9911796707
TMI Blog2008 (2) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... (v)to declare that the circular resolution passed on 16-12-2005, authorising the second respondent as the sole authority to operate the fifth respondent bank account as null and void, illegal, mala fide and oppressive and quash the same; (vi)to order investigation or inspection into the affairs of the Company, fixing responsibilities for various acts of mismanagement by the second respondent and order restoration of all funds received and used by the second respondent and/or his agents, not relating to the business of the Company; (vii)to remove the second respondent from the office of director of the Company for having indulged in acts of oppression and mismanagement; (viii)to direct the Company to buy back shares of second respondent at a fair value to be determined by the Company Law Board and consequently order reduction of the share capital of the Company; (ix)to order initiation of suitable action under section 408 of the Act for breach of trust, misfeasance, misappropriation, frauds, falsification, fraudulent conduct of business of the Company by the respondents 2 to 4; (x)to declare that the transfer of 28,500 shares from the petitioner in favour of second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sely appropriated towards the Company s account. The second respondent not only diverted the funds of the firm to the Company, but also stopped the flow of further orders from HAL to the firm. The purchase order received from Vikram Sarabhai Space Centre, Trivandrum for a value of ₹ 160 lakhs by the firm during September 2005 was subsequently diverted to the Company, without the knowledge of the petitioner. The fourth respondent had incorporated a firm at Mysore and approached the Karnataka State Financial Corporation (KSFC) to take over the partnership firm namely, Legend Designers, due to default in the repayment of the outstanding loan amount, and stealthily got the bid in his favour. The unit and assets of the firm were sold in 2005 and consequently the business of the firm was closed, but the spouse of the petitioner and the second respondent continue to be partners of the firm and is not dissolved. Thus, the second respondent was responsible for closure of the partnership firm, as elaborated in C.A. No. 109 of 2007. u At the instance of the second respondent, the petitioner had mobilised an amount of US $ 10000 (Rs. 4,50,000) by way of direct remittance to the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he second respondent not being true are prima facie acts of oppression and mismanagement which need to be set aside. The second respondent misused his fiduciary responsibilities as a director to make personal gain out of the funds of the Company. u There was never any formal board or general meeting since incorpo-ration of the Company and no notice of any board or general meeting was ever received by the petitioner. The respondents failed to produce any attendance sheets in respect of the board meetings reportedly conducted prior to 11-8-2004. At the first formal board meeting held on 11-8-2004, the petitioner was introduced to certain persons including the third respondent as additional directors and at the first formal annual general meeting held thereafter on 21-8-2004 at Bangalore some more friends of the second respondent were introduced as shareholders. The shares have been allotted to as many as 7 outsiders, yet the petitioner is not seeking to set aside those allotments. The petitioner did not question the action of the second respondent for induction of additional directors and issue of shares to outsiders, at that point of time, in view of the Company s growth and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent was defeated, he once again circulated the very same resolution, seeking the approval of the directors, inter alia, for operation of the bank account by sole authority of the second respondent, which was however rejected on 28-12-2005 by the petitioner. u The second respondent while carrying on the day-to-day affairs of the Company, committed serious acts of mismanagement which compelled the petitioner to obtain a search report in October, 2005, revealing the allotment of shares without convening any board meeting, appointment of directors without following due process of law and transfer of unallotted shares, without following the mandatory requirements of law. The approval of accounts for the year ended 31-3-2005 signed by one Shri M.K. Shanmugam, not being a director, needs to be approved once again by the board of directors, and thereafter be submitted before the auditors for their verification. The second respondent had indulged in the financial irregularities as borne out by the statement of accounts obtained from the Company s banker in respect of the Company s operations and the shareholding of the petitioner has been kept at around 40 per cent instead of being at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner and his family members on the pretext that the shares were required to be pledged with the Technology Development Board (TDB) and KSFC, securing the amounts due to the Company and one of such transfer deeds was illegally used of by the second respondent in a mala fide manner. The petitioner never sold his shares and no consideration was received by him. The share certificate No. 18 comprising of 10000 shares has been pledged in favour of TDB in terms of the communication dated 21-7-2001 and these shares, namely, 14,500 shares could not have been transferred by the petitioner to the second respondent. Hence the claim of the second respondent in respect of 28,500 shares is absolutely false. The second respondent has not paid any consideration for the shares reportedly transferred by the petitioner. The petitioner similarly at the request of the second respondent in good faith had signed blank annual reports, balance sheets and other statutory returns, whereas the second respondent had illegally made use of those blank documents to sub-serve his selfish motives and without authority of law. The balance sheet for the year ended 31-3-2003 shows that the Company owed an am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the effect of due compliance of section 255 of the Act in the subsequent years. The petitioner being one of the promoter directors and having 50 per cent holding and management participation in the Company, cannot be removed from his directorship by a purported member, who holds of less than 3 per cent shares of the Company. The board of the Company cannot be altered by dubious methods without following the due process of law. u The rights of the petitioner have been deprived continuously deliberately and consistently by the respondents which are oppressive and harsh, thereby conducting the affairs of the Company, in a manner prejudicial to the interest of the Company, which would justify the winding up of the Company on just and equitable grounds, but any such order would unfairly prejudice the interest of the Company, being engaged in a profitable business. The petitioner is, therefore, entitled for the alternative remedies under sections 397 and 398 read with section 402 of the Act. u During the pendency of the company petition, the Company came out in September 2006 with a proposal to issue further shares of ₹ 10 each on rights basis at a premium of ₹ 35 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. u Maharashtra Power Development Corpn. Ltd. v. Dabhol Power Co. [2003] 48 SCL 180 (Bom.) to show that a single act of oppression would not ordinarily give rise to a cause of action for filing of a petition under section 397 of the Companies Act. If the effects of a single act are burdensome, wrongful, oppressive and of continuing nature, and the member concerned is deprived of a right and privilege for all time to come in future, then the petition under section 397 of the Act can be filed even in respect of a single act. u Dale Carrington Investments (P.) Ltd. v. P.K. Prathapan [2004] 54 SCL 601 (SC) to show that the allotment of additional shares must be bona fide and not mala fide to gain control of the Company; must be in the interest of the company and proper and legal procedure must be followed to make the allotment. The entire allotment of shares has to be set aside in the absence of any material to justify issue of further share capital. If the facts on record show that the company was being run as one-man show; the minutes book of meetings of board of directors is maintained only to comply with the statutory requirement in this behalf; the minutes do not reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be sent to the director under section 284(2) and grant of opportunity to be heard under section 284(3) of the Companies Act, 1956, are not complied with, his removal from the directorship of the company is bad in law and such person must be restored to his original position as director and all subsequent actions taken by the company in this regard are declared as null and void. u Girdhar Gopal Gupta v. AAR Gee Board Mills (P.) Ltd. [2004] 53 SCL 221 (CLB - New Delhi) to show that any removal of directors belonging to one of the two equal groups of the company and appointment of an additional director not in conformity with the procedure laid down in the Act, would result in setting aside such removal of directors, being bad in law. u S. Varadarajan v. Udhayem Leasings Investments (P.) Ltd. [2005] 62 SCL 315 (CLB - Chennai) to show that the allotment of further shares made for personal gains and with a view to gain advantage against the other shareholders of a closely held company is neither in compliance with the legal requirements nor ensure the fair play and probity in corporate management, resulting in the enhancement of the shareholding of the second respondent whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that unless the transfer impugned in the company petition is duly approved by its directors, which must be substantiated by production of the minutes of the meeting of the board of directors, approving such transfer or any other document evidencing the same, it cannot be said that the transfer was in compliance with the relevant article and mere pleadings have no evidentiary value. u Smt. Claude-Lila Parulekar v. Sakil Paper (P.) Ltd. [2005] 59 SCL 414 (SC) to show that the provisions of section 108 are mandatory. u Khounish Chowdhury v. Kero Rajendra Monolithics Ltd. [2002] 36 SCL 497 (CLB - New Delhi) to show that appointment of additional directors in the board meeting if not bona fide and in the interest of the company, but done only to gain majority control on the board, must be declared invalid. u M. Moorthy v. Drivers Conductors Bus Service (P.) Ltd. [1991] 71 Comp. Cas. 136 (Mad.) to show that in the absence of any evidence of showing how one actually became the Managing Director of the Company, such appointment is non est and declared void and illegal. u Gopal Krishnaji Ketkar v. Mahomed Haji Latif [1968] AIR 1413 (SC) to show that even if the burden of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and Central Excise. u Arun Kumar Mohta v. Ganesh Commercial Co. Ltd. [2006] 74 CLA 116 (CLB - New Delhi), Rajesh Patil v. Moonshine Films (P.) Ltd. [2006] 74 CLA 151 to show that in a case of oppression, a member has to specifically plead on five facts - (a) what is the alleged act of oppression; (b) who committed the act of oppression; (c) how it is oppressive; (d) whether it is in the affairs of the company; (e) and whether the company is a party to the commission of the act of oppression. In the present case all the five aspects of oppression stand proved. The acts of oppression in the affairs of the company have been listed in detail highlighting how these are oppressive. u Amar Nath Malhotra v. MCS Ltd. [1993] 76 Comp. Cas. 469 (Delhi) to show that the provisions relating to special notice do not dispense with the requirement of section 188. Resolutions which require special notice do not cease to be resolutions as contemplated by section 188 of the Act. Section 190 read with section 225 neither expressly nor by implication overrides the requirement of section 188 of the Act. Sections 188, 190, 225 and 284 must be read together and if so read the intention of the Leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd. [1996] 85 Comp. Cas. 289 to show that if any thing is lacking in the petition, it may be made good by the subsequent affidavits and, therefore, it is necessary to consider the entire evidence that has been placed in order to do justice between the competing rights of the parties. The case of justice will not suffer if reliefs are granted after the consideration of all the evidence even though the original plaint was lacking in particulars. The creation of a new majority without allowing the petitioners to participate in the further issue of equity is definitely an oppressive act, especially considering the circumstantial evidence which clearly points out that the factum of issue and allotment of such shares is not beyond doubt. u Mritunjoy Pani v. Narmanda Bala Sasmal AIR 1961 SC 1353 to show that no one can be allowed to benefit from his own wrongful act. u Public Passenger Service Ltd. v. M.A. Khadar AIR 1966 SC 489 to show that the well-know-maxim of equity that he who comes into equity must come with clean hands , and that the courts should dismiss the applications when the respondents did not come with clean hands must be rejected when the respondents are ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement between the petitioner and the second respondent for equal share holding in the Company. Thereafter, the shareholding came to be changed to fund several large projects of the Company with the full knowledge and concurrence of the petitioner. Hence, the principles of quasi partnership which can be imported into the corporate entity only in limited circumstances and not as a general principle will not apply to the facts of the present case. The second respondent never diverted the flow of orders of HAL from the firm in favour of the Company. The partnership firm came to be closed by reason of the mismanagement of the petitioner, apart from the fact that the petitioner transferred a sum of ₹ 4 lakhs from the firm s account into his wife s account and a further sum of ₹ 80,000 to himself, leading to dishonour of the cheque issued to KSFC, which ultimately resulted in its recalling the loan and the consequent closure and seizure of the unit. KSFC came out with public notices on 17-11-2005, 6-6-2006 and 15-10-2006 auctioning the firm s prop- erty, but the bids were rejected for lack of adequacy and ultimately the property could be sold, pursuant to a paper advertiseme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004 and 21-8-2004. The circular resolution dated 2-12-2005 contained the names of the additional directors along with the petitioner and the second respondent, wherein the petitioner s name is reflected at the end of the resolution. Similarly, the circular resolution No. 1/2005-2006 dated 16-12-2005 confirms the names of other directors, with that of the petitioner at the end of the resolution. Both the resolutions have not been accepted by the petitioner, in token of which he signed against his name. u The third respondent has made the requisite declaration and caused the passing of necessary resolution under section 314 of the Act in regard to his holding of an office of profit in the Company and therefore, the compliance certificate issued as at 11-8-2004 is not violative of the Company Secretaries Act, 1980. u The fourth respondent, a leading industrialist, social worker and common friend of the petitioner and the Second respondent, was allotted shares as early as on 10-9-2001 and the share certificate bearing No. 21 for 6500 shares issued to the fourth respondent dated 10-9-2001 was signed by the petitioner. The fourth respondent paid the consideration for his shares by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled under the signature of the petitioner. Article 18(b) was duly amended removing the provisions which enabled the first directors holding office for life, pursuant to the stipulation laid down by KSFC while extending credit facilities to the Company in accordance with a special resolution passed at the extraordinary general meeting held on 20-3-2002, to which the petitioner was also a party to the resolution. Even otherwise, any lifetime director can be removed under the provisions of section 284. The search report produced by the petitioner would prove that the articles have been altered by virtue of passing a special resolution at the extraordinary general meeting followed by Form No. 23 dated 20-3-2002 filed with the Registrar of Companies. Therefore, the claim of the petitioner for lifetime directorship is absolutely untenable. u The petitioner surreptitiously obtained from the Company s bank statements running into 54 pages, incurring an amount of ₹ 1,512 which was debited to the Company s account, in spite of which the petitioner was unable to establish any single instance of mismanagement. The statement of accounts does not throw any light on any of the alleged f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation of the bank account in view of the petitioner s written instructions to the bank to stop operation of the bank account by the second respondent. After issuance of the circular resolution, the board felt the need to call for a board meeting on 15-12-2005 to obtain a fresh mandate to operate solely the bank account by the second respondent. However, no business could be transacted at the board meeting on account the behaviour of the petitioner, compelling the board to send a circular resolution in relation to the operation of the bank account which was approved by the majority of directors with the sole exception of the petitioner. The circular resolution dated 16-12-2005 was confirmed on 12-1-2006 by the board of directors of the Company. u The petitioner had transferred his 28500 shares to the second respondent as evidenced from the transfer deed signed by the petitioner. The transfer deed was invalidated since the second respondent misplaced the same. The petitioner owed a large sum of monies to the second respondent and therefore, these shares were given in part repayment of the dues owed by the petitioner to the second respondent. At the board meeting held on 12-1- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 169 of the Act. The board of directors at the meeting held on 12-1-2006, pursuant to the request of the fourth respondent, resolved to convene an extraordinary general meeting on 30-1-2006 to remove the petitioner from the office of director. The petitioner was a party to the said decision taken at the board meeting held on 12-1-2006. The notice dated 12-1-2006 convening an extraordinary general meeting of the Company for removal of the petitioner from the office of director sent to him was acknowledged in his communication dated 25-1-2006 addressed to the Company seeking postponement of the proposed meeting on health ground. The Company was in receipt of the request of the petitioner on 28-1-2006 and the succeeding two days being Saturday and Sunday being holidays, the extraordinary general meeting came to be held on 30-1-2006, wherein the members unanimously removed the petitioner duly from the office of director for not answering the charges levelled against him and the petitioner was further intimated of his removal, by the Chairman in his communication dated 9-2-2006, copy of which has been produced before the Bench. Thus, the petitioner was removed after complying with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of any shares of the Company stands falsified. u The Company, during the pendency of the main petition, came out with an offer on 15-9-2006 in favour of all the shareholders to issue further 45440 equity shares of ₹ 10 each on rights basis, at a premium of ₹ 35 per equity share aggregating ₹ 20,44,800 in the ratio of sixteen equity shares for every hundred equity shares, towards capital expenditure, acquisition of fixed assets, generator and repayment of the outstanding dues to the financial institutions. When the Company has received share application money from all the shareholders except the petitioner, his wife and another small shareholder. This Bench by an order dated 22-11-2006 granted further time to the petitioner to subscribe to the rights shares till 25-11-2006. The petitioner was only raising queries, but failed to subscribe to the shares within the stipulated time, and therefore, the board of directors of the Company have allotted the rights shares to other shareholders of the Company as per the letter of offer in accordance with their entitlement. Accordingly, 45440 shares were issued to as many as ten shareholders, realising an aggregate sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Venture Graphics (P.) Ltd. [2005] 57 SCL 141 (CLB - Chennai) to show that mere illegal, invalid or irregular acts by themselves, unless they are oppressive to any shareholder or prejudicial to interests of the company or to public interest, cannot support a petition under section 397. u G. Govindaraj v. Venture Graphics (P.) Ltd. s case (supra) to show that section 193 of the Companies Act prescribes the procedure for recording minutes of all the proceedings of every general meeting or board of directors or committee of the board, failure of which attracts penalty. Section 194 of the Act states that minutes of the meeting kept in accordance with the provisions of section 193 of the Companies Act shall be evidence of the proceedings recorded therein. Section 195 relates to the presumption to be drawn where the minutes are duly drawn and signed, in accordance with section 193. The minutes hence are prima facie evidence on the conduct of the meeting and resolutions passed therein. When the resolution properly recorded and filed with the Registrar, the burden of proof as regards the challenge to the meeting is on those who are alleging the contents to be not true. u Kilpest (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliefs are discretionary reliefs. They will be granted only to persons who approach the court with a clean record and in good faith. 6. I have considered the elaborate arguments advanced by learned Counsel for the parties. The main issue for consideration is whether the petitioner has made out a case of oppression and mismanagement in the affairs of the Company, at the hands of the respondents, thereby entitling him for the discretionary reliefs, in terms of the prayer made in the main petition. The rival claims revolve around (i) shareholding; (ii) non-convening of board or general meetings and non-sending of notices to board or general meetings; (iii) appointment of the second respondent as Chairman and Managing Director and fixation of his remuneration; (iv) appointment of additional directors; (v) operation of the bank account solely by the second respondent; (vi) financial irregularities at the instance of the second respondent; (vii) diversion of funds as well as business orders of the partnership firm to the Company; (viii) allotment of shares to outsiders; (ix) impugned transfers, namely, 15000 shares of MJR and 28500 shares of the petitioner in favour of the second res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shareholder Number of shares as on 30-9-2002 30-9-2003 30-9-2005 1. Shri B.V. Reddy 77,500 98,500 98,500 (Petitioner) 2. Smt. Uma Reddy 12,500 17,500 17,500 (wife of petitioner) 3. Shri E. Ranga Reddy 77,500 98,500 113,500 (second respondent) 4. Smt. E. Jaya Reddy 12,500 17,500 17,500 (wile of second respondent) It is observed that as at 30-9-2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate veil of the Company is lifted, it is found to be a partnership, which are found lacking in the present case. In the light of the decision of the Supreme Court in Sangramsinh (P.) Gaekwad s case (supra) the principles of quasi-partnership can be applied to an incorporated company, which would, of course, depend upon the facts of each case. Going by the above facts of the present case, it cannot be said that the principles of quasi-partnership is inapplicable to the Company before me. The grievances of the petitioner that though the Company has been incorporated in May 1998, no formal board or general meeting was ever held nor notices of any board or general meeting was received by the petitioner till August 2004 must be viewed in the light of the search report of the Company obtained from the records of Registrar of Companies and produced before the Bench by the petitioner. The search report discloses inter alia the annual return dated 25-10-1999, balance sheet of 31-3-1999, Form No. 5 together with copy of minutes of the extract of the general meeting for increasing the capital from 15 lakhs to 65 lakhs, annual return dated 29-9-2001, balance sheet of 31-3-2001, annual retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors mentioned here above, were appointed as directors of the Company. The petitioner, being a party to the resolutions passed at the aforesaid meetings is estopped from challenging any of the decisions taken at such meetings, notwithstanding the discrepancies now pointed out by the petitioner that the notice dated 11-8-2004 convening the annual general meeting did not carry any agenda regarding the appointment of directors. Mere irregular acts by themselves, unless they are oppressive to any shareholder or prejudicial to the interest of the Company, as held in G. Govindaraj s case (supra), cannot support a petition under section 397. The petitioner has not made out as to how the appointment of additional director has caused prejudice to the interest of the Company and its shareholders. All the communications dated 23-1-2005, 2-12-2005, 3-12-2005 and 26-12-2005 addressed by the petitioner to the second respondent, copies of which are before the Bench, are found to have been endorsed in favour of among others, directors of the Company. The circular resolution dated 16-12-2005 empowering the Chairman and Managing Director of the Company to operate solely the bank account, which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a communication dated 22-8-1997 addressed by Sri M.K. Shanmugam as technical adviser of M/s. Legend Designers in favour of one of its customers namely, HAL. There is, therefore, no need for approval of accounts of the Company for the year ended 31-3-2005 once again, merely because the approval of accounts for the year ended 31-3-2005 was signed by Shri M.K. Shanmugam. The compliance certificate issued by the third respondent as at 11-8-2004 without disclosing his appointment as an additional director, the fact of which is under dispute, may be irregular but such irregularity per se may not be oppressive and the petitioner has neither pleaded nor made out as to how the aforesaid act is oppressive of the petitioner, or prejudicial to the interest of the Company and the shareholders. The impugned allotments in favour of a number of outsiders, have never been challenged by the petitioner but at this stage expressed his grievances on such allotments, without, however, giving any details regarding the names of allottees, number of shares allotted, date of allotment of shares, etc. The annual return for the period ended 30-9-2002, discloses the allotment of shares in favour of the four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orth by the second respondent, does not survive any more consequent upon withdrawal of such complaint made with HAL. There is no material to suggest that any pressure was brought on the petitioner to withdraw the complaint, made in relation to wrongful appropriation of the funds of the partnership, by the second respondent. KSFC in furtherance of the default committed by the partnership firm, took possession of the unit of the partnership, leading to its closure and ultimate sale of the property of the firm, after causing public notices on several occasions, as elaborated by Shri Murari, learned Counsel, in favour of the fourth respondent, being the highest bidder for ₹ 97 lakhs, in, the presence of the petitioner and the second respondent. Any irregularity on account of sale of the unit of the partnership by KSFC, as suggested by the petitioner, cannot arise in a section 397/398 proceeding. In this background, the charges relating to diversion of business of the partnership firm having already come to an end, for the aforesaid reason, require no order for any remedial measures. Furthermore, there is no scope under section 397/398 to agitate the grievances on account of diver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 2-5-2006 and further affirmed in his affidavit on 18-4-2007 that - (a) MJR has not remitted any amount in favour of the Company by way of subscription to its share capital; (b) remittance of US$ 10000 made on 31-7-2001 was meant to be an unsecured loan; (c) MJR received back his amount from the Company after 40 months of remittance; (d) MJR neither applied for any shares nor received any share certificate from the Company; (e) MJR never submitted any application to the Reserve Bank of India for the transfer of shares to the second respondent; (f) MJR has not signed any transfer deed in favour of the second respondent and the transfer deed produced before the Bench does not contain his signature. The network message dated 31-7-2001 of State Bank of India, Chicago, produced by the petitioner discloses the remittance of ₹ 4.60 lakhs by way of customer transfer from MJR to the account of the Company. This message evidencing the transfer of funds does not specify the purpose of such remittance and it cannot, therefore, conclusively be said that the amounts were remitted by MJR by way of loan in favour of the Company, as claimed by the petitioner. The RBI by its communicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders including MJR. MJR has denied signing of any transfer deed and disowned his signature in respect of 15000 shares in favour of the second respondent, without, however, either asking for inspection of the original transfer deed or verifying the same. MJR has admittedly got back the amount invested by him in the Company. The board of directors of the Company at the meeting held on 28-1-2005 approved the transfer of 15000 shares by MJR in favour of the second respondent and the petitioner is a party to such board resolution, approving the impugned transfer, in terms of the relevant attendance sheet, signed by the petitioner. The impugned transfer of 15000 shares by the petitioner to the second respondent, registered on 28-1-2005 is found disclosed in the annual return made upto 30-9-2005. All these materials would prima facie establish the investment of MJR towards share capital of the Company, the consequent allotment of 15000 shares in his favour by the Company and the subsequent transfer of 15000 shares by the MJR to the second respondent, pursuant to the application made before the RBI for transfer of shares, which is reportedly not a legal requirement. The complaint that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Managing Director of the Company, authorised the second respondent solely to operate the bank accounts maintained in name of the Company in supersession of the earlier resolution passed by the board. While the petitioner has admitted the convening of the board meeting on 11-8-2004, stoutly denies any resolution having been passed in relation to the operation of the bank account. It is on record that the Company s banker, namely, the fifth respondent herein, had received a letter dated 23-11-2005 signed by one to the directors of the Company, obviously the petitioner, instructing that henceforth all the cheques and other relevant documents should be honoured only with the joint signature of (i) the petitioner and (ii) the second respondent. The strong protest made by the petitioner against the sole operation of the bank account by the second respondent would categorically establish the passing of resolution at the board meeting held on 11-8-2004 authorising the second respondent solely to operate the bank account in the name of the Company, in the absence of which, such an instruction would not have flown from the petitioner. The protest made against the sole operation of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner that the Company did not avail any term loan in terms of the sanction letter dated 3-7-2001 of KSFC. The hypothecation deed dated 5-9-2002 securing the term loan of ₹ 50 lakhs pursuant to the aforesaid sanction letter, has been undispu-tedly executed both by the petitioner and the second respondent. It is, therefore, clear that the Company ought to have complied with the condition regarding deletion of article 18(b) before availing the term loan facility from KSFC. The minutes of the extraordinary general meeting of the shareholders of the Company dated 20-3-2002 would show that the relevant clause of article 18(b) came to be deleted, thereby omitting the entitlement of the petitioner and the second respondent to hold the office of director for lifetime, in accordance with the stipulation imposed by KSFC. The search report as at 17-10-2005 disclosing Form No. 23 dated 20-3-2002 on deletion of clause 18(b) and registration of document by the Registrar of Companies on 3-4-2002, has not been disputed by the petitioner. But on the other hand, the petitioner, in his communication dated 11-1-2005 requested the Registrar of Companies not to take on record or register the docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a right to vote at the date of the deposit of the requisition on the matter to be discussed at the meeting and, therefore, it is abundantly clear as approved by the Apex Court in Life Insurance Corporation of India s case (supra) that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements to requisition an extraordinary general meeting in accordance with the provisions of the Act. This mandatory requirement to found lacking in view of the admitted position that the fourth respondent did not possess one-tenth of the paid up capital of the Company as on the date of lodgement of his requisition convening an extraordinary general meeting. That is why, to my mind, the second notice issued on 12-1-2006 conspicuously does not contain any request for convening an extraordinary general meeting of the Company thereby avoiding the embargo contained in section 169. Sub-section (2) of section 284 stipulates that special notice shall be required of any resolution to remove a director under this section. (In view of this, when any special notice is required of a resolution, notice of the intention to move the resolution, as contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation with the company, postpone the meeting at least by three (3) weeks enabling me to attend the meeting and putforth my answers. I hope you will consider my request favourable and oblige. In the meanwhile, I look forward for the copies of minutes duly attested by you. The respondents have nowhere at any point of time denied the genuineness of the reasons putforth by the petitioner for the postponement of the meeting. The minutes of the extraordinary general meeting are not before the Bench to ascertain the details of the proceedings, whereas the second respondent simply advised the petitioner in his letter dated 9-2-2006 that at the extraordinary general meeting the shareholders of the Company have passed necessary resolution removing the petitioner from the office of director and forwarded a copy of Form No. 32 filed with the Registrar of Companies, recording the cessation of this directorship. These events would clearly indicate that the directors present at the board meeting held on 12-1-2006 succumbed to the pressure exerted by the fourth respondent to fix the date of the extraordinary general meeting as per his dictates, and sacrificed the interest of the petitioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedure laid down in the Act, as already found and therefore, such removal being bad in law must be set aside, as held in Girdhar Gopal Gupta s case (supra). Thus, the respondents enjoying majority control in the board of the Company, in my view, brutally exercised their powers and deliberately deprived the rights of the petitioner, one of the promoters, and first directors of the Company, to take part in the management, thereby constituting an act of oppression. This is definitely oppressive and harsh, prejudicing permanently the interest of the petitioner. The petitioner being a prudent technocrat engaged in the affairs of the partnership as well as the Company for over a decade is not found to be diligent in reportedly signing blank annual reports, balance sheets, transfer deeds, statutory returns and other business papers relating to the Company, on account of the blind faith reportedly reposed in the second respondent. The petitioner even though carried out a search of charges of the Company from the records of the Registrar of Companies as early as in October 2005, he never raised the plea of blank signature affixed to the records of the Company at any point of time till in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elsewhere- would show the lack of good faith in him, who approached the CLB without a clean record. I am not, therefore, inclined to exercise my discretion in favour of the petitioner, for acquiring the shares of the respondents, as offered by him. The Company is already been found to be a quasi-partnership with equal status between the partners. Nevertheless, in the context of the existing state of affairs, it could never be possible any more for the petitioner and the second respondent to carry on together the affairs of the Company. The feasibility of division of the landed property as urged by the petitioner, weighing their rival claims, appear to be rather remote and therefore, this Bench cannot exercise the power to order division of the property of the Company, as has been ordered in T. Ramesh U. Pai s case (supra) in the facts of that case, the removal of the petitioner though found to be oppressive, his restoration to the office of director would not be meaningful, in view of the majority control of the management in the hands of the respondents and at best the petitioner could only be a mute spectator, without any effective participation in the affairs of the Company. If ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
