2018 (1) TMI 275 - Tri - Companies Law

Oppression and mis-management - unlawful allotment of shares - shareholding and voting rights of petitioner company has been reduced - power of the board of directors to transfer / allot shares - Scope of arbitration - Held that - It is found that the facts of the case would attract the provisions of Section 397 of the Companies Act, 1956, but winding up would unfairly prejudice the members. The instant petition is disposed of with the following directions - (i) CA No.255 of 2015 filed by the respondents is dismissed; (ii) 14,96,000 shares now existing in the name of R-2 company be transferred back in the name of P-1 and its name be entered in the register of members of R-1 company. At the same time, the amount of ₹ 15,00,000/- shown in the account of P-1 company towards loan to AP Oil Mills shall stand written off and the name of R-2 company be omitted from the register of members of R-1 company; and (iii) R-1 company shall hold fresh meeting of the Board of Directors offering the proportionate shares out of additional allotment of 3,50,000 shares in 2011 and 4,00,000 shares in 2012 respectively at the rates at which these were transferred to some of the respondents. The transfer shall be made in favour of the petitioners proportionately as per shares held by P-2 to P-9, on these petitioners offering to subscribe to these shares at the rates allotted to some of the respondents within the time to be allotted by R-1 company in the said meeting and they shall deposit the required amount with R-1 company; and (iv) Failing the petitioners to send the offer for allotment of proportionate shares as were held by them on the date of allotment of additional shares or in making payment, the Board of Directors of R-1 company would be at liberty to decide against the said allotment of proportionate shares; and (v) Rest of the shares out of the additional allotment of 3,50,000 and 4,00,000 shares, will continue to be held by the respondents to whom the shares were allotted; and (vi) The petitioner No.1 is not to be offered any share in these additional shares on the basis of this order as P-1 company became the shareholder only on 19.05.2010. Rest of the prayers regarding mis-management on account of falsification of the accounts or siphoning of the funds and other reliefs are declined.

Summary

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Legality of the transfer of 14,96,000 shares from P-1 company to R-2 company.
3. Issuance and allotment of additional equity shares.
4. Validity of the arbitration agreement and award.
5. Claims of falsification of accounts and siphoning of funds.

Detailed Analysis:

Allegations of Oppression and Mismanagement:
The petitioners alleged oppression and mismanagement in the affairs of R-1 company. They claimed that the respondent group diluted their shareholding from 57.14% to 11.34% through various allotments and transfers of shares, which were contrary to the initial understanding between the promoter groups. The petitioners sought relief under Sections 397, 398, 402, and 403 of the Companies Act, 1956, including the removal of current directors and reconstitution of the Board.

Legality of the Transfer of 14,96,000 Shares:
The petitioners challenged the transfer of 14,96,000 shares from P-1 company to R-2 company, alleging it was done without proper authorization and consideration. The Tribunal found that the transfer was not supported by a valid Board resolution from P-1 company and was in violation of Section 108 of the Companies Act, 1956. The Tribunal directed that the transfer of 14,96,000 shares to R-2 company be set aside and the shares be transferred back to P-1 company. The Tribunal also ordered the deletion of R-2 company’s name from the register of members of R-1 company and the writing off of a loan of ?15,00,000 shown in the account of R-2 company.

Issuance and Allotment of Additional Equity Shares:
The petitioners contested the issuance and allotment of additional equity shares on 29.06.2011 and 10.10.2012, claiming it was done to consolidate the respondent group's position in R-1 company. The Tribunal found that the additional allotments were not in compliance with the Articles of Association. However, the respondents offered to restore the petitioners' shareholding by offering them proportionate shares out of the additional allotments at the rates at which they were initially allotted to the respondents. The Tribunal directed R-1 company to hold a fresh Board meeting to offer these shares to the petitioners proportionately, failing which the additional shares would remain with the respondents.

Validity of the Arbitration Agreement and Award:
The respondents claimed that an arbitration agreement and award dated 12.07.2015 resolved the disputes between the parties. The Tribunal found that the arbitration agreement did not specify the terms of reference and was not signed by all parties involved in the petition. The Tribunal held that the arbitration agreement and award could not oust the statutory jurisdiction of the Tribunal under the Companies Act. Consequently, the Tribunal dismissed the application to dismiss the petition based on the arbitration award.

Claims of Falsification of Accounts and Siphoning of Funds:
The petitioners alleged falsification of accounts and siphoning of funds by the respondents. However, during the course of arguments, the petitioners' counsel confined the arguments to the issues of share transfer and additional allotments. The Tribunal declined the prayers regarding mismanagement on account of falsification of accounts or siphoning of funds.

Conclusion:
The Tribunal found merit in the petitioners' claims of oppression and mismanagement, particularly concerning the transfer of 14,96,000 shares and the issuance of additional equity shares. The Tribunal directed the reversal of the share transfer and provided a mechanism for the petitioners to regain their shareholding proportionately. The arbitration agreement and award were not recognized as valid for resolving the disputes under the Companies Act. Other allegations of mismanagement were not pressed during arguments and were thus declined.