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TMI Blog2013 (9) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... owed to continue as directors. Shri Basant Kumar Daga was removed from the Board of the company and the appellants directed to deposit Rs. 12 lakhs received from sale of plant and machinery of the appellant company, Rs.20.53 lakhs for funds misappropriated by them and Rs. 20.71 lakhs on account of liabilities created in respect of the appellant company. According to counsel for the appellants the case of the respondent AKM before the Company Law Board (CLB) was that:- (i) Removal of AKM and his son is contrary to law, (ii) Funds have been misappropriated by the appellant No. 2 (PKM), (iii) Increase in share-holding was without notice. The said allegations are baseless. AKM and his son had absented themselves from 3 consecutive meetings of the Board and therefore under Section 283 of the 1956 Act called for their removal. Notices of the meeting was sent to the respondent No. 1 and his son at the last known address mentioned in the share-holder's register maintained with the company by hand which was the practice of the company even during the life time of Sriratan Mohta. It was also sent to New Friends Colony, New Delhi the present address of AKM and his son. Publication was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Clause 4.1 and 4.2 of the Family Settlement of 2001 and does not in any way affect Clause 3 of the 2001 settlement. The respondent AKM was in charge of the Faridabad unit and its assets were sold by him. A demand note for Rs. 9,76,000/- was raised in 2002 by the appellant No. 2 PKM on respondent AKM but no step was taken by AKM to honor the same. The accounts have been audited and no allegation has been levelled against the auditors by the respondent AKM. All payments have been made by cheques. In fact for the plants and machinery sold, offers were received and earnest money deposited. On inspection some offerers were not interested in continuing with their offer, therefore the earnest money had to be returned, such return was by cheque. Details of the sums received, accepted and returned was explained in the objection filed by the company and PKM before the CLB but without considering the same the order dated 30.3.2006 was passed. From the balance sheet for the year ended 31.3.2001 the depreciated value of the plant and machinery will appear and the figure taken by the respondent AKM is not based on the figure shown in the balance sheet but is an imaginary figure and without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange in shareholding. In the objection filed it has been admitted by the appellant that the respondents were not entitled to notice therefore no notice was served. The notice has also not been disclosed. The sur-rejoinder has been dealt with by the CLB and in any event there was nothing to deal with as the case made out throughout by the respondents was that no notice of the meetings was required to be given to them. Sections 264 and 266(1)(a) of the Companies Act have not been followed. In case of increase in share capital Form No. 5 is to be filed. No such form has been annexed. Only Form 23 has been filed. There has been non-compliance of Sections 75 and 192 of the Companies Act. Dilution of shareholding is oppressive. The increase in share capital by the respondent Nos. 3 to 6 as directors, allotment of 15000 shares to the appellant No. 2 PKM and allotment of 50 shares each to the original respondent Nos. 3 to 9 so also removal of the respondent No. 1 AKM and his son from the Board of Directors are oppressive to AKM. As there was no notice given the respondent No. 1 could not attend the meeting. In case notice was issued there was no reason to abstain from attending the meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created by the appellant No. 2 PKM only for claiming monies. The increase in share holding is to reduce the respondent to a minority. The amount claimed has not been disputed but explanation is sought to be given and it is for the Court to decide whether such justification should be accepted. The share holding pattern has been set out and the family settlement was entered into to equate the parties vis-a-vis, their respective shares. The issues to be considered is with regard to the appointment of the respondent No. 3, increase in share capital and allotment of shares to the appellant No. 2 PKM and removal of AKM as a director. The liabilities have been created after 2000. In 1999 the company had stopped functioning. Rs. 4.10 lacs was spent on preparation of a report for a proposed ethanol project which did not fructify. No steps have been taken in respect of the Miajan Lane property by G.D. Kothari. Similarly no step has been taken in respect of the registered office of the appellant company. The appellant No. 2 PKM was in control and management of the appellant company and created fictitious liability on the ground of loans given to the company. In view of the aforesaid the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een audited. To each of them the auditor's certificate is enclosed. No allegation has been made against the auditors. The Balance sheet till 31st March, 2000 has been accepted. The auditors have prepared the Balance Sheet only after verifying the accounts. To ascertain the expense incurred under the 3 heads CLB was empowered to verify the accounts but no such exercise was undertaken. For each of the alleged expense, the appellants have sought to give an explanation, CLB ought to have considered the same. CLB is a fact finding forum and ought to have called for each required piece of evidence viz., bills, vouchers and receipts and in not doing so has acted with perversity. The respondent AKM has not challenged the authority of the appellant No.2 PKM to sell the plants and machinery. The allegation made is of siphoning of funds. The details of sales realisation till 31.10.2003 was disclosed by the appellant No. 2 PKM and when the sums received in cash and cheque is totalled, it aggregates to the total sale value. In fact the sums that remained in the till of the company was 7,12,395/- as will appear from the statement of account till 31st December, 2003 enclosed in the letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n given by the appellant in respect thereof, which is ex-facie incorrect as the appellants did take the plea of the audited accounts which had not been assailed and that sums had been spent on account of Travel expense of AKM and the mother. The expense borne to meet statutory requirement had also been given and in not appreciating evidence in this respect, CLB could not reach the conclusion of misappropriation and the said findings with regard to reimbursement cannot be upheld. The next issue that needs to be considered is with regard to allotment of shares. The shareholders of the company are members of the Mohta family or their associates. There is no outsider who is a shareholder. Being a private limited company the company was in the nature of a quasi-partnership. CLB has also accepted the company to be quasipartnership in nature, therefore Section 81 of the Companies Act would not apply but this would not permit misuse of power for personal gains or ulterior motive. The respondent AKM has alleged that the increase in share capital and allotment of additional shares amounts to mismanaging the affairs of the company and is prejudicial to the interest of the company with an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company will surrender its tenancy to the heirs of Sriratan Mohta and the heirs shall pay compensation to the company for the improvements made. The amount payable would be decided by one Mr. G.D. Kothari. From the amount received the company would discharge its liability. As an heir of Sriratan Mohta, the respondent AKM had a share in the Miajan Lane property, but only upon payment of his share of compensation could the tenancy be surrendered by the appellant company. The respondent AKM did not pay his share of compensation but as submitted by the appellant PKM sold his share in the Miajan Lane property to 3rd parties. This aspect ought to have been considered by the CLB. All that the CLB has said in its order dated 30.3.2006 about the Family Settlement is that the "Family Settlement is a different matter". The CLB failed to consider that in the event all the parties had complied with the Family Settlement the company would have been sold and the proceeds divided amongst its heirs. Therefore it appears that the acts of the respondent AKM created a situation which made it impossible to sell the company and to only meet the statutory requirements of a shell company expenses had t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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