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TMI Blog2015 (10) TMI 2326X X X X Extracts X X X X X X X X Extracts X X X X ..... t petitioners. Further,petitioners are no longer shareholders thus cannot question allotment of shares and as such at this belated time have no locus standi to question the same - Petition is an abuse of process of law as petitioners have exited the Company, there cannot be any acts of oppression against them and in so far as mismanagement is concerned, when there is no business activity in the company there cannot be any allegation of mismanagement in the affairs - It is not the case of petitioners that they have invested huge money as there is no documentary evidence to prove that petitioners have invested any money in the company. It is unequivocal that petitioners are not entitled to any reliefs as prayed - Person approaching Court with unclean hands is not entitled to seek equity - Petition is miserably failed and liable to be dismissed – Decided in favour of Respondents. - CP No.21,2014 - - - Dated:- 22-6-2015 - SHRI KANTHI NARAHARI, J. For The Petitioners : Shri. R. Murari, Sr. Advocate, Shri. R. Rajesh, Advocate For The Respondents : Shri. D. Peruman Saranyan, Advocate The present petition is filed under sections 397, 398, 402 and 403 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to the petitioners to suspect about the 2nd respondent's acts and deeds in managing the affairs of the 1st respondent herein. In order to ascertain whether any similar acts were committed by the 2nd respondent in the affairs of the 1st respondent company an inspection of the records was conducted by the petitioners with the ROC. The petitioners with their shock and surprise noticed that the 2nd respondent has illegally filed several forms with the ROC, digitally signed by him without any authority thereby completely aItering the composition of the Board and the shareholders of the company. Since the petitioners are residing in Mumbai and the company being in Chennai, all these years the 2nd respondent has surreptitiously and without any knowledge of the petitioners taken illegal advantage of the situation to convert the 1 respondent as its own fiefdom. The petitioners came to understand that in the year 2010 under the Company Law Settlement Scheme (CLSS) the 2nd respondent misusing the position as a director in the company has filed several forms with the ROC without any authority and also without the knowledge and consent of the other directors and shareholders of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 7 members/subscribers to 2 members and the document reveals the following change: 1. Sundar Iyers (P1) 350 shares 2. J. Chandramouli (R2) 350 shares At no point of time the 1st petitioner held 350 shares in the company and he is holding only 100 shares right from incorporation of the company similarly the 2 respondent also did not hold 350 shares in the company at any given point of time. As per the said document the total number of shares in the company remains to be same i.e. 700 shares but indicates only 2 shareholders i.e. P1 R2 which is false. None of the shareholders of the company have made any share transfer in the company till date and hence it is not possible or the lst petitioner and the 2nd respondent to hold 350 shares each out of the total number of 700 shares in the company. (b) Illegal allotment: the 2nd respondent later filed another document viz. Form 2 on 15.06.2001 showing allotment of 49300 shares on 15.05.2010 exclusively to the 2nd respondent so as to show that the paid up share capital of the company has been increased from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal personal benefit. Upon inspection of the company's records filed with the ROC. the following were shown as the director of the 1st respondent company as on 16.08.2013. Sl. No. Name Designation Date of Appointment 1. A.V. Meenakshisundaram Director 05.01.2011 2. J. Chandramouli Director 15.03.2004 3. Suresh Chandra Chatterjee Tummala Director 15.03.2004 4. Shubhashini Kancharia Director 15.03.2004 5. Janakin Ram Sarma Kandanur Director 15.03.2004 6. Krishnaswamy Krishnan Director 05.01.2011 Later, as per the records made on 23.09.2013. the following persons were shown as directors of the 1st respondent company. Sl. No. Name Des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the aforesaid reasons he requested the Bench to allow the petition as prayed for. 6. The respondents 1 to 5 filed a detailed counter to the petition. Shri Peruman Saranyan, learned counsel appeared for the respondents denied the allegations and averments made by the petitioners. He submitted that the 1st respondent company was promoted by the 2nd respondent and one Mr R.A Ravichandran (now deceased). The petitioners along with respondents 2 3, Mr R.A. Ravichandran (now deceased). Mrs Nirmala Ravichandran and Mr E.Y Rangoonwala are only the initial seven subscribers to the memorandum of the 1st respondent company. The 1st petitioner viz Mr Sundar Iyer was also one of the initial directors of the 1st respondent company. During 1997-98, Mr R.A Ravichandran and the petitioner resigned as the directors of the 1st respondent company and their shares along with other shareholders were transferred to the 2nd respondent and 3rd respondent respectively. Thus the 2nd respondent and 3rd respondent holding 350 shares each and incumbent directors were appointed at that time. The annual return filed upto 2010, it has been inadvertently mentioned as Mr J. Chandramouli and Mr Sund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors. Mr. K. Krishnaswamy having privy to the meetings and the documents had committed a fraud by making an illegal allotment of shares of 49900 to himself. The value of the said shares is around ₹ 2 crores. For this purpose Mr. K. Krishnaswamy has used the digital signature of the 2nd respondent which was created afresh on 05.08.2013. Mr. K. Krishnaswamy had forged a letter purporting to be issued by Mr. A.V.M Sundaram to Mr. K. Krishnaswamy consenting to apply for a post of Additional Director of the 1st respondent company. Immediately on coming to know the above facts, the 1st respondent company has taken necessary action in removing Mr K. Krishnaswamy and Mr A.V.M Sundaram from the Board of the 1st respondent company by passing necessary resolutions in the EGM held on 29.08.2013 by the 1st respondent company. The relevant Form 32 and along with the said resolution has been filed with ROC. The 1st respondent company has lodged a complaint with the Commissioner of Police. Chennai on 12.09.2013 against Mr K. Krishnaswamy. The respondents submits that the Cyber-Crime branch of Chennai Police carried out the investigation and during the course of investigation, among the var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. It is submitted that since the petitioners are not the present directors/shareholders of the 1st respondent company no notices were served upon them. The 1st respondent company is taking necessary steps to compounding of offence for violation of sections 12, 45 and 433 of the Companies Act, 1956. The respondents submit that it is the 1st respondent company which has filed Form 2 showing allotment of 49,300 shares on 15.05.2010 to the 2nd respondent and thereby the paid up share capital of the 1st respondent company was increased from ₹ 7000/- to ₹ 5 lakhs. The increased amounts have been duly credited in the accounts of the 1st respondent company. The respondents submit that further issue of shares of the 1st respondent company has been done in accordance with section 81 of the Companies Act, 1956. The necessary special resolutions have been duly passed by the 1st respondent company in accordance with the Companies Act, 1956 and as such there is no violation of law as alleged by the petitioners. The allegations that the 2nd respondent in allotting shares to him without offering the same to other existing shareholders of the company and this has resuIted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... daram and Mr K. Krishnaswamy (Company Secretary and Employee respectively of Twenty First Century Management Services Ltd.). It is highly impossible in the corporate world to be a silent spectator to such a glaring act. The respondents further submits that since, second filing is not permitted by the Ministry of Corporate Affairs, the respondents undertake to rectify the mistakes in the future in the annual returns to be filed by the 1st respondent company. All other allegations and averments are all invented only for the purpose of the petition and put the petitioners to strict proof of the same. The 1st respondent company has not received any loan amount from M/s. Twenty First Century Management Services Ltd. for developing properties at Hyderabad and as such the question of repayment of loan does not arise. It is immaterial to state that M/s. Twenty First Century Management Services Ltd. has paid wealth tax of ₹ 2,15,364/- on 06.04.2010. The respondents submit that the main petition is with respect to the Twenty First Century ReaIty Ltd. the 1st respondent company herein. The petitioners are trying to mislead and confuse this Hon'ble Bench by mentioning the account par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds in Hyderabad. The petitioners have filed the copies of the sale deeds along with the petition. From the perusal of all the sale deeds, it is evident that the 1st respondent was represented by its Director. Mr. J.C. Mouli, the 2nd respondent herein. It is the case of the respondents that there are no business activities except the said immovable property standing in the name of the Rl Company. Further the respondents contended that the petitioners transferred their shares in favour of the 2nd and 3rd respondents and the 1st petitioner resigned as director from the R1 Company way back in 1997-1998. However, it was stated that in the annual return filed after 2010, it has been inadvertently mentioned that the 1st petitioner and 2nd respondent herein were holding 350 shares each. The respondents vehemently contended that the CP is barred by limitation and is an abuse of process of law with an intention to grab the property of the company. It is contended that the petitioners have transferred their shares and do not have any locus to file the present petition. The petitioners in the petition at Para 5 of the petition under limitation column, stated that the petition is not barred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vented them to ventilate their grievance when the 1st petitioner ceases to be a director and the petitioners transferred their shares. If the petitioners were of the opinion that they have not transferred the shares and the 1st petitioner had not resigned from the Board of Directors, they could have approached the proper forum for redressal of their grievances. The petitioners maintained a stoic silence for almost all more than 15 years. Moreover, the petitioners in their petition at Para 6 stated that the petitioners came to know recently that the 2nd respondent has committed various acts of manipulations and oppression and mismanagement which led to the petitioners to suspect about the 2nd respondent acts and deeds in managing the affairs of the Rl Company. In their own admission, the petitioners have expressly stated that the acts committed by the 2 respondent recently meaning thereby the petitioners all these years never bothered about the affairs of the Company. Therefore, I am of the view that there is no continuous cause of action. Further, it is an admitted fact that the company is having one immovable property at Hyderabad, however, the petitioners contended that the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. On the other hand, the learned Counsel for the respondents relied upon the judgment of the Hon'ble High Court of Madras in the matter of Anugraha Jewellers Ltd. (supra), wherein the Hon'ble High Court held that the person seeking relief must come with clean hands and conduct must not be tainted. In Bharamgouda Adgouda Patil (supra) is of the view that the conduct of the petitioner is relevant. Further, it was held that the petitioners had not come with clean hands before the CLB which exercises equitable jurisdiction there was no explanation for diversion of funds to the petitioners sister concerns. The petitioner failed to make out a case for winding up of the Company or that the conduct of the respondents was harsh, burdensome and wrongful. Procedural defects or irregularities could not be held to be oppressive to the petitioners. In the present case, the petitioners have not come to this Bench with clean hands. The filing of this petition is appears to be a collateral purpose. In this regard a beneficial reference is drawn in Bellador Silk Ltd. (Chancery Division), In re [1965] All E.R Ch D 667. It is held that the petitioner was not entitled to relief under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion before this Bench, the petitioners have to establish a prima facie case of oppression or mismanagement in the affairs of the Company. As stated in issue No (i) supra, the company is having only one property i.e. at Hyderabad and do not have any other business activities. The petitioners in their petition have alleged mainly with regard to the transfer of shares, illegal allotment of shares and illegal removal of the 1st petitioner. It is reiterated that the petitioners were the shareholders of the RI Company, however, the petitioners have transferred their shares to the respondents and exited the company. The petitioners have at no point of time ventilated their grievances with regard to transfer of shares. Further, the petitioners allege with regard to allotment of shares exclusively to the 2nd Respondent. The Respondents contended that 49300 shares were allotted to the 2nd respondent on 15.05.2010 and filed Form No.2 showing the allotment of said shares. It is also stated that the Company increased its paid up share capital from ₹ 7.000/- to ₹ 5,00,000- and necessary resolutions were passed. This Bench as held supra. since the petitioners no longer shareholders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany are being conducted to the prejudicial to the public interest or in a manner oppressive to any member. When the petitioners are exited from the company way back in the year 1997-98 and filing the present petition by invoking jurisdiction of this Bench under Section 397/398, alleging purported acts of oppression and mismanagement is concerned. I am of the view that the petition is an abuse of process of law for more than one reason that when the petitioners have exited the Company, there cannot be any acts of oppression against petitioners. In so far as mismanagement is concerned, when there is no business activities in the company there cannot be any allegation of mismanagement in the affairs of the Company. Section 397 specifically provides that any member of a company who complains that the affairs of the Company are being conducted in a manner oppressive to any member or members, further, clause (a) of sub-section (l) of Section 397 specifically mentions that the Company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any members or members. The petitioners failed to establish the continuous acts of oppression for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essive to the minority as members and this requires that events have to be considered not in isolation, but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders continuing upto the date of petition showing that the affairs of the Company were being conducted in a manner oppressive to some part of members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the tack of confidence sprints from oppression of a minority by a majority in the management of the company's affairs and such oppression must involve at least an element of lack of probity or fair dealing to a member in the mailer of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to section 397 . 14. In the present case the petitioners have failed to establish that the conduct of majority shareholders was oppressive to the minority and failed to prove that it is a continuous act on the part of the majority shareholders continuing up to the date of petition. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company by any act of the company or by its Board of Directors mala fide, the said act must ordinarily he considered to be an act of oppression to the said member. The member who holds the majority of shares in the company is entitled by virtue of the majority to control, manage and run the affairs of the company. This is a benefit or advantage which the member enjoys and is entitled to enjoy in accordance with the provisions of company law in the matter of administration of the affairs of the company by electing his own men to the board of directors of the company. 16. Further the learned Counsel for the petitioner relied upon the judgment of the Bombay High Court in the matter of Sanjay Bathija reported in (2008) 141 CC 216. The said judgment is not applicable to the facts of the present case on the ground that the said judgment is related to the rectification of register of members and not decided on the acts of oppression and mismanagement. The other judgments relied upon by the learned Senior Counsel are not applicable to the facts of the present case. 17. A beneficial reference is drawn from the judgment of the Hon'ble Supreme Court in the matter of Sangramsin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Needle Industries Case, unwise, inefficient or careless conduct of a Director cannot give rise to claim for relief under Section 397 of the Act. For relief under this section, the applicant could have to prove that the conduct of the majority of the shareholders lacked probity and was unfair so as to cause prejudice to the applicant in exercising his legal and proprietary rights as a shareholder. This, in fact, is the golden thread of the various decisions in relation to petitions under Sections 397,398 and 402 of the above Act. All the various decisions cited by the learned Counsel for the various parties are ad idem on this issue and applying the said principles, each complaint under Section 397 will have to be judged on its own merit for the CLB to arrive at a conclusion as to whether the ingredients of Section 397 when satisfied and pass appropriate orders thereafter , Para 142 As has been indicated in some of the cases cited, the language of Section 397 suggests that the oppressive manner in which the Company's affairs were being conducted could not be confined to one isolated incident, but that such acts would have to be continuous as to be part of a concerted actio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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