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2019 (5) TMI 1634 - AT - Companies LawOppression and mismanagement - Allotment/transfer of shares - HELD THAT - The original Petitioners claimed that the offer made by Respondents would not put an end to series of acts of oppression and mismanagement and they expressly denied the same. They reiterated that the allotment of shares was without following due procedure and was liable to be struck down. The sub-paragraph also made a conditional statement. The Impugned Order does not show that at the time of final arguments, the original Petitioners agreed to such offer. Para 159 of the Impugned Order shows the Respondents reiterating their offer. It does not show that the Petitioners accepted the same. NCLT picked up the offer made by the Respondents and ignoring what the Petitioners stated, proceeded to pass the final Orders as if the issue relating to first and second allotments required no consideration due to mutual agreement of the parties and gave what only Respondents wanted to give. When disputes had been raised and argued the same were required to be decided and no shortcut could be adopted without both sides categorically agreeing. NCLT could not have abrogated its responsibility to decide the legality or otherwise of first and second allotment. We are thus not in agreement with NCLT with the manner in which it dealt with the first and second allotment. There was no comparison in what was filed with ROC as true copy of Resolution and what surfaced during the litigation. It is being argued by the Appellants/Original Petitioners that these documents were prepared later to justify the allotments which had already been made. We find substance in the submission that the Directors of OR1 were under a responsibility to disclose to all the shareholders that further shares are to be issued and such of them as were interested, may apply for further shares in proportion to their shareholding. In the present matter, the Respondents are rather taking a defence that on earlier occasions, the original Petitioners did not invest much and thus, they were not interested and so it was not necessary to offer shares to them. Reliance is placed on some letter of authorization for arbitration said to have been signed by original Petitioners 2 to 5 on 03.08.2010. There is nothing that such letter led to any follow up or resolution. Picking up such letter and then saying that all the original Petitioners 1 to 9 would not have interest and so need not be offered shares, cannot be upheld. If money of Home Land City Project Ltd. was being returned, the Directors of OR1 had responsibility to offer shares to all shareholders in the Company and cannot pick up R7 to say that he offered the money and so we took it. Similarly, in the second allotment also, the allotments were made to select Respondents which the original Petitioners claim were part of the group of original Respondent promoters. The original Respondents cannot be allowed to tide over the illegality by claiming to offer to select original Petitioners 2 to 9 from, what was issued under these allotments to select Respondents. We set aside rest of the operative Order as recorded in para 161 of the Impugned Order and reasons recorded by NCLT in support of the same. Any steps taken by the parties pursuant to such directions recoded in para ii to vi, pending Appeals shall stand set aside - we set aside the second transfer dated 24.05.2010 recorded in the register of members in the record of OR1 transferring the shares of OP1 in favour of OR2. The Respondents will rectify the register of members so as to reflect 14,96,000 shares standing in the name of OP1 Aar Kay Chemicals Pvt. Ltd. with effect from 19.05.2010, and the second transfer dated 24.05.2010 done shall stand ignored. The first allotment made on 29.06.2011 as well as the second allotment made on 10th October, 2012 were both illegal and are hereby struck down. Petition disposed off.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Allegations of oppression and mismanagement. 3. Legality of the transfer of 14,96,000 shares. 4. Dismissal of CA 255/2015 based on an alleged arbitration agreement. 5. Legality of the allotment of 3,50,000 shares and 4,00,000 shares. Detailed Analysis: 1. Condonation of Delay: The Appellate Tribunal condoned the delay in filing Company Appeal 55/2018, accepting the reasons provided by the appellants despite opposition from the respondents. 2. Allegations of Oppression and Mismanagement: The original petitioners claimed that the respondents, leveraging their control over the Board of Directors of A.P. Refinery, acted against the petitioners' interests by diluting their shareholding from 57.14% to 11.34% by the end of 2009. The petitioners alleged that the respondents illegally transferred 14,96,000 shares from Aar Kay to Dhuri and made fresh allotments of shares without following due procedures, constituting oppressive acts. 3. Legality of the Transfer of 14,96,000 Shares: The Tribunal found that the transfer of 14,96,000 shares from Aar Kay to Dhuri on 24th May 2010 was illegal. The original petitioners argued that there was no valid Board Resolution authorizing such a transfer, and the transfer deed was signed without proper authority. The Tribunal noted discrepancies in the compliance certificates and found the transfer to be oppressive and mismanaged. The Tribunal directed that the shares should be transferred back to Aar Kay, but the Appellate Tribunal modified this, stating that the shares should be considered as standing in the name of Aar Kay since 19th May 2010, ignoring the second transfer dated 24th May 2010. 4. Dismissal of CA 255/2015: The Tribunal dismissed CA 255/2015, which was based on an alleged arbitration agreement dated 12.07.2015. The Tribunal found that the document did not constitute an arbitration agreement or award under the Arbitration and Conciliation Act, 1996, and was not binding on all parties involved in the company petition. The Tribunal also noted procedural deficiencies and lack of proper authorization for the agreement, leading to the dismissal of the application. 5. Legality of the Allotment of 3,50,000 Shares and 4,00,000 Shares: The Tribunal initially did not discuss the allotments in detail, relying on an offer made by the respondents to restore the petitioners' shareholding proportionately. However, the Appellate Tribunal found that this approach was incorrect as there was no mutual agreement on the offer. The Appellate Tribunal examined the allotments and found them to be illegal. The resolutions filed with the Registrar of Companies did not match the later produced resolutions, and there was no proper disclosure or offer to existing shareholders. The allotments were found to be made for improper purposes, benefiting the respondents at the expense of the petitioners. Final Order: 1. The Tribunal's direction to dismiss CA 255/2015 was upheld. 2. The transfer of 14,96,000 shares from Aar Kay to Dhuri was set aside, and the shares were to be considered as standing in the name of Aar Kay since 19th May 2010. 3. The allotments of 3,50,000 shares on 29.06.2011 and 4,00,000 shares on 10.10.2012 were struck down as illegal. 4. The original respondents 3 to 5 were ordered to pay costs of ?50,000 each to each of the original petitioners from their own funds.
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