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TMI Blog2017 (8) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... to pass the aforementioned resolutions and therefore the meetings were convened in violation of the Companies Act, 1956. Section 97 of the Companies Act, 1956 contemplates notice of increase of share capital or of members. Serving of notice to members for general meetings is mandatory under all circumstances. Even though the Petitioner had apparently been notified of all the meetings and the ongoings of the Company, which are evident only through “Certificates of Posting”, the Petitioner failed to attend any of the meetings. Moreover, since the Petitioner, until the share capital was increased, was the holder of 49% shareholding in the Company, no special resolutions could have been passed without his participation and vote on the same. Therefore, it is concluded that there is a clear case of oppression against the Petitioner. The meetings that were convened by the Board of Directors have not been properly notified to the Petitioner and resolutions therein were passed in absence of the vote of the Petitioner thereby constituting statutory violation. Also notices that were allegedly served by the Respondents onto the Petitioner were not proper. The reason for the same being that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute a group who jointly hold 51% shares in the Company and constitute the majority. Respondent No. 4 had been issued shares at a later point of time, which has also been contested. Respondent Nos. 5 and 6 had been allegedly illegally inducted into the Board of Directors of the Company as whole time directors. Respondent No. 7 is a company incorporated under the Companies Act, 1956 and was allegedly illegally allotted 1,20,000 equity shares. The present petition has been brought by the Petitioner, who contended to have had his rights as a shareholder in the Company violated through various act perpetrated by the Respondents. The Petitioner claims to have a right to apply under the provisions of oppression before the Tribunal by claiming its present shareholding as 32.75% in the Company. During the course of time the Petitioners had a difference of opinion relating to the functioning of the Company with the Respondents whereby an offer was made to it by Libra for buying its stake out of the Company in addition to the payment of all unsecured loans that were made by the Petitioner to the Company through a Memorandum of Understanding (to be hereinafter referred to as MoU). However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal has also illegally been increased to ₹ 6,35,00,000, according to the Petitioner. The Petitioner has additionally contended that there were no resolutions passed as is the mandate under the Companies Act, 1956. These acts of the Respondents have allegedly reduced the shareholding of the Petitioner from 49%, whereby the Petitioners were the single largest shareholder in the Company, to 32.75%. The Petitioners also contend that the Respondents on the other hand were the holders of 51% shares in the Company. The Petitioner is a company incorporated under the Companies Act, 1956 and has its registered office in Kolkata. The Petitioners contend that they were inducted as a shareholder by purchase of equity shares in or around April, 2009 to the tune of 49% shareholding in the Company. The Petitioner contends that the petitioner was inducted by the Respondent No. 1, for the reason that the Petitioner had infused funds in the Company. The Petitioner had advanced an unsecured loan of ₹ 1,67,45,000 to the Company. The Petitioner contends that out of the entire shareholding held by the Petitioner, 12500 equity shares have been pledged to HUDCO. The Petitioner contends furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital of the company from ₹ 4.25 Crores to ₹ 10 Crores pursuant to an ordinary resolution passed in the EOGM of 18th February, 2010; Form 20B in respect of the Annual Return submitted by the Company after a purported AGM held on 30th September, 2009 which records the existing authorized share capital as against 4,25,000 Lakhs equity shares; and Form 2 which has been filed in connection with allotment of 90,000 equity shares to Peacock Pigments (P.) Ltd on 19th March, 2010 and also in connection with allotment of 1,20,000 shares of the Company to Respondent No. 7, Axis Overseas Limited on 14th April, 2010, were also produced by Libra. However, the Petitioner contends that the list of persons to whom the shares have been allotted is absent on the website. The Petitioners further contend that all the aforementioned forms are illegal and if left outstanding will cause substantial loss and prejudice to the Petitioner as also to the Company. The Petitioner further contends that it never received any notice of any Annual General Meeting held in 2009 after which Annual Return was allegedly filed. The Petitioner also contends that it never received notice of any AGM or EOGM h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to its liquidation. The Petitioners have also prayed for undoing the removal of the Petitioners from the Board of Directors. The Petitioners have finally prayed for the winding up of the Company pursuant to the appointment of an Administrator for administering the assets and the properties of the Company. The Respondent Nos. 2 and 3 contended that they jointly held 51% shares in the Company and constituted majority, however with the increase in the share capital of the Company even their shareholding had come down to 34% as the other percentage of the shares were being held by Peacock Pigment Private Limited and Axis Overseas Limited, and also because they did not subscribe to fresh shares. The Respondent Nos. 2 and 3 contend that the Company was a family owned Company of Soys which was converted to a joint venture of the Respondent Nos. 2 and 3 on the one hand and Sahus on the other hand. The Petitioner thereafter acquired the shares of Sahus. This was done with the consent and approval of the Respondents. Thus the Company stood converted into a joint venture between the Respondent Nos. 2 and 3 on one hand and the petitioner on the other hand with a shareholding ratio of 51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company, convening of AGM and filing of returns with the RoC. The Respondent No. 1 further contends that Form-2 was available on the public website which was accessible by the public in general, which clearly reflected the induction of Respondent No. 7 as a director of the Company. The Respondents further contend that the present petition is entirely malafide and has been filed by a shareholder who is interested to exit from the Company with the sole intent of extracting huge sums of money from the remaining stakeholders, and therefore the present petition merits scarce attention and is not maintainable. The Respondent No. 1 finally contends that along with the Petitioner, Respondent No. 3, and Respondent No. 6 also had their shareholding reduced after the fresh allotment of the shares as they were not agreeable to subscribe to the fresh issue of shares. The general claim of the Respondents happened to be that since the Petitioner had evinced his interest to exit the Company by choosing to sell its shares to Libra, the Petitioner was not interested to run the Company anymore in any capacity. Respondent No. 5 also contended that because of this lack of interest the Petitioner f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of wrongful acts and conducts of suppression and mismanagement by the Respondent Nos. 2 to 7. The Petitioner claims to have had 49% shareholding in the paid up issued and subscribed share capital of the Company as on 29th September, 2009. The Petitioner alleges that the Respondent No. 4 had illegally allotted 90,000 shares without any resolution for issuing such shares. In addition to the aforementioned the Petitioner contended that the Respondent Nos. 5 and 6 are persons who had been illegally inducted on the Board as whole-time Directors without any Annual General meeting. The Petitioner further contended that Respondent No. 7 had been allotted 120,000 shares without issuance of any notice to the Petitioner of such issuance of shares. Therefore, by such wrongful acts, the shareholding of the Petitioner had been sought to be reduced from 49% to approximately 32.75%. In due course of time after the Petitioner entered into a Memorandum of Understanding (to be hereinafter referred to as Moll) on 29th September, 2009, with Libra and when the Petitioner asked Libra for the further payment, around January, 2010, Libra had informed the Petitioner that the Petitioner's sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The petitioners contend that an EOGM was held on 18th February, 2010 for which no notice of such a meeting was issued or sent to the petitioner as has been contended by them. Another Form 2 has also been annexed to the amended petition with the letter L which reflects the alleged allotment of 90,000 equity shares to Peacock Pigments Private Limited on 19th March, 2010. Additionally, Form 2 also has been filed for the alleged allotment of 120,000 shares of the Company done on 14th April, 2010, however, no attachment to the said Form 2 giving a list of persons to whom the shares have been allotted, had been furnished. Petitioner further contends that at a later point of time after the present petition had been filed, the Petitioners came to know about the aforementioned allotment, which was in favour of Respondent No. 7. The Petitioners further contended that the Respondent Nos. 4 and 7 long with the other Respondents in collusion had convened a board meeting of the Company on 18th January, 2010, which was attended by the two representatives of the Sardas, being Amit Sarda and Sunil Toshniwal. The same has been referred to Pages 31 and 63 of the Affidavit in Opposition of Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary, 2010, a decision was taken by the members of the board to invite the existing shareholders of the company to infuse further capital and had offered rights shares to the existing shareholders, wherein the Petitioner was not present because of absence of any notice to the Petitioner relating to the meeting. However, the Respondents contend that none of the existing shareholders had evinced any intention to subscribe to the rights shares pursuant to the decision taken by the Board for rights shares. The Petitioner significantly alleged that according to the affidavit of Respondent No. 5, as on 11th March, 2010 the only existing shareholders of the Company were Respondent Nos. 2 and 3. Therefore, on the basis that the other existing shareholders did not wish to subscribe to the rights issue , at a board meeting held on 19th March, 2010, paragraph 4(n) of the affidavit filed by Respondent No. 5 reflected: The other existing shareholders of the company, namely, the Respondent nos. 2 and 3 were not in a position to subscribe to the additional shares. In these circumstances, the company was left with no option but to allot the additional shares to the respondent No. 4 who was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing into the articles of a company its own philosophy; but it is bound to police their boundaries. Section 16 and Section 17 read along with Schedule I Regulation 47 of the Companies Act, 1956 talks about the alteration in memorandum of association of a company, especially alteration in share capital of a company and the procedure to be followed for increase in share capital of the company. Section 16 states that special resolution needs to be taken if a company wants to carry out alteration in the Memorandum of Association. Moreover, with the first allotment of shares done after the increase in the share capital Section 81 of the Companies Act, 1956 contemplates that when a company proposes to increase the subscribed capital of the company by allotment of shares then such further issue of shares shall be offered to the persons who, at the date of the offer are holders of the equity shares of the company in proportion as nearly as circumstances admit to the capital paid-up on those shares at that date. Gluco Series (P.) Ltd., In re [1987] 61 Comp. Cas. 227 (Cal.), it was observed that it is not open to the directors of a company to issue and allot shares in a manner by which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther 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 is to issue and allot shares to themselves in an illegal manner. Such actions are oppressive in nature. These allotments have been set aside and status quo ante restored by Courts/Tribunal. In the case of Capricorn Oils Ltd. v. Ratan Mohan Sarda [2012] 113 SCL 395/21 taxmann.com 331 (Cal.), 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, 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. Registration of transfers in violation of Articles of Association also amounts to oppression. In T.A.M. Athavan v. Sun Freight Systems (P.) Ltd. [2005] 57 SCL 211 (CLB), oppression and mismanagement was he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Board of Directors was held on 24th October, 1994. If no meeting of the Board of Directors took place on that date, the question of allotment of shares to Ramanujam does not arise. We are inclined to believe that photocopy of the minutes of the alleged meeting dated 24th October, 1994 produced by appellants, is sham and fabricated. The alleged allotment of additional equity shares of the company in favour of Ramanujam is, therefore, wholly unauthorized and invalid and has to be set aside. The Supreme Court in Dale and Carrington Investment (P.) Ltd. (supra), further held that if a member who holds the majority of shares in a company is reduced to the position of minority shareholder by an act of the company or by its board of directors malafide, the said act must ordinarily be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tings that were convened by the Board of Directors have not been properly notified to the Petitioner and resolutions therein were passed in absence of the vote of the Petitioner thereby constituting statutory violation. Also notices that were allegedly served by the Respondents onto the Petitioner were not proper. The reason for the same being that, the alleged notice, for the meeting that was held on 18th February, 2010, was stated to have been sent by the Company on the same day from Ranchi which was the date of the board meeting on 18th February, 2010. Moreover, after the alleged meeting of 18th February, 2010, another board meeting according to the Respondents was held at Kolkata on 19th February, 2010, notice of which was sent on the same day 19th February, 2010 to the shareholders of the Company. Therefore, issue nos. 1 and 2 are conclusively decided in affirmative in favour of the Petitioner. ORDER The Petition is allowed. It is therefore in the interest of the Company and for the existing shareholders of the Company that since the Petitioner was agreeable to sell their shares to Libra, the same be effected. Also the shareholding of the Petitioner shall be reinstat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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