2017 (8) TMI 757 - Tri - Companies Law

Validity of allotment of shares initiated in meeting with no valid quorum - siphoning of funds - Held that - In the case on hand, the second respondent company is closely held company. Wife of the petitioner was director of the company and she has got knowledge of allotment of 15000 shares to the first respondent in the month of December, 2007 itself. As can be seen from the winding up petition No. 58 of 2010 there appears to be civil and criminal litigations between the shareholders and the outsiders. As stated by respondent No. 1, the petitioner also suppressed the criminal prosecution filed against the 1st respondent in respect of allotment of 15000 shares. No reasons are given by the petitioner for non-filing of this petition for two years, even withdrawal of company petition No. 20 of 2010. Therefore, conduct of the petitioner goes to show that he has not only suppressed the material facts and has caused delay at every stage in questioning validity of allotment of 15000 shares to the first respondent. As no material was supplied to MGVCL, the amount of ₹ 19.97 lakhs shall be recovered from the first respondent along with interest as the contended by learned counsel of the petitioner. The said transaction took place in 2008 and the petitioner filed company petition 20 of 2010 in July, 2010 which is annexure P-6 to the petition. Reading of annexure P-6 to the company petition 20 of 2010 shows that there is no mention about siphoning of funds of ₹ 19.97 lakhs from the company to the proprietary concern of husband of first respondent. Therefore, for the first time, such an allegation was made in this petition after lapse of six years. No doubt siphoning of funds of the company, if established is an act of mis-management but the same shall be questioned by the shareholders within a reasonable time. Unless and until a thorough audit is made it is not possible to come to a conclusion that there was no supply of material by the proprietary concern of husband of the first respondent to MGVCL and the amount was not paid towards the supply of 63 Amp kit-kat fuses. It would not be appropriate or possible to have a complete audit of transactions that took place eight years back. The fact remains that wife of the petitioner was a director of the second respondent company and therefore siphoning of funds if any should have been questioned without unreasonable delay. However, the petitioner is at liberty to claim refund of the amount from husband of the first respondent by filing civil suit and by establishing that the amount was not paid for the supply of 63 Amp kit-kat fuses to MGVCL. In view of the findings there is inordinate and unexplained delay and inaction on the part of the petitioner and in view of the conduct of the petitioner in filing the petition and withdrawing the same and again filing the petition for the same reliefs and in view of several litigations pending between the shareholders and company as disclosed in company petition 58 of 2010 it is not a case where this Tribunal can exercise equitable discretionary powers in favour of the petitioner.

Issues Involved:
1. Eligibility of the petitioner under Section 399 of the Companies Act, 1956.
2. Validity of the allotment of 15,000 shares to the first respondent.
3. Allegations of suppression of facts and delay in filing the petition.
4. Allegations of siphoning funds by the first respondent.

Issue-wise Detailed Analysis:

1. Eligibility of the Petitioner Under Section 399 of the Companies Act, 1956:
The petitioner, holding four equity shares, filed the petition under Sections 397 and 398 of the Companies Act, 1956, alleging that the first respondent illegally allotted 15,000 shares to herself, reducing the petitioner’s family shareholding from 59.95% to 37.41%. The respondents contended that the petitioner was not qualified under Section 399 due to the absence of specific details in the consent letters from the petitioner’s family members. However, the Tribunal noted that the annual return (Annexure P-3) showed the family’s shareholding, thus establishing the petitioner’s eligibility. It was emphasized that disputed shares should not be considered in determining the required percentage of shareholding for eligibility.

2. Validity of the Allotment of 15,000 Shares to the First Respondent:
The main controversy centered on the allotment of 15,000 shares to the first respondent on 5th December 2007. The petitioner claimed no Board Meeting was held, and even if it was, there was no valid quorum as Mrs. Jayshree J. Vyas did not attend. The first respondent argued that Mrs. Jayshree J. Vyas ratified the allotment on 26th December 2007, and the petitioner was aware of the allotment in December 2007 but delayed challenging it until 2010. The Tribunal found that Mrs. Jayshree J. Vyas approved the allotment in December 2007, and the petitioner delayed challenging it, undermining the credibility of the challenge.

3. Allegations of Suppression of Facts and Delay in Filing the Petition:
The respondents alleged that the petitioner suppressed the fact of filing and withdrawing Company Petition No. 36 of 2013 and a criminal complaint regarding the share allotment. The Tribunal noted significant delays in the petitioner’s actions: the initial challenge was filed in July 2010, withdrawn in July 2012, and the present petition was filed in June 2014. The Tribunal referenced case law emphasizing that equitable relief is not granted to those who approach with unclean hands or delay unreasonably. The Tribunal concluded that the petitioner’s delay and conduct did not warrant equitable relief.

4. Allegations of Siphoning Funds by the First Respondent:
The petitioner alleged that the first respondent siphoned ?19,97,860/- to her husband’s proprietary firm, M/s. Fuse Sales. The first respondent countered that the payment was for supplying kit-kat fuses for an order from MGVCL, Vadodara. The Tribunal noted that the petitioner did not raise this issue in the 2010 petition and only brought it up six years later. The Tribunal stated that such allegations should be raised without unreasonable delay and suggested the petitioner could pursue a civil suit to claim the amount if proven.

Conclusion:
The Tribunal dismissed the petition due to inordinate and unexplained delay, suppression of material facts, and the petitioner’s conduct in filing and withdrawing petitions. The Tribunal did not find grounds to exercise equitable discretionary powers in favor of the petitioner, and each party was ordered to bear their own costs.

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