2019 (6) TMI 1487 - Tri - Companies Law

Oppression and Mismanagement - increase of authorized share capital - time limitation - Whether the petition is time barred? - HELD THAT - The petitioners did not mention as to when they have made the inspection. The alleged increase in the authorised capital and the allotment was made on September 30, 2011 and the petition is filed on February 9, 2015 after the lapse of three years. However, it is settled proposition of law that if the alleged wrongful act is such that its effect is continuous course of oppression and there was no prospect of remedying the same then the Tribunal is entitled to interfere by passing an appropriate order. The alleged increase of authorised share capital and allotment of share without proper notice and offer to the petitioners is wrongful act which has the recurring effect on the rights of the petitioners, who are the shareholders - the act complained of is not an isolated act, therefore, the petition is not barred by the law of the limitation and maintainable. Whether the increased authorised capital of the first respondent-company from 3,40,000 shares to 7,90,000 shares on December 30, 2011 is illegal and void? - HELD THAT - o reasonable explanation is forth coming from the respondents for increasing the authorised share capital of the company, there cannot be any requirement of the bank on the basis of which the respondents have increased the authorised capital as is contended, that too without following the due process of law. The respondent/directors of the first respondent-company were obliged to do as part of their duty to act in good faith and make full disclosure to the shareholders regarding the affairs of the company - in the case on hand the directors/respondents failed in their duty to send proper notice of the sixth annual general meeting and offer to the petitioners for subscribing the shares. Further, the share allotments made on December 30, 2011 in favour of the fifth respondent, his two sons and wife, i. e., tenth, eleventh and twelfth respondents respectively seem to have been made by the respondents for creating a new majority due to which the existing shareholders were reduced to minimal position. This is in breach of fiduciary duty and constitutes an act of gross oppression - Moreover, the claim of the respondents that the notices of subsequent annual general meetings were served to the petitioners do not justify the increase of the authorised capital of the company and allotment of the shares in favour of the fifth respondent, his two sons and wife, i. e., tenth, eleventh and twelfth respondents respectively. However, the acknowledgments placed on file as proof of sending notices cannot be relied upon without corroboration of services of notice, when there is no collateral evidence like dispatch register showing payment of postage stamps and account books. On this issue, the company courts did not even rely upon the postal certificates - Therefore, the contention of the respondents that notices of the subsequent annual general meetings were served on the petitioner is not substantiated with reliable documentary evidence, thus the same stands rejected. The issues framed above are decided in favour of the petitioners and against the respondents - petition allowed.

Summary

Issues Involved:

1. Whether the petition is time-barred.
2. Whether the increased authorized capital of the first respondent-company from 3,40,000 shares to 7,90,000 shares on December 30, 2011 is illegal and void.
3. Reliefs.

Issue-wise Detailed Analysis:

Issue 1: Whether the petition is time-barred.

The respondents argued that the petitioners' complaint about the increase of authorized capital in 2011-2012 was filed long after the event, making it an isolated transaction without allegations of oppression or mismanagement, thus rendering the petition non-maintainable. The petitioners contended that they discovered the increase in paid-up share capital during an inspection of the company's records at the Registrar of Companies. The Tribunal noted that the petitioners did not specify when the inspection occurred. Despite the petition being filed on February 9, 2015, after a lapse of three years from the alleged wrongful act, the Tribunal emphasized that continuous oppression can justify interference. The increase in authorized share capital and allotment of shares without proper notice and offer to the petitioners constituted a wrongful act with recurring effects on the petitioners' rights. Hence, the petition was deemed not barred by the law of limitation and maintainable.

Issue 2: Whether the increased authorized capital of the first respondent-company from 3,40,000 shares to 7,90,000 shares on December 30, 2011 is illegal and void.

The petitioners argued that they received no notice regarding the company's affairs or annual general meetings for three years, nor were they paid dividends. They discovered the increase in share capital to 7,90,000 shares in 2012, which diluted their shareholdings without intimation. The respondents claimed the share allotment was done per City Bank's requirements, and the petitioners were offered proportionate shares but refused. The Tribunal found that the notice for the sixth annual general meeting, sent on August 30, 2011, was an inland letter card without any enclosures, including the agenda for increasing authorized capital and share allotment. No acknowledgment for any additional letter offering proportionate shares was produced by the respondents. The Tribunal concluded that the respondents failed to provide a reasonable explanation for increasing the authorized capital without following due process. The share allotments made on December 30, 2011, to the fifth respondent, his two sons, and wife were intended to create a new majority, constituting gross oppression and breach of fiduciary duty.

Reliefs:

The Tribunal declared the annual general meeting dated September 30, 2011, and the share allotments on December 30, 2011, as null and void due to the lack of proper notice and offer to the petitioners. Consequently, all filings with the Registrar of Companies from September 30, 2011, to the present were set aside. The shareholding pattern was restored to 3,40,000 equity shares of ?10 each, as per the petition. The register of members was ordered to be rectified within ten days of receiving the certified copy of the order.

Conclusion:

T.C.P. No. 159 of 2016 was allowed, and any interim orders were vacated. No order as to costs was made. The order was pronounced in open court.