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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 ..... of which the company had taken over, and continued as a whole time director of the company, the respondents have acted highly oppressive to the petitioner. It is seen that all the 598676 shares proposed to be allotted on the two occasions had been allotted only to the members belonging to the respondents group and thus they have consolidated their position in the company. There is no evidence that for the first allotment, shares were offered to the petitioner and the respondents have admitted that in respect of the second allotment, no offer was made to the petitioners. Thus, the petitioners are justified in claiming that by the said allotments, not only the respondents have enriched themselves but also reduced the percentage holding of the petitioners. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is oppression to exercise the jurisdiction under Sections 397/398, remanded the case back to this board for re-hearing and disposal. Accordingly the petition was reheard. 2. The petitioners who collectively held 12.99% of the paid up capital of M/S Simplex Engineering and Foundry Works Co. Ltd. (the company) have filed this petition alleging that by allotment of further shares in exclusion of the petitioners, their holding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issa Paper Products Ltd. 66 CC 460. Further this Board has held in Naresh Trehan v. Hymatic Agro Equipments Pvt. Ltd. 1997 CC 561 that "Although the shareholders have full right to remove a director, yet, such a right is not unrestricted in a family company and an aggrieved shareholder can always complain of a oppression even if the removal is in accordance with law. A family company is one in which there is a special relationship 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndents of ₹ 1l crores, ₹ 9 crores and ₹ 6 crores respectively. Most of the outstandings were loans given by the company. As against this huge outstandings, the total amount raised by way of further issue of shares was hardly about ₹ 60 lacs. If the company had collected even a small percentage of outstandings owed by the entities belonging to the respondents, there would have been no need to issue further shares which was done only to affect the interest of the petitioners. 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 ₹ 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 ₹ 3.5 crores to ₹ 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable is to approach a civil court. Likewise, in Parmanand Choudhary v. Smt Shukla Devi Mishra67 CC 45 MP, it has been held when a director of a private company voluntarily hands over the management and absents himself from the board meetings, it could not be said that he is a victim of oppression. Since in the present case, the petitioner had voluntarily resigned from the directorship and has never agitated regarding the same for nearly 5 years, he cannot file this petition alleging oppression. Even otherwise, 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 accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the allotment would result in oppression. The claim of the petitioners that instead of raising fresh capital, the company should have realized all the debts due to it has no basis. The debts shown in the books of accounts are not money lent but trade advances made by the respondent company including certain inter corporate loans and the company was not in a position to call back these advances as this would have affected its working and future prospectus and therefore the board decided to raise capital by way of 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries...The operations of the companies have become very smooth, expansion is also in full swing, the liabilities are over It's a pleasant scenario where one feels proud and satisfied... Once the person the person reaches to satisfaction then it is time that he should diversify his activities. Under the circumstances the time has come for me to say goodbye to our business association and partnership. Though it is a hard decision for me to take but I have to take this decision due to my personal reasons. ...request 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents' group and thus they have consolidated their position in the company. There is no evidence that for the first allotment, shares were offered to the petitioner and the respondents have admitted that in respect of the second allotment, no offer was made to the petitioners. Thus, the petitioners are justified in claiming that by the said allotments, not only the respondents have enriched themselves but also reduced the percentage holding of the petitioners. 13. Thus the petitioners have established the acts of oppression. In terms 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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