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TMI Blog2009 (10) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. Therefore, the RMS group entered into an understanding with the second respondent and his group referred to as the OPA group for infusion of funds as working partners with the understanding that 51 per cent in SOIL would be transferred to the OPA group. In terms of this understanding, the OPA group paid ₹ 14 lakhs to the WBFC and the unit of Supreme Oil started functioning from April, 2003. Thereafter, both the groups decided to join hands to set up the refinery of the first respondent -company. There is a dispute as to the terms of the understanding. While according to the RMS group, the OPA group would hold 30 per cent shares along with control of the board but joint management with the RMS group, the stand of the OPA group is that the RMS group had agreed to transfer all the shares held by it to the OPA group along with complete management. But one admitted fact is that the RMS group did transfer 3 lakh shares constituting to 30 per cent to the OPA group in October, 2003. ( 2. ) In this background, the allegations of the petitioners are that the OPA group had reduced the percentage shareholding of the RMS group by allotment of shares to the OPA group on December ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up was not financially capable of setting up the refinery. There was no such agreement or understanding as alleged and therefore, the stand is absolutely incorrect and absurd. The only understanding was that the 30 per cent shares would be transferred and it was done. According to them while 3 lakhs shares would be transferred at ₹ 1 per share immediately, the balance 1.65.000 shares at ₹ 3 at a latter date. There is no explanation as to why two prices had been fixed for the similar shares. Secondly, there is nothing on record that after transfer of 3 lakhs shares, at any time, the OPA group demanded the transfer of 1.65 lakhs. Further, sale of shares in future is violative of Sections 13 and 16 of the Securities Contracts (Regulation) Act, 1956. If the contention of the respondents is correct, then there was no need for the RMS group to have given a loan of ₹ 68 lakhs on October 27, 2003 as loans and a sum of ₹ 21.8 lakhs as share application money. It is further claimed by the respondents that the first petitioner was to transfer a piece of his land to the company for ₹ 25 lakhs for which the company would allot shares worth ₹ 13 lakhs and pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which the company had to issue further shares. For the loan taken from the Canara Bank, the respondents had to give further personal guarantees. In its sanctioned letter dated November 8, 2004, the Canara Bank had required the company to increase its capital to ₹ 200 lakhs within two months. Further, the claim of the petitioners that they were the majority shareholders with 70 per cent, shares is also not borne on facts. As per the letter of the United Bank of India dated January 16, 2008, the petitioners' holding in the company is in the order of 2,95,000 shares. In the same letter, the bank had also required the company not to approve any transfer of these shares. Further, by an order dated January 17, 2008, the Debts Recovery Tribunal has attached the shares of the petitioners in the company as is evident from the notice of the debt recovery officer to the police to produce the third petitioner. The third petitioner is avoiding to appear before the debt recovery officer. Further, the shares held by the petitioners have been put up for sale by the Debts Recovery Tribunal and as such, they would no longer be shareholders in the company. The first petitioner is invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CLB) the minority shareholder who was in management was directed to purchase the shares of the majority shareholder on the ground that the person in management should have the right to purchase the shares of the other. It was done only with a view to protect the interest of the company. Even though the names of the petitioners are in the register of members, they have no right to hold the shares in view of the attachment of their shares and therefore, no equity is in their favour. Therefore, the petitioners should be directed to sell their shares to the respondents. Even for doing so, notice has to be issued to the bank as the shares are under attachment. ( 5. ) In the rejoinder, Shri Mukherjee submitted : The petitioners have challenged the allotments made on December 12, 2005 and February 14, 2006. By the first allotment, the petitioners were converted from a majority into a minority. In the petition, the petitioners had indicated the authorised and paid up share capital including these two allotments and no dispute had been raised on this by the respondents in their reply. However, it has come to the knowledge of the petitioners, after filing of the petition, that a further a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fictitious. It is to be noted that the balance -sheets as on March 31, 2004, 2005 and 2006 have been signed by the respondents reflecting the share application money of the petitioners. Even in their letters to the Registrar of Companies, they had agreed to allot shares to the petitioners against the share application money. It is to be noted that both in the petition as well as in the rejoinder, the petitioners had averred that they had acquired over 2 lakh shares on transfer from other shareholders. However, the company has not registered these shares in favour of the petitioners. Once the shares are registered, the petitioners would automatically become the majority shareholders with over 52 per cent shares. Just because shares have been attached it does not mean that the right of the petitioners to exercise their rights on the shares as shareholders has come to an end. In Balkrishan Gupta v. Swadeshi Polytex Ltd. : (1985) 58 Comp Cas 563 : AIR 1985 SC 520, it is held that by appointment of a receiver in respect of shares held by a shareholder, he does not lose his right to requisition an extra ordinary general meeting. This decision would show that all rights in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ): Holder of majority shares cannot be directed to sell shares to the minority. Life Insurance Corporation of India v. Escorts Ltd. : (1986) 59 Comp Cas 548 : AIR 1986 SC 1370 : The interest of a shareholder in a company is represented by his shareholding. The rights of a shareholder are to elect directors and participate in the management through them to vote on resolutions at the meetings of the company to enjoy the profits of the company in the shape of dividends to apply to court for relief in case of oppression and also in case of mismanagement and to apply to the court for winding up of the company and to share the surplus on winding up. Dale and Carrington Invt. P. Ltd. v. P.K. Prathapan : (2004) 122 Comp Cas 161 : (2005) 1 SCC 212 : Asking the oppressed to sell shares to the oppressor not only fails to redress the wrong done to the oppressed, it also results in heavy monetary loss to him. ( 7. ) Shri Sarkar, in sur -rejoinder submitted : When the petitioners cannot be in the management, they cannot seek control of the management. In page 10 of the petition, the petitioners themselves have admitted that since the RMS group has been put on the defaulters list, they w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the Debts Recovery Tribunal order dated March 27, 2009, all the shares of the petitioners have to be handed over to the bank for sale. Before the special officer, the RMS group had submitted that the share certificates were not with them but were lying in the factory premises. On this submission, the Debts Recovery Tribunal directed the company to deposit the share certificate with the special officer. Accordingly, the respondents conducted a search in the factory premises and found that share scrips relating to 4,09,300 shares lying in the factory premises. These share certificates include those belonging to the RMS group and also those allegedly acquired by them. The petitioners have also produced share certificates bearing the same distinctive numbers. The shares certificates in original found in the factory premises produced during the hearing have two signatures, while those produced by the petitioners bear three signatures. The share certificates lying in the factory bear the signature of the 1st petitioner. Therefore, the certificates produced by them are nothing but fabricated ones. Now that disputes have arisen as to which certificates are genuine, only the Debts R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the company to the OPA group. The admitted position is that the RMS group had transferred only 3 lakh shares and there is no material on record that there was any agreement for transfer of further 1.65 lakh shares as is evident from the fact that at no point of time the OPA group had even demanded in writing for the transfer of 1.65 lakh shares. Even with this 1.65 lakh, shares, the OPA group would hold only around 46.56 per cent shares leaving the balance 53.5 per cent shares with other shareholders including the RMS group. In other words the OPA group had always been in minority before the impugned allotment of shares. Now regarding allotment of further shares : The company is admittedly a public company and therefore, in terms of Section 81 of the Act, only rights shares could have been issued unless a resolution under Section 81(1A) had been passed to allot shares to non -members. The respondents have not even averred that such resolutions had been passed leave alone establishing the passing of such resolutions. The respondents have taken a stand that rights issue could not have been made to the petitioner as they had no funds. It is to be noted that at the time when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han 10 per cent after the first allotment, has been reduced to below 10 per cent which is also an act of oppression. Therefore the petitioners have established acts of oppression not only against them but also against other shareholders by the first and the third allotment. Further, in the reply to the petition, the OPA group had suppressed the fact of allotment of shares worth ₹ 1 crore on March 19, 2007 after increasing the authorised capital in an extraordinary general meeting held on March 15, 2007. When the entire challenge in the petition is about allotment of shares, and when further shares had been allotted, it was incumbent on the part of the respondents to have disclosed the third allotment in their reply. Shri Mookherjee, relying on S. P. Chengalvaraya Naidu v. Jagannath : (1994) 1 SCC 1 and Satish Khosla v. Eli Lilly Ranbaxy Ltd., (1998) 71 DLT 1 cases, urged that by non disclosure of the third allotment, the respondents have played a fraud on this Board. While I agree that the respondents should have disclosed this material fact in their reply, yet, I do not consider that they had played any fraud, as, they did not get any order from this Board adverse to the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner had agreed to receive shares for ₹ 13 lakhs against the consideration for his land of ₹ 25 lakhs transferred to the company. Further, the petitioner has also urged that they have got about more than 2 lakh shares transferred in their favour. In addition, the respondents themselves have perceived that the petitioners were interested in continuing in the company by allotting shares worth ₹ 25 lakhs on February 14, 2006 to the fourth petitioner even in the absence of any request or application from the fourth petitioner. Therefore, even though the petitioners have handed over the management of the company to the OPA group, the facts reveal that they have no intention of handing over the ownership of the company. Therefore, these facts would indicate that the RMS group has not abandoned the company. ( 13. ) The next objection raised by the OPA group is that since the RMS group is in the defaulters list, it cannot have the management. The main purpose of the defaulters list is to ensure that the defaulters do not get further financial assistance from financial institutions. Being in the defaulters list does not debar a person from being in the management of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and Carrington Invt. P. Ltd. v. P. K. Prathapan, (2004) 122 Comp Cas 161. In that case, the promoter of the company handed over the management to the respondents therein. By illegal allotment of shares to his own group, the respondent therein gained majority shareholding in that company. The company had performed very well under his control. Taking note of this fact that the respondent was in control of the company and the company had performed well, this Board directed the promoter of the company to sell his shares to the respondent. This order was set aside by the Kerala High Court and the court ordered the cancellation of the allotment of the shares impugned therein. On an appeal, the Supreme Court upheld the judgment of the Kerala High Court. In doing so, the Supreme Court made the following observation (page 184 of 122 Comp Cas) : On the question of relief, Learned Counsel for the parties referred to the decisions in support of their respective stands. We do not consider it necessary to refer to these decisions because relief depends on the facts of a particular case. We have seen the facts of the present case which to our mind are so manifestly against Ramanujam that two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Registrar of Companies regarding the impugned allotments are now supporting the OPA group. In other words, this is a case where there is no uncontested identifiable single group to be considered as the majority group. Therefore, it would not be appropriate to give any direction as to who should sell their shares and to whom. Therefore, I have decided that the matter as to who should remain in the company should be left to the shareholders on the basis of the register of members as in October, 2003, i.e., after the RMS group had transferred 3 lakh shares to the OPA group. ( 15. ) Accordingly , I direct as follows : The company shall convene a general meeting on or before December 10, 2009 to elect seven directors on the basis of share capital as in October, 2003. Admittedly, at that time, the number of shares issued was 10,04,300 equity shares. I direct that only the shareholders whose names were in the register of members as in October, 2003 in respect of these shares, shall be entitled to vote in the general meeting. The general meeting will be chaired by Shri C. R. Das, a former member of the Company Law Board. The company shall pay Sri Das a sum of ₹ 75,000 as h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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