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TMI Blog2017 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... rd and the notices for the meetings held on 15th July, 2014 and 26th July, 2014 were never served upon the Petitioners. The Company is directed to hold an AGM within 3 months from the date of Order. Also, an exit option is hereby given to both the Petitioners and the Respondents with a preference to given to the Petitioners for exiting the Company. Preliminary decree is being passed in the matter the present petition for valuation of main business by an independent valuer. Both the groups of shareholders are being directed to give the name of an independent valuer through consensus within seven days from the date of order, failing which both the groups will have the option to give names of three independent valuers within one week thereafter, so that the Tribunal may issue order to the valuer for valuation of the aforesaid company and report for valuation may be called within three months and expenditure of independent valuer will be borne by both the Petitioners and Respondents in equal proportion. Based on the current valuation by the registered valuer, either of the parties may then sell its shares to the other that it holds in the Company and subsequently exit the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso started holding shares in the company. The Petitioners also made investments in the company in the form of inter-corporate loans of an amount of ₹ 1 Crore 10 Lakhs on 31st March, 2013. The Petitioners discovered that the Respondents were siphoning off money from the company and were diverting its business to R17 which was a rival company to that of the Respondent Company. The Petitioners confronted the Respondents about the same, to which the Respondents offered to buy out the shareholding of the Petitioner in the Company and also offered to pay back the loans that the Petitioners had extended to the Company. The aforementioned shareholder's agreement (SHA) was to be a time bound agreement and was entered into on the 11th May, 2013 but came into effect on the 1st April, 2013. The agreement was time bound and was to be performed within 31st December, 2013, failing which the Petitioners would take control of the entire company solely. Also, on 9th May 2013, the Respondents transferred 1% shareholding to the Petitioners and thereafter had asked for a three month extension to fulfil the agreement which they failed to perform yet again despite the extension. An agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, was then executed between the company and R2 and R14 on the 22nd October, 2007 whereby R2 and R14 wing to the fact that they were the erstwhile owners of the aid business, claimed an extra share in profits of the company despite the present shareholding structure being equally divided between the Respondents and the Petitioners. The Petitioners contend that they reposed complete faith and trust in the Respondents and were assured of the fact that the Respondents will manage the affairs of the company fairly and the funds of the company would be invested by them honestly and in the best interest of the company. However, to the utter disappointment of the Petitioners, it was discovered that the Respondents had siphoned out money from the company and were diverting the business of the company to R17, which was a rival company to the Respondent Company. In the meantime, according to Petitioners, certain inter-corporate loans were made by the Petitioners of ₹ 1 Crore 10 Lakhs and in the due course of time the respondents had reorganized their shareholding within their group members. Realising the alleged misdeeds of the Respondents, the Petitioners wanted to take charge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purported meeting. Through this application the Petitioners found out that the Respondents had entered into an agreement on 28th May, 2013 between themselves (the Singhania family and the Agarwal family) and making the company a party to it, without the knowledge of the Petitioners through which they had allegedly tried to overreach the Articles of Association. The said agreement was allegedly in violation of the pre-emptive rights of the Petitioners conferred by the Statute; gave preference to other creditors vis-a-vis the Petitioners; put restriction on the Board of Directors and its decision making authority and was tacitly in violation of the Articles of Association of the Company. The Petitioners also contend that the notice for the said meeting of the Board of Directors held on 28th May, 2013 was not sent to the Petitioners. The Petitioners further allege that the EOGM on the 4th of October, 2014 was stalled because of the Respondents who created a ruckus, thereby rendering the meeting useless. The Petitioners contend that no annual general meetings were held either for the year 2014 or for the year 2015. Despite the same, R12 insisted on attending the meeting on 4th Octob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adlock in the company and have failed to cooperate and have caused harm and prejudice to the petitioners and to the company. The Petitioners also contend that the Respondents have refused to provide account and details of expenditure to the respondents. The Petitioners have further contended that the Respondents through the various acts of not sending notices for meeting to the Petitioners, including outsiders as nominees in the Board of Directors, transferring shares to a non-member of the company thereby violating the pre-emptive rights of the Petitioner and effectively reducing the shareholding of the Petitioner in the company by increasing the authorised share capital without notice, have committed acts of oppression against the Petitioners and have mismanaged the funds of the company where the Petitioners were hitherto the majority shareholders. The Petitioner pray to nullify all the meetings convened and all the resolutions passed therein which were conducted without the knowledge of the Petitioners, including the appointment of the additional directors and the transfer of shares to R12. The Petitioners also prayed for conducting an AGM whereby the 11th May, 2013 agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement. The Respondents contended that the Petitioners are not interested in the company as they intend to withdraw their funds from the company when the company is undergoing losses and is answerable to its creditors. The Respondents dispute and deny all the allegations that have been contended by the Petitioners. The Respondents contended that the present petition is beyond limitation period and therefore not maintainable. On the basis of the pleadings of the parties, following question arises for the decision of the case: 1. Whether the transfer of shares to R12, who was a non-member, by R13, R15 and R16 to the tune of 31.11% of the shareholding of the company was illegal? 2. Whether the appointment of R18 to R21 as additional directors to the Board of the Company on 15th July, 2014 and 26th July, 2014 was illegal? 3. Whether the increase in the authorised share capital of the company done on 28th March, 2014 from ₹ 2 Crores to ₹ 2 Crores 10 Lakhs, thereby decreasing the shareholding percentage of the Petitioners was illegal? 4. Whether the Respondents committed an act of oppression against the Petitioners by not serving the notices of the meetings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounted to oppression by them of the minority shareholders and also, oppression in the conduct of the affairs of the company and these were to the detriment of both the company and its members. Therefore, it is clear from the aforementioned that proper notices were not served upon the Petitioner and such a conduct of the Respondents is oppressive. Meetings convened in absence of proper notice to the directors of a Company and its shareholders are also in violation of the statutory provisions of the Companies Act, 1956. In the case of Dale Carrington Investment (P.) Ltd. v. P.K. Prathapan [2004] 54 SCL 601 (SC), it was discussed that no copy of the notice intimating Suresh Babu about the meeting of the Board of Directors and asking him to attend the same, has been placed on record to show that Suresh Babu was informed about holding of the meeting in question. Thus neither a copy of a notice convening the Board meeting nor the log book mean to record signatures of Directors attending the meeting of the Board of Directors were produced. In the absence of these documents and any other proof to show that a meeting was held as alleged we are unable to accept that a meeting of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Moreover, allotment of shares by directors in a manner by which in existing majority of shareholders is reduced to a minority will be considered as an act of oppression as had been held by the Company Law Board in the case of A. Arumugam v. Pioneer Bakeries (P.) Ltd. [2007] 80 SCL 190 wherein it was held that among other things the transfer of shares disturbing parity of shareholding between contesting parties, respondent garnering controlling interest through transfer of shares by disturbing parity of shareholding between parties; and appointment of respondent's group members as directors with a view to control the board, constitute oppression. In the following case, the issue of further shares benefiting a section of the shareholders was held to be an act of oppression. In the case of Piercy v. Mills Co. [1920] 1 Ch. 77; Mrs. Rashmi Seth v. Chemon (India) (P.) Ltd. [1992] 9 CLA 83 (CLB), it was held that the issue of further shares may form the subject-matter of a petition under Section 397/398, if it can be proved that the idea of issuing further shares was to benefit one group to the detriment of the other. One of the ways a group of shareholders oppress other groups ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oppression and mismanagement in affairs of the company. The Petitioner has contended that no annual general meeting in the Company had been held since 2014, and no notice was ever received by the Petitioners for an AGM allegedly held by the Respondents on the 30th September, 2014 and the Petitioners have additionally been kept in the dark about the accounts of the Company despite being the majority shareholder. The Petitioner has further contended that the transfer of shares to a total outsider was in violation of the Articles of Association of the Company and the pre- emptive rights of the Petitioners. The Petitioners contend that the said transfer done on the 26th July, 2014 was to the tune of 31.11% of the total paid up share capital of the Company, and whereby no offer was made to the Petitioners to subscribe to further share capital of the Company. Since the shares so transferred to R12 were not a further issue made, by the Company and was merely a transfer by a few members of the Company to a non-member, such a situation does not warrant a rights issue. However, the Company being a private company, the approval for such a transfer was required by the Board. This transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecretary of the Company says that no Extraordinary General Meeting was held during the year ended on 31st March, 2014 and therefore in conclusion no meeting was held on 28th March, 2014 as has been annexed to the Petition at pages 257 and 260 showing Form 66 signed by R18 in digital signature, and compliance certificate. In Form 66 it has been recorded that: authorised capital of the Company is ₹ 21,000,000/- which relates to the financial year starting 1st April, 2013 till 31st March, 2014. The compliance certificate which relates to the same aforementioned financial year, lays down: 7. No Extra Ordinary General Meeting was held during the year. Therefore, in absence of any notice for the meeting held on 28th March, 2014 and in the light of the compliance certificate mentioning that no EoGMs were held during that financial year, the resolutions so passed in the purported meeting of 28th March, 2014 are invalid and deserve to be set aside. 38. Finally, the Petitioners have contended that the Respondents have mismanaged and siphoned of the funds of the Company by diverting business of the Company to R17 which carries similar line of business having similar name. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter. In the event both the alternatives failed the purchase of shares of either of the parties to the dispute could be transferred to third parties depending upon the exigency, to ensure the smooth running of the company. ORDER The petition is allowed. In the light of the above contentions, it is therefore concluded that the acts of the Respondents amount to oppression against the Petitioner. Therefore, it is directed that the Petitioner's shareholding is reinstated to before the resolution for increase in the authorised capital was passed on 28th March, 2014. In addition to this, the share transfer of 31.11% shareholding in the Company, made to R12 is reversed as the same was done without the approval of the Board in a meeting of 26th July, 2014 for which no notice was served upon the Petitioner as well. As a consequence, R13, R15 and R16 are hereby directed to refund the money in lieu of the transfer of the aforementioned shares to R12. Moreover, it is directed that the appointments of R18 to R21 as additional directors be reversed as the same was done without the approval of the Board and the notices for the meetings held on 15th July, 2014 and 26th July, 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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