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TMI Blog2017 (3) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent No. 1 company are directed to provide inspection of accounts and records of Respondent No. 1 company to the Auditor and also to the Petitioners who are shareholders of Respondent No. l company. The auditor shall give opportunity of hearing to both the parties. Respondent Nos. 3 to 7 directors of Respondent No. 1 company are directed to assist the auditor and furnish relevant documents as and when asked for. The auditors shall fix their remuneration in consultation with the Respondent No. 1 Company, to be paid by Respondent No. 1 Company. In case of any difficulty in implementation of the directions, liberty is given to file appropriate application before this Tribunal. In the light of aforesaid discussions M/s. Price Water Cooper is appointed as an independent auditor, who shall comply the aforesaid directions and submit its report within three months. - CP No. 104 (MB)/2011 - - - Dated:- 31-1-2017 - MR. M.M. KUMAR AND S.K. MOHAPATRA, JJ. For The Petitioner : Mr. Saurabh Kalia, Ms. Samridhi Gogia, Advocate, Mr. Abhinav Vasisht, Sr. Advocate, For The Respondent : Ms. Prachi Dhanani Advocate The present company petition has been filed under Sections 397 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) any other company in which any of the Directors on the Board of the Company or any shareholder of the Company or any of their respective relatives under Companies Act, 1956 is or has been or proposes to become a Director be made available to Petitioner No. 1 and Petitioner No. 2. (8) Copies along with complete details of all agreements, contracts or other similar arrangements (including drafts thereof and other related documents and writings that are placed or liable to be placed before the Board for consideration or approval) entered into or proposed to be entered into by the Company with (a) its holding company or (b) its affiliate or (c) any affiliate of its holding company, be made available to Petitioner No. 1 and Petitioner No. 2. (9) All the books of account and other books and papers of the company be made available for inspection to Petitioner No. 1 in accordance with the Articles of Association of the Company. (10) All the books of account and other books and papers of the company pertaining to the term and tenure of aforesaid Petitioner No. 2 as a Director on the Board of the company be made available for inspection to the aforesaid Petitioner No. 2 in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such other and further orders as this Hon'ble Board deem fit and proper in the interest of justice to set aside the oppressions and mismanagement may be passed. (20) A declaration confirming Petitioner No. 1, Milind DayaramKapse as the continuing Managing Director of Respondent No. 1 company. (21) A declaration that Respondent No. 5 be expelled from directorship of Respondent No. l company and as such Respondent No. 5 be restrained by an order of injunction to act as the Director of the respondent No. 1 company. (22) A declaration that Board Meeting dated 16th March 2013 be declared as invalid and void ab initio. (23) Grant a permanent order and injunction restraining Respondents 2 to 7 from acting on the resolution dated 16th March 2013. (24) Grant a permanent order and injunction declaring all acts and actions of Respondent No. 1 company based on Board meeting dated 16th March 2013 be declared as invalid and void ab initio. 2. The brief facts relevant to decide the controversy raised in the Company Petition are that M/s. Nasik Cable Networks, a partnership firm was formed on 11th July 2006 by Petitioner Nos. l 2 along with two other persons for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent No. 1 company. According to the case of the petitioners, the main issues pertaining to the acts of oppression and mismanagement are as follows: (i) Illegal holding of Extra-Ordinary General Body Meeting dated 16th March 2013 with mala fide intention to enable transfer the business of Respondent No. 1 company to Respondent No. 9 company in the grab of digitalization. The petitioner has also challenged the EOGM of Respondent No. 1 company held on 15th February 2016. (ii) Fabrication of documents and Wrongful cessation of Petitioner No. l as Director. (iii) Non-allotment of dividend/profit to the Petitioners. (iv) Non-issue of bonus shares to Petitioners. (v) Siphoning of funds of Respondent No. 1 company through related party transactions and acts of mismanagement. 4. Having heard the parties and on perusal of the case records, our findings on the issues raised by the Petitioners are discussed in seriatum below. 5. One of the main contentions of the Petitioner is that EOGM dated 16.03.2013 was called on behalf of Respondent No. l with mala fide intention to create a record to show that shareholders of Respondent No. l company decided to continue d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply to the objection dated 15.03.2013 clarified to the petitioners that the EOGM is held in accordance with law and the Petitioners were free to attend and raise their objections in the meeting. It is emphasized that despite clear knowledge of the meeting, the Petitioners preferred to remain absent. 5.3) Ld. Counsel for Respondents relied on the judgment in the case of Surajmull Nagarmull v. Shew BhagwanJalan [1973] ILR Cal. 207, in which it was held that the object of the notice related provisions is to enable the shareholders a reasonable opportunity of participating effectively in the meetings of the company and if it is established that the shareholders had the necessary opportunity of participating in the meeting the object of statute is clearly served . Ld. Counsel for the respondents further relied on the judgment rendered in the case of Parashuram Detaram Shamdasani v. Tata Industrial Bank AIR 1928 PC 180, and Maharani Lalita Rajyalakshami v. Indian Motor Co. AIR 1962 Cal. 217, wherein it was held that if a shareholder is aware of the facts, it is not for him or her to complain of insufficiency of notice of a meeting . Ld. Counsel, accordingly, emphasized that the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vances in the meeting. However, Petitioners, having clear knowledge of the meeting, preferred not to attend the EOGM held on 16.03.2013. It has not even been denied that the Petitioner No. 1, notwithstanding being a Director, has not attended any meeting of Respondent No. 1 company after June 2008. When the Petitioners were aware of the meeting and preferred not to attend the same, it does not lie in their mouth to complain about the insufficiency of notice of the meeting. 5.6) Similarly it is seen that notice was given to the Petitioners in respect of EOGM held on 15.02.2016. Despite service except Petitioner No. 12, other Petitioners did not participate in the EOGM held on 15.02.2016. With the consent of the parties Bombay High Court had allowed holding of the EOGM. Petitioners had not raised any concern before the High Court expressing their inability to attend the EOGM. There has been suo moto non-participation by Petitioners (except Petitioner No. 12) in the important meeting of Respondent No. 1 company, where future business plans of the company were scheduled to be discussed. Simply bald allegation of breach of fiduciary duty of Director without required involvement and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um. If the existing shareholders are unable to make their shares of investments, DEN shall have the right to make such investments, the JVC shall issue shares to DEN, and the shareholding of the existing shareholders shall get diluted. Alternatively, subject to JVC, Board's approval, the JVC may raise/borrow funds from any nationalized/co-operative Bank, financial institutes etc, for such investment. Digital Headends shall at all time remain the exclusive property of DEN only. The revenue of the digital headend which is generated from existing setup area will be accounted in the books of JVC. 5.10) A perusal of the aforesaid provisions of SPA stipulates that all further investments in the Digital Headend (including the Digital Headend to be installed by Den at Nasik) shall be made by R-2. However except digital headend, all investments in Respondent No. 1 Company shall be made by the shareholders in ratio of their shareholding. In case the existing shareholders failed to invest in proportion of their shares, Respondent No. 2 shall have the right to make such investment. Therefore excepting investment in digital headend, in all other investments in Respondent No. l company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf with the affairs of the company. 5.13 It is not in dispute that Respondent No. l company has not till date applied for Digital Addressable System License (DAS License) for the purpose of carrying on business of cable network in Digital mode. It is also a fact that the shareholders of Respondent No. 1 company unanimously decided not to opt for digitalization. Consequently as per unanimous decision of the shareholders, Respondent No. l company did not apply for DAS License for the purpose of carrying on business of cable network in digital mode. 5.14) In connection with the allegation of petitioners that there has been violation of Clause 5.10(a) of Article 5 of the Share Purchase Agreement, as the DAS license was not applied in the name of Respondent No. 1 Company. The aforesaid clause provides that the existing shareholders, subject to prior consultation with Den, shall make all necessary applications for and obtaining requisite Government approvals. Needless to say that in the EOGM held in the year 2013 as well as in the year 2016, the shareholders of Respondent No. 1 Company consistently decided not to carry on network business in digitalization. In the line of the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of Respondent No. 5 to establish that notice was duly served in respect of aforesaid Board Meetings. It is also stated that he has not obtained leave of absence from Board of Directors of Respondent No. l Company for his repeated absence after August 2008. The Respondent submitted that under the provisions of section 283(g) of the Companies Act 1956, the office of Petitioner No. 1 as a director is deemed to have been vacated on account of Petitioner No. 1 not having attended three consecutive meetings of Board of Directors, without obtaining the leave of absence from Board of Directors of the Respondent No. 1 Company. The Respondent No. 5 has filed affidavit affirming that Petitioner No. 1 has not been attending office since the year 2008 and has never concerned himself with the affairs of the Company. The Petitioner has not denied the fact that he has not attended any Board meeting after August 2008. In that view of the matter the prayer for declaring Petitioner No. 1 as continuing as Director of Respondent No. 1 Company cannot be acceded to. 7. Ld. Counsel for Petitioner further contended that respondent No. 1 has not given any dividends/profits till date to the Peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Petitioners have raised this issue only in 2011 after a lapse of one year. In this respect Petitioners have submitted that they were not informed or were made aware of the issuance of bonus shares by Respondent No. l company. They raised the issue in 2011 after having the knowledge of issue of bonus share by Respondent No. l company. Respondents in their affidavits dated 30.03.2012 have clearly affirmed inter alia that The said share certificates pertaining to the said bonus shares are in the possession of the Respondents and the same shall be issued to the Petitioners at the earliest . In that view of the matter, the Respondent No. l company is directed to take steps to issue the share certificates pertaining to the aforesaid bonus shares to the Petitioners within 30 days from the date of receipt of the order, if not already issued. 9. The other main allegation of the petitioners is that there has been siphoning of funds of Respondent No. 1 company through related party transactions and the infrastructure and premises of Respondent No. l company were misused causing loss to the company and its shareholders including the petitioners. It is submitted that in the process, Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive property of Respondent No. 2, but as per the SPA the revenue of the digital headend which is generated from existing setup area will be accounted in the books of JVC, that is in accounts of Respondent No. 1 Company. In the facts audit of the account is necessary to find out whether relevant revenue generated from the existing set up area was duly accounted in the books of respondent No. 1 company and whether any rent/consideration was received for use of premises and infrastructure, if any, of Respondent No. 1 company. 9.2) In connection with the assets of Respondent No. 1 company, Respondents have affirmed that, when the original headend was set up in 2008 all parties acted in accordance with clause 8.1 i.e. investment for headend was made by Respondent No. 2 and all other investments towards calling, setting up of local sites for receiving such cables and carrying the signal to the customers was borne by Respondent No. 1 company . Audit of the accounts of Respondent No. l company since the year 2008-09 (during which SPA executed) will show which assets including Set up boxes belong to Respondent No. l company and which of those assets have been purchased solely by Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s who have received payments are at sl. Nos. 1, 2, 5-9, 11, 12, 14-23, 25-27, 41 at pages 69-71. There has been several other specific allegation of siphoning of funds through related party transactions of respondent No. l company. Respondent simply contented that the MOU and other related party transactions were done with knowledge and consent of Directors of the company. However supporting company resolution or adequate and specific justification for such related party transactions have not been placed on record. 9.6) In reply to allegations of the petitioners regarding siphoning of funds by commercial transaction/agreements with related parties, it is submitted by respondents that all payments were made through cheque, duly accounted and hence all transactions were transparent. Such transactions were with due approval of Board resolution of Respondent No. 1 company and there has not been any breach of provisions of Companies Act 1956. The respondents have also admitted in their affidavit that Respondent No. 1 company have virtually ended as it continued to operate only in non DAS area and that the digitalization process has caused tremendous loss to Respondent No. l company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by Respondent No. 9 to the LCOs (Existing clients of Respondent No. 1 Company), whereas the JV between R2 and R9 was entered subsequently on 25.06.2013. Admittedly, prior to such JVA executed in June 2013, R-9 had no connection with Respondent No. 1 and Respondent No. 2 Company. Therefore R-9 could not have raised bills/invoices for the period prior to June 2013, which prima facie shows such transactions and dealings leading to wrongful loss to Respondent No. 1 Company. 9.10) The Petitioners have shown several instances in support of the contentions that the infrastructure and premises of Respondent No. 1 Company have been used for without any consideration and there has been mismanagement in the affairs of Respondent No. 1 company. That apart several relevant instances of siphoning of funds of Respondent No. 1 Company have been projected which cannot be overlooked out rightly, in the absence of adequate and specific explanation from Respondents. If the accounts of the Company have been properly maintained, there is nothing to be afraid of in the scrutinisation of its accounts and no prejudice will be caused to Respondents. In the facts, audit of the accounts of the Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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