2018 (4) TMI 1248 - Tri - Companies Law

Validity of EOGM - defective notice - forfeiture of shares questioned - Held that - Notice has to be construed in a realistic business-like manner and if it satisfies the essence of section 173(2) of the Companies Act, the meeting should not be invalidated on the technical ground that the notice has not complied with section 173(2) of the Companies Act. The court further observed that if the shareholder is aware of the material facts pertaining to the transaction to be carried out at the meeting, he cannot reasonably complain of any insufficiency of notice . Thus, the decision taken in the light of para 8 of the Articles of Association by the majority of the shareholders of the 1st Respondent in EoGM held on 08-12-2011 does not appear to have been suffering from any illegality. The sole object of filing the petition by the petitioner is to stop the forfeiture of 2,967 shares held by her in the 1st Respondent Company, and the petitioner did not refund ₹ 8 Lakhs paid to Vanika Vaisya Trust through Cheque No.8107 dated, 07-12-2001 from the accounts 1st Respondent Company. The petitioner has not come with clean hands for seeking reliefs under Sections 111, 397, 398, 402, 403, 406, 408, 237 read with Schedule XI of the Companies Act, 1956. Therefore, the petitioner a not entitled to any of the reliefs prayed for. This view is fortified with the ruling given in Sri Kanta Datta Narasimharaja Wadiyar v. Venkateshwar Real Estates (P.) Ltd. 1989 (4) TMI 268 - HIGH COURT OF KARNATAKA wherein it has been held that one who seeking equitable relief must come with clean hands and good conduct, failing which he would constitute a gross abuse of the process of Court and is not entitled for any relief under Sections 397 & 398 of the Companies Act, 1956

Summary

Issues Involved:
1. Illegal sale of company property.
2. Alleged diversion of company funds.
3. Legality of share forfeiture.

Issue-wise Detailed Analysis:

(i) Illegal Sale of Company Property:
The Petitioner alleged that the Respondents sold 60 cents of land owned by the 1st Respondent Company for a significantly undervalued price of ?27.30 Lakhs, despite an offer of ?75 Lakhs. The Respondents contended that the sale was necessary to settle the company's debts, including a One Time Settlement with the State Bank of India. The Tribunal found that the Petitioner failed to provide documentary proof of the higher value and noted that commercial decisions by directors/shareholders are generally not subject to judicial scrutiny under Sections 397 and 398 of the Companies Act, 1956. Citing precedents, the Tribunal concluded that the sale decision was in the company's best interest and did not constitute oppression or mismanagement.

(ii) Alleged Diversion of Company Funds:
The Respondents accused the Petitioner of signing and issuing a company cheque for ?8 Lakhs to Vanika Vaisya Trust, where her husband was Treasurer, without board authorization. The Petitioner argued that if such a cheque was issued, the issue should have been raised during the 2007 account finalization. The Tribunal noted that the Petitioner was a joint signatory on the company’s bank account and that the cheque was indeed issued and encashed. It was established that the amount was diverted to the Trust, confirming the Respondents' claims.

(iii) Legality of Share Forfeiture:
The Petitioner contended that fully paid-up equity shares cannot be forfeited and that the notice calling for the Extraordinary General Meeting (EoGM) lacked an explanatory statement as required under Section 173(2) of the Companies Act, 1956. The Tribunal referred to Clause 8 of the Articles of Association, which provided the company with a lien on shares for any debt due by a member. It was determined that the company had the right to forfeit shares to recover the ?8 Lakhs. Although the notice for the EoGM lacked an explanatory statement, the Tribunal held that the Petitioner was already aware of the material facts, making the notice sufficient. The forfeiture of shares was thus deemed legally tenable.

Conclusion:
The Tribunal dismissed the petition, finding that the Petitioner did not come with clean hands and was not entitled to any relief. The actions of the Respondents, including the sale of property and forfeiture of shares, were found to be in compliance with legal provisions and in the best interest of the company. The interim orders, if any, were vacated.