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TMI Blog2015 (9) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... e said meeting was not held at the registered office of the company. All these reasons clearly go to prove that the purported meeting held on 18/6/2007 for Increasing the authorized share capital of the company was not held in accordance with law. The decisions taken at the said meeting smack mala fide intention on the part of the Respondents. - the resolutions deserves to be set aside. Regarding illegal allotment of additional shares to the Respondent Nos. 2 and 3 - Held that:- Where the Directors seek, entering into an agreement to issue new shares, to prevent a majority shareholder from exercising control of the Company, they will not be held to have failed in their fiduciary duty to the Company if they act in good faith In what they believe, on reasonable grounds, to be the interests of the Company, but if the power to issue shares is exercised from an improper motive, the issue is liable to be set aside and it is immaterial that the issue is made in bona fide belief that it is in the interest of the Company. - allotment of shares was mala fide and purpose was to gain control and management of the Company - allotments are bad in law and deserves to be set aside. Removal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate, whether on ownership or on lease, was acquired by the said Kantilal and the Petitioner in the name of one of these partnership firms and private limited companies. 2.2 That the sons of the Kantilal Dalai, being one Surendra Dalal and the Respondent No. 2 were joined as partners in the said Kantilal Co. during 1969-71. 2.3 That in February, 1976, the Company was incorporated. At about the same time, the Respondent No. 2 had also incorporated a partnership firm with the same name, being Star Grain Shipping Co., having Its registered office at Janmabhoomi Bhavan, Janmabhoomi Marg, Fort, Mumbai 400 001. 2.4 That both the said Kantilal and Surendra Dalai decided to retire from the Indian businesses and the Petitioner and the Respondent No. 2 continued as partners/joint holders in the Indian partnership firms and private limited companies, which were in the nature of glorified partnership businesses, Post reconstitution, the Petitioner continued to have 30% to 50% stake in most of these entities, with the Respondent No, 2 as the other stakeholder. Petitioner became 30% shareholder of the Respondent No. 1 Company as well as the said partnership firm and the Respondent N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is now the registered office of the Company, The Respondent No. 2 threatened the Petitioner that if the Petitioner ever attempted to step into the offices of the said Kantilai Co., or any of the affiliated companies including the Company, Respondent No. 2 would humiliate him in front of others and will physically throw him out. the Petitioner was completely taken aback by the menacing manner of the Respondent No. 2 and fearing that the Respondent No. 2 may indeed physical harm him, the Petitioner left the house immediately, The Respondent No. 2 did not even allow the Petitioner to collect his belongings, not even clothes from the house. The Respondent No. 2 thus illegally and unlawfully ousted the Petitioner from the house, the joint businesses and the Company, 2.11 Though deeply aggrieved, the Petitioner in the hope that wiser counsel will prevail on the Respondent No.2 and that the said Kantilal will intervene to set things right, refrained from taking any legal action against his nephew, the Respondent No.2. Several attempts were made by the relatives and common friends to reconcile the issues but to no avail. 2.12 The Petitioner then wrote a letter dated 9/8/2011 to DSI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he was grossly mismanaging these entities to the detriment of the rights and interests of the Petitioner. 2.16 The Petitioner then issued a comprehensive notice dated 11/9/2013 to the Respondents pointing out the various acts of oppression and mismanagement by the Respondent No.2, and called upon the Respondent No. 2 to inter alia rectify the same within the time period stipulated therein. Vide the said Notice the Petitioner called upon the Respondents to provide to the Petitioner with inspection of entire records of the Company since 2004 within seven days of receipt of the said Notice, which the Petitioner was entitled to as a 30% shareholder and director of the Company, Further vide the said Notice the Petitioner called upon the Respondents to render true and accurate accounts of the Company and pay to the Petitioner his lawful dues within fifteen days of receipt of the said Notice. The said Notice was received by the Respondents on the same day. Despite expiry of the notice period, the Respondents did not comply with any of the requisition under the said Notice. 2.17-2.18 On 25/9/2013, the Petitioner received a letter from the advocates of the Respondents seeking time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition. The next plea taken by the Respondents is that the present petition is barred on account of delay and laches as well as on principles of estoppel and acquiescence as the Petitioner did not take any action since 2007. In the reply, It is further averred that the main grievance of the Petitioner is non-payment of his dues for which suit for recovery of money is only remedy and the Petitioner is not entitled to file the petition under Section 398. It is further pleaded that the conduct of the Petitioner, being mala fide, he does not deserve for any relief. 4. I have heard the ld. Counsels appearing for the parties. I have also gone through the documents submitted by the parties, as well as, various citations referred to and relied upon by them, in support of their respective contentions. Now, I proceed to consider the rival contentions on merits. 5. Dealing with the first complaint as to the illegal increase in the authorized share capital of the Company, with a mala fide intention to dilute the shareholding of the Petitioner, it was submitted on behalf of the Petitioner that an EOGM purportedly held on 18/6/2007, wherein the authorized share capital of the Company wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted on behalf of the Petitioner that even assuming that the shares were held jointly, the Company ought not to have recognized the Respondent No. 2 as a joint shareholder as it is in violation of the articles of association. Article 6 of the AOA of the Company clearly states that the Company shall not recognize any person holding any partial interest in the shares. 10. It is further contended that the only person present at the purported meetings were the Respondent No. 2 as representative of the Petitioner, the wife of Respondent No. 2 as the representative of the Respondent No,2, and the Respondent No. 3. The Respondent No, 3 became a shareholder only on 1/9/2007 and could not be present at the said meeting as he was not a shareholder then. Thus, there was no valid quorum as per Article 29 of the AOA for holding such meeting as the Articles of Association of the Company mandate personal presence of two of the members of the Company for constituting appropriate quorum for conduct of the meeting. 11. Now, I proceed to consider the next accusation made by the Petitioner upon the Respondents as regards the illegal allotment of the additional shares to the Respondent Nos. 2 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s never given effect to. It was submitted on behalf of the Petitioner that by a letter of 12/11/2005, the Petitioner intended to restrict his exposure in the losses that may occur in the joint venture between the Company and DSIPL. By the said letter, the Petitioner only offered to relinquish his share in the profit and losses and not his shareholding. Further, the said offer was subject to complying with the requisite formalities, which have not been complied with by the Respondent No.2 and therefore, the question of relinquishment does not arise. 17. The ld. Sr. Counsel pointed out that even according to Respondent No. 2, the letter was issued not because the Petitioner intended to give up his share and interests in Company, but because the Petitioner wanted to protect his capital as he was risk averse and did not approve the unconventional methods of DSIPL's directors, as can be seen from the letter dated 19/5/2007, sent by the Respondent No.2 to the Petitioner. 18. In addition to the above, Mr. Jagtiani submitted that the Respondent No. 2 after two years of issuance of this letter vide his letter dated 19/5/2007, and letter dated 1/10/2008, called upon the Petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner in his letter dated 11/9/2008 revokes his letter dated 12/11/2005 and demands share in profit. The Respondent No. 2 does not in his response in letter dated 1/10/2008 state that the same is given effect to in the AGM of 30/9/2006, and calls upon the Petitioner to transfer shares to his sons. Similarly, the Respondent No. 2 vide letter dated 1/10/2008 issues a show-cause notice as to why the Petitioner should not be removed as a shareholder and director of the Company. If the meeting of 30/9/2006 ever took place and the Petitioner gave up his share, as contended, way back in 2005, then the Respondent No, 2 would not have issued a show-cause notice in 2008. Further, even when the Petitioner in his letter dated 2/10/2008 specifically asked for resolution, if any, disqualifying him from getting profits the Respondent No. 2 did not make any mention of the AGM of 30/9/2006. f. The Respondents at the time of the hearing came up with a new case, though not pleaded in the petition, that the Annual Returns of 31/3/2006 were signed by the Petitioner in the meeting of 30/9/2006. The purported minutes of the meeting held on 30/9/2006 do not record that the annual returns of 31/3/2006 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Petitioner was unable to locate any of these documents pertaining to his removal. b. The Form 32 for removal of directorship annexed is hand written whereas all the other forms are computerized, which casts serious doubts on the genuineness of the document. c. The documents shown during inspection as copy of the purported Forms 32, 61 and 62, were not even, web printouts from the ROC website. The Respondent No. 2 was called upon to produce the challan to show that these documents were actually filed with the ROC which has not been produced. d. The purported notice of the Board Meeting dated 2/5/2008 is neither issued on the letterhead of the Respondent No. 1 Company nor does it bear any company stamp. e. The notice as well as the Agenda of the alleged notice described the registered office of the Company as Khushnuma Apartments when till 1/9/2009 the registered office of the Respondent No.1 Company was at Janmabhoomi Bhavan . It is similarly the case with the purported minutes of the board meeting allegedly held on 6/5/2008. These alleged minutes also appear to have been signed only by the Respondent No.2 though it appears that Respondent No.3 was also present as D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 1st October 2006 and then was appointed as an Independent Director vide a resolution dated 29th September 2007. According to Mr. Jagtiani, the Petitioner was neither consulted nor apprised of such an appointment. As the Petitioner and the Respondent No. 2 were the only two shareholders and directors of the Company, no such resolution could have been passed and no such meeting could have been convened in absence of the Petitioner. Furthermore, the Petitioner has neither ratified the appointment of the Respondent No. 3 as a director at any Annual General Meeting of the Company subsequently held. 26. The next point argued on behalf of the Petitioner is that the Respondent No. 3 was appointed as a Director with an ulterior motive to gain control of the company and oust the Petitioner as after the appointment of Respondent No. 3 as a director, the Respondents 2 and 3 illegally increased the authorized capital and allotted shares to Respondent No. 2 thereby reducing the shareholding of the Petitioner from 30% to 0.03%. 27. It was also argued by Mr. Jagtiani that the Respondent No. 2 could not have legally conducted any business without the consensus of the Petitioner. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles of Association of the Company. Dealing with this Issue, it was argued that on 1/9/2007 the Respondent Mo. 2 transferred 100 of his 7000 paid-up equity shares to the Respondent No. 3. The Petitioner was not aware of any such transfer nor was his permission sought for the same and hence is illegal (Exhibit C). 31. It is further submitted by the Petitioner's counsel that in the year 2013, the Respondents 2 vide resolution dated 13/7/2013 has illegally transferred 13 shares to Respondent Nos. 4 to 12. According to the Ld. Counsel, the transfer of 13 shares of Respondent Nos. 2 to 9 persons was only with a view to debar the Petitioner from filing the present petition by illegally increasing the number of members of the Company to 12 shareholders. The Ld. Counsel pointed out that this illegal purpose can also be evinced from the fact that the Respondents have not provided any cogent reasons for the transfer of these shares, that too only 13 in number and to only 9 persons. Further, the said transfer has been done behind the back of the Petitioner without serving any notice of the meeting in which the said transfer took place Exhibit P and Q (share transfer forms). 32. Apar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11/9/2013, no inspection has been granted to the Petitioner of the statutory records of the Company and of all the documents to which he is entitled to as a shareholder and permanent director of the Company. Mr. Jagtiani submitted that the Respondents have also not given inspection of the original documents referred and relied upon by them in their Affidavit. In Reply, which has been recorded in the Minutes of the Inspection letter dated 19/11/2013. 35. Dealing with the last complaint as to the siphoning off funds and non-payment of dividend, it was argued on behalf of the Petitioner that the initial investment of ₹ 15,00,00,000/- in D5IPL was done through internal borrowings i.e. through loans received from the shareholders and not by raising any monies from any financial institutes or otherwise. The Petitioner had invested approximately ₹ 4,50,00,000/- in proportion to his 30% shareholding in the Respondent No.1 Company, The auditor's report and the balance sheet for the year ending 31/3/2002 reflect the loan of ₹ 4.50 crore invested by the Petitioner. However, the unsecured ban given by the Petitioner to the Company for investment in DSIPL, has illega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng investments made by the Petitioner in the Company. d. The Respondent No. 2 has not produced anything on record to show that the Balance Sheet of 2002 showing investment of ₹ 4.5 crore of the Petitioner is fabricated. Except for bare denial that the Respondent No. 2 ought to have produced the original documents including the Balance Sheet of 1999 to show that the entire investment of ₹ 15 crore was made by him. e. The Balance Sheets of 2005 and 2006 only reflect that the Petitioner has signed the same probably at the request of Respondent No. 2. The explanation is more than plausible, especially when during 2005-2006 the relations between the parties were cordial and the Petitioner had never imagined then that the Respondent No. 2, his nephew, would dupe him. However, with the passage of many years, the Petitioner is now unable to recall as to how and in what circumstances he has affixed his signatures on the said Balance Sheets. 38. Replying to the Petitioner's contention, the ld. Sr. Counsel appearing for the Respondents raised a preliminary point as to delay and latches in filing the instant petition and submitted that on this ground alone the Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholder with alleged grievances against the Company and the other Respondents, failed and neglected to review the documents filed with the ROC since 2006. 42. The ld. Sr. Counsel pointed out that the Petitioner has sought to explain the delay in filing the present Petition inter alia, contending that the Petitioner was under a belief that Kantilal Dalal would prevail upon the Respondent No.2 to pay to the Petitioner his alleged dues. In addition, the Petitioner has further sought to contend that on the demise of Mr. Kantilal Dalal on 8/3/2013, the Petitioner sought to take legal advice and look into the records of the Respondent No.1 Company in April, 2013. According to the ld. Sr. Counsel, the said explanations sought to be provided by the Petitioner are hopelessly misconceived and cannot be sustained inter alia on account of the following averments made by the Petitioner in the Petition: i. It is the Petitioner's case in paragraph III (vi) at page 16 of the Petition that the Petitioner was humiliated abused and ousted from the joint business and from the Company in 2007. ii. It is further the Petitioner's case in paragraph III (vii) at page 17 of the Petition t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner intended to separate from the various firms/companies in which, the Petitioner and Respondent No.2 were associated. This is also borne out by the letter dated 12/11/2005 (Exhibit I) read with the Minutes of Meeting held on 30/9/2006 being Exhibit G. Furthermore, neither during the course of opening submissions nor during the rejoinder, has the Petitioner offered any explanation for the delay in seeking to enforce its purported rights. 46. As regards increase in Share Capital and the Petitioner's removal from the post of the Director of Respondent No.1 Company, it has been submitted on behalf of the Respondents that though the Petitioner has sought to allege that his removal from the post of Director as well as the increase in Share Capital is allegedly illegal, the fact that the Petitioner intended to separate from various firms/entities. In which inter alia he and Respondent No.2 were associated, is evident from the letter dated 12/11/2005 (Exhibit I), which reads as under:- 1. As a Director and Shareholder of the above firms, I hereby wittingly and of my own accord give-up/relinquish my share of profit in the above Partnership Business. 2. I also hereby wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back by the Respondent No.1 Company to him. The audited report of the Respondent No.1 Company reflects the signature of the Petitioner and this audited report was further filed by the Respondent No.1 Company with the ROC in the year 2006, hence, it was argued that the Petitioner had attended and consented to the contents of the minutes of the meeting dated 30/9/2006. According to the Respondents' Counsel, this falsifies all the allegations raised by the Petitioner in his Petition. 50. Next submission advanced by the ld. Sr. Counsel for the Respondents is that the contents of the letter dated 12/11/2005 read with the Minutes of Meeting dated 30/6/2008 make it clear that the Petitioner had acquired the entire holding of his shares from Mrs. Jyoti Bharat Dalal at par with issue price solely as a Trustee, for eventually completely transferring the said shares at par to the Respondent No.2 and his two sons, after they joined the business. Apart from the above, since the business of the Company was highly speculative in nature, its sole activity being the partnership with Deutsche Securities (India) Pvt. Ltd., the Petitioner was not comfortable being exposed to a high possibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that a substantial portion of the purported loan amount was withdrawn by the Petitioner. Furthermore, the Petitioner has failed to provide any explanation for the withdrawal of the loan. In fact, the Petitioner has deliberate suppressed the accounts for the year 2005-06 from this Board, On the contrary, with the mala fide intent of misleading this Board, the Petitioner sought to tender the annual accounts for the FY 2007-08, by which he sought to contend that the Respondents have siphoned off the money lent by him to Respondent No.1 Company. The ld. Sr. Counsel pointed out that the issue of ₹ 2,27,89,874/- that is raised by the Petitioner during the course of oral arguments, was never a subject-matter of the Petition and is merely being raised by him as an afterthought with a view to create prejudice. 53. It is further submitted that at no point of time since 2004, has he called upon the Respondent No.1 to hold a Board Meeting or to issue notices calling for a Board Meeting, which he ought to have done especially in the light of his claiming to be the Chairman of the Respondent No.1 Company, for a long duration of time. This is further supported by the fact that the Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded from the purview of the said Act. It was, therefore, argued that the said Act does not bar the Respondent No. 2 from giving the shares of the Respondent No.1 Company to the Petitioner as a trustee. Further, the letter dated 19/5/2007 states that the Respondent No.2 had given the shares to the Petitioner in good faith, which were to be returned in time. The ld. Sr. Counsel pointed out that the aforesaid fact was reiterated by the Respondent No.2 vide his letter dated 1/10/2008, wherein the Respondent No.2 stated that the said shares were given to the Petitioner merely as a custodian. The ld. Counsel further pointed out that the aforesaid contention of the Petitioner is further supported by the fact that the Petitioner himself has failed to demonstrate that any consideration was paid by him for the said shares. According to the ld. Sr. Counsel for the Respondents, the denial of the fact that the shares were transferred by Mrs. Jyoti Dalal to the Petitioner, is not only mala fide but also a complete afterthought. 57. Dealing with the charge as to the alleged failure to provide Notices and Minutes of Meetings by the Respondents to the Petitioner, it was argued on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eved that the said issue could be resolved within the family. Pursuant to the above, the Petitioner told Respondent No.2 that he no longer wished to stay with him in the house and that he would move out of the house and expressed that he will stay in another relative's house. 60. It is next submitted that it was the Petitioner's responsibility to get the records of the Company rectified so that all the communications that are to be sent to him could be sent to his new address of communication. However, the Petitioner did not take any steps to rectify the records of the Company or to request that the address for communication of the Petitioner be changed to his new address. It was, therefore, argued, that the Company never defaulted in issuing notices to the shareholders regarding the affairs of the Company. 61. As regards, the alleged illegal transfer of shares in favour of the Respondent Nos.4 to 12, the ld. Counsel appearing for the Respondents, submitted that the Petitioner, who has relinquished his rights in respect of the purported shares in the Company, has no right to object to any transfer of shares inter se the Respondents. Further, according to the Ld. Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Petitioner claims to be 30% shareholder in the total-paid up capital of the company, According to him, by illegally increasing the authorized share capital and illegal allotment of further shares, the Respondents have diluted his shareholding from 30% to 0.03%. 66. It is a trite that in a petition where the allotment of further shares is challenged and the same is the subject-matter of the petition, the original shareholding is the criteria to determine the eligibility of the petitioner to file a petition as provided in Section 399 of the Act. Admittedly, prior to the alleged allotment of the shares, the Petitioner was 30% shareholder in the total paid-up capital of the company. I, therefore, hold that the Petitioner is eligible to file the present petition in terms of Section 399 of the Act. In support of my finding I would like to rely on the following decisions :- (i) Vijayan Rajes v. Plantations (P.) Ltd. [2009] 151 Comp Cas 413 (Kar) wherein the Division Bench of the Karnataka High Court has held as follows: 32. The reasoning given by the Company Law Board does not appeal to us. If the finding is to be that the persons presenting the petition do not qualify for pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2007] 135 Comp Cas 133. Accordingly, the maintainability issue is answered in favour of the Petitioner. (iii) Further, in the case of T.N.K. Govindaraju Chetty Co. v. Kadri Mills (CBE) Ltd. (1999) 96 Comp Cas 871 (CLB, it has been held hereunder: 14..... Allotment of shares to the exclusion of some shareholders has been held, by many High Courts and the Company Law Board itself, as an issue which could be agitated as an act of oppression, in a petition under Section 397/398. Therefore, we are of the view that when the holding of a petitioner is reduced below 10 per cent. due to further allotment of shares and such allotment itself is impugned in a petition under Section 397/398, the petition should be held to be maintainable on the strength of his holding before the further allotment of shares..... (Emphasis Supplied) (iv) The above case of T.N.K. Govindaraju Chetty Co. (supra) has been relied upon in the case of Prabhjit Singh Johar v. Johar Hotels (P.) Ltd. [2010] 157 Comp Cas 98 (CLB)wherein it was held that: 56.... It has been rightly contended by the petitioners that the Company Law Board in the case of T.N.K. Govindaraju Chetty and Co. v. Kadri Mills (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that the said provisions specifically bars the Respondent No.2 to claim the ownership in the manner stated above. The Respondent No.2 is not entitled in law to take a defence that the shares held by the Petitioner were as a Benami Holder. Further, the Respondents' claim that the provisions of the Benami Transactions (Prohibition) Act, 1988 are not attracted to the present case as the impugned shares held by the Petitioner were in the capacity of a trustee for the Respondent Nos.3 and 4, and hence, covered by the Exception of Section 4(3)(b) of the said Act, in my opinion, is also not tenable. The Hon'ble Supreme Court and Hon'ble High Courts have clearly held that the defence of the trustee to get out of the rigours of the Benami Transaction Act is available only when the property is purchased by a person in his name by playing fraud on the real owner or in pursuance to the provisions of law. To my mind, the present case does not come within these exceptions. The first reason is that in none of the correspondences between the Respondent No.2 and the Petitioner, did the Respondent No.2 ever contend that the shares were held jointly by them. In fact, in the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion since 2007. 72. It is an established proposition of law that the provisions of Limitation Act, 1963 do not apply to the proceedings under Section 397/398 of the Companies Act. Therefore, the contention of the Respondents that the petition is barred by limitation does not arise. Insofar as the question of delay and laches is concerned, it cannot be disputed that the same do apply to the proceedings under Section 397/398 of the Act. But, in the present case, in my opinion, having regard to the facts and circumstances of the case, the said preliminary objection is not tenable. The facts of the present case have to be viewed in the background that the Company is a closely held family company and was one of the jointly owned companies of the Petitioner and the Respondent No.2. The Respondent No.2 is the nephew i.e. the real brother's son, of the Petitioner. The Petitioner and the Respondent No.2 were the only members and directors acting on mutual trust It is further matter of record that the Petitioner had shifted from Mumbai and was staying in Arbindo Ashram at Pondicherry for the last few years. There is nothing on record to show that the Respondent No.2 did disclose to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il the date of the petition, such petition is not hit by the principles of delay and laches. 73. It is relevant to note here that in the case of Sangramsina P. Gaekwad Ors. v. Shantadevi P. Gaekwad (dead) through L.Rs Ors. (2005) 11 SCC 314 it has been held that an act of oppression is a continuous wrong until it is brought to end by passing an appropriate order. In the case of Pearson Education inc. V/s. Perntice Hall India (P) Ltd. Ors. (2006) DLT 450, it was held that if the act complained off amounting to oppression has a continuing effect, in the case, the question of limitation does not arise. In the case of Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd. AIR 1966 Cal 512, it was held that a petition under Section 397 would be maintainable if the effect of the alleged act of oppression persists indefinitely. In the case of Suhasini P. Kurkure v. Metallurgical Laboratories (P.) Ltd. [2012] SCC 112 (CLB), it has been laid down as follows: The doctrine of laches is based on equitable consideration and depends on general principles of justice and fair play. There is no presumption that delay is deliberate. To be the laches delay should be such that it could be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant observations therein are relevant to be cited :- (i) Enercon Gmbh vs. Enercon (India) Ltd. Ors. [2008] 143 CompCas 687 (CLB), wherein it has been held as follows : - In the present case, no relief has been granted as yet and whether the documents which are alleged to have been not been disclosed are material documents is a matter yet to be determined. Once the other side has produced all the documents, then the question of suppression of material documents to apply the decision of the Supreme Court, does not arise. . . . (ii) Dhanraj Mills (P.) Ltd. v. Global Trust Bank Ltd. [2003] 105 BOMLR 609, wherein it has been held as follows: But it is not the law that if particular document is not filed court should immediately draw an inference that there is intention to suppress. This document is before the Court. No order interest or otherwise was even sought nor obtained by the Respondent Nos.1 G.T.B. by suppression of this document (iii) Sangramsinh P. Gaekwad's case (supra), wherein the Hon'ble Supreme Court has held as under:- 197. The Court may also refuse to grant relief where the petitioner does not come to court with clean hands which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2 and the Respondent No.3. Undisputedly, the Respondent No.3 became a shareholder only on 1/9/2007 and could not be present at the said meeting as he was not a shareholder then. The said meeting was not held at the registered office of the company. All these reasons clearly go to prove that the purported meeting held on 18/6/2007 for Increasing the authorized share capital of the company was not held in accordance with law. The decisions taken at the said meeting smack mala fide intention on the part of the Respondents. It is well proved that their sole intention was to dilute the shareholding of the Petitioner and sideline him from the affairs of the company. I, therefore, hold that the impugned EOGM dated 18/6/2007 is contrary to law and the provisions of Articles or Association of the company, and therefore, it is declared as invalid, unlawful and so the resolutions passed thereat, and, therefore, I am of the view that the resolutions deserves to be set aside. 80. Now, I enter into adjudication of other complaints made by the Petitioner as to the illegal allotment of additional shares to the Respondent Nos. 2 and 3 in the meetings purportedly held on 15/6/2007, 17/7/2007 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been gone through by me carefully. At the cost of repetition, I would like to reproduce the contents of the said letter here as under :- 1. As a Director and Shareholder of the above firms, I hereby willingly and of my own accord giveup/relinquish my share of profit in the above Partnership Business. 2. I also hereby willingly and of my own accord assign/transfer my share of profit and all other benefits in the above Partnership Business to Mr. Bharat K. Dalal. 3. In order to formalize my above decision, if any legal formality is to be done or any documents are to be prepared the same may be forwarded to me for my signature. 83. On a careful perusal of the said letter, the Respondents' contention that keeping in view that the Petitioner was desirous to disassociate with the company and relinquish his shares, and therefore there was no occasion to allot further shares to him, in my opinion, does not hold water. On analysis of the said letter, it seems that the Petitioner only offered to relinquish his shares in the profits and losses and not his shareholding in the Company. Furthermore, the said offer was a conditional one. It was subject to the compliance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be struck down, on the ground that it has incidentally benefited the Directors is their capacity as shareholders. So if the Directors succeed, also or incidentally in maintaining their control over the company or in newly acquiring it, it does not amount to an abuse of their fiduciary power. What is objectionable is the use of such power simply or solely for the benefit of Directors or merely for an extraneous purpose like maintenance or acquisition of control over the affairs of the Company. Where the Directors seek, entering into an agreement to issue new shares, to prevent a majority shareholder from exercising control of the Company, they will not be held to have failed in their fiduciary duty to the Company if they act in good faith In what they believe, on reasonable grounds, to be the interests of the Company, but if the power to issue shares is exercised from an improper motive, the issue is liable to be set aside and it is immaterial that the issue is made in bona fide belief that it is in the interest of the Company. 85. It is well-settled that the directors may exercise their powers bona fide and in the interest of the company. If the directors exercise their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter dated 12/11/2005 of the Petitioner, the said minutes are recorded. Had the letter dated 12/11/2005 ever been taken note of it in the AGM dated 30/9/2005, then the Respondent No.2 would have mentioned the same in the correspondences especially when subject issue of the correspondence was demand of shares of the Petitioner. In addition, the Petitioner vide his letter dated 11/9/2008 revoked his letter dated 12/11/2005 and demanded share in profits, The Respondent No.2 in his response by letter dated 1/10/2008 did not state that the same has been given effect to in the AGM dated 30/9/2006 and called upon the Petitioner to transfer his shares to his sons. The Respondent No.2 vide his letter dated 1/10/2008 issued a show-cause notice as to why the Petitioner should not be removed as a shareholder and director of the company. If the meeting of 30/9/2006 had ever taken place and the Petitioner had given up his share as contended by the Respondents way back in the year 2005, then the Respondent No.2 would not have issued a show-cause notice in 2008. In addition to the above, the purported minutes of the meeting held on 30/9/2006 do not record that the annual returns of the year ended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98 CC 463 this Board has held that in the course of business of a partnership, a partner is entitled to have certain legitimate expectations. . . . . In Shri Dipak Mehta v. Shree Anupar Chemicals Pvt. Ltd. 1999 33 CLA 33 CLB case, this Board has held that we have to examine whether the facts reflect the existence of any understanding of joint management justifying the claim of legitimate expectation of being an MD. Karnataka High Court also, in Synchron Machine Tools Pvt. Ltd. case, has recognized application of legitimate expectation in a petition under Sections 307/398. . . . . . As held by this Board in Thirthram Ahuja's case (supra), when certain groups of shareholders who have formed a company and have been participating in the affairs of a company for a long time with remuneration, then there can be a presumption of legitimate expectation and exclusion of one from the management could be an act of oppression. In the present case, in view of my findings that the agreement Shri Sunil Puri and M/s Fritz is nothing but an between Shri Sunil Puri and Shri Gurmit Singh and that the long continuation of Shri Gurmit Singh as an MD with remuneration, I have no hesitation to came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid for want of valid service of notice on the Petitioner. I hold that the minutes of the said meetings are fabricated since the same are corroborated by the following facts :- (i) The Petitioner failed to trace any such form No. 32 allegedly filed by the respondents with the ROC for removal of the petitioner as a director nor could the Petitioner find the alleged form Nos. 61 and 62 allegedly filed by the Respondents. Even in the prior search in April, 2013, the Petitioner was unable to locate any of these documents pertaining to his removal. (ii) The form No. 32 for removal of directorship annexed is hand written whereas all the other forms are computerized which casts serious doubts on the genuineness of the document. (iii) The documents shown during inspection as copy of the purported form No.(s) 32, 61 and 62 were not even web printouts from the ROC website. The Respondent No. 2 was called upon to produce the challan to show that these documents were actually filed with the ROC which has not been produced. (iv) The purported notice of the Board meeting dated 2/5/2008 is neither issued on the letterhead of the Company nor does it bear any company stamp. (v) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r create complications in the functioning of the Company, Therefore, the ratio of 2:1 appears justified as no prejudice is going to be caused to the Petitioner as he has right to vote only on the basis of his shareholding. Therefore, despite the fact that the due procedure was not adopted in the appointment of Respondent No.3 as a Director, I do not feel it appropriate to remove him as a Director of the Company. 92. I have also considered the impugned transfer of 13 shares by the Respondent No.2 in favour of the Respondent Nos.4 to 12. In my opinion, the said transfer is bad in law for two reasons, The first reason is that It is in violation of Article 10 of the AOA of the Company which provides that before making offer for transfer of shares to a non-member, the first offer will be given to the existing members. Thus, there is violation of pre-emptory rights of the Petitioner. Another reason is that the transfer was made with mala fide intent to raise the number of members more than 10 in the company and thus, deprived the Petitioner from being eligible to file a petition in terms of Section 399 of the Act. I, therefore, hold that the said transfer of shares in favour of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of the documents from the respondents in the course of final hearing. However, inspite of repeated demands, no inspection of the documents was provided to the petition and this act of non-providing inspection of documents further amounts to an act of mismanagement. The Respondent No.2, as a Director of the Company has a fiduciary duty to make disclosures of the information and documents of the company to other directors and shareholders as and when demanded by them as held in the case of Date Carrington Investment (P.) Ltd. (supra). 95. As regards the siphoning off the funds of the company, I have taken into consideration the rival submissions. I find that the accounts of the company are also not transparent. It has not been disputed by the respondents that the initial investment of ₹ 15 crore in DSIPL was done through internal borrowings i.e. through loans received from the shareholders and not by raising any monies from any financial institutes or otherwise. The Petitioner had invested approximately ₹ 4.50 crore in proportion to his 30% shareholding in the Company. The Auditor's Report and the balance sheet for the year ending 31st March, 2002 reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent No.2 would not have signed the balance sheet for the year 2005-2006 showing investments made by the petitioner in the company. In my opinion, all these acts fall within the category of mismanagement as defined in Section 398 of the Act. 97. It is a well-established law that to maintain a petition under Section 397/398 of the Act, it must be established that the oppression complained of affected a person in his capacity or character as a member of the company as harsh and unfair treatment in any other capacity, such as a director or a creditor, is outside the purview of the said section; (b) there must be continuous acts constituting oppression up to the date of the petition; (c) the events have to be considered not in isolation, but as part of a continuous story; (d) it must be shown as a preliminary to the application of Section 397 that there are just and equitable grounds for winding up the company; (e) the conduct complained of can be said to be oppressive only If it can be said that it is burdensome, harsh and wrongful and the oppression involves at least elements of lack of probity and fair dealing to a member in matters of proprietary right as a sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent of 2,40,000 and 7,50,000 equity shares allotted on 15/6/2007 and 17/7/2007, respectively, and 100 equity shares transferred by the Respondent No.2 in favour of the Respondent No.3 on 1/9/2007. e. It is declared that the Petitioner holds 30% of the total paid-up capital of the Respondent No.1 Company. f. It is declared that the Board Resolution passed on 11/7/2013, by which 13 shares were transferred by the Respondent No.2 in favour of the Respondent No. 4 to 12, is illegal, bad in law, void and the same is hereby cancelled. It is further ordered that the Register of Members of the Respondent No.1 Company be rectified by deleting the names of Respondent Nos.4 and 12 to the extent, of 13 shares allotted to them on the basis of the resolution dated 11/7/2013. g. The removal of the Petitioner as a director of the Respondent No.1 Company is hereby set aside and the Petitioner is reinstated as a director of the Company. The Form 32 showing removal of the Petitioner as a director shall be removed from the MCA Portal and a fresh form shall be filed showing the reinstatement of the Petitioner as a director. h. The company is directed to make compliance of the directions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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