TMI Blog2014 (8) TMI 1214X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners claim under relief 18.3 (viii). It is only a claim made by the petitioner, but the petitioner's entitlement to 45% of the equity shares in the company has not been determined by any court or authority. Admittedly the petitioner is holding 25,00,000 equity shares constituting 17.5% of the shares. Even on the merits of the case, the petitioner failed to fulfil the obligation on his part and for that reason me petitioner cannot put, blame on the part of the respondents. The petitioner has filed the present petition by invoking Section 397/398 and 402 of the companies Act, 1956 alleging certain acts of oppression and mismanagement in the affairs of company. From the pleading and document, the petitioner has not made out any case either on oppression or mismanagement in the affairs of the Company. On the other hand the R1 Company is a going concern and performing very well. There is no dispute or denial that the respondent Company under the leadership of board of directors and assisted by the top level management team have a good corporate governance. It is a well settled law that even an isolated act cannot be construed an act of oppression and mismanagement. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as default in the payment of the Guaranteed Minimum Monthly Rent under the Property Management Agreement, he was informed that the economic recession had impacted the respondent company and that the revenues of the respondent company had suffered. The 2nd respondent held out the assurance that with the further infusion of investment, the financial affair, of the respondent company could be resurrected. The petitioner assisted the respondent in marketing, the commercial properties and residential lands in the Film City (within the project) to raise funds for the respondent company and thus caused infusion of approximately ₹ 10,00,00,000/- into the respondent company to help it to tide over the financial difficulties. Despite these measures the 2nd, 3rd and 5th respondent continued to represent that unless there was fresh infuse of funds, the respondent company's future was bleak and the respondent company would be constrained to close its operations. The 2nd 3rd and 5th respondents represented that there were also accrued due to the suppliers and employee. The petitioner who had invested his personal funds and also encouraged his family members to invest in the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional equity shares to the 2nd respondent. These increases in the authorised and paid up share capital of the respondent company were without notice to the petitioner and were contrived unlawfully with the sole intention of oppressing the petitioner as a shareholder. 3. It is submitted that the petitioner commenced proceedings under sections 397, 398, 265 and 402 read with section 111(4) of the Companies Act before this Hon'ble Bench in company petition No. 65/2009. However the said company petition No. 65/2009 ended in a compromise petition which was accepted by this Hon'ble Bench on 02.12.2009. The 2nd 3rd and 5th respondents and the petitioner under the Compromise Petition accepted by this Hon'ble Bench agreed to the following, amongst others: (a) The shareholding in the respondent company between the 2nd respondent's group and the petitioner would be in the ratio of 55:45. (b) The 2nd respondent after obtaining the consent of all the secured creditors shall transfer the necessary equity shares/issue/allot necessary equity shares in favour of the petitioner to enhance the petitioner's holding to 45% after. (c) That until the petitioner's sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersonal guarantee by the petitioner. The respondents 2 to 7 started using the correspondences from the financial corporation to stall and prevent enhancing the petitioner's shareholding from 20% to 45%. The respondents 2 to 7 also deliberately failed to pay even agreed amount for the use of the commercial premises. In fact these respondents caused the cheque for a sum of ₹ 9 lakhs to be returned for want of sufficiency of funds. Under clause 19 of the Compromise Petition dated 02.12.2009 it is agreed that in the event of any defects or differences in implementation of the compromise petition, the petitioner and the respondents shall request their respective counsel to jointly resolve the dispute and if the counsels failed to resolve such dispute then the dispute shall be adjudicated in the proper forum. Accordingly a meeting was also scheduled on 16.03.2010, but the dispute could not be resolved. Even after this meeting the petitioner is informed: (i) That because the petitioner was not willing to provide Personal Guarantee to the Financial Corporation, non-issuance of NOC from the Financial Corporation to change the management of the respondent company as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is allowed granting reliefs as prayed for and in the alternative to direct the respondents 2 to 7 to purchase the petitioner's entitlement of 45% in 69,75,000 equity shares out of the respondent company's total equity shares in 1,55,00,000/- at the rate arrived determined by an independent evaluator appointed by this Hon'ble Bench. In view of the facts, as stated above, the counsel requested the Bench to allow the petition as prayed for. In support of the case the counsel relied upon the following citations: 1. AIR 2004 SC 321 in the matter of Dr. Mrs. Renukha Datla Vs. Solvay Pharmaceuticals VV Others. 2. (2004) 1 SCC 483 in the matter of Rekha Mukherjee Vs. Ashish Kumar Vas Another. 4. The 2nd respondent filed a detailed counter to the petition. It is submitted that the petitioner had earlier filed a similar petition in CP No. 65/2009 before this Hon'ble Board which eventually ended in a compromise on 02.12.2009. This Hon'ble Board by its order dated 02.12.2009 disposed of the CP No. 65/2009 on the terms contained in the said compromise petition. The compromise petition entered into between the petitioner on the one hand and the respondents on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent company by letter dated 09.05.2010 agreed for such appointment and sought that the terms of appointment be finalized keeping in line with the terms referred to in the compromise petition. Inspite of the immediate response to the petitioner's request by this respondent, the same was not followed up by the petitioner thereafter. It is submitted that as per Clause 1 of the compromise petition, the petitioner is entitled to 20% of the shares in the respondent company and that the respondent forming part of the 'Prasad Group' was to transfer the remaining 25% whereby the petitioner would have 45% of the shareholding in the respondent company and that would be after obtaining the consent of the secured creditors. The respondent, as per the terms of the compromise petition wrote a letter dated 07.12.2009 to the secured creditors namely the Karnataka State Financial Corporation ('M/s. KSFC') and requested them to kindly consent to transfer such shares. I his was imperative as due to the loans advanced by the secured creditors and the agreements entered into thereof, the respondent was obliged to take their consent prior to making any changes in the sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er notice being sent, the members present shall constitute a quorum and in compliance of the said Clause 6, despite notice being sent, the petitioner has choose to absent from the Extraordinary General Meeting. It is submitted that the day-to-day affairs and management of the respondent company is carried out as per Clause 8 of the compromise petition. As per Clause 8 of the compromise petition, the respondent is the managing director of the company. As per Clause 8 of the compromise petition, the financial records would show that the said managing director is the 2nd respondent who has only been reimbursed for operational expenses as expenses from the respondent company for the past months despite being entitled to his salary. The respondent company would like to place the following facts before this Hon'ble Board to show that they have used the financial resources of the respondent company to clear debts and to reduce the debts of the secured creditors and sundry suppliers. It is submitted that the petitioner has chosen to keep away from the management of the company and now cannot sit on the outside and make false and frivolous averments with regarding to mismanagement. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having a history by themselves, as averred in the statement of objections by the 2nd respondent in the CP No. 65/2009, cannot be gone into at this stage. As can be seen from the above and in compliance of the compromise petition, this respondent has undertaken various steps and measures to improve the financial affairs of the respondent company, despite having not had the benefit of the intelligence and management skills of the petitioner which is sadly missed. The respondent company would also like to highlight herein below the various steps taken by them in the past year in order to improve the affairs of the company. It is submitted that the respondent company under the leadership of the Board of directors and assisted by the top level management team have a very high corporate governance/plan and put in their best efforts to plan as to how the respondent company should run. The respondents by reducing the business operational cost has resulted in the respondent company achieving operating profits and this is due to the business plans and efforts put in by the respondents. Prior to the compromise petition, i.e. for the financial year ended 2008-09 the income from the operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax returns for the financial year 2009-2010 on 11.10.2010 and filed the annual returns on 10.11.2010. It is submitted that subsequent to the compromise petition dated 02.12.2009 which was recorded in the company petition No. 65/2009, there has been no change in the entire shareholding pattern or the Board of directors. On the other hand, the liabilities of the respondent company have been reduced due to the respondents' efficient management as set out in the Preliminary Objections. 8. It is most respectfully submitted that when the said film city project was conceived in 2003, the petitioner was not even a shareholder or a director of the respondent company and the petitioner became a 20% shareholder of the respondent only on 28.09.2008. This respondent conceived the scheme for development of the said land in the aforesaid manner and on which date the petitioner had nothing to do with the respondent company. The respondent company is now only entitled to the film city project which is mortgaged to the State owned Karnataka State Financial Corporation ('M/s. KSFC) ('the secured creditor') and there are also other secured creditors like M/s. Rajesh Exports etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch this CP has been filed. The petitioner on having any difficulty in executing the terms of the compromise petition should have filed a suit for specific performance or an execution petition in the courts having jurisdiction and it would be only at Bangalore. The petitioner has no cause of action to file this petition before this Hon'ble Board in the first instance. The compromise petition has been misinterpreted by the petitioner in so far as the obligations of the respondent company are concerned. It is denied that the petitioner advanced ₹ 10,00,00,000/- into the respondent company to help it to tide over the financial difficulties and so also all the alleged averments of the petitioner that the representations made by this respondent to the petitioner to give financial support to the respondent company is false, it is submitted that the respondent company has availed finance from the KSFC and at present, the outstanding amount due to the said corporation is ₹ 62,00,000/-. As stated in the preliminary statement of objections, the respondent company has paid back approximately ₹ 2 crores to the said KSFC since the date of the compromise petition till date. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to become a director of the company. The learned counsel requested the Bench to dismiss the petition as it is devoid of any merit. In support of the case he relied upon the following citations: 1. in the matter of Bhanu Kumar Jain Vs. Archana Kumar Another. 2. in the matter of Rajinder Kumar Malhotra Others Vs. Harbans Lal Malhotra Others. 3. in the matter of Union of India Vs. T.R. Varma. 4. in the matter of T. Arivandandam Vs. T.V. Satyapal. 5. in the matter of Bhau Ram Vs. B. Baijnath Singh. 6. in the matter of Maria Margarida Sequeria Fernandes Others Vs. Erasmo Jack De Sequeria (Dead) through LRs. 7. in the matter of Deutsche Bank AG Vs. Vilas Saman. 8. in the matter of Needle Industries (India) Ltd. Others Vs. Needle Industries Newey (India) Holding Ltd. 9. in the matter of Indowind Energy Ltd. Vs. ICICI Bank Ltd. Others. 10. in the matter of KG Raghavan Vs. Foreword Advertising Marketing Pvt. Ltd. 11. in the matter of Salkia Businessmen's Association Others Vs. Howrah, Municipal Corporation Others. 12. in the matter of Yogeshwari Kumari Others Vs. Lake Shore Palace Hotels Pvt. Ltd. 10. Heard the learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds for development and completion of projects. Further it is stated that the respondents approached the petitioner for sale of 45,00,000 equity shares held by him in the R1 Company @ ₹ 4/- for equity share and the petitioner has agreed to purchase the same. Alter completion of the proposed sale the petitioner will hold 56% equity shares in the R1 Company. In the shareholder agreement it was shown that the petitioner is holding 25,00,000 equity shares constituting 20% of the paid up share capital in the R1 Company. Further at para 2.2 it is stated that on registration of the share transfer of 45,00,000 equity shares in favour of the petitioner the shareholding pattern of the company will be that the petitioner will hold 70,00,000 equity shares constituting 56% of the paid up share capital. The respondents contended that the agreement dated 22.07.2009 is a fictitious agreement and the respondents have filed Police Complaint against the petitioner for forging the documents and misrepresenting of facts in agreement dated 22.07.2009. Further the respondents contended that they filed a suit being O.S. No. 27125/2009 seeking declaration of the shareholder agreement dated 22.07.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of clause 2 of the compromise petition to 45% he shall have a right to nominate one more director. At para 8 of the compromise petition it is stated that Mr. Saravana Prasad will be the managing director of the company. The day-to-day management and affairs of the company shall be taken care of by managing director who shall function in accordance with the general directions and instructions of the Board of directors of the company. The key managerial personnel to this compromise petition shall be paid remuneration and an appointment letter be issued within 30 days of signing of this compromise petition. The respondent company shall pay the salaries to key managerial personnel as stated, subject to payment of statutory dues, operational costs and rents to Somashekar. At para 9 of the compromise petition it is stated that to bring in due financial reporting an internal auditor shall be nominated/appointed by Somashekar, who shall verify the monthly report of all income and expenditures of the company prepared by the managing director of the company. Mr. Saravana Prasad will co-operate with the internal auditor to put in place a proper system for accounting of all cash inflow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany's profile along with the balance sheets for the last 3 years. 4. Latest income tax clearance certificate, PAN number and recent photograph. 5. An undertaking from the proposed investor agreeing to offer his personal guarantee for repayment of loan i.e. 39,00,000 as principal, 44,77,466 interest thereon, ₹ 1302/- other debits and the total amount is ₹ 53,78,768/-. 13. On receipt of the letter from KSFC the company addressed letters dated 02.02.2010 and 09.02.2010 to the petitioner informing the updates. It is specifically stated that the petitioner has not responded to the email sent by the company. Further it is stated by the respondents that they are corresponding with the KSFC in order to ensure that the allotment of shares is done but the process is again not completed due to petitioner's in-actions. The respondents clearly stated that they have acceded to the request of the petitioner and advanced a sum of ₹ 9,00,000/- notwithstanding the non-execution of the supplementary agreement. The respondents categorically stated in their letter dated 09.02.2010 that they are ready and willing in word and spirit to implement the compromise petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to execute personal guarantee in favour of the Karnataka State Financial Corporation, established under the State Financial Corporation Act, 1951: (ii) To redeem the preferential capital and not to convert to equity and in the event of conversion from preference to equity capital, to transfer such additional equity shares as required for maintaining the petitioner's holding to 45%; (iii) To bring back to the respondent company a sum of ₹ 25,00,00,000/- or such further additional amounts which have been diverted by the 2nd to 7th respondents from the account of the respondent company; (iv) Direct the respondents 2 to 7 to restore to the respondent company a sum of ₹ 51,61,53,852/- being the sale proceeds received by the said respondents on account of the sale of the respondent company's properties, as enumerated in the list annexed hereto as Annexure - 01 along with an interest @ 24% per annum from the date of the sale proceeds upto the date of restoration. (v) To maintain the shareholding parity between the petitioner and the 2nd respondent group in the ratio of 55:45 unless there is a refusal by the petitioner in writing to subscribe to additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity shares/issue/allot necessary equity shares in favour of the petitioner to enhance the petitioner's holding to 45% after; (c) That until the petitioner's shareholding is enhanced to 45% the petitioner's shareholding as on the date of compromise shall carry Dividend Right Equal to 45% of the share capital; (d) The existing preferential share capital of the respondent company shall be converted to equity shares and in view of conversion of such preferential share the 2nd respondent shall transfer such additional shares as may be required to maintain the petitioner's holding of at 45%. (e) The shareholding between the petitioner and the 2nd respondent group shall be maintained in the ratio of 55:45 unless there is a refusal by the other in writing to subscribe to additional shares. (f) The petitioner was assured director's seat in the Board of directors. (g) The petitioner shall be entitled to nominate/appoint an internal auditor for verifying die monthly report of all income and expenditure of the respondent company. (h) The respondent company shall pay the salaries to the key personnel subject to paying statutory dues, operational cost and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shares. Even on the merits of the case, the petitioner failed to fulfil the obligation on his part and for that reason me petitioner cannot put, blame on the part of the respondents. The petitioner has filed the present petition by invoking Section 397/398 and 402 of the companies Act, 1956 alleging certain acts of oppression and mismanagement in the affairs of company. From the pleading and document, the petitioner has not made out any case either on oppression or mismanagement in the affairs of the Company. On the other hand the R1 Company is a going concern and performing very well. There is no dispute or denial that the respondent Company under the leadership of board of directors and assisted by the top level management team have a good corporate governance. The respondent have categorically stated that if a visitor entered the respondent Company premises, he would have to buy a ticket at the counter and at the gate and the detail of money received automatically updated all the financial systems of the Company. Even taking into consideration of the objects of the Company there are no complaints against the business and its affairs by any quarter and no material was plac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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