2017 (8) TMI 624 - Tri - Companies Law

Wrongful acts and conducts of suppression and mismanagement - Omission to serve notice for the meetings - Whether convening meetings for increasing the share capital of the Company, allotment of fresh shares, alteration of Memorandum of Association and Articles of Association of the Company and the appointment of the two directors to the Board of Directors as whole-time Directors of the Company, amount to oppression against the Petitioners? - Held that - Omission to give notice of meeting was held to be oppression. Not sending notices to shareholders/directors and passing resolutions therein is held oppressive to members and constitute mismanagement of Companies. Moreover, the Respondents claim to have served the notice to the Petitioners through Certificates of Posting , and it is their case that the Petitioners despite being in the know of the meetings chose not to attend the same. However, the Petitioners contend that they were never notified about the meetings that were held to pass the aforementioned resolutions and therefore the meetings were convened in violation of the Companies Act, 1956. Section 97 of the Companies Act, 1956 contemplates notice of increase of share capital or of members. Serving of notice to members for general meetings is mandatory under all circumstances. Even though the Petitioner had apparently been notified of all the meetings and the ongoings of the Company, which are evident only through Certificates of Posting , the Petitioner failed to attend any of the meetings. Moreover, since the Petitioner, until the share capital was increased, was the holder of 49% shareholding in the Company, no special resolutions could have been passed without his participation and vote on the same. Therefore, it is concluded that there is a clear case of oppression against the Petitioner. The meetings that were convened by the Board of Directors have not been properly notified to the Petitioner and resolutions therein were passed in absence of the vote of the Petitioner thereby constituting statutory violation. Also notices that were allegedly served by the Respondents onto the Petitioner were not proper. The reason for the same being that, the alleged notice, for the meeting that was held on 18th February, 2010, was stated to have been sent by the Company on the same day from Ranchi which was the date of the board meeting on 18th February, 2010. Moreover, after the alleged meeting of 18th February, 2010, another board meeting according to the Respondents was held at Kolkata on 19th February, 2010, notice of which was sent on the same day 19th February, 2010 to the shareholders of the Company. Therefore, issue nos. 1 and 2 are conclusively decided in affirmative in favour of the Petitioner.

Summary

Issues Involved:
1. Whether the acts of the Respondents, such as, convening meetings for increasing the share capital of the Company, allotment of fresh shares, alteration of Memorandum of Association and Articles of Association of the Company, and the appointment of two directors to the Board of Directors as whole-time Directors of the Company, amount to oppression against the Petitioners?
2. Whether the Petitioners were served with any notice relating to any meetings that were convened by the Board of Directors?

Issue-Wise Detailed Analysis:

1. Oppression Against Petitioners:
The Petitioner filed a petition under Sections 397, 398, 399, 111A, 402, and 406 of the Companies Act, 1956, alleging wrongful acts and conducts of suppression and mismanagement by the Respondents. The Petitioner claimed a 49% shareholding in the Company, which was allegedly reduced to approximately 32.75% due to the illegal increase in share capital and subsequent allotment of fresh shares without proper resolutions. The Petitioner contended that the Respondents illegally inducted Respondent Nos. 5 and 6 as whole-time directors and allotted 120,000 shares to Respondent No. 7 without issuing any notice to the Petitioner. The Petitioner argued that these actions were intended to dilute their shareholding and oppress them.

The Tribunal referenced several cases to support its findings, including Dr. V. Sebastian v. City Hospital (P.) Ltd., Gluco Series (P.) Ltd., In re, and Capricorn Oils Ltd. v. Ratan Mohan Sarda, which discussed the protection of majority shareholders from being reduced to a minority through wrongful acts by the directors. The Tribunal concluded that the acts of the Respondents amounted to oppression against the Petitioners, as the increase in share capital and allotment of shares were done in violation of the Companies Act, 1956, and without proper resolutions.

2. Notice of Meetings:
The Petitioners alleged that they were not served with any notice relating to the meetings convened by the Board of Directors. The Respondents contended that notices were served through "Certificates of Posting," but the Tribunal found this evidence insufficient. The Tribunal cited Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan and Allianz Securities Ltd. v. Regal Industries Ltd., which emphasized the importance of proper notice for meetings and the invalidity of resolutions passed without such notice.

The Tribunal concluded that the Respondents failed to serve proper notices to the Petitioners, as the "Certificates of Posting" were not admissible as reliable evidence. The meetings held on 18th and 19th February 2010 were not properly notified to the Petitioners, and the resolutions passed in these meetings were therefore invalid.

Order:
The Petition was allowed. The Tribunal ordered the reinstatement of the Petitioner's shareholding to its original amount before the increase in authorized capital and subsequent issue of shares. The resolutions passed in the meetings for increasing the authorized share capital, altering the Memorandum of Association and Articles of Association, appointing whole-time directors, and allotting shares were canceled. The shares allotted to Respondent Nos. 4 and 7 were to be canceled, and the amount paid by them was to be refunded by the Company.

The Tribunal directed the Petitioner to execute the necessary share transfer forms in favor of Libra Retailer Private Limited as per the Memorandum of Understanding (MoU). Libra was directed to pay the balance amount due to the Petitioner after deducting the amount already paid. All parties were instructed to adhere to the terms of the MoU strictly.