9911796707
TMI Blog2004 (9) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... in further allotment of shares. There exist a relationship of a trustee and cestui que trust as between the directors and Company. If this trust is found to be violated, the action of Managing Director is liable to be intervened by the Company Law Board. The responsibility of the Managing Director towards members becomes more onerous in a private company and therefore the courts have applied the quasi-partnership theory in such cases in the past and have granted appropriate relief if the parity is sought to be disturbed. It is settled proposition of law that further shares could be issued only for the benefit of the Company and not with a view to create a new majority, even if the powers to issue shares is vested in the Board. If the purpose of allotment of shares is for upsetting the existing shareholding to the detriment of one group, then such an allotment of shares, is to be held an act of oppression, whether or not partnership principles are applied. It is not under dispute that the balance sheet and profit and loss account of the Company were approved and adopted since the very incorporation of the Company by the members and the Board of directors, including either of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout use of the Maruti Car now in possession of the first petitioner. The company petition was disposed of with no order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 is mandatory for removal of any director. This requirement has not been satisfied in the light of the fact that no notice was served on the second petitioner, who was sought to be removed from the post of director. The second respondent by making use of certain signatures of the first petitioner obtained in blank papers fabricated the records of the Company as if an extraordinary general meeting of the Company was convened on 17-5-2002, removing the second petitioner from the office of director and co-opting the third respondent as a director of the Company. Shri Seshadri, learned counsel pointed out that the first petitioner was away to Thiruvannamalai on 17-5-2002 and that he neither presided over the meeting nor signed any minutes and in fact no such meeting was ever held on 17-5-2002. The minutes of the purported extraordinary general meeting held on 17-5-2002 is a concocted document. Therefore, the removal of the second petitioner and the appointment of the third respondent as a director of the Company are illegal and void ab initio. In the meantime, the second respondent had sent a legal notice on 29-5-2002 informing the first petitioner that he ceased to be a director of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained in blank income tax return forms and other documents and filed false income tax returns before the Income-tax authorities. The second respondent diverted the business of the company to M/s. Texfab, a partnership firm started by him and M/s. Trims India Company, a proprietary concern, run in the name of the third respondent, as borne out by copies of the statement of accounts of Indian Bank and the visiting cards in the name of Trims India Company. Both these entities are carrying the business in the same registered office premises of the company. The second respondent recently purchased a flat for an amount of ₹ 22 lakhs by deceiving the petitioners and shareholders of the Company. The separate business carried on by the second petitioner independently under the name and style of M/s. Bee Vee Traders, a sole proprietary concern does not have any relevance either to the company or to company petition. The communication dated 10-9-1998 addressed by M/s. Prakash Garments in favour of M/s. Bee Vee Traders was in fact addressed to the attention of the second respondent, which clearly shows that the second respondent was doing business for the second petitioner. Similarly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is respondent by a letter dated 5-4-2002 requested the company to call for an extraordinary general meeting for removing the second petitioner from the post of director on account of his interference in the affairs of the company, upon which the Board of directors at the meeting held on 25-4-2002 resolved to convene the extraordinary general meeting on 17-5-2002. A notice dated 25-4-2002 was sent to the petitioners convening the extraordinary general meeting on 17-5-2002. Though the second petitioner had received the notice, he is now contending that only a blank paper with a note 'Contact' was sent to him, which is absolutely false. While the first petitioner and the second respondent attended the extraordinary general meeting, the second petitioner failed to attend the said meeting, wherein it was unanimously resolved to remove the second petitioner from the office of director and co-opt the third respondent as a director of the company. Accordingly, Form No. 32 was filed before the Registrar of Companies. In the meanwhile, the first petitioner, on account of his old age and ill health submitted his letter of resignation dated 14-5-2002, resigning from the office of director, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. The allegations of obtaining signature of the first petitioner in blank paper is an after-thought in order to overcome the minutes of the meeting held on 17-5-2002. The resignation submitted by the first petitioner was accepted at the Board meeting held on 21-5-2002 with effect from 14-5-2002, as borne out by Form No. 32 filed before the Registrar of Companies. The petitioners, not being interested in the affairs of the Company, are interfering with the affairs of the company and unnecessarily writing letters to the Banks and Income-tax Depart-ment, with a view to harass the second respondent. The claim on the petitioners to set aside the impugned allotments suffers from laches. The second respondent is not a partner in any of the firms, as made out by the petitioners. The second respondent has not purchased any property from and out of the funds of the company, but only from his own funds. The petitioners have not made out any acts of oppression and mismanagement in the affairs of the Company. For these reasons, the company petition is liable to be dismissed. 4. I have considered the pleadings and arguments advanced by learned Counsel. Before considering the company petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition were made with the knowledge and consent of the petitioners. It is on record that the petitioners and the second respondent are equal shareholders till the allotment of impugned shares made by the second respondent. By virtue of articles 14 and 15, the management of the Company shall vest in the Managing Director, having powers to do all such acts within the framework of the Act. Article 5(a) envisages that the shares are under the control of the directors. Any issue of shares shall be offered to the existing shareholders in proportion to their holdings as on the date of issue of shares by the directors. There is no material to show that the second respondent made any such offer to the petitioners in proportion to their holdings in accordance with article 5(a), before the allotment of impugned shares in favour of second petitioner and himself. The Articles of Association are the internal regulation of the company, according to which the directors are bound to act, regulating the internal management of the Company and any act outside the articles is irregular unless ratified by the members. This wrongful act is such that its effect would be a continuous act of oppression an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l apply where the company has availed itself of the option given to it under section 265 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation. (2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed." A plain reading of sub-section (1) of section 284 reveals that a company may, by ordinary resolution, remove a director, not being a director appointed by the Central Government, before the expiry of his period of office. Sub-section (2) of section 284 stipulates that special notice shall be required of any resolution to remove a director. Furthermore, section 190 specifies that every special notice requires resolution, which is rather mandatory. While according to the second respondent, notices were sent to the petitioners on 25-4-2002 convening the extraordinary general meeting on 17-5-2002, the petitioners by their letter dated 29-4-2002 sent by registered post with acknowledgement due (page 101 of company petition) specifically contended that they had received only a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laint of the petitioners that "an extraordinary general meeting cannot be conducted without a board meeting", simply conveyed in his communication dated 14-5-2002 sent to the second petitioner's advocate (page 121 of company petition) that he as the Managing Director was quite competent to call for a general meeting, thereby failing to establish the legal requirement of the meeting of the Board of Directors of the Company before convening the extraordinary general meeting on 17-5-2002, for removal of the second petitioner from the post of director and co-opting the third respondent as a director of the Company. In the absence of any such Board meeting, the proceedings of the extraordinary general meeting purportedly held on 17-5-2002 cannot be valid. There is absolutely no material on record to show that any Board meeting was held for convening the extraordinary general meeting of the Company held on 17-5-2002. Under these circumstances it would be a futile exercise to go into the legality or otherwise of the minutes of the extraordinary general meeting. While, the extraordinary general meeting was purportedly held on 17-5-2002 and the minutes of the said meeting were sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second respondent that the first petitioner ceased to be the director of the Company, in my view would be act of oppression, more so, when the Company is a family company and the first petitioner is one of the promoter directors of the Company. The petitioners' claim in regard to the receivables realised from M/s. Prakash Garments, M/s. Vishnu Wears etc., it shall be borne in mind that M/s. Bee Vee Traders, M/s. B.V. Thirumalai & M/s. Vishnu Wears are legally entitled for these receivables. The petitioners cannot have any grievance on account of fact that these receivables were not accounted for in the books of account of the Company. In the event of any misappropriation of the receivables of these proprietary concerns, for personal benefits of the second respondent and towards purchase of property in his name or on any other reason, the petitioners are at liberty to enforce their claim against second respondent, if so advised, but cannot be agitated in the present proceedings. However, it is seen from copy of the extract from the ledger for the period between 1-4-2002 and 30-6-2002, produced by the second respondent that huge cash withdrawals and funds transfer aggregating severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng parity in tune with article 5(a) of the Articles of Association of the Company. (ii)The Board of directors of the Company shall be reconstituted by the petitioners and the second respondent with immediate effect, while the third respondent simultaneously shall cease to be a director of the Company. (iii)The management of the business of the Company shall vest in the Board of directors who may exercise all such powers and Company all things within the framework of the Act. The Articles of Association of the Company shall suitably be amended. (iv)The Company shall pay the remuneration of the petitioners since April 2002 at the rate of ₹ 1,30,000 per annum for the first petitioner and at ₹ 1,39,000 per annum for the second petitioner. (v)M/s. Rao & Gopal, Chartered Accountants, Chennai are appointed to scrutinize all payments and receipts on account of the Company with reference to the books of account, financial statements, bank statements, vouchers and any other records of the Company which may be found necessary, for the period between 1-4-2002 and 31-8-2004 and also take into account the submissions of the petitioners and the second respondent so as to ascer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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