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2018 (9) TMI 462 - AT - Companies LawOppression and mismanagement - company mismanaged by illegal increase and distribution of capital - winding up petition - NCLT while rejecting other claims of the Appellant regarding oppression and mismanagement, on the basis that she had been attending the concerned meetings, did not find fault even with the decision taken by Respondents to remove the Appellant from the post of Director and observed that the Company was free to take appropriate decision according to law. Held that - We find Respondents 2 and 3 to have acted in an oppressive manner with the Appellant, when such Board Meetings dated 31.10.2016 and 26.11.2016 and EOGM dated 25.11.2016 were conducted. Acting on the basis of their majority shareholding, Respondents 2 and 3 went ahead with the EOGM against the provisions of law and made preferential allotment of shares to Respondent No.2 and private placement of shares was made to Respondent No.4, an outsider. Having gained in numbers in such manner and having brought in Respondent No.4 with token shares, Respondents 2 and 3 appear to have then proceeded to get rid of directorship of Appellant. Thus, calculatively, Appellant was oppressed. In the process, Company was mismanaged by illegal increase and distribution of capital. Winding up of the Company would unfairly prejudice the Appellant who is a member, but otherwise the facts justify the making of a winding up order on the ground that it is just and equitable that the Company should be wound up. We pass the following order - A. We hold that the Board Meeting Resolutions dated 31.10.2016 and 26.11.2016 and the Resolution of EOGM dated 25.11.2016 cannot be maintained regarding increase of share capital and the allotments made. These Resolutions are quashed. The increase of share capital from ₹ 15 lakhs to ₹ 40 lakhs and the subsequent allotment of shares to Respondent Nos.2 and 4 are quashed and set aside. B. Consequent to the above directions, further steps taken by Respondents 2 and 3 to induct Respondent No.4 as Director and the Resolution taken pending litigation to remove the Appellant from the post of Director, are also quashed and set aside. C. Respondents 2 and 3 are directed to refrain from indulging in oppressive acts and mismanagement as mentioned in this Judgement. D. The appeal is thus partly allowed as above. Respondents 2 and 3 shall each pay costs of ₹ 1 lakh, from their own funds, to the Appellant.
Issues Involved:
1. Substitution of Respondent No.3 in place of Respondent No.5 in 2005-2006. 2. Increase of share capital from ?5 lakhs to ?15 lakhs and allotments. 3. Further increase of share capital from ?15 lakhs to ?40 lakhs and allotments. Issue-wise Detailed Analysis: 1. Substitution of Respondent No.3 in place of Respondent No.5 in 2005-2006: The Appellant raised an issue regarding the substitution of Respondent No.3 in place of Respondent No.5, who originally held 10 shares. The minutes of the Board of Directors meeting dated 16th June 2005 showed that the transfer of 10 shares from Respondent No.5 to Respondent No.3 was approved. The Appellant, who was a full-time Director, did not question this transfer until 2017. The Tribunal found that the grievances raised were hopelessly delayed and did not merit consideration. 2. Increase of Share Capital from ?5 Lakhs to ?15 Lakhs and Allotments: The Appellant challenged the increase in authorized share capital from ?5 lakhs to ?15 lakhs and the subsequent distribution of shares. The Notice of Meeting indicated that share application money was pending and required the enhancement of authorized capital. The Board Meeting Resolution dated 30th September 2015, which included the Appellant's signature, showed the allotment of shares based on the share application money. The Appellant's argument that the shares were allotted beyond the deadline prescribed by the Companies (Acceptance of Deposits) Rules, 2014, was not upheld as the Appellant was a party to the resolutions and allotments. The Tribunal did not find any reason to interfere with the NCLT's judgment on this issue. 3. Further Increase of Share Capital from ?15 Lakhs to ?40 Lakhs and Allotments: The Appellant contested the Board Meeting dated 31st October 2016, which resolved to call an EOGM on 25th November 2016 to further increase the share capital from ?15 lakhs to ?40 lakhs, and the subsequent Board Meeting dated 26th November 2016, which allotted 1,50,000 shares to Respondent No.2 and 100 shares to Respondent No.4. The Tribunal found that the procedural requirements under Section 62(1)(c) of the Companies Act, 2013, and the Companies (Share Capital and Debentures) Rules, 2014, were not followed. Specifically, there was no valuation report from a registered valuer, and the necessary disclosures were not made in the explanatory statement annexed to the Notice of the General Meeting. The Tribunal held that the acts of Respondents 2 and 3 were oppressive and mismanaged the company, leading to the quashing of the resolutions related to the increase of share capital and allotments. Judgment: A. The Board Meeting Resolutions dated 31.10.2016 and 26.11.2016, and the Resolution of EOGM dated 25.11.2016 regarding the increase of share capital and the allotments made, were quashed. B. Further steps taken by Respondents 2 and 3, including the induction of Respondent No.4 as Director and the removal of the Appellant from the post of Director, were also quashed. C. Respondents 2 and 3 were directed to refrain from engaging in oppressive acts and mismanagement. D. The appeal was partly allowed, and Respondents 2 and 3 were ordered to pay costs of ?1 lakh each to the Appellant.
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