9911796707
TMI Blog2009 (6) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... or machines connected therewith and act as spinners, weavers, makers, job-workers, producers, manufacturers, dyers, printers, agents, importers, exporters and stockists of all types of natural and synthetic yarns, fibres, fabrics, cloth, textiles and also all types of clothes, garments and to set up factories for the manufacture of any of the machines and to enter into any collaboration and act as consultants, advisers, data banks and take up turn-key assignments for the business. 3. Counsel for the petitioner pointed out that petitioners Nos. 1 and 2 are directors of respondent No. 1 company and hold 14,880 and 10,850 equity shares, respectively, in the company. Petitioners Nos. 3 and 4 are also shareholders of the company holding 3,260 and 9,050 equity shares in respondent No. 1 company. The petitioners together with their group hold 38,070 equity shares in respondent No. 1 company, thus comprising 53 per cent, out of the total paid-up capital of the company. It is stated that the 10 equity shares each in respondent No. 1 company are held by Shri K. Chandra Sekharan, Hari Om Kapoor and Dilip Tuli who are supporting the present action being initiated by the petitioners. Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing resolutions as ordinary resolutions: (a) Resolved that Mr. Vijay Mehta be and is hereby removed as a director on the board of directors of the company, with immediate effect. (b) Resolved that Mr. Nanak Mehta be and is hereby removed as a director on the board of directors of the company, with immediate effect. (c) Resolved further that the board of directors of the company be and is hereby authorised to do all deeds and acts in connection there with and incidental thereto. 5. It was pointed out that the respondents had attempted to illegally oust the petitioners from the management and affairs of respondent No. 1 company and had attempted to sell the valuable assets of the company by under quoting the value of the same and receiving cash consideration personally to deprive and deny respondent No. 1 company and its shareholders. By their acts of omission and commission, the respondents have mismanaged the affairs of the company and have perpetuated oppression on the petitioners who hold the majority in the company. 6. Counsel for the petitioners pointed out that the initial capital of respondent No. 1 company was held by seven individuals each holding 10 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 company from A-16, Naraina Industrial Area, New Delhi to Katra Neel, Chandni Chowk, Delhi. 7. Further, in order to usurp the control of the affairs of respondent No. 1 company and to deny the petitioners any role in the management and affairs of the company, the respondents did not send notices for board meetings to petitioners Nos. 1 and 2 who are admittedly directors of the company. Similarly, no notice of the general meetings of the members of the company were served on the petitioners by the respondents. 8. It was reiterated that the respondents to personally gain and enrich themselves at the cost and expense of the company have been attempting to sell the valuable land of the company at an under valued consideration. It is submitted that the intention of the respondents is to show a certain consideration for themselves. It is submitted that petitioner No. 1 received a summon dated May 1, 2006, from the Court of the Additional Civil Judge (Senior Division), Palwal in his capacity as the proprietor of M/s. Speed Link Exports, it is stated that it was at this stage, the petitioners discovered that the respondents have entered into an agreement to sell dated February 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en dealt with surreptitiously behind the back of the petitioners to cause harm and prejudice to the interest of the petitioners and shareholders of the company. The acts and conduct of the respondents are not in the interest of the company. 10. Counsel for the petitioners contended that the respondents have set up a case to the effect that the petitioners' group had sold their entire shareholding to the respondent group and as such they are not shareholders of the company and the present petition is not maintainable. In support of the above-contention, it has been stated that the petitioner group transferred their balance shareholding (38,030 shares) in the company to the respondents on October 7, 2002, on payment of valuable consideration. However, it has been contended by the respondents that respondent No. 1 company on July 17, 2004, paid ₹ 45,55,297 to certain firms of the petitioners group in repayment of their unsecured loans advanced to respondent No. 1 company. This amount is said to be paid out of unsecured loans obtained by respondent No. 1 company from the respondents. It has been stated that transfer of 38,030 shares was given effect to on May 21, 2005, aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners had transferred their shares in the company to respondents in October, 2002 and had no interest as alleged, then why were the petitioners allowed to continue as directors till March, 2007? 11. Counsel for the petitioners contended that the falsity of respondents' stand is evident from the changing stand that the respondents have adopted. It was pointed out that in the reply the respondents have contended that the consideration for transfer of the aforesaid 38,030 shares was payment of the unsecured loans of the petitioners' group in full by the respondents. However, in the sur-rejoinder it has been stated that consideration for the transfer of these shares was made in cash and the same has got nothing to do with repayment of loans. It was contended that it is evident that the respondents have acted in a manner which is harsh, burdensome and oppressive to the petitioners and in a manner prejudicial to the public interest and also prejudicial to the interest of the company and its bona fide shareholders. The affairs of the company are being conducted in a manner prejudicial to the interest of the company and prejudicial to the interest of the shareholders. 12. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y endorsed in the name of the respondents. It was reiterated that out of 74,070 shares held by the petitioners 74,030 (36,000 shares were transferred on October 12, 2001 and 38,030 shares were transferred on October 7, 2002). Out of the remaining 40 shares, 10 shares were held by petitioner No. 3 and these 10 shares were also transferred on October 7, 2002, but have not yet been registered. Thus, the petitioners do not hold any share in respondent No. 1 company. The other 30 shares are held by K. Chandra Sekhar Nair (10 shares), Hari Om Kapoor (10 shares) and Dilip Tuli (10 shares) who are not petitioners here. 13. Replying to the petitioners' contentions it was argued that the petitioners' contention that the transfer deeds and share certificates were handed over by petitioners to respondent No. 2 as security against loans/advances taken by the petitioners from respondent No. 2 is not correct and no evidence has been produced in this behalf by the petitioners. Further, no such plea was taken by the petitioners in the petition and this story has been concocted without any basis. As regards their contention that how shares transferred on October 7, 2002, were given effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement to sell with respondent No. 7 for the sale of the said land for a total consideration of ₹ 1,25,00,000. Respondent No. 7 made advance payments including the earnest money totalling to ₹ 32,50,000 to respondent No. 1 company. When respondent No. 2 did not come forward to complete the sale, respondent No. 7 filed a suit for permanent injunction on April 24, 2006, against respondent No. 1 company in the Court of the Additional Civil Judge (Senior Division), Palwal for restraining respondent No. 1 from selling the suit land to anyone else other than respondent No. 7 and on May 1, 2007, the said court passed injunction orders in the presence of counsel of respondent No. 1 restraining respondent No. 1 from selling the land in question till the next date of hearing which order was subsequently continued on every date of hearing and finally confirmed on April 19, 2002. On September 4, 2006, petitioner No. 1 had moved an application under Order I, Rule 10 of the CPC for impleadment as defendant in the said civil suit and the same was allowed. Respondent No. 1 company had filed an application under Order XII, Rule 11 of the CPC for dismissal of the said suit and the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd share transfer certificates to respondent No. 2 on October 7, 2002, but claimed to have given the same as security which is clearly an afterthought and cooked up story. Thus, admittedly petitioners Nos. 1 and 2 did not own any shares on March 20, 2007. Respondent No. 7 pointed out that with his reply he has filed the return of 2005 as down loaded from the website of the Registrar of Companies and the same also showed that petitioners Nos. 1 and 2 did not have any shares in 2005 even. The petitioners did not file any rejoinder to the said reply of respondent No. 7 thus admitting the correctness of the averments made therein and the documents filed in support. Petitioners Nos. 1 and 2 have committed perjury by falsely claiming that they had 38,040 shares on March 20, 2007 and further that the company did not file any return with the Registrar of Companies after 2004. The other petitioners do not have the requisite number of shares as per the requirement of Section 399 of the said Act. Hence the petition is not maintainable. 18. The company admittedly did not conduct any business from 1990 to 2002 also when petitioners Nos. 1 and 2 were in its exclusive control. Therefore, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph VII sub-paragraphs (xvii) and (xviii) of the petition and pages 159 and 160 of the petition falsify their contentions; and (iv) petitioner No. 1 filed his written statement in March, 2008, in the civil suit filed by respondent No. 7 at Palwal. In the said written statements in the civil suit petitioner No. 1 has not made any such allegations as have been made in the petition herein. 21. Counsel for respondent No. 7 further argued that the petitioners have filed the petition in collusion with respondents Nos. 2 to 6 as (i) petitioner No. 1 claiming ouster from the management of the company wrote letter to the Tehsildar on behalf of respondent No. 1 in May, 2006 and also caused publication of public notice in newspaper on behalf of the company. Respondents Nos. 1 to 6 in their reply have not stated anything about the said act of petitioner No. 1 though respondents Nos. 1 to 6 in their reply have averred that petitioner No. 1 has sold his shares way back in October, 2002 to respondent No. 2 and was not attending the board meetings/affairs after that; (ii) respondents Nos. 2 to 6 have averred in their reply that petitioners Nos. 1 and 2 did not attend any board meeting after s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a v. Calcutta Phototype Co. Ltd. [2007] 140 Comp Cas 557 (CLB). Personal disputes between the parties over the title of shares could not be considered in a petition under Section 397/398. 23. I have considered the pleadings, the arguments and the case law cited by the parties. In the instant petition it is noted that the petitioners filed the petition on March 20, 2007, alleging ouster from management of respondent No. 1 company and alleging certain acts of oppression and mismanagement by respondents Nos. 1 to 6. The petitioners did not file any rejoinder to the reply of respondent No. 7 thus admitting the correctness of the reply of respondent No. 7. Respondent No. 7 has alleged that this petition filed on March 20, 2007, is not maintainable under Section 399 of the Act, the respondents have taken the same plea that the petitioners have not filed any document to show that they had requisite number of shares on March 20, 2007, the date of filing of the petition. As regards the preliminary objection on maintainability of this petition in view of the necessary qualification under Section 399 of the Act, it is correct that in order to maintain a petition under Sections 397 and 398 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny documentary evidence in proof of eligibility and status of petitioners that the voting power held by each of them is as per provisions of Section 399 of the Act. The petitioners have to meet the requirement under Section 399 either in terms of the number/percentage of shares or in terms of number of shareholders. Further, it has been held in a number of cases that if the shareholding of the petitioner in a petition under Sections 397 and 398 of the Act got reduced to below 10 per cent, on issue/allotment of further shares and if the said issue/allotment is the very act which is challenged as oppressive in the said petition, the maintainability of the petition would be decided after determining the validity of the issue of allotment. 24. The requirement of share qualification is relevant and material for maintaining the petition. Even though a subscriber to the memorandum is a member in terms of Section 41 of the Act, but without the consideration for the shares he cannot be treated as a member for the purposes of Section 399 of the Act. A reading of section would indicate that only a member can apply provided all calls and other sums due on the shares held have been paid. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of substantive law and that a combined reading of Sub-sections (1) and (4) would show that the Company Law Board has no option but to reject the application made under Section 397/398 not being supported by the requisite number of members as at the time of filing the application before the Company Law Board the requirements of Section 399(1) being statutory are not directory in nature, breach of which cannot be waived by the Company Law Board. 25. Further, it is noted that respondent No. 7's contention, which is also the contention of other respondents, that no case has been made out under Section 397/398 of the Act is also tenable. It has been rightly contended that directorial complaints regarding removal of the petitioners as directors cannot be entertained in the instant petition. It is settled law that in cases of family companies or companies in the nature of partnership, depending on the facts of the case, directorial complaints may be entertained under Section 397/398 proceedings. Denial of legitimate representation could be a just and equitable ground for dissolution for a partnership. Keeping in mind equitable considerations as have been recognised by various E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the petitioner is not entitled for any relief under Section 397. It also held that the conduct of the parties in other proceedings could also be taken into consideration. The court, therefore, exercising equity jurisdiction, cannot ignore the well known maxims of equity. Two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands . I am inclined to agree with counsel for the respondent No. 7. The instances of unclean hands have to be with respect to the affairs of the company. In the present case the instances pointed out are in the affairs of the company. The instances of unclean hands are not unfounded. Respondent No. 7 has rightly pointed out that the petitioners have suppressed material facts from the Company Law Board. The petitioners have not disclosed that they had already sold their shareholding in the year 2002, the annual return for the year 2005 as down loaded by respondent No. 7 from the website does not show any shareholding of petitioners Nos. 1 and 2 even in the year 2005. It has been rightly contended that the petitioners have made false statements before the Company Law Board by averring that no return has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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