2019 (9) TMI 712 - AT - Companies Law

Oppression and mis-management - various acts of fraud and fabrication of documents in an effort to remove the appellant from the Membership and Board of the 1st respondent divesting him of his entire investment - Section 397, 398 and 111(4) of the Companies Act, 1956 - whether the appellant has paid the amount and is not a defaulter? HELD THAT - In case the person is a defaulter in payment of subscription to capital or any sum due against him, he will be denied the benefit of this Section. It is also not disputed that the appellant and 2nd respondent are promoter and director of 1st respondent. We note that the appellant is a retired Officer of Income Tax Department, he is very well aware of the law of the land in financial matters - The stand taken by the appellant is that 1st respondent was not having any bank account, therefore, he paid the amount in cash to 1st respondent towards shares application money to the tune of ₹ 25,00,000/-. The stand has no legs to stand on. Nothing stops opening of Account in the name Company with Proposed added in bracket. Nothing stops showing a trail from Account to Account. The appellant has not produced any evidence before the NCLT or before this Appellate Tribunal to substantiate his claim that the appellant paid the said amount in cash. Once the person is asserting that he has made payment in cash to 1st respondent, he has also to show how this payment to 1st respondent could be recorded unless it is asserted that he has made this payment to 2nd Respondent or to any other authorised person who has failed to keep the record or he has retained this money on behalf of 1st respondent with himself. He has not asserted nor has produced any record nor he has made payment to 2nd respondent on behalf of 1st respondent especially when there is no bank account in the name of 1st respondent. Interestingly even if we presume that there could be any authorised person to receive the cash on behalf of 1st respondent, that person is also required to be authorised by the appellant or 2nd respondent or by both. As such no record has been placed by appellant to substantiate his claim. We noted that the notice was served on the Respondent regarding non compliance of filing of statutory returns under the Companies Act, 2013. We noted that the returns have been filed as reflected at Page 175 of the Appeal. We further note that during the said period the appellant was equally responsible for not filing the return. However, it will be an exercise to justify the abandonment of his duties by the appellant. However, when the notice was received by the respondent, they immediately filed the returns and the appellant has not been able to prove whether these are false and fabricated returns. Thus, the appellant, being an ex-Civil Officer, who is very well aware of law of the land, has argued that he has paid a huge amount in cash to become shareholder of that such company which has no Bank Account but is not able to prove the same before the NCLT and before this Appellate Tribunal that such amount has been paid in cash. Further no share certificate is with him. He has not produced his Bank Statement to establish that he had such a huge cash on a particular date. He has not shown his Asset and Liabilities Statement which he used to file when he was in Government employment. The appellant and 2nd respondent have been the promotors of the company. Hence the directors of the company after incorporation it is their duty that all legal compliances with respect to the company are made by them and one cannot say that while one side does not know anything about the operation of the company but the other side is only responsible to make legal compliances. Appeal dismissed.

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Validity of share forfeiture.
3. Legitimacy of the appellant's membership and directorship.
4. Validity of the appointment of the third respondent as a director.
5. Filing of false and fabricated returns with the Registrar of Companies.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The appellant filed a petition under Sections 397, 398, and 111(4) of the Companies Act, 1956, alleging acts of oppression and mismanagement by the respondents, including fraud and document fabrication to remove the appellant from the board and divest his investment. The appellant claimed the respondents removed company records and filed belated documents to justify his removal as a director and the forfeiture of his shares. The appellant sought various reliefs, including declarations of invalidity for certain resolutions and appointments, rectification of the Register of Members, and an investigation into the company's affairs.

2. Validity of Share Forfeiture:
The NCLT concluded that the appellant was not a member of the company as his shares were forfeited for non-payment of subscription money. The appellant failed to provide evidence of payment for the 25,000 shares he claimed to have subscribed to. The NCLT found no supporting documents, such as share certificates or bank statements, to substantiate the appellant's claim. The appellant's argument that the respondents fabricated records was rejected. Consequently, the appellant was deemed ineligible to seek relief under Sections 397 and 398 of the Companies Act, 1956.

3. Legitimacy of the Appellant's Membership and Directorship:
The appellant argued that he had paid ?25,00,000 in cash for the shares, but the respondents denied this, citing the appellant's failure to produce any proof of payment. The NCLT and the Appellate Tribunal found the appellant's claim unsubstantiated, noting inconsistencies in his financial disclosures and the absence of any documentary evidence. The appellant's income tax records did not support his claim of having sufficient funds to make such a payment. The Tribunal emphasized the legal requirement for proof of payment to establish membership and directorship, which the appellant failed to meet.

4. Validity of the Appointment of the Third Respondent as a Director:
The appellant challenged the appointment of the third respondent as a director, alleging it was based on forged documents and lacked proper notice. The respondents countered that the third respondent was appointed in a board meeting attended by the appellant. The Tribunal found that the appellant's presence at the meeting indicated he had received notice, thus validating the appointment of the third respondent.

5. Filing of False and Fabricated Returns with the Registrar of Companies:
The appellant accused the respondents of filing false and fabricated returns with the Registrar of Companies. The respondents denied these allegations, and the Disciplinary Committee of the Institute of Chartered Accountants of India found no misconduct in the company's accounts. The Tribunal noted that the appellant was responsible for financial affairs during the period in question and failed to prove that the returns filed were false or fabricated.

Conclusion:
The Tribunal dismissed the appeal, concluding that the appellant, despite being knowledgeable about financial and legal matters, failed to provide adequate proof of payment for the shares and did not possess the necessary share certificates. The Tribunal emphasized the appellant's responsibility as a promoter and director to ensure legal compliance. The appellant was ordered to pay costs to the respondents.

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