9911796707
TMI Blog2005 (8) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... xecuted between the plaintiff, Moral Trading Investment Ltd. and Government of India for the purchase of shares of the plaintiff-company by the Moral Trading Investment Ltd. from the Government of India. At that time hotel was in dilapidated condition. Defendant No. 2 who is the promoter of the Moral Trading Investment Ltd. and also the Chairman and Managing Director of the plaintiff-company secured loans from the financial institutions and also got financial accommodation from the defendant No. 1, a Malasian company by way of redeemable preference shares. Besides, the share capital had been increased from time to time and further shares were allotted to various shareholders to raise funds required for reconstruction of hotel. The present sharesholding of the plaintiff-company is as under : Sl. No. Name No. of shares held %age 1. Moral Trading Investment Ltd. 41,51,648 46.13 2. Shri R.P. Mittal 33,98,183 37.76 3. Mrs. Jyoti Kesri 2 4. Mrs. Sapna Jain 1 5. Mrs. Bhawna Gupta 2 6. Mrs. Vandana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide their letter dated 28th June, 2005, informed the plaintiff that they are going to convene EGM under section 169 of the Act for considering the matter of removal of two directors of the plaintiff and to appoint Mr. J.K. Gupta and Mr. Vikram Mittal as directors. This meeting is proposed to be held on 4th August, 2005. In this connection a notice has been issued by the defendant No. 1 copy whereof appears at page 69 of Part III of the record and hence this suit. 4. Plaintiff has challenged the validity of the proposed meeting on the ground that under article 4 of memorandum of association preference shareholders have no right to vote. Besides, the plaintiff has not started running the hotel which is in the process of being built. The hotel has not started any business so far and, therefore, the question of declaring or paying any dividend does not arise, in view of the prohibition contained in section 205 of the Act. Further contention of the plaintiff is that the plaintiff is a private limited company. Therefore, in view of the provisions of section 90(2) of the Act, the defendant No. 1 cannot invoke section 87(2) of the Act to claim voting rights and as such, they have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year. . . ." It is admitted case between the parties that the company has not commenced its business and has not earned any profit. Clearly, therefore, in view of the mandate of section 205, the dividend has not yet become payable. Section 87 which confer voting rights on preference shareholders under certain circumstances reads as under: - "87. Voting rights . (1) Subject to the provisions of section 89 and sub-section (2) of section 92 - ( a )every member of a company limited by shares and holding any equity share capital therein shall have a right to vote, in respect of such capital, on every resolution placed before the company ; and ( b )his voting right on a poll shall be in proportion to his share of the paid-up equity capital of the company. (2)( a ) Subject as aforesaid and save as provided in clause ( b ) of this sub-section, every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, have a right to vote only on resolutions placed before the company which directly affect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for defendant No. 1 on the other hand contended that the plaintiff is a subsidiary of Moral Trading Investment Ltd. which is a public company and, therefore, in view of the language of section 90(2), section 87 will apply to the plaintiff-company. The fact that Moral Trading Investment Ltd. is a public company is not in dispute. It is, therefore, to be seen prima facie whether plaintiff is a subsidiary of the said public company. 10. Subsidiary has been defined in section 4 of the Act, which reads as under: 4. Meaning of "holding company" and "subsidiary" - (1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if, - ( a )that other controls the composition of its Board of directors ; or ( b )that other ( i )where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company ; ( ii )where the first-mentioned company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares are held or the power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business. (4) For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only if, that other is its subsidiary. (5) In this section, the expression "company" includes any body corporate, and the expression "equity share capital" has the same meaning as in sub-section (2) of section 85. (6) In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning and for the purposes of this Act also, whether the requirements of this section are fulfilled or not. (7) A private company, being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be a subsidiary of a public company if the entire share capital in that private company is not held by that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. According to plaintiff, out of the existing shareholders 137 are pre-existing shareholders being the persons who are/were in the employment of the company when they became the members of the company. There-fore, for the purpose of calculating the number or members, the number of present or past employees of the company have to be excluded and thus calculating the number of plaintiff shareholders come to less than 50. Article 3 of the articles of association of the plaintiff limits the number of members to 50 and also prohibits any invitation to the public to subscribe to the shares of the company or any deposits from the outsiders. Besides, in the certificate of incorporation plaintiff has been described as private limited. Thus, prima facie, the plaintiff meets the ingredients of a private company. Learned counsel for defendant has referred to balance sheet of the Moral Trading Investment Ltd. for the year 2003-04 wherein plaintiff has been shown to be their subsidiary. According to the plaintiff Moral Trading Investment Ltd. have on 10th May, 2005 transferred 32,38,181 shares to R.P Mittal, defendant No. 2, who is Managing Director of the plaintiff as well as Moral Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from doing so nor is it bound to disclose its reasons for moving the resolutions." 15. It must be noticed that in that case the question of voting rights of preference shares was not at all under consideration. In that case, dispute was between equity shareholders and in that connection these observa-tions were made by the Apex Court. This decision was taken note of by a Division Bench of this Court in the case of CGT v. Raghu Hari Dalmia [2002] 255 ITR 300 1 . At page 311 of the report, the Division Bench while taking note of the decision of LIC s case ( supra ) has observed as under: - "As noted in LIC of India v. Escorts Ltd. [1986] 59 Comp. Cas. 548 /AIR 1986 SC 1370 (SC), the equity shareholders have the following rights : ( a )right to elect directors of the company and through them participate in the management of the company ; ( b )right to vote on resolutions at meetings of the company ; ( c )enjoy benefits earned by the company in the shape of dividend ; ( d )right to apply to Court and get relief in the case of oppression and mismanagement ; ( e )right to move the Court for winding up ; and ( f )share surplus on winding up of the company." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any class of shares forming part of the capital for the time being of the company may be affected, modified, dealt with or abrogated in any manner with the sanction of an extraordinary resolution passed at a separate meeting of the members of that class." 19. Since article 54 itself provided for sanction of an extraordinary resolution passed at a separate meeting of members of the class affected by the proposed resolution, the court said that such a resolution could be carried out only with the sanction of the preference shareholders whose rights are effected by the proposed increase in the share capital. In the present case, there is no such article in plaintiffs articles of association. On the contrary article 4 of articles of association which provides for share capital of the company clearly states that preference shareholders will not carry any voting rights. In absence of any similar/analogous provision in the plaintiffs articles of association, the defendant cannot draw any support from the decision in the case of Jonh Smith ( supra ). 20. Another decision of Chancery Division relied upon by learned counsel for defendant No. 1 deserves to be taken note of. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the argument objections were raised as to the authority of Mr. H.S. Toor, who has signed and verified the plaint and instituted suit on behalf of the plaintiff and in this regard an additional reply affidavit of respondents attorney has also been filed. This fact was controverted by the plaintiff. This controversy again involves a question of fact which along with other disputed question of fact as already noticed can be decided only after the trial. The suit involves substantial question of fact and law which deserves trial. 23. Since the proposed meeting was scheduled for 4th August, 2005 this case was taken up on 3rd August, 2005 for directions. It was pointed out by the learned counsel for defendant No. 1 that all necessary preparations for holding the meeting had already been made so on his request defendant No. 1 was allowed to proceed with the meeting subject to the condition that the resolution, if any, passed in the proposed meeting shall be kept confidential in a sealed cover and will not be given any publicity and effect till the disposal of this application. It was further made clear that if the proposed meeting is held to be illegal, the resolution, if any, passe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
