9911796707
TMI Blog2004 (10) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... It is not denied that the petitioners had also repaid the matured deposits in favour of certain depositors on behalf of the Company, towards which no shares were allotted in favour of the petitioners. Furthermore, there is no documentary evidence establishing the allotment of shares at any meeting of the Board of directors of the Company. By allotment of the impugned shares in favour of the respondents 2 3, the shareholding of the petitioner group has been reduced to a minority. In a number of cases, this Board has categorically held that, if further issue of shares results in conversion of majority into minority, or creation of new majority, then such issue of shares is an act of oppression. I am, therefore, of the view that the allotment of shares impugned in the company, petition made for personal gains and with a view to gain advantage against the other shareholders of a closely held Company was neither in compliance with the legal requirements nor ensured the fair play and probity in corporate management, resulting in the enhancement of the shareholding of the second respondent, which would constitute an act of oppression There is no material to substantiate that the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he paid up capital of the Company shall be reduced to 25,00,000/- only. ii) The removal of the petitioners from the office of director of the Company is declared as null and void. iii) The Board of directors of the Company shall stand reconstituted by the petitioners and the second respondent with the immediate effect. iv) M/s Jaggannathan Vishwanathan, Chartered Accountants, Coimbatore are appointed to verify all payments made towards repayment of deposits, financial obligations assumed and expenses incurred, whatever may be the nature, on behalf of the Company by the first petitioner group, second petitioner group and second respondent group as the case may be, after taking into account the submissions of the parties and the books of accounts, financial vouchers or any other document which may produced by them. The whole exercise shall be completed by 30.11.2004. The amounts so verified and found to be due to the various groups shall be reimbursed by the Company with ten per cent simple interest till date of settlement. The Company shall bear the remuneration payable to the Chartered Accountants. The company petition is disposed of with these directions, reserving the right to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration, the Company allotted 40,000 equity shares of ₹ 10/- each in favour of the respondents 5 to 8. The Board of directors of the Company was initially comprised of the four promoters. With the demise of C. Dhandapani, his wife became director, but resigned with effect from 28.02.1995. Thereafter, with the second petitioner securing the interest of Kasthuri Swamy group, he was inducted into the Board with effect from 14.11.1996. While the first petitioner was the Managing Director since the inception till 23.11.1994, the second respondent functioned for a short period till 13.02.1997 and thereafter the first petitioner again became the Managing Director of the Company. However, the second respondent not only failed to attend the Board meetings consecutively held on 12.03.2001, 18.06.2001, 17.09.2001, 28.12.2001 and 01.02.2002 in spite of the notices sent to him by the first petitioner but also did not seek leave of absence for not attending the Board meetings, forcing the Board of directors at the meeting held on 04.02.2002 to record the vacation of the second respondent from the post of director pursuant to Section 283 (1)(g) of the Act, as borne out by Form No. 32 fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not receive any notice at any point of time for any Board meeting or extraordinary general meeting said to have been held on 08.07.2002 for their removal from the Board. The mandatory requirements of Sections 284, 188 and 190 have not been complied with before the purported removal of the petitioners from the office of director. The certificates of posting on record to prove service of notice on the petitioners do not have any evidentiary value and such a practice has been strongly condemned by the Supreme Court. The transfer of 40,000 equity shares by the respondents 5 to 8 to the ninth respondent who is none other than daughter of the second respondent is in gross violation of the pre-emption clauses contained in the articles of association of the Company. The transfer of shares was not approved by the Board of directors. By virtue of the allotment of 50,000 shares in favour of the respondents 2 & 3 and the transfer of 40,000 shares to the ninth respondent belonging to the second respondent group, the second respondent enhanced his group holding from 70000 equity shares to 1,60,000 equity shares, thereby converting himself and his group into a majority and further usurped the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding would amount to an act of oppression and that there is no justification to exclude one group of shareholders when new shares are allotted. 3. Shri V. Ramakrishnan, learned Counsel opposed the company petition on the following grounds:- The statutory records of the Company are in custody of the first petitioner. The names of the allottees furnished in many of the share certificates are different from those furnished in Form No. 2 filed with the Registrar of Companies, Tamilnadu, Coimbatore, establishing a large scale fabrication of share certificates by the petitioners. The petitioners have taken undue advantage of custody of the statutory records, blank papers and documents with signature of the second respondent. The minutes of the annual general meeting held on 23.09.1996, show that the first petitioner's daughters viz., V. Nitya and V. Anita, who were then minors attended the meeting and signed the minutes. Similarly, V. Nitya attended the annual general meetings held on 28.09.1998, 28.09.1999 and 07.07.2000 and signed the minutes of these meetings. The minutes of the annual general meeting dated 28,09.1997 reveal an item of business styled as 'any other matter&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the Company taken over by the second respondent. Therefore, the allotment of shares in favour of respondents 2 & 3 cannot be impugned. The transfer of shares by the respondents 5 to 8 to the ninth respondent was in accordance with the articles of association of the Company. On 09.04.2002 the respondent 5 to 8 sent notices to the Board of directors under clause 17 of the articles of association offering to sell their shares. The Board of directors however did not take any action in terms of the articles. After waiting for the prescribed time for the Board to find out eligible buyers, the respondents 5 to 8 exercised their right of transfer under clause 21 of the articles of association and transferred their shares to the ninth respondent. The Board of directors at a meeting held on 24.07.2002 approved the transfer of shares in favour of the ninth respondent and therefore, cannot be challenged by the petitioners. The first petitioner not being the Managing Director of the Company is not competent to represent the Company in these proceedings. As per the annul returns dated 23.09.1996, 28.07.1997, 28.09.1998, 28.09.1999 and 07.07.2000 filed with the Registrar of Companies, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the majority may be given the option to purchase the shares held by the first petitioner group and second petitioner group at a value determined by the Chartered Accountant. 4. Shri Vidhya Shankar, learned Counsel, in his reply submitted that the respondents failed to produce the minutes of the Board meeting reportedly held on 08.04.2000 allotting 50,000 shares in favour of the respondents 3 & 4. The petitioners do not have any objection for the second respondent to be on the Board and consequently not pressed the prayer made under para VIII (4) of the company petition. The second respondent being a party to the statutory records and having had signed the share certificates, cannot point out any irregularity or defect in the share certificates issued by the Company. Though the minutes of certain annual general meetings were signed by minor members, the minutes have never been questioned till date and even without the minors, the minutes could not become invalid as they were approved by the minimum required number of members. The second petitioner is shown as director in all the balance sheets and annual returns for the period subsequent to the year 1997 and he is a signatory o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or otherwise dispose of the same to such person or persons, whether he is a member of the Company or not, for such consideration and on such terms and conditions, as the Board may in their absolute discretion think fit. While according to the petitioners, the allotment of 50,000 shares exclusively in favour of the respondents 2 & 3 disturbing the parity maintained among the petitioner group and second respondent group, suffers from lack of probity and fair play, it is contended by the second respondent that the allotment impugned in the company petition was with the knowledge and consent of the petitioners. At this juncture it shall be borne in mind that the directors are in a fiduciary position vis-a-vis the company and must exercise their power with utmost good faith for the benefit as well as interest of the company and ensure fair play in action in corporate management and further must act bonafide in exercise of their fiduciary responsibilities in further allotment of shares. While it is the prerogative of the Board to allot shares, it is not that law has given absolute liberty to the directors of private limited companies to deal with their shareholders in any manner as they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enhancement of the shareholding of the second respondent, which would constitute an act of oppression, as held in Praful M. Patel v. Wonderweld Electrodes (P) Ltd; Akbarali A. Kalvert v. Konkan Chemicals Pvt. Ltd and M.K. Haridas v. Asal Malabar Beedi Depot Pvt Ltd. (supra). The second respondent cannot in any way derive support from the annual return dated 07.07.2000 claiming the impugned allotment, notwithstanding the serious dispute raised by the petitioners in regard to the genuineness of the figures in relation to the paid up capital contained therein. The transfer of shares of the Company is governed by articles 15 to 25, which are mandatory. Article 16 provides that no shares in the Company, shall be transferred unless and until, the rights of pre-emption are exhausted in the manner prescribed in the articles. The respondents have produced copies of the notice dated 09.04.2002 said to have been issued by the respondents 5 to 8 separately under article 17 to the Board of directors expressing their desire for sale of their shares. In this connection, the averments made in the counter statement assuming importance are reproduced here below; "On 9.4.2002 the 5th to 8th Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in the articles of association, a transfer in violation of such provision constitutes oppression and S. Bhuvaneswari v. ACI (Agro Chemicals Industries) Ltd - 2003 (4) CTC 690, wherein the High Court of Madras confirmed the order of this Board setting aside the transfer of shares and rectifying the register of members, for noncompliance with the procedure contemplated under the articles in regard to the transfer of shares. The removal of the petitioners from the office of director must be considered in the light of the provisions of Section 284 of the Act. Section 284 (1) provides that a company may, by ordinary resolution, remove a director not being a director appointed by the Central Government before the expiry of his period of office. Subsection (2) of Section 284 stipulates that special notice shall be required of any resolution to remove a director. Furthermore, Section 190 specifies that every special notice requires resolution, which is rather mandatory. According to the respondents, they being the majority shareholders made a requisition dated 10.05.2002 to the Company and its directors for convening an extraordinary general meeting for the purpose of removing the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from claiming any equitable relief, especially when the second respondent was forming part of the management and no prejudices were shown to be suffered by the Company or the shareholders. Shri Vidhya Shankar, learned Counsel since not pressed the prayer for declaration that the second respondent vacated the office of director on 04.02.2002, there is no need to go into the rival contentions raised by either of the sides, in this behalf. I do not propose to consider the validity of the purported appointment of the respondents 3 & 4 as directors at the extra ordinary general meeting of July 2002, in view of the ultimate reliefs proposed by me. The correctness of discharge of the deposit liabilities and the various expenditure incurred by any of the groups before me on behalf of the Company shall be verified by an independent Chartered Accountant and the deposit amount so discharged and the expenses incurred by any group are binding on the Company. At present the Company is not carrying any non-banking finance business except collecting rentals from the property owned by the Company. There are differences and loss of trust between the parties, leaving little scope for their co-exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jaggannathan & Vishwanathan, Chartered Accountants, Coimbatore are appointed to verify all payments made towards repayment of deposits, financial obligations assumed and expenses incurred, whatever may be the nature, on behalf of the Company by the first petitioner group, second petitioner group and second respondent group as the case may be, after taking into account the submissions of the parties and the books of accounts, financial vouchers or any other document which may produced by them. The whole exercise shall be completed by 30.11.2004. The amounts so verified and found to be due to the various groups shall be reimbursed by the Company with ten per cent simple interest till date of settlement. The Company shall bear the remuneration payable to the Chartered Accountants. 6. All the groups, viz., the first petitioner group, the second petitioner group and the second respondent group will appear before this Bench on 15.12.2004 at 2.30 p.m. and submit their offers in closed covers indicating the price per share that they are willing to offer. The group which quotes the higher price should purchase the shares of the other group(s) at that price and the consideration for the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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