TMI Blog2022 (12) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... he call on any shares either at par or at a premium and for such time and for such consideration as the Directors think fit - the inquiry report mentions that the R-1 Company provided its comments vide letter dated 28.2.2008 on the said complaints and after receiving the comments and reply from the R-1 Company, the ROC found that that though these 984 shares were issued prior to the period 1965-66 and remaining unsubscribed for a very long period of time, the Board of Directors should not have exercised their power under section 81(1)(d). Since the board has a fiduciary duty in exceptional circumstances like issue of shares towards the members of a company, they should have offered these shares to all the existing shareholders in the ratio of shares held by them under section 81(1) of the Companies Act, 1956 . It can be concluded the Company has violated the provisions of section 81(1) and 81(1A) of the Companies Act, 1956. As the allotment was done against the provisions of the Companies Act, 1956, the complainant may be directed to approach the company law board under the provisions of Sec.397/398 of the Act for declaring the allotment as null and void. 984 shares which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no way at this stage of verifying the signatures of members signing the proxies. Thus, on the basis of available record, this issue is not held to be an act of oppression or mismanagement. This Tribunal is of the clear-cut view that the R-1 Company and its Board of Directors subjected its shareholders with acts of oppression and also indulged in mismanagement of the Company s affairs, while allotting the 984 shares and also in the proposal for the Joint Development Project, culminating in the signing of the Joint Development Agreement. These acts continued since the year 2007 and the Appellants have succeeded in making a clear cut case for their oppression by the Company and its Board of Directors as well as mismanagement of the Company s affairs. Appeal disposed off. - TA NO. 186 OF 2021 (Company Appeal (AT) No. 261 of 2019) - - - Dated:- 30-11-2022 - (Justice M. Venugopal) Member (Judicial) And (Dr. Alok Srivastava) Member (Technical) For the Appellants: Mr. T.K. Bhaskar, Advocate For the Respondents: Mr. P.H. Aravindh Pandian, Senior Advocate with Mr. Raj Kumar Jhabakh, Advocate for R-1, R-7, R-8 and R-9. Mr. Jerin Asher Sojan Mr. Pawan Jhabakh, Advoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the property (land) on which the theatre was located. The Appellants have also stated that to fulfil an illegal objective, the Board of Directors of R-1 Company has been making attempts to alter the Object Clause of the Memorandum of Association including at earlier Annual General Meetings (AGM) but such repeated attempts were thwarted by the shareholders. 4. The Appellants have alleged the Respondent Nos. 2 to 9 had plans to demolish the present cinema theatre and build a mall/commercial complex (through a Joint Development Agreement) in its place on the related land, and to that end the R-1 Company and Respondent Nos. 2 to 9 initiated a move to allot 984 unsubscribed equity shares to Respondent Nos. 3 to 9 and their relatives, friends and business associates (who are Respondent Nos. 10 to 53) for a undervalued sum of Rs.2000/- per share even though the Company did not need any extra funds and there was no necessity and purpose for the said allotment. The appellants have further stated that this allotment of 984 shares was done in a malafide manner by a simple Board resolution and later in the AGM in which Respondent Nos. 2 to 9 participated, while they were interested p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties in the acts of R-1 Company leading to oppression of the Company members and mismanagement, and the complaints were inquired into by the relevant authorities leading to a report by the Registrar of Companies, Karnataka (in short ROC ). 10. The Appellants have submitted that the R-1 Company and its Board of Directors took a decision for joint development of the Company s land on which Jyothi Theatre was situated in a big hurry without proper valuation of the land in question, which was purportedly to give benefit to R-54 Charisma Builders represented by Sudhir V. Shetty, and whose daughters Shruthi S. Shetty and Shradha S. Shetty (Respondents No. 46 and 47) were allotted shares respectively in the 984 shares allotment. They have further alleged that the initially the proposal for Joint Development Agreement related to R-1 for obtaining at least 50% of the total build up area of the proposed commercial complex with right to retain proportionate undivided interest in the land, which was subsequently, in the 62nd AGM held on 27.8.2008, changed to R-1 Company s share at least 40% of the total built area with all other terms and conditions approved in the earlier resolution dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 984 unsubscribed shares of Respondent No.1 Company to the relatives, close acquaintances and friends of the directors and some members of Respondent No. 1 Company, in order to seek their assistance in approving illegal and wholly unnecessary resolution for joint development of the company s only property i.e. the land on which Jyothi Theatre is situated. (ii) The 984 shares were issued to Respondents No. 5 to 53, which was not in the best interest of the Company as there was no urgent requirement of funds by the company. This allotment violated sections 81(1) and 81(1A) of the Companies Act, 1956, which stipulates that such shares issued to increase the subscribed shares capital of the Company ought to have been offered for allotment to the existing shareholders of the Company and if they are allotted to non-members of the Company, a special resolution should have been passed in accordance with section 81(1A) of the Companies Act, 1956, whereas no such resolution was passed before making shares allotment to a number of non-members. (iii) Section 81(1) of the Companies Act, 1956 mandates that all shareholders should be allotted unsubscribed shares in the Company, but in reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpletely illegal manner without any reference to legal provisions for allotment of new shares. Such an act amounts to oppression of the Appellants, who are members of the R-1 Company. In support the judgments of Hon ble Supreme Court in Nanalal Zaver Rs. V Bombay Life Assurance Co. Ltd. Ors. (MANU/SC/0003/1950) and Dale Carrington Invt (P) Ltd. Anr vs P.K. Prathapan Others (MANU/SC/0748/2004) have been cited. (vii) Moreover, the value of Rs. 2000 per share at which the 984 shares were allotted was an undervalued figure and in view of the high value of land at the time of allotment of 984 shares it should have been much higher, but the Board did not exercise adequate care and caution and accepted such a low value for allotment of shares. Thus, illegal and wrongful gain was given to the new shareholders. (viii) It is a well settled principle of law that in cases filed under sections 397, 398 and 402 of the Companies Act, 1956, what may be perfectly legal may still be oppressive to minority shareholders. Thus, without admitting that the allotment of 984 shares is legal, the oppressive character and improper management practices by Respondent No. 1 Company and its Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40% of the total built-up area and giving away property ownership of the land to the builder. The Company changed its stance of receiving 50% of total built-up area to receiving 40% of built-up area without adequate valuation and due-diligence, in order to provide extra and illegal benefit to the prospective builder R-54. (xiii) The proxies which were used in the voting in the 61st AGM were objected to, which is recorded in the minutes of 61st AGM, but no redressal of such complaint was taken by the Chairman of the Board and the complaint was not adequately addressed. (xiv) A member Shri M.S. Karantha raised a number of issues including illegal allotment of 984 shares in his complaint, since they were not offered to existing shareholders in proportion of their shareholding and absence of a special resolution under section 81(1A) in the AGM as well as defective proxies, and the approval of resolution regarding Joint Development Agreement, but such objections were set aside cursorily. (xv) Mr. Gautam R. Padival (A-1) made complaint to the Secretary, Ministry of Corporate Affairs vide letter dated 5.9.2007 against the Board of Directors for intentional violation of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt of Karnataka has upheld the validity of the tendering process but only allowed the Company to undertake tendering process in a fair and transparent manner and also permitted Mr. Ratnavarma Padival s company to participate in the tendering process. Moreover, the issue of illegal allotment of 984 shares was not considered by the Hon ble High Court of Karnataka nor any findings in that regard were given. It is clear that if votes had not been cast on behalf of these 984 shares, which were not allotted legally, the resolution relating to item no. 6 in 61st AGM could not have been passed. (xix) The conduct of the Respondents after the order of Hon ble Karnataka High Court in CP No. 35 of 1987 and Company Application 352 of 2007 has been less than fair and shows their malafide intention smacking of favouritism and lacking fairness and transparency. The malafide intention is also clearly visible in the decision taken in the Extraordinary General Meeting (EGM) held on 11.8.2008, wherein a proposal was placed for abandoning the Joint Development Agreement proposal and instead opt for complete disposal of the entire assets to a buyer. The explanatory statement with the notice for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt thereof, for such consideration as the Company may think fit . Thus, none of the objects, as enumerated in the Memorandum of Association, contemplate explicitly that the Company should establish a commercial complex either by itself or in collaboration with any other entity. Therefore, Registrar of Companies, Karnataka through his report dated 16.5.2008 made prima facie finding that the Company should approach the General Body before finalising the Joint Development Agreement by placing the draft of the Joint Development Agreement before the shareholders and also amend the Objects of the Company to enable it to sell the built-up area other than the cinema theatre in the proposed commercial complex. 17. Arguments of the Learned Senior Counsel for Respondents (i) The present proceedings are motivated, belated and bereft of any merit. Further, the Appellants filed the Company Petition belatedly after a period of more than three years from the date of allotment of shares in the year 2007 to stall the development projects of the Company for the personal benefit and gain of the Appellants. The shares were allotted on 07.03.2007 and after a period of more than three years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. These shares were issued at a price of Rs. 2000/per share, i.e, at a premium of Rs.1900 and not at par value of Rs.100/-, and the valuation was done by a qualified chartered accountant. The Company had inadvertently not mentioned the premium amount in Form 2, which was later rectified by the Company. (v) Though Appellants were aware of the allotment of shares from 19th April 2007 they did not challenge the said allotment for more than three years until the tender filed by the Appellants was rejected and therefore their petition is barred due to efflux of time. (vi) The Appellants have relied on provisions of Section 300 to wrongly contend that the allotment of shares in question is vitiated as shares were allotted to the Directors who participated and voted in the meeting in which the shares were allotted. Sections 299 and 300 of Companies Act, 1956 prescribe a duty on the part of a director when he is interested in a contract or arrangement of the company, whereas in according approval to a transfer of shares, no element of contract or arrangement is involved. (vii) With the idea to promote widespread shareholding, an Article 15 was included in the Company's Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion obtained by the Company, wherein the shares were valued at Rs.1313 per share. Further, the Appellants themselves have purchased the shares of the Respondent No.1 Company for Rs. 4,000 in the year 2010. (xii) A company petition bearing C.P. No. 11/1967 was filed by Mr. Ratnavarma Padival which was dismissed by Hon ble High Court of Mysore vide order dated 11.01.1968. Mr. Ratnavarma Padival again filed Company Petition 35/1987 before the Hon'ble High Court of Karnataka. (xiii) Mr. Ratnavarma Padival also made an application bearing C.A. No.352/2007 in C.P. No. 35/1987 before the Hon ble High Court of Karnataka seeking to restrain the Company from altering, alienating, leasing, disposing off or dealing with the property of the Company. The Hon'ble High Court of Karnataka vide order dated 06.06.2007 dismissed the said application. (xiv) Apart from the very successful theatre business, the Company does not have any other business till now, and the Directors have been considering the question of commencing some other business, in view of the fact that the Company owns a large extent of immovable property in the heart of Mangalore town, which could be exploited comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for various reasons the same was delayed and finally the joint development agreement was finalized and signed on 23.09.2009. (xix) The Memorandum of Association of the company specifically authorizes the company to go for joint development of its property (land) in view of the Objects of the Company contained therein. Further in the AoA, Article 3(o) deals with power of the company to build, alter, demolish, construct, maintain or hire any building or works for the purpose of business of the company. Article 3(q) empowers a joint venture with any person or firm or company. Article 3(u) permits sale or disposal of property for consideration. (xx) Taking note of the provisions in the MOA, the Hon'ble High Court of Karnataka in C.A. No. No.352/2007 vide order dated 06.06.2007 categorically held that the Company has power under the MOA to deal with the property of the Company. It is submitted that the Tribunal after taking note of the proceedings before the Hon'ble High Court, the provisions of the MOA and the tender process has rightly concluded in paragraph 17 of the impugned order. Mr. M Ratnavarma Padival has not challenged the tender process before the Hon'ble Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs even before the 61st AGM took place. In this context discussions were also held with Respondent No. 54 Charisma Builders and two other builders viz., Chartered Housing Private Limited, Bangalore and Plasma Developers Limited, Mangalore. All the three had deposited Rs 2 lakhs as Earnest Money alongwith their bids. Thereafter, it was decided to go for a public tender. Therefore, the EMD by the other two were returned as they did not participate in the public tender, whereas the amount paid by Respondent No. 54 was retained. (xxv) The Respondents No. 1 and 8 submitted that the objects of the Company not allow for construction of a commercial complex. As stated earlier, Articles 3(o), (q) and (u) authorizes the Company to deal with the property of the Company in any manner it deems fit and the same has been upheld by the Hon'ble High Court of Karnataka in its order dated 06.06.2007 in CA 352/2007. (xxvi) All the proxies that were used for marking attendance and in voting in the Annual General Meetings were neither illegal or unverified proxies and there was not any mala fide intent in considering them valid for passing the proposed resolutions. The proxies were used only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the rival parties. 20. We note that argument of the Learned Senior Counsel for Respondents who has stated that the Appellants are now agitating issues relating to the allotment of 984 shares, an act which was done by the Company in the year 2007, and an act that has continued for such a long time with no adverse consequences to the company and the members cannot be called an act of oppression. 21. We find that the allotment of 984 shares was first discussed by the Company s Board of Directors in its meeting dated 7.11.2006, and later in the Board of Directors meeting held on 7.3.2007 the list of prospective allottees of 984 shares was finalized. At the beginning of the 61st AGM wherein the allotment of 984 shares was decided, a member Mr. M.S. Karantha gave a letter dated 7.6.2007 to the Chairman, Board of Directors of the Company alleging irregularity and illegality in the allotment of these shares. Further, the same issue was the basis of a complaint made by Mr. M.S. Karantha to the Secretary, Ministry of Corporate Affairs vide letter dated 21.9.2007 and by Mr. Gautam Padival in a complaint dated 10.10.2009 to the ROC, Karnataka. These issues were enquired into by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, who may allot or otherwise dispose of the same to such persons on such terms and conditions and at such times, as the Directors think fit, and with full powers to give any person the call on any shares either at par or at a premium and for such time and for such consideration as the Directors think fit. We also note that the allotment of 984 unsubscribed shares became a contentious issue from the year 2007 onwards, when Mr. M.S. Karantha (Appellant No. 3) sent a representation to the Chairman, Board of Directors of R-1 Company through a letter dated 7.6.2007 (attached at pp.216-217 of the appeal paperbook). Later, Appellant No. 1 Gautam Padival also filed a complaint about the irregular allotment of 984 shares vide letter dated 10.10.2009 addressed to the Registrar of Companies, Karnataka (in short ROC ). These complaints were enquired into by the ROC and the inquiry report (attached at pp. 254-263 of the appeal paperbook), sent to the Regional Director, Southern Region, Ministry of Company Affairs provides a detailed examination and inference on the issues raised in the complaints. 25. The inquiry report mentions that the R-1 Company provided its comments vide letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner as they think most beneficial to the company. xx xx xx xx (1A) Notwithstanding anything contained in sub-section (1), the further shares aforesaid may be offered to any persons [whether or not those persons include the persons referred to in clause (a) of sub-section (1)] in any manner whatsoever (a) if a special resolution to that effect is passed by the company in general meeting. 27. We note that the Annual Report presented in the 61st AGM states that out of 6000 shares that were issued initially, 984 shares were left unsubscribed and were lying dormant. These shares were allotted at a premium of Rs. 1900 per share by the Board of Directors. It is also note that when a resolution was passed to issue the 984 unsubscribed shares at a price of Rs. 2000/- per share in the Board of Directors meeting held on 7.3.2007, the list of allottees were finalised at the Board meeting, which contained the names of the Respondents No. 3 to 53 to the exclusion of the Appellants and Mr. M.R. Padival, and that most of the allottees in the impugned allotment are relatives, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, 1956 provides as hereunder: 300. INTERESTED DIRECTOR NOT TO PARTICIPATE OR VOTE IN BOARD'S PROCEEDINGS (1) No director of a company shall, as a director, take any part in the discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any way, whether directly or indirectly, concerned or interested in the contract or arrangement; nor shall his presence count for the purpose of forming a quorum at the time of any such discussion or vote; and if he does vote, his vote shall be void. 30. Hon ble Supreme Court of India has held in the matter of Sri Gopal Jalan and Co. vs. Calcutta Stock Exchange Association Ltd. [(1964) 3 SCR 698: AIR 1964 SC 250 : (1963) 33 Comp Cas 862] has held as follows:- We agree with the learned Judges of the High Court that a re-issue of a forfeited share is not an allotment of share within Section 75 (1). The word allotment has not that the meaning of that word is well understood and no decision has been brought to our notice to indicate that any doubt has ever been entertained as to it. As Chitty, J. put it in In re Florence Land and Public Works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been made and actually allotted. It is to be seen that in Section 81 of the Act the terms used Where it is proposed to increase the subscribed capital of the company by allotment of further shares . Here also, subscribed capital refers to allotted shares and not to the applied shares. It provides that capital shall be increased by further allotment of shares in the manner prescribed under Section 81. Xxx xxx xxx xxx 31. The scheme of the provisions is very clear that such new shares can be offered only to the persons who on the date of such offer are holders of equity shares of the company. The offer is to be made in proportion to the capital paid-up on those shares as on the date of offer. This clearly goes to show that in the in the first instance the entire issue is to be offered by the company to the existing shareholders in proportion to which they held shares. No one is entitled to claim anything more than what has been offered as proportionate shares of capital issue to such shareholders .It is only after the expiry of the time specified in the notice aforesaid or on receipt of earlier intimation from such shareholders to whom notice is given that he declines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised by the directors not for the benefit of the company but simply and solely for their personal aggrandisement and to the detriment of the company, the court will interfere and prevent the directors from doing so. The very basis of the Court s interference in such a case is the existence of the relationship of a trustee and cestui que trust as between the directors of the company. 36. The fiduciary duty of the company s directors is further emphasised in the judgment in the matter of Dale Carrington Invt.(P) Ltd. 7 Anr. Vs. P.K. Prathapan Ors. (supra), where the following is held by the Hon ble Supreme Court :- 12. ..[A] company is a juristic person and it acts through its Directors who are collectively referred to as the Board of Directors .The Directors of companies have been variously described as agents, trustees or representatives, but one thing is certain that the Directors act on behalf of a company in a fiduciary capacity and their acts and deeds have to be exercised for the benefit of the company. They are agents of the company to the extent they have been authorized to perform certain acts on behalf of the company. In a limited sense they are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort, the valuation of the shares should have certainly factored into account the value of the Company s only property i.e. land, which later become a very relevant factor when the said land of the Company was to be used for the Joint Development Project and which would have brought windfall gains to the shareholders and also to the allottees of 984 shares. It is quite evident that the valuation of shares was bound to be higher if the current value of the land asset of the Company would have been considered, but which was not done for reasons that are not clear when the premium was fixed for new allotment of shares. 40. We have considered the argument of the Learned Senior Counsel for Respondents that the Department of Company Affairs, through clarificatory letter No. 2 (27)/56-PR, dated 4.10.1976, opined that the allotment of 984 shares should not be considered a new share issue which will invite applicability of Section 81. This argument has been rebutted by the Learned Counsel for Appellants, who has cited the Hon ble Supreme Court s judgment in the matter of Bhuwalka Steel Indus. Ltd. Ors. Vs. Bombay Iron and Steel Labour Bd. And Ors. (MANU/SC/1905/2009) where it is held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the allotment of unsubscribed shares after a passage of almost six decades of their lying dormant and the subsequent decision of the Company, including its General Body for allotting 984 shareholders seems to have been done with a motivation that cannot be considered sacrosanct and fair upholding the fiduciary duties of the Company and its Board of Directors and it was not done in accordance with the provisions of sections 81(1) and 81(1A) of the Companies Act, 1956. 44. We now turn our attention to examine the issue no. (ii) framed by us earlier, which is regarding the Joint Development Agreement. This issue is considered and adjudicated in the Impugned Order, wherein it is held that the Company possesses the right to demolish, construct, maintain or hire any buildings or workshops for the purpose of business of the Company or which can be used conveniently in connection therewith; to enter into partnership or into any partnership or into any arrangement for sharing profits, amalgamations, to sell and in any other manner deal with or dispose of the undertaking or property of the Company or any part thereof, for such consideration as the Company may think fit. The Impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore. With a view to deriving maximum benefit out of the prime property belonging to the company, and at the same time continuing the business of owning and operating cinema theatres, the Board of Directors feel that the company s property could best be developed under a joint development arrangement with a reputed builder/developer. The company could negotiate delivery of possession of atleast 50.0% of the total built-up area of the proposed commercial complex including two cinema theatres and the balance portion would be retained by the builder/developer with proportionate undivided interest in this land. Under the proposal only built-up area is proposed to be obtained from the builder/developer in exchange for his right to develop and retain a portion of the built-up area and no cash transaction is contemplated. The Board of Directors also proposes to reserve the right to dispose of in future, by way of sale, lease, tenancies or otherwise built-up area delivered to it, subject however to retention of the cinema theatres and continuing to carry on the business of the owning and operating the same. If the proposal is given effect to, the revenue stream of the company would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure where the value of land is assessed by the joint venture partner. Thus, this issue about the valuation of land and how it would provide a proper basis to the joint venture agreement has not been dealt with in any logical and proper manner by the Board of Director or the Company s management. 49. The 62nd AGM of the Company again took up the issue of joint development project and related agreement. The minutes of meeting record in item No. 6 are as follows:- The Charman proposed and Sri David. J Pinto seconded the following as an Ordinary Resolution. RESOLVED THAT PURUSANT TO THE PROVISIONS OF SECTION 293(1)(a) OF THE COMPANIES ACT, 1956 AND OTHER PROVISIONS, IF ANY AND IN NPARTIAL MODIFICATION OF THE RESOLUTION NPASSED AT THE 61ST ANNUAL GENERAL MEETING OF THE COMPANY HELD ON 08-06-07, THE COMPANY DO OFFER THE PROPERTY OF THE NCOMPANY BEARING TS NO. 168, MANGALORE FOR JOINT DEVELOPMENT SUBJECT TO THE COMPANY OBTAINING ATLEAST 40% OF THE TOTAL BUILT UP AREA WITH ALL OTHER TERMS AND CONDITIONS, CONSENT AND APPROVAL ACCORDED AND NPOWER GRANTED IN TERMS OF THE EARLIER RESOLUTION DATED 08-06-07 REMAINING UNALTERED. The Chairman mentioned that Sri M.R. Padival an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r where the company owns more than one undertaking, of the whole, or substantially the whole, of any such undertaking . 52. The Memorandum of Association of the R-1 Company provides in clauses 3(o) and 3(u) as follows:- 3(o) To build, alter, demolish, construct, maintain or hire any buildings as works or workshops for the purpose of the business of the Company or which can be conveniently used in connection therewith. 3(u) To sell and in any other manner deal with or dispose of the undertaking or property of the Company or any part thereof, for such consideration as the Company may think fit. 53. The Memorandum of Association provides for building, altering or constructing any building for the purpose of the business of the company and also to sell or dispose of the property of the Company or any part thereof, for such consideration as the Company may deem fit. 54. From a perusal of section 293(1)(a) of the Companies Act, 1956 and clauses 3(o) and (u) of the Memorandum of Association, it is clear that the Company can sell, lease or otherwise dispose of whole or a substantial part of the undertaking of the Company for the purpose of its business, and section 293( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al built-up area, its financial features and the basis non which R-1 Company proposed to give 50% of built-up area to the builder/developer with proportionate share in undivided land on which the project would be built. While observing so, we are conscious of the fact that the only asset of the Company i.e. the land plot TS 168 Mangalore, is the subject matter of the joint development project and its failure in the absence of due diligence may result in a severe blow to the future of the Company. 57. This issue of joint development agreement was again considered in the 62nd AGM held on 27.8.2008, when a resolution as extracted supra was adopted. The operative portion of the resolution states that the Company is offering the property of the Company bearing TS No. 168, Mangalore for joint development, subject to the Company obtaining at least 40% of the total built-up area, with all other terms and conditions. Consent and approval of the Board granted in terms of the earlier resolution dated 8.6.2007 remaining unaltered. Later, Mr. M. Ratanvarma Paidval raised this issue in CA No. 352 of 2007 in Company Petition No. 35 of 1987. CA No. 352 of 2007 was disposed of by Hon ble High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what the consideration for such a transaction will be. 61. This matter of joint development project was again discussed in the 62nd AGM, when the General Body decided to give 60% of the total built-up area with all the earlier terms and conditions to the proposed developer/builder and retain 40% to itself with proportionate interest in undivided land to both the parties. This is a major change in the proportion of built-up area to be given to the developer/builder, but there are no evident project details showing proper due diligence regarding the valuation of land, the Floor Area Ratio (FAR) applicable in the area, the proposed built-up area etc. to enable the Company s shareholders to take a well-considered decision in the matter. In light of the aforesaid, we also find that once 984 shares are allotted to the beneficiaries, this allotment is followed closely by the issue of joint development project raises which certainly question about the intention for allotment of 984 unsubscribed shares. This intention of the company and its Board of Directors is not explained to its members with any coherence, and raises question of transparency and reasonable expectation about growth i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over to the Chairman, Board of Directors at the beginning of the 61st AGM held on 8.6.2007. The matter of proxies was dealt in the following manner in the minutes of the 61st AGM meeting.: The Chairman added that all the proxies received were valid as no objections had been received except for a statement made by Sr M.R. Padival that several defective and invalid proxies were observed during the inspection. 65. The issue of proxies was enquired into by the ROC, Karnataka and in the report dated 1.5.2008 in other matters as well as about proxies, he has inferred that since the proxies were duly signed by the members, they may not consider a wrongful act. Since there is no way at this stage of verifying the signatures of members signing the proxies. Thus, on the basis of available record, this issue is not held to be an act of oppression or mismanagement. 66. Further, Hon ble Supreme Court has held in the matter of Needle Industries (India) Limited vs. Needle Industries Newey (India) Holding Limited Ors. (1981 3 SCC 333) as follows :- 49. The question sometimes arises as to whether an action in contravention of law is per se oppressive. It is said, as was done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and fairness in the tendering process, there is no bar to the Company going for the joint development project. The issue that has come, therefore, before us regarding the company not employing a fair and transparent process in the valuation of the property and whether the Company received the best advantage through a fair deal since there were allegations about favouritism towards Respondent No. 54. On this issue, we are of the clear view that the Company should get a valuation of the land done in the present context since the demolition of the building has only recently taken place and new construction shall take place only in the near future, which leads us to direct that since the new construction shall take place only now, the benefits as would accrue to the Company in the present time should be considered. A fresh Joint Development Agreement should be then entered as per the terms decided by the Board of Directors and the General Body of the Company on the basis of valuation as ordered above, so that the Company gets the benefit of the appreciated value of its property of land. 71. On the basis of abovementioned detailed discussion in preceding paragraphs, this `Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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