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TMI Blog2006 (9) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... has been reduced to 10.05% and consequently they have sought for a declaration that the allotment of shares is bad in law and should be set aside or in the alternative the allottees of the shares should directed to pay the fair value of the shares determined by an independent valuer. In addition, they have also alleged that the 1st petitioner has been illegally removed from the board and as such should be restored as a director. 3. Shri Choudhary, appearing for the petitioner submitted: The company took over the business of a partnership firm in which the petitioner and the family members of the petitioner and that of the 2nd respondent were partners and on taking over of the business, shares were allotted in the same proportion as was in the partnership. The company is a family company and the petitioners' group and respondents' group are closely related. The petitioner being a qualified technocrat was one of whole time directors right from its incorporation. Even though the company's growth is largely attributable to the 1st petitioner, out of jealousy, the respondents started creating hurdles in the way of working of the petitioner. Therefore, by a letter dated 10th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... among the shareholders and the normal law relating to other companies cannot be straightway applied". Even assuming that the letter was really a letter of resignation, the same was subject to the settlement of accounts of the petitioner which was never done and therefore his alleged resignation could not have come into effect. The alleged removal from directorship was immediately protested and elders of the family have all along been trying to resolve the dispute domestically and that is why the petitioner did not move the petition earlier. 4. The learned Counsel further submitted: After, the alleged removal, the company stopped sending annual reports to the 1st petitioner in spite of repeated reminders. Only on 5.10.2001, on his personal visit to the office of the company, the petitioner could collect the copies of the balance sheets for the years 31st March, 2000 and 31st March, 2001. The petitioners were not even sent notices for AGMs notwithstanding the fact they have invested substantial funds in the company and the 1st petitioner actively involved himself in the company as a whole time director. After removing the petitioner from the board, the company had issued new "A" equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners. Further, by issuing the additional shares at par, while the fair value of the shares was much higher, the respondents have caused a loss of about Rs. 17 crores to the company. With a view to further cause loss to the company and to the detriment to the petitioners, the company had issued a notice on 20.11.2002 calling for an EOGM on 6.12.2002 for increasing the authorized capital of the company from Rs. 3.5 crores to Rs. 5 crores. 5. The learned Counsel appearing for the respondents submitted: The present petition suffers from latches, acquiescence and estoppel. Even though the Provisions of Limitation Act are not strictly applicable to this Board, yet, inordinate delay on the part of the petitioner to move the petition cannot be condoned. The main contention of the petitioner is that his letter dated 10.6.1998 was not a letter of resignation and therefore should not have been treated as such and accepted by the board. Whether the said letter was a resignation letter or not cannot be determined by this Board and the petitioner has to agitate the same before a civil court. The fact that his resignation had been accepted was conveyed to the petitioner by a letter dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise, a careful reading of the letter of the petitioner dated 10.6.1998 would very clearly indicate that it was nothing but a letter of resignation. When the petitioner had said that the time had come to say good bye to the business association and partnership and therefore his accounts should be settled and his personal guarantees released, the same would amount to nothing but resignation. In considering a document, substance is more important than the form. This letter was not addressed to a third party as claimed by the petitioner but was addressed to the Chairman of the company and the same was considered in a board meeting and the board took the collective decision of accepting the resignation. Therefore, the petitioner cannot impugn his cessation as a director brought out by his own conduct. 7. The learned Counsel further submitted that to allege oppression and mismanagement, the same should be specifically pleaded and proved especially in relation to allegations of malafide Sangram sinh P. Gaekwad v. Shanta Devi P. Gaekwad MANU/SC/0052/2005. In the same case, it has also been held that an isolated incident may not be enough for grant of relief and continuous course of oppre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further issue of shares. In theNeedles Industriescase, the Supreme Court has held that it is not always necessary that share capital can be increased only when the company needed funds but could for other purposes also like compliance with statutory rules etc. Therefore, there is no substance in the allegations in regard to allotment of further shares. In view of the fact that the petitioners have not established any act of oppression or mismanagement, this petition should be dismissed. 9. I have considered the pleadings, arguments and the written submissions. In so far as limitation is concerned, as submitted by the learned Counsel for the respondents that the provisions of Limitation Act are not applicable to a proceeding before this Board in terms of Sections 397/398 of the Act. Further, when this Board exercises equitable jurisdiction technicalities like delay etc. are also not given much weightage, especially in cases of family companies wherein the family members always attempt at an amicable settlement before bringing the matter before the court. In the present case, the petitioner appears to have attempted at an amicable solution but seems to have failed. Therefore, I do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... you to please settle my accounts and release my personal guaranties given to Bankers and Financial institution at the earliest. ...During these 30 years of association I might have hurt your pride, respect and feelings directly or indirectly may now be forgiven... I once again thank you for your love and affection rendered to me and confident that same will be rendered to me even we are separated in our business association. I will be always available for any service required from my side. It will be attended with pleasure and without obligation. ...I will be highly obliged if my & family's accounts are settled and personal guaranties are released immediately. Henceforth I shall not be responsible for any liabilities...With regards, Yours (Navin Shah)... CC:Shri Arvind Shah... Calcutta... Shri M. R. Shah.. Raipur ". 11. A perusal of the above letter would indicate that there is no mention about the name of the company. The petitioner had talked about 30 years of association while the company was incorporated only in 1980. There is no mention about directorship nor the letter has been addressed either to the company or to the board of directors. Whether this letter is specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of section 397, once acts of oppression are established, winding up of the company on just and equitable ground would automatically follow and this Board has to only consider whether the winding up of the company would be in the interest of the shareholders. Considering the fact that the petitioners' holding in the company is only around 10% and that the company is engaged in a profitable business, winding up of the company would be against the interest of the shareholders as well as the company. Therefore, since in terms of section 397 the acts complained of should be put an end to, I could direct the company to take back the 1st petitioner as a director and also direct the allottees of the shares to transfer such number of shares to the petitioners which would bring their share holding to the original percentage. However, I do not propose to do so. It is the understanding of the respondents that the desire of the petitioner in saying "good bye" amounted to resignation. He had actually desired to say "good bye" to the business association and partnership. It would mean that he did not desire to have any association with the respondents. This being the case, his business as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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