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TMI Blog2017 (7) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... e failed to serve upon notices to the Petitioner regarding the same. Additionally, the Respondents have denied access to the Petitioner into the factory premises and have not regularized the Company's account maintained with the Punjab National Bank and defaults in payment of dues against the loans sanctioned by The Punjab National Bank, are apparent, which indicates towards acts of mismanagement. Further the Petitioner has also contended that the statutory auditors appointed by the Respondents for the Company have not reported any qualification on the operation and financial transaction of the Company, or about related party transaction, illegal allotment of shares, illegal appointment of directors and gross violation of the provisions of the Companies Act, 1956. In the present Petition, since the Petitioner has been reduced to an insignificant minority due to the acts of the Respondents whereby they increased the authorized share capital of the Company and issued and allotted further shares of the Company without notifying the Petitioner about the same, such acts of Respondents constitute acts of oppression. Therefore, in the light of the contentions and pleading of the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is around 52% of the paid-up equity capital of the company. The respondent No. 3, who is the wife of the respondent No. 2, was allotted 1,85,000 number of equity shares of the company during the years 2008-09 to 2012-13. The respondent No. 4, the father of respondent No. 2 is holding 1,15,000 number of equity shares in the capital of the company, which has been allotted during the years 2008-09 to 2012-13. The respondent No. 5 is holding 75,000 number of equity shares in the capital of the company, which has also been allotted during the years 2008-09 to 2012-13. The petitioner has submitted in this petition that the petitioner and the respondent No. 2 are the subscribers to the Memorandum of Association and Articles of Association of the company and also the Promoters of the Company. At the time of incorporation, these two persons were only the directors of the Company. The petitioner has alleged that the company has allotted 15,00,000/- numbers of additional shares of ₹ 10/- each total amounting to ₹ 1,50,00,000/- during the years 2009-10 to 2011-12 in favour of Shri Dhananjay Kar and his family members, illegally without holding any valid Board and General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board and General meeting to allot additional shares. The petitioner has received this information from M.C.A. website only. All these illegal activities have been done by the respondent No. 2 without the knowledge of the petitioner, who is one of the directors and shareholders, out of two directors and shareholders of the company. The petitioner has stated in the petition that the company has set up its manufacturing/ processing facilities in a plot of land measuring two acres twenty two decimals in the mouza of Kalagarh, P.O. Jadupur, Distt- Kendrapara, Odisha and the said plot of land is jointly owned by the petitioner and the respondent No. 2. The Punjab National Bank vide their letter dated 01.08.2009 had sanctioned term loan of ₹ 200.00 hundred lakhs only and cash credit of ₹ 74,44 lakhs in favour of the Company. The land and building have been mortgaged in favour of the bank and in addition to that the petitioner has also submitted personal guarantee and given collateral security for availing such loan as per the terms and conditions of the bank. The Company has already availed such loan and cash credit limit from the bank and the petitioner does not know as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of shares, illegal appointment of directors which is a gross violation of the provisions of the Companies Act, 1956, which is perhaps done in connivance with the Respondents. In the facts and circumstances, the petitioner in this petition has prayed that the additional shares issued by the respondents may be declared as null and void due to the fact that the same has been made without any due notice to the petitioner without complying with the provisions of sections 53,171 and 172 of the Companies Act, 1956 and Articles of Association of the Company, which has resulted oppression on the petitioner. The petitioner has further prayed for the appointment of Shri Dhananjay Kar as Managing Director and Smt. Chhaya Kar as Director of the Company be declared as null and void and the original Board as existed on 27.11.2006 should be restored. In reply to the above petition filed by the petitioner, the Respondent No. 1, on behalf of the respondent Nos. 2, 3 and 5 (hereinafter referred to as the Respondents) in paragraph Nos. 3, 4 and 5 has stated that the petitioner has filed the petition with mala fide intention and an oblique motive to avoid his responsibility and liability in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Meeting or without serving any notice to the petitioner, which is illegal and unlawful, the Respondent replied that as the company had already taken a loan of ₹ 2.74 crores due to acute financial crunch for setting up of its waste oil processing plant, the Company allotted additional shares to meet up the acute shortage of funds for which the petitioner was also offered for purchase of additional shares but the petitioner cited his inability to infuse more funds for making any further investment but his wife infused funds and she was issued 75,000 shares of ₹ 10/- each i.e., ₹ 7,50,000/- for which the petitioner never raised any objection. The entire process of allotment of shares took place in 2008-09 and the entire episode of allotment of shares was known to the petitioner. Shares were also allotted to the father of the petitioner and the respondent No. 2 in 2009-10. The company was benefitted from this additional funds. Regarding availing and utilisation of loan and cash credit from the bank, the Respondent has submitted that the petitioner was all along aware of the books and accounts of the company and filing of the Annual Returns which was duly approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed loss. Therefore, the affairs of the Company have been mismanaged since beginning. The petitioner has submitted in the Rejoinder that he was never approached to infuse further capital in the company in proportion to this shareholding and was never given opportunity to take part in any meeting or in the affairs of the company. Above all, the petitioner was verbally threatened by the Respondent No. 2 not to enter inside the factory premises failing which to face consequences. In Rejoinder, the petitioner has not admitted any of the averments contained in the Counter Reply filed by the Respondents. The petitioner has reiterated each and every submission made in the petition. In this context, the petitioner has again alleged that submission made in the petition regarding financial position, the financial statement filed by the company with the ROC would reveal that the total loss till the year 2012-13 is ₹ 75,26,122.27 as per the annexure to the reply at page 192 and the reason has not been reflected in the Directors report at page 174 nor in the Auditor's report at pages 175 to 179 of the annexure to the reply. On the contrary, the Auditors in their report on the accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the appointment/change in directors as has been enclosed in Annexure- A4 of the main Petition lays down:- Chhaya Kar bearing DIN 03226020 was appointed as an executive director in designation, and in the category of promoter on the 24th September, 2010 , and Mr. Dhananjaya Kar bearing DIN 02661943 was appointed as a managing director in designation, and in the category of promoter on the 24th September, 2010 . The Board of Directors at the time of incorporation of the Company was constituted by only Shri Dhananjay Kar and Shri Mrutyunjay Kar, who were the first directors of the Company. However, the composition of the Board of Directors in the year 2010-11 onwards changed to Shri Dhananjay Kar as the Managing Director, Shri Mrutyunjay Kar remained a director, and Smt Chhaya Kar who was appointed as the director of the Company on 24th September, 2010. It is pertinent to note here that at the time of appointment of Smt. Chhaya Kar, the existing shareholders of the Company were Shri Dhananjay Kar and Shri Mrutyunjay Kar. In the event of appointing a director to the Board, a meeting had to be called and a resolution had to be passed therein as per the Articles of Assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner was never notified about and R2 being the only other shareholder at the time of the first allotment of further issue of capital, could not have validly held a Board or a general meeting to allot the additional shares in absence of the Petitioner. The aforementioned is reflected in the annual returns filed by R1 for the years 2008-09, 2009-10, and 2010-11 as indicated on Annexure-A5 (Series) at pages 62 to 84 of the main Company Petition. The Petitioner also contended that the information could only be availed through the Ministry of Corporate Affairs website and that he was never notified about the further allotment of shares by the Respondents. Such further allotments of shares have also adversely affected the rights of the Petitioner in the Company and have reduced him to an insignificant minority in the Company. The Respondents have also in their reply to the present Petition, failed to furnish any proof of notices that were served upon the Petitioner either for carrying out the appointments of R2 for the position of the managing director and R3 as the director of the Company, or for the further allotment of shares. The Petitioner contended that the manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not to act for unfavourable situations. The aforementioned letter clearly indicates mismanagement of funds done at the instance of the Respondents who have failed to comply with the conditions of the bank vis-a-vis the loan accounts. In addition to the aforementioned, according to the contentions of the Petitioner, the Petitioner had at an earlier point of time through a letter dated 21st October, 2010 had requested clarification from R1 regarding the irregularities and the illegalities that had arisen in the Company by virtue of the appointments of managing director, director and further issue and allotment of shares. 37. In the letter of the Petitioner, attached as Annexure- A8 at page 96 of the main Petition, it shows that the Petitioner has written:- ...As per the incorporation documents of the Company there are two Nos of Directors and as per Articles of Association and Form 32 filed with the Registrar of Companies, they are 1. Dhananjay Kar 2. Mrutyunjay Kar None of them has been appointed as Managing Director of the Company, whereas after incorporation of the Company Mr. Dhananjay Kar s signing in every documents of the Company as Managing Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y two directors of the Company, respectively. The Petitioner contended that through his letter he had mentioned that neither of the aforementioned statutory compliances had been fulfilled. And no annual general meetings were held and neither were any notices given for holding such annual general meeting. Moreover, the Petitioner also wrote that the Company had not held any Board Meeting for giving notice for holding the Extraordinary general meeting either. The Respondents have failed to reply to any of the aforementioned contentions of the letter of the Petitioner even after receiving the same. The Petitioner has additionally contended that he was never issued any share certificates including for his initial contribution to the equity capital of the Company. Also, in absence of the share certificates the Respondents have nevertheless shown the Petitioner's initial shareholding in its Annual Return filed in Form No 20B on 30th September, 2008 annexed as Annexure- A9 at page 101 of the main Petition. The Petitioner has further contended that he was denied entry in the factory premises during the year 2010 as well. The Petitioners have further contended that the Respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r about related party transaction, illegal allotment of shares, illegal appointment of directors and gross violation of the provisions of the Companies Act, 1956. In the light of the case of Capricorn Oils Ltd. v. Ratan Mohan Sarda [2012] 113 SCL 395/21 (Cal.) , where the majority was turned into minority by management group by allotting shares to its own people without calling meeting or offering corresponding shares to promoter's group or other shareholders, such an act was held as an act of oppression. The CLB held that the issue of further shares by one group of shareholders by taking advantage of its managerial position to denude other group of shareholders of its majority control is grave act of 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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