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TMI Blog2017 (3) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... company to complete the project, he has declared that there is no 'conspiracy' in the difference in the name of the company appearing in the sale deed and the certificate of incorporation. At the instance of the petitioner, therefore, there is no evidence of prejudice caused to the members or to the company by the change of the name. Whether the change will be approved by the Government or not is not an issue before us. We therefore hold that change of the company's name does not amount to oppression or mismanagement. Whether the Respondent No. 2 has resorted to financial mismanagement prejudicial to the company? - Held that:- what is appearing to us from the circumstances on record is that both the Directors who are at the helm of affairs of the company are not pulling the cart in one direction, losing mutual confidence in each other. Conceivably, for that reason only, the Petitioner in CP 54/16 instead of calling for a Board meeting to discuss the misusing of borrowed funds by the Respondent, rushed to make a complaint in utter haste to the Syndicate Bank that has resulted in adversely affecting the business of the company, besides damaging its goodwill in the records of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SH-7 dated 5.3.2015 relating to increase of authorized capital of the Company from 11 lacks to 50 lacks; whereas in CP 75/2016, the main relief is to declare that the Respondent No. 2 therein who is the Petitioner No. 1 in CP 54/16 has caused breach of fiduciary duty as Director of the company. In both the matters, the other reliefs are either supplementary or incidental to the above reliefs and this common order mainly addresses on those core reliefs. For the purpose of convenience, in the discussion, the parties are referred as per their array in CP 54/2016; and whenever necessary, special reference to their status will be given. Before dealing with divisive facts of the case, certain admitted facts have to be placed on record. The Company was incorporated on 31.7.2006 with an initial authorised capital of ₹ 10,00,000/- and it was increased to ₹ 11,00,000/- on 3.6.2009 and further to ₹ 50,00,000 on 5.3.15. The 2nd increase is in challenge by the Petitioner in CP 54/16. There is no dispute about the percentage of equity holding by the respective parties. The Petitioner and the Respondent No. 2 are Directors of the Company. Mr. Vinod Singh and Mr. P. P. Garg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial but received lesser quality and took differential amount in cash from the vendors. viii. During FY 2015-16, the Respondent No. 2 has raised funds from individuals including Mr. Ganga Sagar Singh, in a sum of ₹ 55,99,714, without authorization and approval from the Petitioner and no approval from the Board was given. Further, the Respondent no. 2 did not provide proper accounts relating to utilization of those funds. ix. The Respondent No. 2 paid ₹ 5,72,715 to Vinod Kumar Singh-one of the share holders (Respondent No. 4 in CP75/16) without any reason or purpose, merely because, Mr. Singh happened to be close associate of Respondent No. 2. x. Having collected huge amount towards booking of flats in Palm Heights, the Respondent No. 2 has not account for that amount to the Company. He has refused to furnish account of those bookings. 4. Besides imputing the above acts to the Respondent No. 2 as oppressive in nature and amounting to mismanagement of affairs of the Company, the Petitioner further alleged that the Respondent tried to induce Mr. Vinod Kumar Singh as Director. In this context, it is pleaded further in the following manner. As the Board meeting w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huge difference of opinion and mutual distrust between Petitioner and Respondent No. 2, who are the only two directors of the Board, the business of the Company came to a standstill that led the parties to hurl allegations and counter allegations in these two Company Petitions, claiming oppression and mismanagement against each other. We examine the disputes involved on the basis of material available on record in the following paragraphs. 5. Question No. 1: Whether increasing of authorised share capital from 11 lakhs to 50 lakhs is duly resolved in the Board meeting dated 5.2.2015? 5.1 A perusal of para 11 of the Reply with reference to the Annexure 19 available at page 329 of the Reply paper Book shows that date of Board meeting is not given in the reply para 11. The copy of resolution of the Board is signed by Respondent No. 2. But it shows that the meeting was held on 5.2.2015. In para 6.13.4 and 6.13.5 the Petitioner has specifically pleaded that no notice of meeting was given to him. To improbabilise holding of any Board Meeting at Varanasi on 5.2.15, the Petitioner in his Rejoinder statement at para 11.1 asserted that on that day he was at Lucknow and in support of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent who is asserting that the Petitioner and other members attended the EOGM On 5.3.15 by producing the attendance register and the original minutes containing the signatures of the members attending the EOGM. In the absence of that best evidence we are compelled to hold that the EOGM was not convened and the members did not approve the increase of authorised capital of the Company from 11 lacks to 50 lacks. 5.4 The Petitioner made application to direct the Respondent No. 2 to produce all documents relating to Board Meetings viz., minute books, and attendance registers etc and also the account books of the company. As this application was made at the time of final hearing of the matter, we did not entertain that application and it is coming along with this order for disposal. What has to be understood from this application is that the Respondent withheld the material evidence which is in his possession and custody. Irrespective of burden of proof, it is incumbent on the part of the respondent to produce those material documents to prove the fact that the Board and EGM were met and certain important resolutions were adapted thereby. Therefore the tribunal can draw adverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 The ratio evolved in Dale Carrington Investment (P.) Ltd. (supra) was followed with approval by Apex Court in Shri V S. Krishnan Ors vs. M/s Westfort Hi-tech Hospital Ltd. Ors. (2008) 3 SCC 363 Examining the case on hand, we find no pleading made by the Petitioner in CP 54/2016 to the effect that increasing of the authorised share capital was with a malafide view of reducing the petitioner to minority. Therefore, that circumstance, in our considered view, does not amount to oppression. 6. Question NO. 2: Whether Change of name of the Company is without following the procedure? 6.1 It is admitted fact that as per the Certificate of incorporation, (Annexure A6) the Company is titled as ONKARSHWAR COLONISERS and the name was changed to OMKALESHWAR COLONISERS on 9.12.2015. (See pages 122 to 124 of petitioner's paper book). The Petitioner's contention is that without a special resolution as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company appearing in the sale deed and the certificate of incorporation. At the instance of the petitioner, therefore, there is no evidence of prejudice caused to the members or to the company by the change of the name. Whether the change will be approved by the Government or not is not an issue before us. We therefore hold that change of the company's name does not amount to oppression or mismanagement. 7. Question No. 3: Whether the Respondent No. 2 has resorted to financial mismanagement prejudicial to the company? 7.1 One of the allegations made in this regard is that the Respondent No. 2 has siphoned off 'about 30 lakhs' of the company's money without showing accounts, taking advantage of the fact that he is the sole signatory for bank operations. In para 6.12, the petitioner has asserted in this regard that he Verily believe that Respondent No. 2 must have been operating all these bank accounts' but 'on deeper examination and investigation, the results were startling and unbelievable. When that was the positive assertion hurling the allegation of embezzlement of company's money, the petitioner who had deeply examined and investigate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is averred that the Petitioner got this information in confidence from some suppliers of material. That means, except his own self serving statement, the Petitioner is not having any evidence to prove such allegation. In as much as the bank is supervising the cash outflow and inflow, being a lender interested in getting back its money, and as the Valuer has given the certificate regarding value and stage of construction and as the Bank did not raise any question so far on the cash flow aspect, we find no justification to accept the statement of the petitioner to hold that the Respondent has embezzled any amount of the company by deceptive methods as alleged by the Petitioner. 7.5 The 3rd instance cited by the Petitioner in his effort to brand the Respondent as to have mismanaged the affairs of the Company, is that Respondent raised funds from Ganga Sagar Singh (Rs. 55,99,714) and paid a sum of ₹ 5,72,715 to Mr, Vinod Kumar Singh and this was without authorization from the Board and without notice and consent of the petitioner. 7.6 The Respondent states that in order to meet the conditions of loan sanctioned by the Syndicate Bank, funds had to be infused for grounding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 2013. Even if Ganga Sugar Singh, being brother in law of Respondent No 2 is not falling within the expression 'relative' under cl. (viii), because the amount is taken as interest free loan, it is regarded as a loan in trust under cl. (xi) and so, it does not fall within the sweep of 'deposit' attracting the procedure under Sec. 73 of the Companies Act, 2013. 7.9 Even otherwise, in a worst situation, if it is presumed that the loan was raised without authority, it is not with malafide intention but only to safeguard the company's interest to meet the requirements of terms and conditions stipulated by Syndicate Bank and no loss or otherwise prejudice is appearing in that transaction so as to accept that it amounts to mismanagement. Further, our view is reinforced by the fact that a joint letter was written by the Petitioner and Respondent No. 2 to the Syndicate Bank on 30.3.2015 stating that cost overrun and debt shortfall/advance sale proceeds shortfall shall be met by promoters/(Company/Directors) from its own sources, (vide letter at page 423 of Respondents Reply paper Book). Therefore, the amount borrowed on interest free basis from Ganga Kum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexure R 27) about the letter addressed to the Bank to stop operation of accounts until 'the dispute in the management of the company is resolved and a fresh instruction to the bankers are given after discussing the same in the proposed board meeting'. In as much as the Bank has stopped the operation of account of the Company in pursuance of the letter on 15.2.16, the Respondents in their CP 75/16 urge that such act of the Petitioner amounts to oppression and sought the relief of directing the Petitioner to withdraw that letter. 8.3 The events subsequent to 15.2.16 have to be referred at once because they have a considerable bearing on the analysis of situation undertaken by us. They would only show that both the directors are locking in horns. Petitioner issued a notice on 29.2.2016 (Annexure R-28, page 374) that he is proposing to hold a Board Meeting on 13.3.2016 at Hotel Vaibhav, Varanasi at 2 pm. (see para 6.25 of Petition in CP 54/16) The said notice speaks that - Recently the company has raised loan from the bank which I understand is not being utilized for the purpose it was taken and therefore I was constrained to request the bank to withhold further disburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the project site of the company was fixed as venue. The respondents then objected for the presence of special invitees, as proposed by the petitioner. There is thus a impasse created in management of the affairs of the company, perceptibly for the reason that there are only two directors. The respondent was weighing up to introduce another Director into the Board so that majority decision will prevail but the Petitioner is objecting for this on the pretext that Mr. Vinod Kumar Singh is close associate of the Respondent, forgetting the fact that Mr. Vinod Singh is also a share holder of the company having 2000 equity shares. 8.6 With this back ground on hand, what is appearing to us from the circumstances on record is that both the Directors who are at the helm of affairs of the company are not pulling the cart in one direction, losing mutual confidence in each other. Conceivably, for that reason only, the Petitioner in CP 54/16 instead of calling for a Board meeting to discuss the misusing of borrowed funds by the Respondent, rushed to make a complaint in utter haste to the Syndicate Bank that has resulted in adversely affecting the business of the company, besides damaging its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , make such order as it thinks fit.] (2) Without prejudice to the generality of the powers under sub-section (1), an order under that sub-section may provide for- (a) the regulation of conduct of affairs of the company in future; (b) to (i) xxxxxxx (h) removal of the managing director, manager or any of the directors of the company; (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; 8.8 Section 402 of the Companies Act contemplates issue of directions with reference to administration and management of the affairs of the company. The power of the Tribunal under Section 397 is to make 'such order as it thinks fit', with a view to bringing an end to the matters complained of. Having regard to the very wide nature of the power conferred on the tribunal and the object which is sought to be achieved through the exercise of such power, the only limitation that could be impliedly read on the exercise of that power would be that a nexus must exist between the order that may be passed there under and the object sought to be achieved by Sections 397 and 398. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests of the Company and of the prospective purchasers of the flats of the Company's project and those who have already booked the flats and the objective of Sections 397, 398 and 402 of the Companies Act, 1956 read with Sec. 242(2)(h) and (k) of the Companies Act, 2013 the following Order is passed: (1) (a) That the Syndicate Bank shall nominate one of its officers as Additional Director of the Company who shall co-ordinate with the present two Directors namely, Shri Sanjeev Agarwal and Shri Satish Kumar Singh to hold Meeting of the Board within 45 days and take decisions on the following subjects, besides the other issues pending between both the directors; (i) Appointment of additional director from any of the members; (ii) Proper utilization of the funds for the projects; (iii) To take steps for proper and timely implementation of the project; (iv) To review the financial soundness of the company to work out the ways and means to strengthen the company. (v) to seek independent audit of the accounts of the company; 1. (b) Further the Board shall call for a Meeting of Members either as AGM or EOGM within the statutory time after the Board meeting as the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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