9911796707
TMI Blog2007 (10) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... , letting, sub-letting, maintaining, allotting, transferring allotment, administrating, exchanging, mortgaging, accepting lease, tenancy or sub tenancy of the same. The authorised and paid up capital of each company was 1 crore. The petitioner (Shri Amrik Singh Hayer) held 250000 shares and R-2 (Shr Ajmer Singh Khangura) held 750000 shares of ₹ 10/- each as on 30.9.2005. On September 30, 2003, the Companies purchased property bearing No. SCO 156-157, Sector 9-C, Chandigarh for a total amount of ₹ 2.9 crores in an open auction. The letter of allotment for the said property was issued on November 24, 2003 in the name of the companies by the Municipal Corporation, Chandigarh. This property forms the asset of the companies. 3. Shri Ashwani Chopra, Counsel for the petitioner pointed out that in a meeting of the Board of Directors of the companies dated October 29, 2005, a resolution was passed keeping in view the object of the companies. In the said meeting, it was resolved that: the company be and is hereby authorized to negotiate and settle terms and conditions for transfer of company land and building.... all directors of the company be authorized for and on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be given to the second party for discharge of the payment obligations. In case of default by the second party, it will forfeit its advance so given for all practical purposes. 5. Shri Ashwani Chopra argued that the stipulations in the MOU clearly show that the time was the essence of the agreement. Further, as per para No. 6 of the MOU, all further actions were to take place only after payment of full consideration amount of ₹ 15.0 crores as per the schedule provided in para No. 1 of the MOU. My attention was drawn to para No. 6 of the MOU which reads as under: 6. That upon payment of full consideration amount of as per para I within the stipulated time. a) Transfer the total shareholding held by first party their associates in favour of second party or his/their nominees as specified as per applicable provisions of The Companies Act, 1956. b) Induction of new Directors of the second party on the Board of the companies as per applicable provisions. c) All Directors of the first party as specified above will tender written resignation as Directors be relieved from the Board of the company, as per applicable provisions of Companies Act (upon receipt of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent No. 3 of being forfeited in favour of the companies as per the forfeiture clause in the MOU, the respondents colluded with one another with the intent to hoodwink the companies as also the petitioner. It was argued that the collusion between the respondents is clearly demonstrated from the material on record. ₹ 638.82 lacs are shown to have allegedly been paid in cash to Respondents Nos. 2 and 4 and substantial amount is stated to have been paid by cheques. All these payments are not shown to have been withdrawn and/or deposited in any account and, as such, it can very safely be inferred that the amount has not been actually paid and it is because of the collusion between respondents Nos. 2, 3 and 4 that the said amount is alleged to have been paid. Further, the payments admittedly have not been made as per the time schedule fixed in the MOU. Still further, even as per the own showing of the respondents, the full consideration amount admittedly was not paid till May 8, 2006 and even till date but for the connivance between the respondents, the payments whatsoever made by respondent No. 3 were liable to be forfeited by the companies and all the rights and liabilities und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of the companies. Apart from the fact that the respondents did not adhere to the schedule of payment as incorporated in para No. 1 of the MOU, the admitted position is that the full consideration amount has not been paid. As per the own showing of the respondents after deducting the amount of instalments due to the Municipal Corporation and for flooring of tiles as per the MOU, ₹ 13,23,50,000/- was to be paid but the total amount as per the endorsements at the back of the MOU comes to only ₹ 12,99,82,000/-. As such, the certificate given at the back of the MOU by respondent No. 2 that full consideration amount as per the MOU has been paid, is apparently false and is prejudicial to the interest of the companies. If the affairs of the companies had been conducted in a proper manner to avoid oppression and mismanagement, the payments, if any, had to be forfeited in favour of the companies but respondent No. 2 chose to act in favour of the personal interest of respondent No. 3 rather than in the interest of the companies as also the petitioner who is the Director of the companies as also in the interest of the companies itself. 9. It was argued that utter disregard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CICI Bank was closed and new account was opened with State Bank of Patiala; (ix) on May 19, 2006, the petitioner and his son were removed from the Board of Directors of the companies while respondent No. 2 and 4 continued to carry on as directors; (xii) on May 19, 2006, Shri Ajmer Singh Khangura's shares are transferred though he continued to be the Director and Shri Malkiat Singh as Director was authorized on behalf of the companies to sign necessary endorsements on the share certificates and to do all acts as required for giving effect of the position to transfer and approve the shares; (xiii) on May 19, 2006, the main objects of the companies were also altered; (xiv)on May 19, 2006, respondent No. 2 transferred his shareholding not in favour of Respondent No. 3 but certain other persons, (xv) on May 29, 2006, respondents Nos. 2 and 4 realizing their mistake ostensibly resigned but the resignation of respondent No. 2 for reasons best known to the respondents was deferred till October 30, 2006. It was pointed out that till date nothing was pleaded or brought on record by the respondents to show whether respondent No. 2 is still continuing as a Director in the companies or not. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to cloak the illegalities perpetuated by them by trying to offer some payment to the petitioner. As per the respondents, as the payment is being offered to the petitioner, thus he cannot address the blatant illegalities being committed by respondents in collusion with each other and cannot have any grievance against the respondents. Further, my attention was drawn to the contention of the respondents that they being in majority could do whatever they like and the petitioner cannot have any grievance with regard to the conduct of the respondents in any manner as the petitioner is in minority. It was argued that such an argument, if accepted, would render the entire provisions of Companies Act relating to oppression and mismanagement , redundant, (iii) It was pointed out that as per the contention of the respondents the MOU is a share holding agreement and on that account, 25% of the total consideration having been offered to the petitioner, he cannot be heard to have any grievance and cannot allege any oppression and mismanagement. The said contention is again not only against the material on record and illegal but is erroneous and misconceived. If it was just a share holding tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huge sum of money is involved. It was argued that the entire exercise smacks of malafide and fraud, (vii) An amount of ₹ 25,59,000/- has been deducted for flooring tiles/jobs as per companies nominated architect's site inspection-cum-valuation report, which is interestingly dated May 11, 2006. A perusal of the report would show that the architect had visited the companies' premises only on May 10, 2006 only and the report was dated May 11, 2006. However, Respondents Nos. 2 and 4 had given the possession on receipt of 'full and final payment' on May 9, 2006 itself after deducting the exact amount as had been arrived in the architect's report. It was argued that this clearly depicts that all calculations have been done subsequently and the Architects report is also a tailor made document, (viii) Further, ₹ 638.82 lakhs have been paid in cash to respondents Nos. 2 and 4. There is no account/documentary evidence pertaining to these alleged cash payments, (ix) No payment has been made into the account of the companies but allegedly in the name of individual directors. In the balance sheet dated March 31, 2006. It was argued that the accounts of companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the transferring member who shall be bound on payment of fair value to transfer the shares to purchasing members by executing proper dead of transfer with in one month from the date of receipt of notice from the company. 13. If the Director are not within 45 days after service of a sale notice able to find a member willing to purchase all or any of the shares comprised therein and give notice in the manner aforesaid, or if though no fault of the transferring member, the purchase of any share in respect of which notice according to article 11 has been given shall not be completed, then the transferring member will be at liberty subject to Article. Thereof to sell or transfer the shares comprised in his nature any other person or persons and at any price. 14. Save as provided in Section 108 of the Act, of transfer of a share will be registered unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferor has been delivered to the Company together with share, certificate or if no such certificate is in existence, the letter of allotment of share. A fee not exceeding ₹ 2/may be charged for such tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholding of the companies were increased from 1.0 crore to ₹ 2.5 crores on April 28, 2006 and from 2.5 crores to 3.0 crores on May 11, 2006 without any notice to the petitioner, who admittedly is still a substantial shareholder of the companies. And further no explanation has been given before increasing the shareholding. My attention was drawn to illegal induction of Directors. Respondent Nos. 5 6 were illegally inducted on May 9, 2006. Respondent Nos. 7 and 8 were illegally inducted on May 11, 2006. 17. The counsel for the petitioner further pointed out that inspection of statutory records were denied to the Petitioner. It was allowed only after the Company Law Board's orders. Further my attention was drawn to non-maintenance of Minutes of Meetings in violations of Sections 193 and 194 of the Companies Act 1956. Further, it was pointed out that the respondents had changed the Registered Office and name and Memorandum and Articles of Association. 18. Shri Davinder Pal Singh, Counsel for the Respondent Nos. 1, 3 and 6 to 9, argued that the Respondent Companies were formed in January 2003 with primary object of engaging in the business of real estate. These were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Though four heads were mentioned in the meeting dated 09.05.2006 but no deduction was made regarding the later two heads. Petitioner was offered his share ₹ 3.25 crores through bank drafts on several occasions, which he refused to accept. 21. As regards the retention of Respondent No, 2 as Director it was argued that though Respondent No. 2 tendered his resignation in the Board meeting held on 29.05.2006, his resignation was deferred till 30.10.2006, on account of the various roadblocks created by the petitioner. Also, Respondent No. 3 was apprehensive that the petitioner and other directors were closely related and he was a stranger in the family. Further, large part of the payment was made in cash, so in order to make sure that investment of Respondent No. 3 was safe, Respondent No. 2 was retained. Respondent No. 3 in the meeting held on 28.03.2007 was relieved of his responsibilities as a Director. 22. Pointing to the malafide of the Petitioner, Shri Singh argued that various technical pleas regarding notice have been raised by the Petitioner to avoid the MOU. The petitioner was informed about every meeting through telephonic calls and letters. Even otherwise, the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies are a party to the commission of the act of oppression? Reliance was placed on the judgments in Sangramsinh P. Gaekwad V. Shantadevi P. Gaekwad MANU/SC/0052/2005MANU/SC/0052/2005, Fiduciary duty of Director - Para Nos. 42, 48, 49, 53, 54, 69, 75, 78, Oppression and Mismanagement - Para Nos. 180, 181, 183, 184, 194, 195, 196, 197, 198, Lifting of corporate veil-Para Nos. 226, 230; Needle industries (India) Ltd. v. Needle Industries Newey (India) holding Ltd. MANU/SC/0050/1981MANU/SC/0050/1981, Acts in contravention of Companies Act not per se oppressive-Para Nos. 44, 49, 51, 52; and Bijay Kumar Agarwal v. Rattan Lai Bagaria Lifting of corporate veil-Para Nos. 20,21. 25. Alternatively, Shri Singh argued that the corporate veil of the Companies be lifted as the companies were used as a device to transact in the sole asset of the companies, in order to avoid the preferred rate of taxes. In such circumstances this Hon'ble Board may lift the corporate veil of the Companies to determine the true nature of the transaction. Supporting the above argument is the fact that the companies did no business nor it had any source of income. Further, the Petitioner has not alleged that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2006, the petitioner has received the consideration as per the endorsement on the MOU itself. Thereafter he has been in continuous touch with Shri Ajmer Singh and Shri Malkiat Singh how else could he know the exact the date and time to the physical delivery of possession, when he is said to have approached the police on 10.05.2006. The petitioner has caused a huge loss to the companies to the tune of more than one crore towards the rent alone by obtaining the interim order by misleading this Hon'ble Court. This is besides the penalty levied by the Municipal Corporation Chandigarh for non payment of installments. 28. Further, it was argued that the main grievance of the Petitioner is that he has not received the consideration. The entire grievance of the petitioner is that he has entered into a share transfer agreement with Shri Zora Singh and that he has not received the consideration for his 25% shares. This fact has been clearly mentioned in para 6 (d) and 6(e) of the amended Petition. And that he has not received the consideration is mentioned in para 6(f) and 60 of the petition. He has also made this statement before this Hon'ble Court when the case came up for hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at (i) the petitioner knew fully well that Shri Zora Singh was going to make the full and final payment on 9.5.2006 when he signed the MOU on 9.11.2005. He was specifically informed regarding the same vide letters dated 30.4.2006 and 8.5.2006 yet he did not come Jersonally to collect the same and authorized Shri Ajmer Singh who did so ; (ii) On 10.5.2006, also when the Police was summoned by him also he did not receive the Bank Drafts amounting to ₹ 3,25 crores; (iii) again when the matter came up for hearing before CLB on 27.7.2006 the same Bank Drafts were offered but were refused; (iv) again before the Civil Court the Drafts were submitted by the answering respondent but the petitioner refused to accept. It was contended that the refusal is clearly with an intention to create where none exists. Even though the stand is totally unwarranted the Dispute, if any, only is of civil nature as such Remedy of the petitioner would be before the Civil Court and there is no mismanagement or oppression of any kind. 31. Further, replying to the other grievances, the Counsel argued that it is a totally wrong assertion that the money received as consideration should have been deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge Chandigarh. Petitioner has mislead this Hon'ble Court by filing the frivolous litigation and obtained the said orders causing irreparable loss to the Companies and wasting the precious time of this Hon'ble Court. It was prayed that the case deserves to be dismissed with exemplary costs. 36. Sh. Nesar Ahmad, Company Secretary, appearing for the R-5 drawing my attention to as to who can file the petition argued that the present case is filed by person in capacity of a Director through a power of attorney who neither holds any shares in the companies nor is a Director. Whereas the power of attorney is neither accepted by the holder and it is incomplete and defective in the eyes of law hence becomes inoperative. The petition is, therefore, wholly incompetent and, therefore, deserves to be dismissed as such. 37. It was argued that companies are closely held companies since incorporation. No public interest at large was involved any time in the companies and that First Directors of the Companies were closely related. Further, drawing my attention to the provisions of Section 398 of the Act, it was argued that there is no public interest involved because it is a closely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever were and never could have been a party. Also the said MOU had a distinct peculiarity that all the shareholders of the companies decided to transfer their shareholding through one common agreement. Further, the petitioner's plea that the amount of the MOU shall be paid by the R-3 in the companies not to the share holders the plea is just to mislead the court because MOU was between the shareholders and not with the companies. 39. Further, it was argued that all the modifications and changes had taken place in the best interest of the companies and not in the interest of shareholders and all further funds raised by the companies were solely used by the companies for the construction and payment of government dues and expenses. 40. It was argued that the petitioner had not come with clean hands. He claims that the registered office of the companies was shifted and again he put wrong address which is petitioner's own residence. This is evident from the cause title and para 1(a) of the petition. Even otherwise the Petitioner was duly informed about the meeting dated 09.05.2006 through a letter dated 08.05.2006. He was fully apprised through the said letter that the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he affairs of the companies and for receiving the consideration under the MOU is also evident from the fact that as per the endorsement made on the MOU by the Petitioner on 10.2.2006, while receiving part of the consideration the Petitioner had himself written that he is receiving the same on behalf of Shri Ajmer Singh. This fact was specifically admitted by the Petitioner during the course of arguments. 41. Replying to the petitioner's contention that installment schedule given in the MOU had not been followed; it was argued that it is the Petitioner's own admission that he has received the payment on 10/02/2006 and 21/02/2006 which is duly endorsed by him on the reverse of the MOU. Upto this date a payment of ₹ 4.44 Crores had been paid by Shri Zora Singh. But there was never any objection by the Petitioner through out the period of the transaction. It can be said that time was not the essence of the MOU whereas Petitioner himself demanded money and ratified the previous activities. It is also wrong submissions that payment was made by cheque. The entire payment wherever made by the Shri Zora Singh and his associates is made in cash or demand draft not by cheque, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o suffered heavy losses which is injurious for the health of companies. The present petitions, it was argued deserve to be dismissed with exemplary costs in the interest of equity and natural justice. 44. Responding to the contentions of the respondents, the counsel for the petitioner argued that the MOU is not a share transfer agreement which is belied in view of the facts that: (i) Malkiat Singh in his capacity of a Director is signatory to the MOU. Admittedly he is not a shareholder and could not have signed the MOU as a shareholder;(ii) the directors were acting on behalf of the companies as had been authorized vide Board Resolution dated October 29, 2005; (iii) the respondents have themselves pleaded that the payments were being made and received on behalf of the companies. 45. Further, it was contended that it was wrong to say that endeavour was to get Shri Zora Singh to default. The plea, on the face of it, is erroneous and misconceived. The material on record demonstrates that the respondents joined the companies to oust the petitioner and connived to usurp the assets of the companies and when the petitioner realized the collision between the respondents and sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the companies only and the stamp duty, if any, was or is required to be paid by the purchaser - respondent No. 3 only The respondents are also seeking to justify their illegal action by alleging that they were in majority and the result of the actions would have been the same only and the petitioner being in minority, could not have done anything, which plea, if accepted, would render the provisions of oppression and mismanagement as incorporated in the Companies Act, as redundant. 48. Shri Chopra counsel for the petitioner, reiterated his arguments that the petition as amended clearly spells out the acts of omission and commission. Moreover, the documents brought on record to substantiate the pleadings which have come from the custody of the respondents who were/are managing the affairs of the company, clearly demonstrate the acts of oppression and mismanagement. Further, it was pointed out that the power of attorney given by the petitioner is valid and legal. Similar power of attorney has been given by respondent No. 2 to respondent No. 4 with reply of respondent No. 2. Further, replying to the Respondents argument that this Hon'ble Board does not have jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to give directions contrary to other provisions in the Act; the only limitation on the power that CLB could exercise under Section 408 of the Act is that there must be a nexus between the complaint made and the reliefs granted. The claim to relief rests not on any contract but on statutory rights. The powers conferred by Sections 397 to 402 of the Act cannot be taken away by agreement whether contained in the Articles or otherwise; the said provisions are an alternative to winding up and deal with public interest, the representative cause of shareholders and derivative cause of companies. The powers under Section 402 are without prejudice to the generality of the powers of the Company Law Board under Section 397/398 and may provide for directions to achieve the objects for which Sections 397/398 is enacted. These statutory powers have been vested to administer justice and equity giving broad discretion applying general standard of fairness to decide the case on merits. These are inherent powers of the court to give directions to meet the ends of justice. These powers can also be used to provide for interim arrangement, so that parties may not be unfairly prejudiced at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be part of the shares trading between the parties. The MOU is nothing but a share transfer agreement... are found to be incorrect on a bare reading of the language and terms used in the MOU which reveal altogether different facts. Pursuant to the Board's Resolution dated October 29,2005, the petitioner, the R-2 and R-4, acting as directors of the companies are the FIRST PARTY who entered into the MOU dated November 9, 2005 for transfer of the companies land building the petitioner's contentions became tenable by the specific instances, besides the language and terms of the MOU, that Shri Malkait Singh, who could not have signed the MOU, he is admittedly not a shareholder, but has signed it in the capacity of a Director of the Companies, the directors were acting on behalf of the companies and had been so authorised vide Board Resolution dated 29.10.2005, the respondents have themselves pleaded that the payments were being made and received on behalf of the companies, even part payment has been shown in the accounts of the companies, where, in fact, it should have rightly gone. Without compliance with the terms of the MOU, which was in the affairs of the companies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day R-2's shares were transferred, though he continued to be a director, and R-4 as a director was authorised to sign necessary endorsements on the share certificates and to do all acts to give effect to transfer and approve the shares; on 19.5.2006 the main objects of the companies were also altered; on 19.5.2006 R-2 transferred his shareholding not in favour of R-3 but certain other persons; on 29.5.2005 R-2 and R-4 resigned but the resignation of R-2 was deferred, for the reason best known to them, reveals gross acts of oppression and mismanagement done blatantly in gross violation of the statutory provisions and Articles of Association of the companies. 1 find that the petitioner's contentions regarding non-receipt of the consideration amount as per the MOU, utter disregard to the terms of the MOU, non-adherence to the schedule of payment, compliance within stipulated time being sine qua non of this commercial transaction, manipulations of accounts, inconsistencies and contradictions in statements remain uncontroverted. There is no explanation as to why R-2 and R-4 were given different treatment. They were also signatories to the MOU. But it is not explained as to why t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proves that the petitioner lost his Negative Control Right Clemens v. Clemens Bros Ltd. and Anr. [1976] 2 All ER 268 which is nothing but oppression to mismanage the affairs of the companies. Taking away of the petitioner's Negative Control Right in itself is an act of oppression. The allegations of inaccessibility to even the statutory records of the companies and specifically non-maintenance of the minutes of the meetings remain uncontroverted. In this view of the matter, I have no option but to set aside the increase in the share capital on 28.4.2006 and 11.5.2006, restoring status quo ante. Further, to do substantial justice between the parties, all allotment of shares made subsequent to entering into the MOU dated 9.11.2005 and thereafter being illegal are hereby set aside and status quo ante is restored. 55. Coming to the allegations regarding removal of the petitioner and his son from directorship and induction of other directors without notice and in violation of the statutory provisions specifically 191 and 284 of the Act by resorting to the clauses in the MOU, which remained unenforceable, to say that the removal was automatic removal of the old directors as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These are inherent powers of the court to give directions to meet the ends of justice. These powers can also be used to provide for interim arrangement, so that parties may not be unfairly prejudiced at the time of final decision. The exercise of these powers is not restricted to strict application of law, pleading in evidence, which may frustrate the very purpose of grant of these powers. Clause (g) of Section 402 has illustrated these extraordinary powers in which the Company Law Board may provide for another matter, which, in its opinion, is just and equitable. A failure to exercise these powers on a narrow and pedantic approach that powers under Section 397/398 are only for the purpose of protecting the interest of the companies, is a self-destructive attitude to the exercise of the jurisdiction under Section 397/398. Keeping in view that the MOU allegedly unenforceable and that it has been specifically challenged by R-3 in the appropriate Court, no findings are necessitated in this regard. 57. With the above directions, the company petitions are disposed of. All company applications stand disposed of. All interim orders stand vacated. No order as to cost. - - TaxTMI - ..... 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