2014 (12) TMI 1426 - Board - Companies Law

Maintainability of petition - Oppression and mismanagement - bona fide purchasers or not - failure to disclose material facts/suppression of material facts - Invocation of jurisdiction of this Bench conferred upon it by virtue of the provisions contained in Sections 397, 398 and 399 read with Sections 402, 403 and 406 of the Indian Companies Act, 1956 - HELD THAT - If the Petitioner was not a consenting party to the sale transaction, she should have refunded this amount immediately. To my mind, this clearly proves misconduct on the part of the Petitioner. The settled proposition that the law relating to oppression and mismanagement is basically based on equity, fairness and probity on the part of the shareholders of a Company whether such party is a Petitioner or Respondent in the petition filed under Section 397/398 of the Act, cannot be ignored. They are supposed to approach the CLB under the said provisions with all fairness and trustworthiness. It is, therefore, established that the Petitioner has not approached the CLB with clean hands. For the reasons discussed hereinabove, the Petitioner having approached to the CLB with unclean hands is not entitled to any discretionary reliefs - the petition deserves to be dismissed on the said preliminary ground. Time Limitation - HELD THAT - There are no hesitation to hold that the instant petition filed under Section 397/398 of the Act is not hit by the law of limitation as, firstly, the provisions of Limitation Act are not applicable to a petition filed under Section 397/398 of the Act, secondly, the acts of oppression and mismanagement being continuing in nature, the cause of action continues until the alleged acts of oppression and mismanagement are brought to an end and in such case the question of limitation therefore becomes irrelevant. In the instant case the alleged acts of oppression according to the Petitioner's case pertain to the period 2010 and the petition being filed in 2012 cannot be said to be time barred nor does the petition suffer from delay and laches. Whether the subject property has been grossly undervalued by the Respondent No. 2 or not? - HELD THAT - There are no force in the contention of the petitioner that the Respondent No. 2 has agreed to sell the property at grossly undervalue for his sole benefit and to deprive the Petitioner from the right value of the shares in the Company. She further failed to substantiate her allegation that the Respondent No. 2 has gained wrongfully out of the impugned sale transaction. While rendering this finding, it is made clear that the validity of the agreement for sale is already under challenge before the Hon'ble High Court in the civil suit filed by the Respondent Nos. 4 to 8 for specific performance. Therefore, it is refrained from expressing any opinion with respect to the validity of the agreement for sale purportedly entered into between the Respondent Nos. 4 to 8 and the Respondent No. 2 on behalf of the Company. My finding is limited on the aspect that the Petitioner has failed to establish her version that the alleged value of shares determined between the Respondent No. 2 and the Respondent Nos. 4 to 8 for effecting sale of Company's shares was not just, proper and adequate. This point is decided accordingly. There are no substance in the complaints made by the Petitioner saying that she was discriminated because she was not paid full consideration of her shares, whereas the other shareholders have been paid full consideration and that the Respondents have made an attempt to expropriate 8738 shares - the Respondent No. 2 has categorically stated that the proposed gift of 8738 shares has already been cancelled and the Petitioner is still owner of the 8738 shares and her name exists in the Register of Members, which is deposited with the Hon'ble High Court pursuant to the order passed by it in the pending civil suit seeking specific performance of the alleged agreement for sale in dispute with respect to these shares. In view of the statement made above, the Petitioner's grievances as to alleged expropriate of 8738 shares held by her comes to an end. With respect to 2039 shares held by her which is the subject matter of the civil suit, it is held that the Petitioner has already received the consideration - these complaints do not amounts to acts of oppression and mismanagement as defined in Section 397/398 of the Act. As regards payment of the amount with respect to certain shares to Ms. Meena Khetani and Ms. Bindu Khetani, are concerned, the Respondent No. 2 in his pleadings and written submissions has clearly stated that the gift in favour of Ms. Meena Khetani and Ms. Bindu Khetani as per the alleged family arrangement could not take place owing to the pre-emption clause of the Articles of Association of the Company and as such the payments made to Ms. Meena Khetani and Ms. Bindu Khetani have been reversed as stated in the Affidavit of the Respondent No. 2 dated 17/07/2013. In view of the above, the entire complaint made by the Petitioner as to the alleged gifting of shares and making payment thereof to them - The contention of the Respondent No. 2's Counsel that the part payments were made in between January to July, 2010 and the agreement came to be negotiated in July, 2010 makes the document doubtful, is also meaningless. It is a common practice of the mark that some amount is paid as advance even at the early stage of negotiation with a purpose to block the deal and then final terms for sale transaction are settled. Validity of the POA purportedly executed by the Company in favour of the Respondent No. 2 based on a Board Resolution dated 14/06/2011 - HELD THAT - The Petitioner had received part payment and the Respondent No. 3 admittedly has received the entire amount with respect to her shareholding in the Respondent No. 1 Company. It has also been held hereinabove that the Petitioner and Respondent No. 3 both had given the consent to the impugned sale transaction. Therefore, even assuming that there is some irregularity in the circular resolution dated 12/06/2011 and/or Board Resolution dated 14/06/2011, it does not make the POA, which is a registered document, a void document. Even in absence of Circular/Board Resolution, it is well established that all the shareholders including the Petitioner and the Respondent No. 3 had granted authority to the Respondent No. 2 for the purpose of negotiations of the sale of subject property. Therefore, raising these technical issues with respect to the validity of the circular resolution, pursuant to which POA is executed, are without merits. It is therefore held that the POA is a valid and subsisting document and the aforesaid ground taken by the Petitioner as an act of oppression thus fails. The Petitioner has failed to make out a case under section 397/398 of the Act - Petition dismissed.

Summary

Issues Involved:
1. Allegations of oppression and mismanagement
2. Validity of sale transaction and valuation of shares
3. Appointment of directors and validity of resolutions
4. Validity of Power of Attorney (POA)
5. Discrimination in payment to shareholders
6. Maintainability of the petition

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The Petitioner invoked the jurisdiction under Sections 397, 398, and 399 read with Sections 402, 403, and 406 of the Indian Companies Act, 1956, alleging acts of oppression and mismanagement by the Respondents in the conduct of the Company's affairs. The Petitioner claimed that the Respondent No. 2, in connivance with Respondents Nos. 4 to 8, attempted to dispose of the Company's property, surreptitiously entered into a sale transaction, and misappropriated shares by making a part payment of Rs. 24,01,942/- only. It was also alleged that no General Meetings had been held since 2009, constituting a gross act of oppression.

2. Validity of Sale Transaction and Valuation of Shares:
The Petitioner contended that the sale transaction was carried out without her consent and the shares were grossly undervalued. The Respondent No. 2 argued that the price of Rs. 1,178/- per share was determined with the Petitioner's consent and the amount received was full consideration. The Court found that the Petitioner had accepted the amount and signed the transfer forms, thus acting in furtherance of the sale transaction. The Court also noted that the Petitioner did not offer to refund the amount received, indicating misconduct on her part. The Court concluded that the Petitioner had not approached the CLB with clean hands and was not entitled to any discretionary reliefs.

3. Appointment of Directors and Validity of Resolutions:
The Petitioner challenged the appointment of Mr. Anant Khetani as a Director, alleging it was illegal and invalid. The Court found that Mr. Khetani's appointment was made in accordance with the Articles of Association and the provisions of the Companies Act. The Petitioner also challenged the validity of the Circular Resolution dated 12/06/2011, which was used to execute the POA. The Court held that the Circular Resolution was valid and the POA was a registered document, thus rejecting the Petitioner's claims.

4. Validity of Power of Attorney (POA):
The Petitioner argued that the POA executed in favor of Respondent No. 2 was invalid due to the alleged illegality in the appointment of Mr. Khetani. The Court found that the POA was executed based on a valid Circular Resolution and there was no illegality in the process. The Court noted that the property needed urgent repairs and the POA was executed to address this issue.

5. Discrimination in Payment to Shareholders:
The Petitioner alleged discrimination in payment, claiming that other shareholders were paid full consideration without tendering their shares, while she was not. The Court found that the Petitioner was paid for the shares she tendered and the balance was not paid because she did not deposit the remaining shares. The Court also noted that the Petitioner continued to be a shareholder and her name existed in the Register of Members.

6. Maintainability of the Petition:
The Respondents challenged the maintainability of the petition on grounds of suppression of material facts and delay. The Court held that the Petitioner had not approached the CLB with clean hands and had suppressed material facts. The Court also noted that the acts of oppression and mismanagement were continuing in nature and the petition was not barred by limitation. However, the Court concluded that the Petitioner had failed to make out a case under Section 397/398 of the Act and dismissed the petition.

Conclusion:
The Court dismissed the petition, finding that the Petitioner had not approached the CLB with clean hands and had failed to substantiate her allegations. The Court held that the sale transaction, appointment of directors, and execution of the POA were valid and there was no act of oppression or mismanagement. The interim order was extended for four weeks to enable the Petitioner to file an appeal.