2017 (10) TMI 1133 - Tri - Companies Law

Oppression and mismanagement - Fraudulent allotment of shares - Petitioners are alleging that although share capital money is paid officially, shares were not allotted in respect of 19850 shares - Held that - If, really petitioners were aggrieved for not allotting 32,3,29,850 shares, then they should have raised the said issue then and there itself. Moreover, unless it is specifically stated while making payment of ₹ 32,98,500/- it was paid towards share application money, it cannot be said that out of the amount paid by the petitioners ₹ 32,98,500/- is representing the share application money. As already said, according to the respondents, out of ₹ 100.00 lacs paid, ₹ 31.00 lacs is taken as share application money or as consideration for the shares allotted. Therefore, the grievance of the petitioner that instead of allotting 3,29,850 shares allotting 3,10,000 shares only, amounts to oppression do not merit acceptance. In the case on hand, the understanding that was reached between the petitioners and respondents No. 2 to 4 on 17.01.2010 has not been included in the Articles of Association and in case of breach of the terms of such understanding, the petitioners cannot take their redressal by recourse to company Tribunal under Sections 397-398 of the Companies Act, 1956 or at present under sections 241-242 of the Companies Act, 2013. Coming to the terms of MoU petitioner shall provide ₹ 20.00 lacs as unsecured loan without interest and arrange for ₹ 150.00 lacs working capital from Citi Bank. According to the respondents , because of the petitioners unintended promise they lost an opportunity of getting working capital facility from the existing bank State Bank of India and other banks. It is the case of the petitioners, inspite of their best efforts they could not get working capital limits of ₹ 150.00 lacs from Citi Bank on the ground that the norms of the first respondent company do not fit in with the norms of Citi Bank. Therefore, all said and done it is also a breach on the part of the petitioners. Petitioners themselves pleaded that without necessity of funds, respondents started insisting them to invest further funds. Therefore, the investments by petitioner is not on the lines on which the understanding was entered between two parties. In view of the aforesaid discussions, it can only be said that the petitioners failed to establish any act of oppression and mismanagement

Summary

Issues Involved:
1. Non-allotment of 19,850 shares to the petitioners.
2. Opening of a bank account with Dhanlaxmi Bank by respondents without consent.
3. Removal of petitioners as Directors in the Annual General Meeting held on 20.09.2010.

Issue-Wise Detailed Analysis:

Point No. 1: Non-allotment of 19,850 shares to the petitioners

The petitioners claimed they paid ?32,98,500 towards share application money for 3,29,850 shares, but only 3,10,000 shares were allotted. The respondents argued that the petitioners submitted share application money for only 3,10,000 shares. The tribunal noted that the share certificates for the remaining 19,850 shares were issued without the company’s seal or authority, merely for record purposes on the petitioners' insistence. The tribunal found that the petitioners did not raise the issue immediately and that the payment of ?32,98,500 was not explicitly stated as share application money. Thus, the tribunal concluded that the non-allotment of 19,850 shares did not amount to oppression.

Point No. 2: Opening of a bank account with Dhanlaxmi Bank by respondents without consent

The petitioners alleged that the respondents opened an account with Dhanlaxmi Bank to siphon funds without their consent. The respondents contended that the account was opened because the petitioners were not co-operating in signing cheques, causing operational difficulties. The tribunal observed that the Chartered Accountant certified that transactions through Dhanlaxmi Bank were exclusively for the company’s business activities. Therefore, while opening the account without consent was improper, there was no evidence of funds being siphoned for personal use. Hence, this act did not constitute oppression.

Point No. 3: Removal of petitioners as Directors in the Annual General Meeting held on 20.09.2010

The petitioners claimed they were removed as Directors in the AGM held on 20.09.2010. The tribunal clarified that the petitioners were appointed as Additional Directors on 25.03.2010, and as per law, they ceased to hold office on the date of the AGM unless reappointed. Since no resolution for their reappointment was passed due to lack of majority support, it was not a case of removal but non-reappointment. Thus, this act did not amount to oppression.

Legal Aspects and Conclusion

The tribunal noted that the disputes arose from a mutual understanding on 17.01.2010, which was not included in the Articles of Association. Citing precedents, the tribunal held that private agreements not incorporated into the Articles are not enforceable under Sections 397-398 of the Companies Act, 1956, or Sections 241-242 of the Companies Act, 2013. The tribunal also noted the petitioners' failure to secure the promised ?150.00 lacs working capital from Citi Bank, which was a breach on their part.

In conclusion, the tribunal found no acts of oppression or mismanagement by the respondents and dismissed the petition, with no orders as to costs.