Commissioner has submitted his report. 17.2 It is alleged in paragraph 2 of the objections that learned Advocate Commissioner has never served these respondents or their counsel with any written notice about his scheduled visit to the company. Therefore, these respondents could not assist learned Advocate Commissioner. 17.3 It is averred in paragraph 4 of the objections that the statement of learned Advocate Commissioner that documents pertaining to movable and immovable properties were not kept ready by the officials of respondent No. 1 is false. No such request was made by learned Advocate Commissioner, but he asked for one document, viz., encumbrance certificate. 17.4 It is averred in paragraph 7 of the objections that the officials of respondent No. 1-company had co-operated learned Advocate Commissioner in all respects. Hence it is submitted that all the adverse statements made by learned Advocate Commissioner are not true. 18. Additional counter dated September 28, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement with the secured creditors of respondent No. 1 ; the sale proceeds alleged received by the company were used to fund the said settlement with the secured creditors of respondent No. 1-company. (b) The low price of Rs. 16 crores it has got is because it was the subject-matter of proceedings under the Land Ceiling Act. The petitioner contends that both the above reasons are fraudulent and deceitful. It is contended by the petitioner that on the contrary respondent No. 1 admits in its counter that : (a) There is huge unsecured liabilities of over Rs. 40 crores ; (b) The company does not have working capital ; and (c) The company's turnover is zero. The petitioner in this written submissions has provided comparative analysis of its own submission with the submission of the respondents as under : Petitioner's submission Respondents' submission The petitioner has purchased 2,40,70,000 fully paid-up equity shares of Rs. 10 of respondent No. 1 (40.11 per cent. of the total paid-up share capital of respondent No. 1) from ICICI Bank, IDBI and UTI. Said shares were purchased by the petitioner at the price of Rs. 1.11 per share. It is the trait law that whose sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore May 20, 2015 is liable to be rejected in view of the order of the National Company Law Tribunal, Hyderabad. Hence this petition be rejected. 21.2 In paragraph I(c) of the written submissions the respondent has cited a decision in the matter of Bellador Silk Ltd., In re [1965] 1 All ER 667 (Ch D), to contend that when a petition is filed with an oblique motive it is not maintainable. The said judgment has been relied in several judgments subsequently, namely, (i) Palghat Exports P. Ltd. v. T. V. Chandran [1994] 79 Comp Cas 213 (Ker), (ii) Mrs. Najma M. Saiyed v. Mehboob Productions P. Ltd. [2006] 129 Comp Cas 603 (CLB), (iii) Srikanta Datta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Enterprises P. Ltd. [1991] 72 Comp Cas 211 (Karn), (iv) VLS Finance Ltd. v. Sunair Hotels Ltd. [2002] 111 Comp Cas 403 (CLB). 21.3 In paragraph II(a) of the written submissions the respondent has cited the decision of the hon'ble apex court in the matter of Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 (SC) ; AIR 1965 SC 1535, wherein it is held that under sections 241 and 242, for acts to be considered oppressive and prejudicial to the interest of minorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an abuse of process of the Tribunal. In this connection the respondent cited the decision of the Chancery Division in Bellador Silk Ltd., In re [1965] 1 All ER 667 (Ch D). 21.9 In paragraph III(g) of the written submissions the respondent has contended that the petitioner has filed the present petition for the collateral purpose of claiming inflated prices for its shares. The petitioner had even ignored the efforts of reconciliation initiated by respondent No. 1. In this context the respondent cited the decision of the hon'ble Kerala High Court in Palghat Exports P. Ltd. v. T. V. Chandran [1994] 79 Comp Cas 213 (Ker). 21.10 In paragraph IV of the written submissions the respondent con tended that remedy lies under sections 241 and 242 as an alternative to winding up on just and equitable grounds and such remedy can be resorted to as last resort. In this context the respondent relied upon the decision of the hon'ble Supreme Court in the matter of Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp Cas 91, 106 (SC) ; [1976] 3 SCC 259 (on page 271). Paragraphs 37 and 38 of which are reproduced hereunder : "Section 433(f) under which this applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a related party, i. e., respondent No. 14 herein. Learned counsel contended, the majority shareholders were involved in the sale of land to the related party and the same was not even informed to the petitioner who is share-holder. It is not in dispute that according to the respondents, the petitioner was holding 30 per cent. of equity shareholding. Learned counsel contended, before going for sale, the first respondent-company ought to have obtained valuation, which was not done and there was no publication of the sale of heavy extent of land of respondent No. 1-company. Learned counsel contended, board of directors became disqualified for the reasons that company failed to file annual returns consecutively for a period of five years. Whatever actions done by the disqualified members of board are null and void ab initio. 24. Learned counsel for the petitioner would contend that respondents Nos. 1 to 4 admitted having sold the land to respondent No. 14 but they are justifying the sale on the ground it was for discharging the debt due to the secured financial creditors with whom there was settlement. The sale price was also justified on the ground that the lands were involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket value was Rs. 30 lakhs, whereas the land was sold at Rs. 4 lakhs per acre. Thus, there was no approval of the shareholders for sale of the land. No extraordinary general meeting was conducted and the board was disqualified. 26. Learned counsel contended, the first respondent-company has converted partly paid-up shares which was issued in the year 2002 into fully paid-up shares despite the fact that board of respondent No. 1 was disqualified at the time of conversion of shares. Therefore, such conversion is in violation of interim order dated October 23, 2008. Thus, learned counsel contended, respondents Nos. 1 to 4 were involved in committing oppression and mismanagement such as sale of land of respondent No. 1-company without following due procedure and as such the said agreement of sale in favour of respondent No. 14 to be cancelled and in the alternative the Tribunal to direct the respondents to purchase the shares of the petitioner after taking valuation so as to enable the petitioner to exit from the company. 27. On the other hand, learned counsel for respondents Nos. 1 to 4 would contend the present petition under sections 241-244 is not maintainable. The present petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Land Reforms Appellate Tribunal bearing L. R. A. No. 14 of 2007 which was remanded to the Revenue Divisional Officer. Against the said orders of LRAT, the State Government preferred C. R. P. No. 686 of 2012 to the hon'ble High Court, which is pending. Learned counsel contended, sale has not taken place and therefore it is baseless to contend that the extraordinary general meeting was not called for sale of the land. There is no issue of advertisement in the newspapers for sale of land. Thus, the petition deserves to be dismissed. 29. The petitioner is a shareholder in respondent No. 1-company. It is also not in dispute that the petitioner purchased 2,40,70,000 shares in respondent No. 1-company from financial institutions in 2011-12. It is borne out from the record that the petitioner approached the then Company Law Board for a direction to respondent No. 1-company and its directors to register shares in the name of the petitioner. It is also not in dispute that the erstwhile Company Law Board allowed the petition filed by the petitioner and directed the company and its directors to register transfer of shares in favour of the petitioner. It is also not in dispute that pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss land of 22.67 standing holdings. The case of respondents Nos. 1 to 4 is that the Land Ceiling Officer declared respondent No. 1-company is entitled to one standard holding, which is equivalent to 55 acres. An appeal was filed before the Land Reforms Appellate Tribunal (LRAT), which has again remanded the matter to the Land Ceiling Officer-cum-Revenue Divisional Officer. However, the Government had preferred CRP against the order of the LRAT bearing C. R. P. No. 686 of 2012 to the hon'ble High Court for the Sate of Telanagana, which is pending. Thus, the proceedings started under the Land Ceiling Act against respondent No. 1-company which was long prior to the petitioner becoming shareholder in respondent No. 1-company. 33. The contention of the petitioner is that property of respondent No. 1-company was sold to respondent No. 14, after it had acquired shares in respondent No. 1-company. It is the case of the petitioner that there was no extraordinary general meeting for passing resolution for sale of a major portion of the land held by respondent No. 1-company. Respondents Nos. 1 to 4 have not filed any proof of service of notice of extraordinary general meeting, if any, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land to any prospective buyer. The petitioner is a member of respondent No. 1-company. According to him his percentage of shareholding in the company was 40.11 per cent. Of course, this percentage of shareholding further came down following conversion of partly paid shares into fully paid shares. The fact remains that the petitioner was a shareholder. Whether his shareholding was 40.11 per cent. or less than that, is immaterial. However, notices ought to have been issued to him and the extraordinary general meeting ought to have been convened for passing appropriate resolution authorising the board to sell the land of respondent No. 1-company fixing the sale price. In absence of resolution authorising the board to sell a particular extent of land at a particular price, the action of the board of respondent No. 1-company entering into sale transaction with respondent No. 14, becomes an act of oppression and mismanagement as against the petitioner. 34. The land was sold to respondent No. 14. No doubt, it is under an agreement of sale. Interestingly, respondents Nos. 1 to 14 have not filed copy of agreement entered with respondent No. 14. The agreement has not seen light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with secured financial creditors, respondent No. 1-company was forced to sell the land. It is the case of respondents Nos. 1 to 4 that respondent No. 1-company owed Rs. 612 crores to the secured creditors. Besides there were other liabilities to other creditors. There was absolutely no difficulty for respondents Nos. 1 to 4 to produce all the documents connected with the one-time settlement proposal entered with the secured creditors. The purpose behind the sale of a big chunk of land of respondent No. 1-company was to meet the commitments of one-time settlement proposal entered with the financial creditors. If this is the reason, then why respondents Nos. 1 to 4 have not submitted the relevant documents. Thus, respondents Nos. 1 to 4 failed to substantiate their contention that the land was sold to respondent No. 14 to meet the one-time settlement proposal requirements. The alleged settlement entered into with the secured financial creditors has not seen light of the day till date. It is clear that everything is done behind the back of the petitioner. No resolution approved by the extraordinary general meeting that the land in question was allowed to be sold for meeting the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for Rs. 4 lakhs per acres bringing the total sale consideration at Rs. 16 crores. Learned counsel for the petitioner would contend that the sale price as per the Ready Reckoner was Rs. 15 lakhs per acre. This extent of land, if sold at Rs. 15 lakhs per acre, it would have fetched Rs. 60 crores. Learned counsel contended that the market value is higher than the Ready Reckoner price. The market value is Rs. 30 lakhs per acre and this land would have fetched Rs. 120 crores. Learned counsel has filed a copy of Ready Reckoner, shown as annexure J at pages 188-196. It is true that as per annexure J, the land value, at various locations, ranges from Rs. 12 lakhs per are to Rs. 26 lakhs per acre. Thus, the sale price was much above Rs. 4 lakhs per acre even as per the Ready Reckoner, which is the Government fixed valuation. The contention of respondents Nos. 1 to 4 is otherwise that respondent No. 14 has agreed to purchase the land at Rs. 4 lakhs per acre because the lands were subject-matter of land ceiling proceedings. There-fore, nobody dared to purchase the land of respondent No. 1-company which was involved in the Land Ceiling Proceedings. The contention of learned counsel for respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent No. 1-company. Therefore, he cannot question issuance of partly-paid shares when he was not a member of respondent No. 1-company. As there was need to raise money, partly-paid shares were converted into fully-paid shares by collecting balance. How this conversion can be said to be oppressive against the petitioner. 42. The petitioner prayed the Tribunal, in alternative, to provide him exist from the company after fixing valuation and directing the company and other shareholders to purchase his shareholding or to allow him to sell shares to a third party. 43. The contention of respondents Nos. 1 to 4 is that the present petition is filed by the petitioner in order to coerce them to purchase his shareholding at a higher price for which the respondents declined. Learned counsel contended that the petitioner purchased each share at an average price of Rs. 1.11 paise of the share value of Rs. 10 from financial institutions. This shows the financial condition of respondent No. 1-company when the petitioner purchased the shares from the financial institutions. The share value of Rs. 10 has drastically come down, which is an indication of the financial status of respondent No. 1-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent No. 1-company cannot be granted for the reason that a big asset of respondent No. 1-company, i. e., vast extent of land is involved in the Land Ceiling proceedings and the matter is pending in the hon'ble High Court of Telangana and therefore, respondent No. 1-company cannot be ordered to be wound up. The issue relating to holding of the land by respondent No. 1-company is the subject-matter pending before the hon'ble High Court of Telanagana. Therefore, the petitioner cannot seek relief that respondent No. 1-company be wound up. However, it is open to the petitioner to exit from respondent No. 1-company as stated above. 48. Thus, sale of land by respondent No. 1-company to respondent No. 14 is an act of oppression and mismanagement and as such sale transaction with respondent No. 14 is liable to be set aside. Secondly, the petitioner is allowed to sell its shareholding to the existing shareholder at the price offered by him and in case the existing shareholders of respondent No. 1-company do not wish to purchase the shares at the price offered by the petitioner, then the petitioner is entitled to sell the same to third party. Respondent No. 1-company is further di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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