2017 (10) TMI 359 - Tri - Companies Law

Increasing of Authorized Share Capital of a Company in question called as oppressive, fraudulent, illegal and malicious - validity of removing the directorship of the Petitioner - Held that - By no stretch of imagination, increasing of Authorized Share Capital of a Company in question can be called as oppressive, fraudulent, illegal and malicious acts of Respondents As stated supra, the impugned increasing of Authorized share capital was done in accordance with Articles of Association of the Company and extant provisions of Companies Act, 1956/2013. Moreover, the Company has offered the newly created shares to the petitioner, and he can purchase those shares so as to retain his majority shareholders status in the Company. However, he is not interested to participate in the affairs of the Company. Since, the impugned allotment of shares are made in accordance with Articles of Association of the Company duly following principles of natural justice, the petitioner, in fact is not entitled to maintain the present petition. It is true that a petition under section 397/398 can be maintained by even a person holding less than 10% of shares etc., as prescribed under section 399 of Companies Act, 1956, provided that such petitioner is deprived of his shares/not offered such new shares first to him before allotting to others etc, provide such actions are questioned in Company petition. In the instant case, the petitioner was offered new shares to him, and he did not accept it and even now the same offer is kept open to him by the respondents as stated below After perusing all the records especially with regard to conducting of meetings of Board where, the petitioner was absent, we are convinced that the petitioner was terminated his Directorship in accordance with law. We are of the view that as per Law, Managing Director of a Company should be available in the Country to take care of day-to-day affairs etc. It is relevant to point out here that the petitioner claimed that he is also promoter and Managing Director of the Company. So if he is MD of the Company, he is not expected to live in the other Country unlike a Director. The petitioner failed to make out any case so as to interfere in the case and this it is liable to be dismissed. In view of the above facts and circumstances of the case, the Petitioner has miserably failed to make out even a prima facie case, so as to invoke provisions of Sections 111, 397/398, 402, 403 of Companies Act, 1956. Therefore, we hereby dismissed the Company petition

Issues Involved:
1. Alleged oppressive removal of the petitioner from directorship.
2. Validity of AGM 2010 and subsequent Board Meetings.
3. Legality of share allotments and increase in authorized capital.
4. Petitioner's eligibility to file the petition under Section 399.
5. Whether the petitioner was given proper notices for meetings.
6. Bona fides of the petitioner and respondents.
7. Reliefs sought by the petitioner.

Detailed Analysis:

1. Alleged Oppressive Removal of the Petitioner from Directorship:
The petitioner claimed that his removal from directorship was oppressive, unfair, and illegal. He argued that he was a permanent director and managing director as per the Articles of Association and should not have been removed. However, the Tribunal found that the petitioner ceased to be a director by operation of law under Section 283(1)(g) of the Companies Act, 1956, due to his failure to attend three consecutive board meetings without leave. The Tribunal held that the Articles of Association cannot override the provisions of the Companies Act, and the removal was in accordance with the law.

2. Validity of AGM 2010 and Subsequent Board Meetings:
The petitioner challenged the validity of the AGM 2010 and subsequent board meetings, claiming they were unauthorized and illegal. The Tribunal examined the records and found that proper notices were sent to the petitioner for all meetings. The petitioner did not attend these meetings, and his absence was recorded. The Tribunal concluded that the meetings were conducted in accordance with the law and the Articles of Association.

3. Legality of Share Allotments and Increase in Authorized Capital:
The petitioner contested the allotment of shares and the increase in authorized capital, alleging they were oppressive, fraudulent, and illegal. The Tribunal found that the increase in authorized capital and the allotment of shares were done in accordance with the Articles of Association and the Companies Act. The petitioner was offered the newly created shares but did not accept them. The Tribunal held that the allotments were valid and legal.

4. Petitioner's Eligibility to File the Petition under Section 399:
The respondents argued that the petitioner was not eligible to file the petition under Section 399 of the Companies Act, 1956, as he held less than 1% of the shares after the subsequent allotments. The Tribunal noted that the petitioner was initially a majority shareholder holding 99% of the shares. However, due to his failure to accept the new shares, his stake was reduced. The Tribunal held that the petitioner was still eligible to file the petition as he was offered the new shares but chose not to accept them.

5. Whether the Petitioner was Given Proper Notices for Meetings:
The Tribunal examined the records and found that proper notices were sent to the petitioner for all board meetings, AGMs, and EGMs. The petitioner acknowledged receiving some of the notices but did not attend the meetings. The Tribunal concluded that the petitioner was given proper notices and had the opportunity to participate in the meetings.

6. Bona Fides of the Petitioner and Respondents:
The Tribunal questioned the bona fides of the petitioner, noting that he had left for the UK shortly after the company's incorporation and did not show interest in its affairs. The petitioner's educational qualifications were also found to be fake. On the other hand, the respondents demonstrated their bona fides by offering to allot shares to the petitioner or buy his shares at a fair value. The Tribunal found the respondents' actions to be in good faith and in the best interest of the company.

7. Reliefs Sought by the Petitioner:
The petitioner sought multiple reliefs, including the declaration of various meetings and share allotments as illegal, and the reinstatement of his directorship. The Tribunal found that the petitioner failed to make a prima facie case for any of the reliefs sought. The petition was dismissed with costs of ?50,000 to be paid by the petitioner to the respondents.

Conclusion:
The Tribunal dismissed the petition, finding that the petitioner failed to make a prima facie case for oppression or mismanagement. The actions of the respondents were found to be in accordance with the law and the Articles of Association. The petitioner was ordered to pay costs to the respondents.

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