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2013 (4) TMI 595 - Board - Companies LawOppression and mismanagement - plea for rectification of register - petitioner was among the first subscribers to the MOA & AOA of respondent No. 1 company filing instant petition invoking the provisions of sections 111, 397 and 398 of the companies act as petitioner respondent No. 2 has removed the petitioner illegally from the directorship of the company under section 283(1)(g) and section 283(1)(z) by creating false record of issuing notices for Board meetings under certificate of posting and conducting meetings only on paper & the said notices of Board meetings were never received by the petitioner - whether the petition is maintainable? - Held that - The petitioner contended that he is a subscriber to 3,333 shares and was the first director of the company. However, there is no admission by the petitioner that he paid the subscription amount to the company. In the affidavit the petitioner stated that he spent considerable amounts from his personal bank account running into lakh of rupees for the R1-company since its incorporation. It is to bear in mind that even to seek relief for rectification of register of members, one has to necessarily establish the reasons/grounds for such rectification. It is not the case of the petitioner that even though he had paid the amounts for the subscribed shares, the company removed his name without any reason. Mere mention of a particular provision would not make out a case automatically unless, the ingredients of that provision is satisfied in the petition. In the present case no such grounds are mentioned nor is any case made out seeking enforcement of that provision of law. Moreover it is an attempt to make out a case to maintain a petition. Admittedly, the petitioner s name appears in the MoA of the company as a subscriber and there is no other documentary proof to establish that he is a member of the company. The respondents categorically stated that the petitioner did not pay the subscription amount to the company. The petitioner did not deny the same except stating that he spent huge amounts on the company. Therefore, the petitioner did not pay the subscription amount thereby he cannot claim to be a member of the company. It is mandatory requirement that any member or members who hold not less than 1/10th of the issued share capital and have paid all calls and other sums due on their shares can only maintain the petition. In the present case the petitioner alleges that he subscribed to the shares but the sum due on the said shares has not been paid to the company. Therefore, the petitioner is not entitled to file a petition since he did not fulfill the statutory requirement as contemplated under section 399 of the Act. Hence, the petition fails. It is a well settled principle of law that if the petition is not maintainable, the same cannot be entertained by the Bench. As the petitioner is not a member of the company, he cannot maintain the petition.
Issues Involved:
1. Allegations of oppression and mismanagement under Sections 111, 397-398 of the Companies Act, 1956. 2. Validity of the petitioner's membership and eligibility to file the petition. 3. Alleged fraudulent removal of the petitioner from directorship. 4. Validity of the cancellation of the Memorandum of Understanding (MoU) with Sarthi Pharmaceuticals Ltd. 5. Allegations of financial fraud and mismanagement by the petitioner. 6. Compliance with statutory requirements for board meetings and notices. Issue-wise Detailed Analysis: 1. Allegations of oppression and mismanagement under Sections 111, 397-398 of the Companies Act, 1956: The petitioner invoked Sections 111, 397-398 of the Companies Act, 1956, alleging acts of oppression and mismanagement in the affairs of the respondent-company. The petitioner contended that he, along with respondent Nos. 2 and 3, incorporated the respondent No.1-company and subscribed to shares. The petitioner claimed to have acted as the managing director and made significant efforts and financial contributions towards the company's project, including negotiating a MoU with Sarthi Pharmaceuticals Ltd. However, the petitioner alleged that respondent No. 2 had different designs on the company's project and colluded with others to scuttle the proposed takeover, leading to the cancellation of the MoU and financial losses for the petitioner. 2. Validity of the petitioner's membership and eligibility to file the petition: The respondents denied the allegations and contended that the petitioner had not paid the subscription amount for the shares he agreed to take. According to the respondents, the petitioner was not a member of the company as per the records, and thus, not eligible to file the petition under Sections 397-398. The Board noted that the petitioner did not provide evidence of payment for the shares and emphasized that mere entry in the register of members without payment does not entitle one to shares. The petitioner's failure to establish payment for the shares disqualified him from maintaining the petition. 3. Alleged fraudulent removal of the petitioner from directorship: The petitioner alleged that he was illegally removed from directorship by respondent No. 2 through false records of board meetings and notices sent by certificate of posting. The petitioner argued that these notices were never received and that such means of service are not valid. The respondents countered that the petitioner vacated his position under Sections 283(1)(g) and 283(1)(i) of the Act due to non-compliance with statutory requirements. The Board found no evidence of the petitioner's removal being fraudulent, as the petitioner failed to prove receipt of notices or compliance with statutory requirements. 4. Validity of the cancellation of the Memorandum of Understanding (MoU) with Sarthi Pharmaceuticals Ltd.: The petitioner claimed that the cancellation of the MoU with Sarthi Pharmaceuticals Ltd. was done behind his back and in connivance with others, causing financial losses. The respondents argued that the MoU was canceled due to the petitioner's failure to arrange necessary funds and the company's inability to meet financial obligations. The Board found that the cancellation was due to the petitioner's failure to fulfill financial commitments and arrange funds, and thus, the cancellation was justified. 5. Allegations of financial fraud and mismanagement by the petitioner: The respondents accused the petitioner of financial fraud, embezzlement, and siphoning off company funds. They contended that the petitioner misappropriated funds provided by respondent No. 2 and falsely claimed to have made payments from personal funds. The petitioner denied these allegations. The Board found that the petitioner failed to provide credible evidence of his financial contributions and noted discrepancies in his claims, supporting the respondents' allegations of financial mismanagement by the petitioner. 6. Compliance with statutory requirements for board meetings and notices: The petitioner challenged the validity of board meetings and notices sent by certificate of posting, arguing that they were not received and thus invalid. The respondents maintained that the notices were sent in accordance with Section 53 of the Act. The Board referred to precedents indicating that mere production of a certificate of posting is not conclusive proof of service. However, the petitioner failed to provide sufficient evidence to prove non-receipt of notices or that the meetings were conducted improperly. The Board concluded that the statutory requirements for board meetings and notices were met. Conclusion: The Board concluded that the petitioner did not qualify as a member of the company due to non-payment of the subscription amount for shares, making him ineligible to file the petition under Sections 397-398. The allegations of oppression, mismanagement, and fraudulent removal from directorship were not substantiated with sufficient evidence. The cancellation of the MoU was justified due to the petitioner's failure to arrange necessary funds. The petitioner's claims of financial contributions were found to be unsubstantiated, supporting the respondents' allegations of financial mismanagement. The statutory requirements for board meetings and notices were deemed to be met. Consequently, the petition was dismissed with no orders as to cost.
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