9911796707
TMI Blog2011 (10) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... A) both dated July 26, 2007 wherein respondent No. 3 being an investment company agreed to invest a sum of ₹ 131,20,00,000 in the company in various instalments. In return, the company agreed to issue and allot 1,25,160 equity shares of class A having face value of ₹ 10 each per share aggregating to a total economic interest of 55 per cent, and voting rights of 44.99 per cent, of the total paid-up share capital of the company. In July, 2007 Mr. M. Fysh, the nominee director of the petitioner in respondent No. 1 company was appointed the Chief Executive Officer (CEO) of the said company. The CEO suggested and began to arrange for external finance for affordable housing development from financial co-investment partners, the World Bank and other related institutions and also began to arrange for credit financing from Japanese and Korean institutions. Respondent No. 3 in contravention of the said SSA and SHA, started to interfere in the day to day affairs and decision making of the company including preventing the company from raising any external finance for its development. Respondent No. 3 forced the company to appoint a local chief operational officer and head of techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board meetings of the company (except the meeting held on June 19, 2008) and respondent No. 8 which is evidently a breach of clause 4.2(b) of SHA and clause 28(b) of the memorandum and articles of association of the company. The petitioner vide its email dated September 18, 2008 sent on September 22 2008 requested respondents Nos. 2, 4 to 7 to provide the full corporate information of the company and respondent No. 8 and also all proposed board meetings to be held or any meetings held after the board meeting of March 20, 2008. In spite of the said request, respondents Nos. 4 to 7 failed to provide any details. The petitioner is given to understand that the board meeting was called on September 26 2008 to approve the audited accounts of the company and respondent No. 8, but no proper notice or information was given to the petitioner's nominee director. It was deliberate attempt on the part of respondents Nos. 2, 4 to 7 to restrain the petitioner's nominee director from attending the said board meeting with relevant and material information and to ensure that respondents Nos. 2, 4 to 7 approve the accounts of the company and respondent No. 8. However, the petitioner came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in furtherance of the said investment agreement, respondent No. 3 was issued 476 class A shares (voting shares) and 19,99,524 class B (non-voting shares but are given preferential rights on liquidation) of respondent No. 8 aggregating to 32.24 per cent, of the total equity shares of respondent No. 8. At the said meeting the board approved and adopted new articles of association without any reference or authorisation of respondent No. 1 or the directors and shareholders of respondent No. 1. The petitioner was never informed about the said meeting nor was any approval or consent taken from the petitioner for adopting the new articles of association of respondent No. 8. By an e-mail of October 1, 2008, the petitioner was informed by the respondents that a purported board meeting of the company was held on September 6, 2008 and the annual general meeting of the company was held on September 29, 2008. The consent of the petitioner was sought by the respondents for holding the annual general meeting at a short notice, i.e., in a period less than the statutory notice provided by the provisions of the said Act. It is significant to note that the petitioner was kept completely in dark abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved by the board of directors, excluding Max Fysh, showing scant regard to the orders of this Bench and interests of respondents Nos. 1 and 8. Furthermore, the petitioner's repeated, fair and reasonable request for information on vital projects of respondents Nos. 1 and 8 fell on deaf ear and no information has been provided to the petitioner till date, for reasons best known to the respondents. 5. A meeting of the board of directors of respondent No. 8 was also held on March 9, 2009. Once again, respondent No. 8 in cohorts with the other respondents, sought to adopt the resolutions on items which were either sub-judice or those for which no information was provided to the director Max Fysh and which authorised persons, who were massively conflicted to take vital decisions on behalf of respondent No. 8. Furthermore, and once again showing complete disregard to the orders of this Bench which required respondent No. 8 to maintain a status quo of its fixed assets, it was also proposed that "Mr. Pravin Banavalikar, director of the company, be and is hereby authorised to exercise the powers and functions for and on behalf of the company, to discuss, negotiate on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent No. 8's financial, accounts, land titles, personnel, agreements, master plans, development option documentation and financial forecasts relating either to the whole TMC development or part of the development proposed to participate in the advance disbursement facility scheme, which were earlier requested by the board of directors on March 9, 2009. 6. It is further submitted that respondents Nos. 8 and 3 filed Company Applications Nos. 50 and 51 of 2009 respectively, praying for, inter alia, that respondent No. 1 be permitted to create mortgage in respect of their fixed assets in favour of lenders/banks/financial institutions and that respondent No. 3 be permitted to appoint and/or nominate directors on their board from time to time. The prayers in these applications were also the subject-matter of the aforesaid circular resolutions dated March 25, 2009 and March 26, 2009. The respondents, therefore, ought to have waited for the disposal of the said applications rather than adopted the circular resolutions, knowing fully well that the matter was sub-judice. It is further submitted that the petitioner had on numerous occasions, both orally and in writing requested the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was proposed Mr. Arun Altekar be appointed as the nominee of respondent No. 3 on the board of directors of respondent No. 8 despite the fact that respondent No. 3 had no right to nominate anyone as a director and the same had to be done by respondent No. 1 which held 100 per cent, of the shares in GRPL. During the meeting of the board of directors of respondent No. 8 on June 26, 2009 it was proposed that a "steering committee" be constituted for "proper guidance of the day to day workings of the company". Many of the items under proposed rights and responsibilities to be given to the steering committee contained right of appraisal of and action on information that had been repeatedly and reasonably requested by the petitioner and Max Fysh and had been denied to them. The entire idea of constituting the purported "steering committee" was inspired by the fact that the respondents wish to keep the petitioner and Max Fysh out of the working of respondents Nos. 1 and 8 which clearly shows the gross mismanagement of respondents Nos. 1 and 8 with the mala fide intention of gaining personal benefits at the expense of the interest of the petitioner. 7. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of respondent No. 1. Max Fysh, vide his letter dated November 17, 2009 sent under cover of his e-mail dated November 17, 2009 dissented to the nomination of Mr. Bangera. The petitioner submits that an attempt was made even in the draft minutes of the meeting of the board of directors of respondent No. 1 dated June 25, 2009, to propose the names of persons who were neither directors nor officers of respondent No. 1, to sign on bank documents/papers on behalf of respondent No. 1. In that instance the names of Mr. Diwakar Gam" and Mr. Nirav Shah were proposed as signatories to the company's bank accounts. During the meetings of the board of directors of respondents Nos. 1 and 8 held on December 7, 2009, the petitioner discovered that Mr. Pravin Banavalikar had resigned from the boards of both respondents Nos. 1 and 8 on October 20, 2009 and that in fact a letter dated November 12, 2009 has been received from Mr. Joe Silva, nominating one Mr. Prakash Bangera as his "personal nominee director" on the board of directors of respondent No. 1. The petitioner states that on December 12, 2009 Mr. Max Fysh received an e-mail, with notice for annual general meeting to be he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e annual general meeting. (d) Divesting the assets of the company. (e) Diluting the economic shareholding of the petitioner in the company. 11. The aforesaid acts of deliberately not informing the petitioner or its nominee director of the board meetings and extraordinary general meeting is clearly oppressive as well as amounts to mismanagement and is also in contravention of the provisions of the articles of association of the company. It is further submitted that the execution of the investment agreement without the consent and approval of the petitioner is oppressive as well as illegal. It is submitted that as a result of the said investment in respondent No. 8, the economic interest of the petitioner in respondent No. 8 has significantly reduced. The said act was done by respondents Nos. 2 and 3 with an intention to alienate the petitioner and to take charge and control the affairs of the company and respondent No. 8. The aforesaid instances also clearly demonstrate that respondents Nos. 2, 5, 6 and 7 have violated their fiduciary duty for their personal gain. 12. Learned senior counsel in summarising his arguments submitted that the petitioner holds 42.24 per cent, and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that under the articles of association, the petitioner is having the right to appoint director and the CEO of respondent No. 1 company however the respondents violated the articles. It is submitted that the petitioner is challenging the resolution of the board meetings dated September 9, 2008, September 26, 2008. The petitioner addressed several letters to the company to provide information and details but the respondents have not allowed the petitioner to inspect the documents and records of the company. In this regard he placed reliance reported in in the matter of the Bombay High Court (Rajdhani Roller Flour Mills P. Ltd. v. Mangilal Bagri). It is of the view "whether respondent entitled to photocopies of documents already inspected by them--such copies required for proving case of respondent regarding mismanagement of companies fund--claim of appellant that only directors has got right to take copies of such book is untenable--held, application for taking books of account maintainable since it will not be prejudicial to interest of the appellant-company." 14. Learned senior counsel in furtherance made some points and stated that the company is run by some other pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to do substantial justice between the parries." In the circumstances he prayed this Bench to grant reliefs. 15. Respondents Nos. 3, 5 and 6 have filed their counter/reply. Shri Chirag Mody, learned counsel appearing for the respondents submitted that the present petition is filed by the petitioner with an ulterior motive and mala fide intention and the real purpose of the present petition is (a) to exit from respondent No. 1 (MRPL) in whatever manner the petitioner can, including by pressurising the respondents by stalling the only on going project under the development by respondent No. 8 (GOPI) and (b) to preempt any actions that the respondents may take against the petitioners and/or their nominees for their nominee's failure to perform as the CEO of respondent No. 1 and for violations and breaches of the terms and conditions of the shareholders' agreement. The present petition is an abuse of the legal process and machinery of sections 397 and 398 of the Act, and hence ought to be dismissed with costs. The petition suffers from "suggestio falsi" and "sup-pressioveri" The petitioner having come to this Bench with unclean hands is not entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as their nominees on the board of directors of respondent No. 1. Subsequently respondent No. 7, i.e., Pravin Banavalikar was appointed on the board of respondent No. 1 on July 17, 2008 as the alternate director to respondent No. 4. In view of the above, the current status of shareholding in respondent No. 1 is as follows : Name of shareholders Number of shares % of shares Divakar Gatti (R4) 1 0.00 Max Fysh (petitioner) 1,17,000 42.06 Joe Silva (R2) 35,999 12.94 Aboyne Mauritius (R3) 1,25,160 45.00 Total 2,78,160 100.00 16. Under clause 41(a), (c) of the articles of respondent No. 1 and clause 4.1(a), (b) of the SHA, the board of directors of respondent No. 1 was to comprise of a maximum of four directors, out of which respondent No. 3 as the investor and the petitioner and respondent No. 2 as promoters, were entitled to nominate two directors each. The nominee directors of respondent No. 3 (investor) are the non-executive directors and are not responsible for the day to day management. The nominee directors of the petitioner and respondent No. 2 (promoters), are to be executive directors of respondent No. 1, and responsible for the day to day management of resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver of equity of respondent No. 8, however, development and construction activity was to be undertaken through respondent No. 8 in order to avoid payment of additional stamp duty. It would not be out of place to mention that Max Fysh (as CEO and/ or executive director) also failed and neglected in dealing, negotiating and/ or concluding the acquisition of respondent No. 8 from Wearology Ltd. It was only due to efforts of respondent No. 2 that an escrow agreement was executed between Wearlogy Limited and respondent No. 1 for acquisition by respondent No. 1 of respondent No. 8. Under the escrow agreement, an advance of ₹ 8 crores was paid by respondent No. 1 to Wearlogy Ltd. and balance amount of ₹ 32 crores was required to be paid by respondent No. 1 to Wearlogy Ltd. on or before March 6, 2008, failing which the advance of ₹ 8 crores would be forfeited by Wearlogy Ltd. which amounts and investments were brought in by respondent No. 3. The directors of respondent No. 8 in their meeting held on April 2, 2008, decided to accept investment from respondent No. 3. Max Fysh did not attend or participate in the said board meeting of respondent No. 8 which was held on April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 and left India for abroad. As such Max Fysh kept himself aloof from responsibility of the day to day management of respondent No. 1 notwithstanding that he was the executive director of respondent No. 1 because he had decided to exit totally from the projects and run away from any responsibility whatsoever. 19. The apparent withdrawal of Max Fysh from respondent No. 1 is highlighted by the fact that Max Fysh did not direct the board of directors of respondent No. 1 to appoint an alternate director for and in place of himself, even though clause 41(d) of the articles of respondent No. 1 and clause 4.1(c) of the SHA executed by respondent No. 1 provide for appointment of alternate director. Also Max Fysh did not provide respondent No. 1 with a local forwarding address in terms of section 286 of the Companies Act, 1956 read with clause 28(b) of the articles and clause 4.2(b) of the SHA, to enable the board of directors of respondent No. 1, to formally correspond with him. The board of directors of respondent No. 1, however, periodically kept Max Fysh notified or updated telephonically about the administration of respondent No. 1. The impropriety of such forbearance by Max Fysh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l general meeting of respondent No. 1 at short notice. Respondent No. 1 by e-mail dated September 26, 2008 forwarded to Max Fysh the minutes of meeting of the board of directors of respondent No. 1 held on September 26, 2008 for confirmation. It is pertinent that Max Fysh, after receipt of e-mail dated September 26, 2008, not only refrained from responding to respondent No. 1 thereupon, but also did not allege against and complain to respondent No. 1 except by later filing of the petition which is reflective on the petition as an afterthought stratagem. Max Fysh, however, chose not to personally attend but participated by teleconference in the annual general meeting of respondent No. 1 on September 29, 2008. The members of respondent No. 1 by the annual general meeting held on September 29, 2008 duly resolved inter alia, to approve the audited accounts of respondent No. 1. Respondent No. 1 by e-mail dated November 28, 2008 notified Max Fysh about a meeting of the board of directors of respondent No. 1 on December 15, 2008 and requested Max Fysh to personally attend to resolve upon inter alia the e-mail by Max Fysh about non receipt of notices, etc. from respondents Nos. 1 to 8. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent No. 1 and/or respondent No. 8 which are closely held private companies, (c) The fact that the petitioner or Max Fysh, until the filing of the petition, has not alleged or documented/recorded about any interference by respondent No. 3 in affairs or business of respondent No. 1 and/or respondent No. 8. (d) The fact that the petitioner or Max Fysh until the filing of the petition, has not alleged or documented/recorded about any oppression in the affairs of respondent No. 1 and/or respondent No. 8. (e) The fact that the petitioner or Max Fysh until filing of the petitioner has not alleged or documented/recorded about any mismanagement in the affairs of respondent No. 1 and/or respondent No. 8. (f) The fact that although the petition in its paragraph No. 25 vaguely refers to the "terms of separation" but suppresses receipt by its beneficial owner Max Fysh from respondent No. 2 and his associates, substantial amounts towards complete exit by the petitioner and Max Fysh from respondents Nos. 1 and 8, under the understanding arrived at between the petitioner and/or Max Fysh and respondent No. 2 (on behalf of respondent No. 1 and/or respondent No. 8). The fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting held on December 12, 2007 of respondent No. 1, it was decided to acquire respondent No. 8. The contention of the petitioner that respondent No. 1 shareholding in respondent No. 8 was reduced because of issue of respondent No. 8's shares to respondent No. 3 is concerned the petitioner is not a shareholder of respondent No. 8 and he is not concerned with the affairs of respondent No. 8. He contended that before issue of shares to respondent No. 3 in respondent No. 8 company, respondent No. 1 was holding 100 per cent, shares in respondent No. 8. The petitioner had invested only ₹ 1.6 crores in respondent No. 1 company. The reliefs sought by the petitioner are completely against the interest of respondent No. 8 on the ground that the petitioner has nothing to do with respondent No. 8 and they are completely strangulating the business of respondent No. 8. The petitioner contended that the respondents diluting the economic shareholding of the petitioner, is not correct. In this regard they relied upon article 20(e) of the articles of association of respondent No. 1 company which has no application. The petitioner or respondent No. 2 have no affirmative vote. However, resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions and reliances placed, learned counsel prayed this Bench to dismiss the petition. 23. Heard, learned counsel for the parties and perused the pleadings, documents and citations relied upon by them. After analysing the pleadings the following issues are felt for consideration and the same need to be addressed, (1) Whether any contravention of the provisions relating to notices for the board and general meetings as enumerated in the SHA and articles of association ? (2) Whether the petitioner was offered shares in respondent No. 8 company and whether any dilution of economic shareholding of the petitioner ? (3) Whether the petitioner was provided inspection of documents ? (4) To what relief ? Now I deal with issue No. 1 : 24. The petitioner is challenging the board meetings dated September 9, 2008 and September 26, 2008 and December 15, 2008 and the annual general meeting held on September 29, 2008 and also sought directions to serve notice to the petitioner for all the future board meetings and the annual general meeting along with the necessary documents. The main grievance of the petitioner is that the respondents have not given any notice for the board meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner is aware through e-mail sent on September 26, 2008. It is further contended that all the board meetings and general meetings are held regularly and the nominee director is aware of all those meetings. The respondents also contended that the nominee director of the petitioner, i.e., Mr. Max Fysh does. not have mailing address in India and the notices will have to be sent to the directors residing in India to their address as per section 286(1) of the Companies Act. The relevant provision is extracted hereunder for better appreciation of section 286(1) : "Notice of every meeting of the board of directors of a company shall be given in writing to every director for the time being in India and at his usual address in India to every other director." I have perused the minutes of the board meeting as stated above. The nominee director of the petitioner signed the minutes of the first board meeting dated March 28, 2008 and attended the board meeting dated June 19, 2008. The petitioner is challenging the board meetings dated September 9, 2008 and September 26, 2008 and December 15, 2008 and the annual general meeting dated September 29, 2008. The board meeting held on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t directors and reappointment of Mr. Pravin Banavalikar as director. Therefore, it is presumed that the petitioner was given notice for the general meeting. As per section 286(1) of the Act, the notice is to be given to the directors who are in India and not to the directors who reside outside India. The respondents also relied upon the judgment of the Bombay High Court in the matter of Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co. [2004] 120 Comp Cas 560, wherein the Bombay High Court is of the view that (page 603) : "... section 286 requires that the notice to be given to those directors who are for the time being in India." In view of the clear provisions of law and also supported by the judgment of the Bombay High Court, I fully agree with the submissions of the respondents. I do not find any illegality in conducting the said meeting. From the records it is evident that the company informed the nominee directors and updated by mail and telephonically about the meetings and administration. It is also evident from the records that Mr. Max Fysh, nominee director of the petitioner participated in the meetings by teleconference and the same is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent, shares in respondent No. 8 company and is only the shareholder. Respondent No. 8 is an independent entity having four directors on its board. Respondent No. 3 entered into an investment agreement dated April 2, 2008, thereby respondent No. 3 became 32.25 per cent, of the equity shareholding in respondent No. 8. Thus, respondent No. 8 is having two shareholders, i.e., respondents Nos. 1 and 3. It is contended that the board meeting of respondent No. 8 was held on April 2, 2008 for which no notice was given to the petitioner and no approval of the board of directors of respondent No. 1 either for increase of capital of respondent No. 8 or dilution of capital of respondent No. 8. It is further contended that if the meeting is held without notice to the directors, it is invalid as held by the Supreme Court in the matter of Parmeshwari Prasad Gupta v. Union of India [1974] 44 Comp Cas 1. It is also contended that the respondents have breached the article 20 of the articles of association and clause 3.1 of the SHA. The respondents contended that the petitioner had invested only a sum of ₹ 1.60 crores and whereas respondent No. 3 had invested ₹ 82 crores in the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written permission of the other shareholders, (a) create an encumbrance on any of the shares held by them either in whole or part or (b) sell, transfer, grant any option or right to purchase or otherwise dispose of any of such shares or (c) enter into any agreement or arrangement in respect of the votes attached to the shares, (d) publicly announced their intention to sell, transfer, grant any option or right to purchase or otherwise dispose of any of such shares, and (e) enter into any swap or other agreement or any transaction that transfers in whole or in part, directly or indirectly the economic consequences of beneficial ownership of any shares owned by such shareholders. Article 20(b) provides for right of first refusal. Also clause 3.1 of the SHA provides for restriction on transfer of shares. Sub-clause (e) of clause 3.1 is identical to sub-clause (e) of article 20(a) of the articles of association. The respondents contended that the above clauses of articles and SHA are not applicable to the petitioner's case. They contended that the management will have the power to take decision in the board meetings by its majority directors as contemplated under clause 29 of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f board of directors can take decisions in the interest of the company. The board meeting in which the decision has been taken to allot shares to respondent No. 3 was attended by three directors out of four directors, therefore, the board meeting convened and transacted and taken decisions by majority of directors. Therefore, I do not find any illegality in allotting the shares to respondent No. 3 in the interest of respondent No. 8. It is also stated that the only project of respondent No. 8 is land for development and it was not proceeded further lack of funds. It is also contended that respondent No. 1 is only a paper company. The decision taken by the board is perfectly valid. Clause 20 of articles of association clearly envisages that none of the shareholders shall directly or indirectly without the prior written permission of the other shareholders sell, transfer, encumber etc. Admittedly, respondent No. 8 is only one shareholder, i.e., respondent No. 1 prior to its allotment. The shareholder, i.e., respondents Nos. 1 and 8 have taken the decision to allot the shares. Pursuant to allotment respondents Nos. 1, 3 and 8 have entered into share subscription agreement whereby resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner has for the first time addressed e-mail requiring the information. Whatever may be the reason, the petitioner is entitled to inspect the registers, records and other documents of respondent No. 1 company in the capacity as shareholder and director according to law and can obtain copies thereof. Now I deal with issue No. 4 27. The petitioner contended that respondent No. 3 is interfering with the affairs of the company and the petitioner intends to exit the company. As per the shareholders' agreement, it is unequivocal that respondent No. 3 is an investor and can nominate director on the board of respondent No. 1 company. The nominee director of the investor shall be non-executive director and shall not be responsible for the day to day management of the company and shall not be liable to any failure by the company to comply with any law or rules. However, the nominee director of the promoter, i.e., the petitioner and respondent No. 2 shall be the executive directors of the company and shall be responsible for the day to day management of the company. The nominee director of the petitioner was appointed as the CEO of respondent No. 1, however, he resigned as the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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