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TMI Blog2012 (5) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... ners have made the following allegations : (a) That no returns were filed nor annul general meeting ('AGM') held as contemplated under the Act and that the same constitutes a violation of sections 159, 166, 210 and 220 of the Act; (b) That there has been no Board of directors after 2003 as no AGM was held after 2000 and, thus, all directors retire by rotation. (c) Sale of land of the first petitioner to the second petitioner has to be set aside as there was no Board in existence in 2005 when sale was made, consent of shareholders has not been obtained and it is, therefore, a violation of section 293 of the Act. (d) Second respondent's offer to buy-back shares is illegal as under section 77A, only the company can buy-back shares. The petitioners on the basis of the above averments, seeks the following reliefs : (a) To declare the sale or transfer of land of the 1st respondent-company comprising of 2.96 acres to the 2nd respondent as invalid and consequently set aside the sale. (b) To appoint one or more inspectors to investigate into the affairs of the company and file a report before this hon'ble Bench. (c) To declare the extraordinary ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R2 association, with an idea to set up a private industrial estate. Because R2 could get tax benefits, it was decided that the industrial estate should be left to R2. For that purpose R2 purchased 80 acres of land in Madurai and then tied up with SIDCO (Government of Tamilnadu undertaking) as nodal agency, signed agreements with Larsen & Toubro to build and develop the industrial infrastructure. With the consent of the members financial assistance was arranged from TIIC to individual members, on the guarantee of R2 and SIDCO. The second respondent serviced the interest to TIIC on the understanding that the first respondent will repay the amount paid by R2. As on the date of the CP each shareholder owes at least Rs. 64,000 to the second respondent. Since the members could not repay the amount, the second respondent was unable to refund the money to SIDCO. The work of the industrial estate not being completed the government sought for return of fund from SIDCO which put pressure on the second respondent to return the money to SIDCO. In order to discharge its liabilities the second respondent transferred all the lands owned by it in the Estate to SIDCO in 1997. The left out land measu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rana Textile Mills Ltd. [2004] 119 Comp. Cas. 917/55 SCL 669 (Mad.) 5. Suresh Kumar Sanghi v. Supreme Motors Ltd. [1983] 54 Comp. Cas. 235 (Delhi) 6. Bengal Luxmi Cotton Mills Ltd., In re. [1965] 35 Comp. Cas. 187 (Cal.) 7. Dhanna Lal Bhanthia v. Gaurav (P.) Ltd. [1994] 81 Comp. Cas. 881 (Raj.) 4. I have heard the arguments on both sides, gone through the pleadings, records and case laws cited by both sides. The definite case of the petitioners is that the sale of the immovable property of the company, and the lapses in not holding the Board/general/annual meetings and non-filing of statutory papers amounts to oppression of the petitioners who collectively holds 45,000 shares in R1-company. The petition says that after the year 2000, the company never held any Board/general/annual meetings, etc., and that the balance sheets, profit and loss accounts were not filed with the RoC, nor annual return laid before the shareholders. As per articles 19 and 20 of the articles of association, 1/3rd of the directors are liable to retire by rotation every year. Since no general meeting was held after 2000, the petitioners want this Bench to presume that all the directors h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p duty of Rs. 88,346 and a sum of Rs. 15,74,720 had been spent for the development of the land. On the basis of a search effected, the petitioners found that the property has been transferred to the second respondent during the year 2005, without the knowledge and consent of the shareholders. 7. Devoid of ancillary arguments raised on behalf of the petitioners, the land belonging to the company was alienated to the second respondent-society. Narrating the various circumstances, the respondents have successfully presented the situations under which the land was sold to the second respondent. As already observed, the petitioners herein were initially members of the second respondent but their membership is temporary suspended for non-payment of subscription for some years. The respondents have categorically stated that the petitioners can resume the membership after clearing the subscription arrears. According to the petitioners, the company owned 2.96 acres as per the last annual report filed during the year 1999-2000 and that they came to know about the sale in favour of the second respondent when they received a letter dated 1st February, 2007 from the second respondent informing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt-company were also registered as members of the second respondent and had been deriving benefits offered by R2. The second respondent was a co-guarantor to the financial assistance provided by TIIC to the members of R1 and R2, and R2 has been servicing the interest due to TIIC on the condition that the members will repay the amount to R2, but no amount was repaid to R2. In order to repay the amount due to SIDCO and TIIC the second respondent had to transfer its entire land earmarked to provide amenities to the estate to SIDCO in 1997. The left out land (2.96 acres) was sold by R2 to another garment company who had offered to resell to second respondent since that company had abandoned the project in the industrial estate. It is under the above circumstances that R1 and R2 collectively decided that the land would be transferred in the name of R1-company, so that the land will be beyond the reach of the creditors of R2. R2 sold the land in 1977 to the garment company. The company purchased the same land in 1999 for the same consideration received by R2 from the garment company. In other words there was no increase in the market value of the land during the period between 1997 and 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of the petitioners in R2 is a relevant circumstance to assess whether they are bound to suffer any irreparable injury due to the alienation of the land to the 2nd respondent. The land was sold in the year 2005 whereas the approval of the shareholders was obtained in the year 2007. In my view the delay in the ratification of the sale by the shareholders is not a material irregularity in the peculiar background of this case. 10. The industrial estate did not take off until 2005, but started reviving at the instance of R2, with 120 units and more than 3000 employees. There is no dispute that the land is proposed to be used for the entire estate. The Board of directors of R1 passed a resolution on 20th April, 2005 authorising its sale to R2 for consideration. I see no reasons to hold that the land sale was not in the interest of the company. Since the 1st and 2nd respondents had common objects members and shareholders, the sale can be treated as a bona fide act. Out of the 144 members, the 16 petitioners alone are objecting, while other members are interested in continuing the business activities of the company. Even though no AGM is conducted after 2000, the petitioners as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to retire by rotation at an AGM vacated his office on the last date on which that AGM could have been hold as required by section 166 of the Act and could not continue in his office thereafter on the ground that the meeting had not in fact been hold. As observed earlier, a requisition was made by the petitioners to the Board to convene an EGM as if the Board is in existence. Some of the petitioners participated in this EGM and exercised their voting rights (vide attendance register). It is obviously unfair for the petitioners to challenge the decisions to which they have been parties. The issue on the existence of the Board is raised just to challenge the land sale in 2005. The EGM on 1st March, 2007 was not called by the Board of directors but by the third respondent in his capacity as the managing director of the company. As per articles 14 and 21 of the articles of association a managing director shall not, while he continues to hold that office, be subject to retirement by rotation in accordance with these articles. Hence, I hold that the EGM on 1st March, 2007 has been validly constituted, and I decline to set aside the EGM on 1st March, 2007 as invalid. 11. Evidently, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany provides that the directors have the power to sell or dispose of any property of the company and accept payment or satisfaction for the same in cash or otherwise. I have already held that the transfer of the land to the second respondent has been ratified by the shareholders in the subsequent EGM held on 1st March, 2007. As rightly contended by the respondents the sale of the land in 2005 is a past concluded transaction and not a continuing wrong in order to invoke the provisions of sections 397 and 398 of the Act. The petitioners who remained all along as ignorant spectators cannot thereafter, challenge the sale on the alleged ground that he came to know about the sale only in 2007. It is evidently clear that the petitioners were aware of this position much earlier. Surprisingly, there is no mention about the property in the requisition issued by the petitioners on 19th November, 2006 to convene the EGM of the company. The logical conclusion is that the petitioners were aware of the transfer of the property to the second respondent and the non-mention of it in the notice is with some purpose. It is important to note that the petitioners who remained inactive till 2005, soug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the R1-company and the land acquired by the second respondent. Evidently, the property sold is only one of the assets of the company and not proved to be 'substantially whole of the fixed assets of the company'. Considering the business realities detailed above, the respondents are protected by the subsequent ratification of the sale in the EGM. For all the reasons discussed above reliefs (a) and (e) are declined. 13. The pleadings or the evidence remain unsatisfactory to arrive at a definite conclusion of oppression and mismanagement. The aberrations in the conduct of AGM and non-compliance of statutory filings itself would not amount to an act of oppression. The alleged default from 2001 is raised only as a ground to challenge the sale deed. Even assuming that there is no Board of directors or if the Board of directors is not lawful Board or if the managing director is not a lawful managing director, the petitioners can get the same resolved by calling a general meeting of the company and get the directors appointed in the place of the retiring directors. Instead of doing that the only resolution in the requisition notice dated 19th November, 2006 is to wind up the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. We wish to buy-back your shares each for a consideration of Re.1 per share. We know and realise that this is a token consideration, but considering the losses that MHL has suffered since inception, its book value and total lack of assets, we feel that the price offered is just and fair." Considering the realities of the situation already reflected in the various communications and records, I do not think that there is anything unfair in the offer made by the second respondent to the shareholders of the first respondent. As rightly pointed out by the respondents it is the option of each shareholder to decide on this issue. It is not an act of oppression or mismanagement on the part of the third respondent and others. I am of the view that the provisions of section 77A are not applicable to the facts of the case. 15. The last prayer in the CP is to permit the petitioners to convene a general meeting of the company based on the list of the shareholders as per the annual return for the year 2000. I do not think that there is any necessity to issue such a direction since this is not a case where it has become impracticable to hold the EGM. The petitioners have admittedly requisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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