9911796707
TMI Blog2007 (11) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... PO. The petitioner filed the instant petition alleging that the second respondent has not convened a single board meeting after the incorporation of the company except the one in which she was authorised to operate the bank accounts singly and that she has failed to attend the board meeting convened by the second respondent, that she is guilty of financial mismanagement and siphoning off of funds and that the extraordinary general meeting requisitioned by the petitioner for the appointment of additional directors could not be considered as the second respondent did not allow the board meeting to be convened to consider the requisition. With these allegations, the petitioner sought for directions to hold the board meeting on a fixed date and to direct holding of the extraordinary general meeting and also for a declaration that all decisions taken by the second respondent without the authority of the board, as null and void. 2. When this petition was mentioned on June 19, 2007,1 directed both the parties to be present in person to attempt at an amicable settlement of the disputes and accordingly both the sides were represented on June 21, 2007, when it was agreed that an extraordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the petitioner had full trust and confidence in the second respondent, he had given her a power of attorney to carry on the business of the company. Since, the petitioner found that she was paying heavy remuneration to her son who is a student and also to her husband without the consent of the petitioner and was also siphoning off of the funds of the company and had been mismanaging the affairs of the company, the petitioner desired to have an additional director on the board as the petitioner normally resides abroad. However, the second respondent, with a view to have sole control of the company did not allow board meetings to be held to consider the proposal. Even the extraordinary general meeting requisitioned by the petitioner could not be considered by the board. In terms of Article 37, the board has the power to appoint additional directors and such directors need not hold any qualification shares. Since there is a deadlock in the company, the only way by which the deadlock can be resolved is to appoint additional directors which is not acceptable to the second respondent as she does not want to share her powers. So far she has initiated six independent proceedings--3 again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration for her shares. 6. Learned Counsel relied on the following cases: (1) Bajrang Prasad Jalan v. Mahabir Prasad Jalan Majority was directed to purchase the minority shareholders. (2) Kamal Kumar Dutta v. Ruby General Hospital Ltd. [2006] 134 Comp Cas 678 (SC) : [2006] 7 SCC 613. (3) Combust Technic P. Ltd. In re [1986] 60 Comp Cas 872 (Cal): Majority cannot be directed to sell their shares to the minority. (4) Dale and Carrington Investment P. Ltd. v. P.K. Prathapan A majority shareholder should not ordinarily be directed to sell his shares to the minority group of shareholders. 7. Shri Mookherjee, senior advocate, appearing for the second respondent submitted: In view of the strained relations between the parties, the only solution would be parting of ways. The second respondent should have the right to purchase the shares held by the petitioner for various reasons. The petitioner is an NRI residing in UK and does not have any business in India leave alone the BPO business. The company took over the business of the partnership in which the petitioner and the second respondent held 80 : 20 interest. In terms of the addendum to the partnership deed dated Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services like electricity, telephone bills, etc., could not be paid. In other words, the first petitioner had completely paralysed the working of the company. Thereafter, even though, he withdrew the said letter on December 29, 2006, yet, by a letter dated May 8, 2007, he asked M/s. Core to discharge all the obligations of the company directly by making payments to the vendors. Because of this, M/s. Core has stopped/withheld all payments to the company due to which the company is starved of funds. It is important to note that on May 1, 2007, the petitioner had entered into an agreement with M/s. Core to sell all his shares to M/s. Core and also to hand over the management of the company with the stipulation that the second respondent should be removed from the board. This agreement to sell has not been disclosed in the petition nor denied in the rejoinder. As a matter of fact, during the month of April, the second respondent had some inclination that the petitioner was trying to sell his shares and in spite of her repeated e-Mails to him, he never responded. If he had decided to leave the company, he should have offered the shares to the second respondent, who has been his partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The petitioner has alleged that the second respondent proposed and voted in favour of winding up of the company and therefore she is not entitled for any equitable relief. The second respondent made the said proposal only in view of the prejudicial acts of the petitioner both against her as well as against the company. It is crystal clear that both the petitioner and M/s. Core have joined together and the petition itself appears to be by proxy on behalf of M/s. Core. Because they have joined hands together, to protect the interest of the company, the second respondent has not only filed an application under Section 11 but has also sought for directions against M/s. Core to discharge its obligations to the company. In a petition under Section 397/398, the Company Law Board is not bound by the articles as articles are subject to equitable considerations. Having filed this petition and seeking equitable relief, the petitioner cannot insist that the disputes should be decided in terms of the articles. Even in a petition for winding up, relief in terms of Section 397/398 can be sought. Copeland and Craddock Ltd., In re [1997] BCC 294, the petition was filed for winding up of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y after the second respondent moved the High Court, the petitioner issued a notice for holding a board meeting and also an extraordinary general meeting and when the second respondent objected to the same, filed the present petition. It is to be noted that only after both the sides consented for holding the extraordinary general meeting, the second respondent issued a notice for consideration of the businesses proposed by her. Her conduct completely debars her from claiming any equitable relief especially when her desire is to keep the 80 per cent, shareholder completely out of the affairs of the company for all times to come. She does not want to have any checks and balances notwithstanding the fact that she holds only 20 per cent, shares in the company. Her claim that no third person could become a shareholder/director is not correct. As per the addendum, such a stipulation was to operate only at the time of incorporation of the company where after the articles would prevail. While Article 15 permits transfer of shares to outsiders, Article 37 specifically provides for appointment of outside directors even without holding qualification shares. It is on record that in the extraord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract among the shareholders and being a signatory to the memorandum and articles, the second respondent was fully aware of the provisions of the articles. If the intention contained in the addendum were to be continued even after the partnership was converted into the company, then, the provisions contained in the addendum should have been incorporated in the articles. I find from the articles that there is no reference to the addendum even to presume that it was the intention of the parties, notwithstanding specific provisions in the articles, to abide by/follow the provisions of the addendum. When there are two agreements entered into on different dates relating to a particular subject, unless the latter agreement makes a reference to the former agreement and provides that the latter is in addition to the former, the latter agreement would prevail. A ground for alleging oppression could be that there is a violation of the provisions of the articles affecting the proprietary rights of a shareholder. Every shareholder has the right to enforce the rights arising out of the articles and such rights have to be considered to be proprietary rights and the denial of such rights could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time to time. In the petition it is stated that since the petitioner did not allow joint signatures on the cheques with the petitioner, he decided to enlarge the board. In rejoinder, he has stated that since the second respondent had initiated proceedings against the petitioner and M/s. Core, enlargement of the board is necessary. During the hearing it was submitted that the appointment of additional directors is necessary to break/resolve the deadlock. An examination of the sequence of events would indicate that the enlargement of the board could lead to consequences which are completely against the interests of the second respondent or oppressive to her. It is on record that the petitioner sold the dialer in April/May 2007, without which, according to him, the second respondent could have never started the BPO. On May 1, 2007, he entered into an agreement to sell his shares to Core BPO. There are two important stipulations in the agreement. One is that there should be a board approval for the transfer of shares and the other is that the second respondent should be removed from the board. The former cannot go through unless the second respondent consents to the transfer as there a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he second respondent has been sought to be completely excluded from the management of the company notwithstanding the fact that she had been solely managing the affairs of the company right from its incorporation. Therefore, the second respondent is fully justified in seeking for a permanent injunction against the implementation of the extraordinary general meeting resolutions. 16. However, in view of the stand of both the sides that due to irreconcilable differences, parting of ways is the only solution, I shall examine the issue as to who should go out of the company. According to Shri Sarkar, it is the majority who should have the control of the company and the majority cannot be directed to go out of the company especially when the second respondent had voted for winding up of the company and has initiated various proceedings against the petitioner and against the only customer M/s. Core. In a deadlock situation of closely held companies, there could be no standard yardstick to decide whenever majority or minority should continue in the company and the same would depend on the facts of the case. In Dale and Carrington Investment P. Ltd. v. P.K. Prathapan, the minority shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were only two shareholders, the petitioner holding 14 shares and the second respondent 16 shares. Both of them were directors. Since the respondent therein did not attend a board meeting convened by the petitioner, in the adjourned board meeting, the petitioner co-opted another director and also issued 20 shares himself. Thus, he became majority on the board as well as in the shareholding. The respondents therein filed a suit to restrain the petitioner from giving effect to the resolutions passed in the impugned meeting. Thereafter, the petitioner filed the petition on the ground of deadlock in the affairs of the company and seeking for various reliefs inter alia for a direction to the respondent to sell her shares to the petitioner. Since the suit was pending, the High Court did not grant any relief sought for by the petitioner but appointed a special officer, while doing so, it also observed that majority is a matter of arithmetic and in law she should not be directed by the court to sell her shares to the petitioner . This observation of the High Court may not hold good now in view of the Supreme Court decision in Dale and Carrington Investment P. Ltd. v. P.K. Prathapan [2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o M/s. Core BPO in April/May 2007, which, has thereafter, alleging that the company has not complied with the terms of agreement, sought for re-negotiation of the memorandum of understanding. Thereafter, he entered into an agreement to sell his shares to M/s. Core on May 1, 2007, with the provision that the second respondent would be removed from the board. Thereafter, by another letter, he authorised M/s. Core to discharge the liabilities of the company. The sequence of events would indicate that not only the petitioner is not interested in continuing with the company but, even before transferring his shares to M/s. Core, had practically handed over the financial management of the company to M/s. Core. Therefore, even assuming, as contended by Shri Sarkar that majority should have the right to purchase the minority, when such a majority has expressly indicated its desire to go out of the company by entering into an agreement to sell its shares and had also acted against the interests of the company, the question of the majority seeking to buy out the minority does not arise. No doubt, Shri Sarkar mentioned that the petitioner has not acted upon the agreement, but it is of no conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, he should have offered the shares to the second respondent and not to an outsider unless the second respondent had rejected the offer. Shri Sarkar contented that since the petitioner proposed a resolution for winding up of the company in the extraordinary general meeting, she cannot seek any equitable remedy. It is to be noted that she only sought for the approval of the general body for winding up of the company and did not initiate any legal proceeding in this regard either before or after the extraordinary general meeting. If she had done so, perhaps, then, the contention of Shri Sarkar would have required to be examined taking into consideration the cases cited by Shri Mookerjee. Therefore, I have no hesitation to come to a conclusion that it is the interest of the company, which is the paramount consideration in granting reliefs under Section 397/398 of the Act, that the second respondent, who has evinced interest in continuing with the company, unlike the petitioner, should have the right to purchase the shares held by the petitioner. 19. Even though the second respondent proposed a resolution in the extraordinary general meeting that the petitioner should be directed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the promoters of the company, viz., the petitioner. Even though, M/s. Core is not a party to the proceeding, it was represented by Ms. Priya Kumar, advocate on a complaint by the second respondent that M/s. Core, had not complied with certain directions given by this Board. She made a statement at the bar that M/s. Core BPO would fully co-operate and sort out all the issues with the person taking control of the company by the order of this Board. Now that the second respondent will be in control of the company by virtue of this order, M/s. Core should honour the statement made before this Board by its counsel. The second respondent will withdraw all the cases against the petitioner as well as against M/s. Core at the earliest and till then she shall not take any further steps to proceed with the same. Should for any reason, the second respondent does not pay the full amount due as per this order to the petitioner within the stipulated time, the right to purchase the interests of the second respondent in respect of her shares and the loans given by her in the company will automatically vest in the petitioner and he will be bound by the same terms and conditions as above. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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