2020 (6) TMI 652 - Tri - Companies Law

Oppression and Mismanagement - Transfer of Shares - siphoning of funds - act of oppression against the minority shareholders or not - petition filed after a delay of 4 years of cause of action - failure on the part of respondents in their capacity as directors of the company to comply with the fiduciary duty towards expulsion of petitioners Nos. 1 and 2 - increase of share capital. Whether the company petition filed after a delay of 4 years of cause of action is maintainable? - HELD THAT - The facts are overwhelmingly loaded against the respondents as the acts of oppression and mismanagement are continuing till date. Considering the facts of the present case the petitioners are continuously knocking the doors of various forums to redress their grievances since 2010 and finally filed this petition on April 5, 2013 under sections 397, 398 and 111(4) of the Act - this is a fit case to consider the redressal under sections 397 and 398 of the Act. Therefore the first issue framed, that whether the condonation of delay of 4 years is maintainable can be answered affirmatively and can be considered without any iota of doubt - This is also a fit case to consider the continuous acts of oppression and mismanagement against the minority shareholders. In such a situation, delay cannot be held against the aggrieved party to seek redressal - petition is maintainable. Whether the respondents in their capacity as directors of the company had failed in complying with the fiduciary duty towards expulsion of petitioners Nos. 1 and 2? - HELD THAT - The first petitioner is the promoter of the respondent-company who has put his signature on the memorandum of association along with respondent No. 7. The first petitioner was also the managing director of the respondent-company till June, 2008. While deciding the issue of removal of petitioners as directors for not attending the boards meetings continuously, we have considered the proximity of board meetings, i. e., 5 meetings in a span of 4 months clearly raises doubts on the genuineness of the so-called board meetings. It appears from the records that no attempt was made by the respondents to duly inform the promoter director when he was not attending the board meeting nor find out the reason for the same. Whether the increase of share capital of respondent No. 1-company was properly done? - HELD THAT - On going through the argument of both parties and gone through the records pertaining to this subject matter and came to the conclusion that the company while increasing its share capital from ₹ 1,00,000 to ₹ 3,00,000 have not followed the law. Whether the apportionment of the increased share capital between respondents Nos. 2 and 7 amounts to oppression and mismanagement to other members of the company? - HELD THAT - We have not come across any document or record showing the increased share capital offer was made to other shareholders also. No proof was also shown to us that it was offered to other shareholders. Respondents Nos. 2 and 7 has apportioned between them the entire increased share capital which clearly led to the conclusion that the entire act of increase in share capital of the respondent-company and also apportionment done between respondents Nos. 2 and 7 clearly raises doubts whether the Act was done with bona fide intention. The petitioners have clearly mentioned that they have been deprived of subscribing to the shares as no offer was made to them. In the absence of proof of offer to other shareholders, we are forced to come to the conclusion that this is clearly an act of oppression done by respondents Nos. 2 and 7 to deprive other shareholder of their legitimate right to subscribe to increased share capital. The increase of authorised share capital of the respondent-company at the annual general meeting dated September 26, 2009 from ₹ 1,00,000 to ₹ 3,00,000 is declared illegal, null and invalid - allotment of 2,000 shares made by the board of the company in favour of respondents Nos. 2 and 7 is illegal and set aside - By exercising the power under section 111(5)(a), the respondent-company is directed to rectify the register of members deleting the additional shares issued and restoring the shareholding pattern existed prior to September 26, 2009 - the removal of the petitioners as directors of the respondent-company is illegal and void and hence set aside. Petition allowed.

Summary

Issues Involved:
1. Maintainability of the company petition after a delay of 4 years.
2. Compliance with fiduciary duties by the directors in expelling the petitioners.
3. Legality of the increase in share capital and its apportionment among certain respondents.

Issue-wise Detailed Analysis:

Issue (i): Maintainability of the Company Petition After a Delay of 4 Years

The respondents argued that the petition should be dismissed due to the delay in filing, citing various judgments that emphasize the importance of timely filing. The petitioners countered by stating that the Companies Act does not prescribe a time limit for filing petitions under sections 397 and 398. They also mentioned that they had been pursuing legal remedies continuously since 2010. The Tribunal noted that there is no specific limitation period for filing such petitions and cited the Supreme Court judgment in V. S. Krishnan v. Westfort Hi-Tech Hospital Ltd., which emphasizes that continuous acts of oppression and mismanagement can negate the impact of delay. The Tribunal concluded that the petition is maintainable, considering the continuous nature of the alleged acts of oppression and mismanagement.

Issue (ii): Compliance with Fiduciary Duties by the Directors in Expelling the Petitioners

The respondents claimed that the petitioners were removed as directors for not attending consecutive board meetings, with notices sent through "certificate of posting." The petitioners argued that they did not receive any such notices and questioned the proximity of the board meetings. The Tribunal found discrepancies in the minutes and Form No. 32 filed with the Registrar of Companies, raising doubts about the genuineness of the board meetings. The Tribunal concluded that the proper procedure was not followed in removing the petitioners from the directorship, rendering their expulsion invalid.

Issue (iii): Legality of the Increase in Share Capital and Its Apportionment Among Certain Respondents

The respondents contended that the increase in share capital was done in accordance with the Companies Act, citing various case laws. The petitioners argued that the increase was not done properly, as it required a special resolution, and the apportionment was done fraudulently to favor certain respondents. The Tribunal found that the company had not followed the proper procedure for increasing the share capital and that the apportionment was done without offering the increased shares to all shareholders. This act was deemed oppressive and amounted to mismanagement.

Final Findings and Orders:

1. The increase of authorized share capital from ?1,00,000 to ?3,00,000 is declared illegal, null, and invalid.
2. The allotment of 2,000 shares to respondents Nos. 2 and 7 is set aside.
3. The company is directed to rectify its register of members to reflect the shareholding pattern prior to September 26, 2009.
4. The removal of the petitioners as directors is declared illegal and void.
5. The company is directed to file revised forms/returns/reports with the Registrar of Companies within one month.
6. An independent chartered accountant is to be appointed to verify the company's books of account, and the report should be shared with all shareholders.

The Tribunal allowed the company petition and ordered the necessary rectifications and investigations to address the acts of oppression and mismanagement.