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2017 (12) TMI 238 - Tri - Companies LawEligibility of EoGM - Whether the EoGM purportedly held on 27.07.2015 is in accordance with the law and legally tenable? - non service of notice - removal from directorship - Held that - Respondent Nos. 2 to 11 stated in the counter that the Petitioner has issued notice dated 01.07.2015 to call for the Board Meeting on 27.07.2015 at 10.30 A.M. But, the Petitioner left for Dubai on 26.06.2015 and returned to India only on 02.07.2015, this fact has been proved by showing the entries of his travel in his passport during argument. Further, the shareholders have not received notice of EoGM purportedly held on 27.07.2015 as the 1st Respondent Company has received 76 complaints from the shareholders stating that they did not receive any notice of said EoGM. Moreover, the Respondent failed to produce the proof of service of notice dated 01.07.2015 on 344 shareholders pertaining to the EoGM purportedly held on 27.07.2015. Therefore, the defence taken by the Respondent Nos. 2 to 11 is highly improbable and full of fallacy. Besides the above, no material has been shown to demonstrate the fulfilment of the requirements of Section 284(1) and (2) of the Companies Act, 1956, before removing the Petitioners and the Respondent No. 12 from the Directorship of the 1st Respondent Company by the Respondent Nos. 2 to 11. The Respondent Nos. 2 to 11 failed to produce the copy of the special notice containing the agenda for removal of the Petitioners and the Respondent No. 12 as Directors of the 1st Respondent Company. The omission to serve a special notice to the Directors sought to be removed constitutes denial of their statutory right of the reply, and in the absence of the notice to the Directors, any resolution for their removal is vitiated by such gross omission, and the same is neither bona fide nor in the interests of the 1st Respondent Company. Thus, the Respondent Nos. 2 to 11 seem to have made efforts to usurp the office of the Directors and to gain the control over the Board of Directors of the 1st Respondent Company. Therefore, the removal of the Petitioners and R12 from the office of the Directors of the 1st Respondent Company in the EoGM purportedly held on 27.07.2015 amounts to acts of oppression by the Respondent Nos. 2 to 11. Moreover, it is on record that the appointment of Respondent Nos. 4 to 11 as Directors of 1st Respondent Company was made by a single resolution which is in violation of the provisions of Section 162 of the Companies Act, 2013. Such election per se is void ab initio. Forfeiture of shares - Held that - Assuming that the Respondent Nos. 2 to 11 were Directors at the time of forfeiture of the said shares on 27.07.2015, and were authorised to cancel the shares. But legally, the Directors of the Company cannot utilise their fiduciary powers over the shares purely for the purpose of cancellation of the shares of the minority shareholders to improve their voting power. The court cannot allow to exercise such powers which might have been delegated by the company to the Board of Directors. Therefore, there was no authority with Respondent Nos. 2 to 11 to forfeit the shares of the Petitioner Nos. 1, 2 and 5 including 73 shareholders. The whole action is patently illegal, perverse and is declared as null and void.
Issues Involved:
1. Legality of the Extraordinary General Meeting (EoGM) held on 27.07.2015. 2. Legality of the forfeiture of shares of the Petitioners and other shareholders. 3. Relief sought by the Petitioners. Issue-wise Detailed Analysis: (a) Legality of the EoGM held on 27.07.2015: The EoGM held on 15.06.2015 was conducted under the supervision of an independent chairman appointed by the Company Law Board (CLB), where the Petitioners and Respondents Nos. 2, 3, and 12 were elected as Directors. The CLB recognized this election in its order dated 07.07.2015. Respondents Nos. 2 to 11 did not raise any objections before the CLB regarding this EoGM, making their subsequent objections afterthoughts. The EoGM held on 27.07.2015, which purportedly removed the Petitioners and elected Respondents Nos. 4 to 11, was deemed a betrayal of established procedures and showed a disregard for legal authority. The grounds for the EoGM, based on non-disclosure of residential status, were not legally tenable as the competent authority should have addressed any discrepancies in the DIN numbers. The defense put forth by Respondents Nos. 2 to 11, claiming an oral understanding with the Petitioner, was found improbable and contradictory. The failure to serve a 'special notice' to the Directors sought to be removed constituted a denial of their statutory rights, making the resolutions for their removal void. The appointment of Respondents Nos. 4 to 11 by a single resolution violated Section 162 of the Companies Act, 2013, rendering it void ab initio. This view was supported by various case laws. (b) Legality of the forfeiture of shares: The Companies Act, 1956 does not provide for forfeiture of shares, and such provisions, if any, must be outlined in the Articles of Association. Respondents Nos. 2 to 11 failed to demonstrate any such provisions authorizing the forfeiture of shares for non-disclosure of residential status. Even if authorized, the Directors cannot use their fiduciary powers to cancel shares purely to improve their voting power. The action of forfeiting shares was deemed patently illegal and void. This view was supported by the ruling in Rashmi Seth v. Chemon (India) (P.) Ltd. (c) Relief: The EoGM held on 27.07.2015 was declared illegal, null, and void. The removal of the Petitioners and Respondent No. 12 from the office of Directors was also declared illegal, null, and void. The Petitioners and Respondent No. 12 continue to be Directors of the 1st Respondent Company. The forfeiture of 13,53,555 shares held by 73 members/shareholders was declared illegal, null, and void, and these shareholders continue to be members of the 1st Respondent Company. The election of Respondents Nos. 4 to 11 as Directors was declared illegal and void. The 1st Respondent Company was directed to rectify the Register of Members to include the names of the Petitioners and the 73 shareholders if omitted. Costs of ?50,000 were imposed on Respondents Nos. 2 to 11, to be paid to the Petitioners and Respondent No. 12 within three weeks. Conclusion: The Tribunal ruled in favor of the Petitioners, declaring the EoGM held on 27.07.2015 and the subsequent actions taken therein as illegal and void. The Petitioners and Respondent No. 12 were reinstated as Directors, and the forfeited shares were restored to the original shareholders. Costs were imposed on the Respondents for their actions.
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