9911796707
TMI Blog2003 (11) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 where after the 2nd respondent viz. Ranendera Nath took control of that company. After the death of Debabrata in 1996, the 2nd respondent being the eldest surviving male member of the family, took control of Unit Construction also and was appointed as Executive Vice Chairman, The 6th respondent, even though was not a member of the family was appointed as the Managing Director even when Debabrata was alive. The 1st petitioner is the wife of Barindera Nath and the 2nd and 3rd petitioners are their sons and 4th and 5th petitioners are their wives. The 6th petitioner is the wife of Debabrata and the 7th petitioner is their daughter. The 11th respondent is the husband of the 7th petitioner. The shares held by Samerendra Nath had been purchased by Debabrata family sometime in 1994. The 3rd petitioner and the 11th respondent were appointed as the additional directors in a Board Meeting held on 26th September, 2000 and the 2nd petitioner was appointed as a director in a Board Meeting held on 2nd November, 2000 in the place of a director who had vacated his office. The families of Debabrata and Barindranath claim that they form a single group and were having majority shares in the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are number of restrictions on the transfer of shares to outsiders and also for providing pre-emption rights to the existing members in the matter of transfer of shares. The father of the 7th petitioner was the Chief Executive of the company from 1972 to 1996. After his demise, the family members invited the 2nd respondent to take over the management of the company as he was the eldest member in the family. This itself would indicate that the company is a family company. The 2nd respondent himself in his counter, at paragraph 21, averred that the company being a family company, his desire was to ensure that every family was represented on the Board. He invited the 2nd petitioner to join the Board by a letter dated 25th September, 2000 (Annexure A-5). The 2nd and 3rd petitioners representing the family of one brother and the 11th respondent being the son in law of another brother were inducted into the Board in 2000. As a matter of fact the 2nd petitioner had functioned as a Director (Finance) in early 1990s. It would indicate that there had been active participation of the petitioners' group in the management of the company. The petitioners' group consisting of family member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them. The petitioners sought for staying the EOGM convened by the company and by an order dated 23.4.2001, this Bench granted the prayer. Yet, the EOGM was held and resolutions removing the three directors as directors were carried through. Thereafter, on an application made by the petitioners, this Bench directed the company not to give effect to those resolutions. By virtue of that order, the directors from the petitioners group still continue as directors. 5. The learned counsel further submitted: The petitioners took a search of the records of ROC on 12.4.2001. The search revealed that on 26.2.2001, the Board had allotted 1.55 lac shares to the respondents group. By this allotment, the petitioners group holding has come down from 51% to 29.6%. Neither the 2nd and 3rd petitioners nor the 11th respondent received any notice for the Board Meeting held on 26.2.2001. As a matter of fact, the minutes of the meeting should have been fabricated in as much as the Return of Allotment was filed only on 27.3.2001 i.e. after the petitioners had sent the notice, requisitioning an EOGM for appointment of Mr. Basu dated 13th March, 2001. Along with the requisition, the petitioners had given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the letter was sent by UPC with proper evidence. In the present case, the respondents have not proved with any evidence other than the postal receipt that the notices for the Board meeting on 26.2.2001 were sent by UPC. Thus the said meeting was held without notice to atleast three directors. In Parmeshwari Prasad Gupta v. UOI (AIR 1973 SC 2389 it has been held that notice to all the directors of a meeting of the Board is essential for the validity of any resolution passed at that meeting and if no notice was given to one of the directors, the resolution passed at the meeting of the Board is invalid. In the present case, further shares were allotted solely with the single purpose of increasing the holding of respondents so as to perpetuate their control over the company. By this allotment they have reduced the petitioners majority holding of 52% to around 29%. In Gluco Series Pvt. Ltd. (61 CC 227), Calcutta High Court has held that it is settled law that it is not open to the directors of a company to issue and allot shares in a manner by which an existing majority shareholders are reduced to a minority. The court will scrutinize with particular circumspection any such issue and un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that it has no facilities to carry out the works. Therefore, the DG Industries is utilizing all the resources of the company to carry out the sub contract work and takes the profit. As a matter of fact, as is evident from Annexure P-29, the DG Industries itself has been giving work orders to some other companies clearly indicating that the DG Industries is not capable of carrying out any contract nor it has resources to do. Such sub contracting has been done only with a view to enrich the DG Industries at the cost of the company and its shareholders. The financial mismanagement and diversion of the business of the company arc actually the reasons for the petitioners to seek appointment of an outsider as executive vice chairman cum managing director. 8. Summing up his arguments, the learned counsel submitted that the respondents, notwithstanding the fact that the company is a family company, requisitioned an EOGM to remove the 2nd and 3rd petitioners and the 11th respondent who collectively represent two sons of the promoter of the company from the Board. The members of 4 sons of the promoter were always associated in the management of the company. Not only the 2nd respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the 2nd petitioner was the Finance Director for two years in 1990s and resigned when his personal guarantee was sought by the bank. Under these circumstances , the question of joint management does not arise. The petitioners case is that there was equality in the shareholding among all the 5 brothers and if so, then, the petitioners cannot claim 52% shares before the issue of further shares as the petitioners' group consisting of two families will have only 40% shares. The shareholding position till 1988 was that each brother's group held 20% shares. In 1988, there was a right issue which was not taken by Samarendra Nath and therefore his group holding came down below 20%. In 1991, there was issue of bonus shares. In 1994, the shares held by Samarendra was purchased by Dababatra. At that point of time itself, the equality in shareholding became disturbed. Further, late Dababatra group also acquired 6850 shares allotted to Shri S.P Mitra in 1994 and therefore it is Debabatra group consisting of the 6th and 7th petitioners and the 11th respondent which is guilty of disturbing the balance. When the 5th respondent sought transmission of shares held by his father, the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjected to the action taken by late Dababrata, but now they claim that they are together. This itself would indicate that these two groups of petitioners were never together to claim majority. They claim majority only because Dababrata not only purchased the shares held by Samandranath but also got substantial shares allotted to Shri S.P. Mitra in 1995. If these shares are cancelled or equally distributed among the 5 families, the petitioners could never claim majority. 11. The learned counsel further submitted: There had always been an understanding that the company was to be managed by a family member and since 2nd respondent was the senior most family member, he was invited to take over the management of the company. If the petitioners claim majority, then, considering their claim, that it is a family company, they have no business to bring an outsider to manage the affairs of the company. By this proposal of bringing an outsider, it is the petitioners who have acted against the interest of the company. If the petitioners had claimed, instead of trying to bring an outsider, joint management and if it had been denied, petitioners perhaps could have some grievance. Presently, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prises Ltd. (100 Com. Cases 211 AP) it has been held that when a company needs funds, any further issue of shares is a matter of internal administration of a company and the court will not interfere unless otherwise it is established that the further issue was malafide. The shares were allotted to the 2nd respondent group lawfully as the petitioners' group did not apply for the shares. In Lalita Rajya Lakshmi v. Indian Motor Company Ltd. (AIR 1962 Cal. 127) it has been held that any attempt to get a majority in a company by lawful means will not justify winding up of a company and a profitable company cannot be wound up on just and equitable grounds. If the impugned shares are to be cancelled us sought for by the petitioners, then, the allotment made in 1995 should also be cancelled. If those shares are also cancelled, the petitioners could never claim majority in the company. 13. Summing up his arguments, Shri Sarkar submitted: This company is being managed for over 30 years by one of the family members. There has never been any majority rule in the company. Since the 2nd respondent is the eldest, he has been given the responsibility to manage. The family members of two oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners be directed to sell their shares to the 2nd respondent group as his group is in the management of the company. In Ramashankar Prosad v. Sindri Iyon Foundry Pvt. Ltd. (AIR 1966 Cal. 512) the oppressor was directed to purchase the shares held by oppressed. This Board itself has held the person in management or who has nurtured the company should take control of the company. (Nikhil Rubber Pvt. Ltd. (108 CC 422 CLB)z and VLS Finance Ltd. v. Sunair Hotels Ltd. (110 Co/up. Cases 772 CLB). If such a direction is given, the 2nd respondents are willing to hand over the control and management of DG Industries to the petitioners. 14. In rejoinder, Shri Mookherjee submitted: The petitioners do not control any joint family company. Originally, there were 4 family companies. One has become defunct and one is under the control of the family of one of the brothers who has sold his shares. Respondent No. 10 was under the control of the 2nd respondent and Unit Construction was under the management of the father of the 7th petitioner. In other words, the understanding was that DG Industries would be with the 2nd respondent and his family members and Unit Construction would be wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erjee submitted that the claim of the 2nd respondent that the company has prospered under his management is factually incorrect since the company is in the business of construction, the contracts which were obtained before 1995 are being executed now and no new business has been developed nor any new contract obtained after the 2nd respondent took control of the company. The profitability as a ratio of turn over has come down after the 2nd respondent took control of the company. Before 1995, the company did not need any cash credit facilities but now it is utilizing cash credit facilities indicating that the financial position of the company is not sound. 15. The learned counsel further submitted: When the father of the 7th petitioner acquired the shares from Samarendtra held in the company, the 2nd respondent acquired the shares held by Samarendra in DG Industries. This would also indicate that DG Industries was to be managed by the 2nd respondent and the company by the petitioners. It is wrong to contend that the petitioners had abandoned the company. Whenever shares were offered, the petitioners have taken .more than their proportionate shares and since the company is a profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a single group is contested by the respondents. According to them, there had never been any groupism in the company. I find some merit in this contention. It is on record that the 2 petitioner objected to the issue of further shares in 1994 and allotment of shares to the directors in 1995. At that time the company was under the control of the father of the 7th respondent. Likewise, he also questioned the acquisition of shares by Debabrata group from Samarendra. Likewise, the 2nd respondent objected to the reelection of the father on the 5th respondent as a director due to which the father of the 5th respondent was not reelected as a director in 1995. But now the 5th respondent is siding with the 2nd respondent. In this connection I may refer to the observation of this Bench in Shyamall Dey v. Homco Engineering Pvt Ltd case wherein such a claim of groupism was made. This Board observed The main complaint of the petitioners is that their group has been reduced from a majority into a minority by issue of further shares and by transfer of shares in favour of the respondents. The respondents have denied the concept of group in the company. We have seen the geneological table of De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g shareholding in such a manner that any particular group has gained advantage. 18. Both the sides admit that the shareholdings of the families of all the 5 brothers were more or less equal and this status continued atleast till 1988/1995 when further shares were issued on right basis and shares were issued to non member directors. But it is on record that late Debabrata was managing the company not withstanding the fact that he was not the majority shareholder. Likewise, the 2nd respondent has been managing the affairs of the company from 1996 even though he was not having majority This would indicate that majority holding was not the criteria to control the company and that by consensus one of the brothers was managing the company. The same is the position with DG Industries also wherein all the families held shares but the management was with the father of the 2nd and 3rd petitioners and after his demise with the 2nd respondent. Now, by the impugned allotment, the family of one brother controls majority shares. In other words, a new absolute majority has been created in this company in which at no point of time any single family held majority shares. Creation of a new majorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the then banker of the company, i.e. Bank of India. He referred to the minutes of the Board meeting held on 17th and 18th April 1995 when the company's then Managing Director-cum-Executive Vice Chairman Mr. Debabrata Dutta Gupta was at the helm of affairs of the company. Since the matter is quite old, the Chairman asked Mr. D. Ghosh to read out the relevant portions of the minutes of the Board Meetings held on 17th April and 18th April, 1995. The Managing Director Mr. Mitra suggested that as sufficient time is not available, it would be prudent to follow the same principle at this stage. He suggested that in view of Article 6 of the company's Articles of Association, the shares may be offered to the Directors of the company. After a brief discussion, directors present in the meeting agreed with the suggestion. Then came the question of issue price and terms of payment for the shares. The consensus of opinion was that the present issue may be made at the same price at which the last issue was made i.e. at face value of ₹ 10 per share plus a premium of ₹ 3 per share totaling ₹ 13 per share, as the yield per share remained-more or less the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs is subsequent to the Board Meeting on 2.2.2001 and, as such cannot be relevantly looked into. Further, the minutes indicate that shares were to be allotted to the directors of the company at a premium of ₹ 3 per share as was done in 1995. In 1995, the shares were issued only to non member directors and not member directors. The minutes also records that no separate offer letters would be issued but absentee directors would be informed. The admitted fact is that 2nd petitioner did not attend that meeting and therefore, he should have been informed of the proposal to issue further shares. There is nothing on record to show that he was informed of the proposal leading to the presumption that he was not informed. If that be the case, the company had not carried out the decision of the Board. Therefore, even assuming that this matter was discussed in the meeting in the presence of the 3rd petitioner and the 11th respondent, 2nd petitioner, who was a director did not have any knowledge of the proposal and as such the company cannot claim the petitioners group did not apply for the shares. One important aspect I noticed is that as per the minutes, the Board had taken some decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that notices for this meeting were sent by UPC. The respondents have not been able to justify as to why the company suddenly adopted this practice of sending notices for this meeting by UPC. As held by this Board in Bombay Dyeing case (supra), the onus to establish that notices were sent by UPC is on the respondents which they have failed to do with other independent evidence. Therefore, strong presumption has to be drawn that the certificates furnished in this regard are procured ones. If so, then the meeting on 26.2.2001 had been held with out notice to the directors from the petitioners, group. The settled law is that any business transacted in Board meetings without notice to all directors is invalid and therefore, the allotment made in that meeting without notice has to be declared as invalid. (Parmeswar Prasad Gupta case-supra) . The respondents have justified that the allotments made in this meeting was only a follow up on the decision in the meeting on 2.2.2001, which was attended by the 3rd petitioner and the 11th respondent. I have already held that the minutes containing the decision to issue further shares is a fabricated one and as such the respondents cannot take shel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout applying for the same, would requisition an EOGM within a short period knowing well that on their failure to apply for shares, all the shares would be allotted to the respondents group resulting in their gaining majority. Therefore, the petitioners are justified in claiming that the act of issuing shares only to the 2nd respondent group is a grave act of oppression. Shri Sarkar relied on Indian Motor Co and Nanalal Zaver cases for the proposition that acquisition of shares by lawful means is not an act of oppression and that in raising funds for the requirement of the company, even if the directors are benefited, then such issue of shares cannot be an act of oppression. In the present case, as indicated above, the sole motive for issue of shares was to create a new majority and as such not bonafide or lawful but oppressive. Whether, the respondents are justified in creating a new majority as a counter to the proposal given by the petitioners to handover the entire management of the company to an outsider requires examination. 21.The complaint of the respondents is that the petitioners had acted against the interest of the family by proposing to induct an outsider with enorm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be a justification to create a new absolute majority. 22. As far as the removal of the 2nd and 3rd petitioners and also the 11th respondent as directors in the EOGM held on 25.4.2001 is concerned, it is obvious, as seen from the Explanatory Statement annexed with the requisition notice issued by the 2nd, 3rd and 4th respondents that their removal had been proposed in view of their requisition proposing the appointment of Shri D.K. Basu as Vice Chairman. This requisition notice is dated 19.3.2001. The respondents who have signed the requisition notice could not have known, in their capacity as shareholders, the requisition notice given by the petitioners as the same had not been circulated to the shareholders by then. In other words, the knowledge that they had gained in their capacity as directors regarding the requisition given by the petitioners has been misused by these respondents. In the requisition by the respondents, they have not indicated their shareholding unlike the petitioners who had given complete details. If the allotment of shares had been bonafide, they could have given the details of their shareholding. Further, any requisition given by a shareholder has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not find anything wrong in a company subcontracting some work to another family company, unless it is established that the same work could have been given on more favourable terms to an outside company. To examine this aspect, the petitioners have not furnished any comparative details to show that the subcontracting to DG Industries had been unfavourable to the company or that by the subcontracting work, DG Industries has been benefited at the cost of the company. Therefore, this complaint could be put an end to by directing the company that before subcontracting any work to DG Industries, the approval of the Board of the company should be taken. Accordingly I direct so. 24. In regard to the alleged financial mismanagement, no particulars have been given substantiating this allegation other than pointing out differences in the carry forward figures of 1997-98 in the Balance Sheet as on 31.3.1999. In Balance Sheets, along with the current year figures, the figures for the previous year as per the Balance Sheet of that year is shown against each head. In the Balance Sheet as on 31.3.1998, under the head Advance Recoverable in cash and hand an amount of ₹ 3,68,44,428 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners being in majority before the impugned allotment, they should have the control of the management of the company. For this purpose, it was sought that the 2nd respondent group should be directed to sell its shares to the petitioners. The learned counsel for the petitioners heavily relied on Tea Brokers case in this regard. This relief, 1 feel, has been sought, as a counter to the prayer made by the learned counsel for the respondents, that the petitioners being oppressed should be directed to sell their shares to the 2nd respondent who has been in control of the company for over 8 years. Shri Sarkar cited the cases of VLS Finance, Sindri Iron , Nikhil Rubber etc on the proposition that the oppressed shareholders should be directed to sell the shares to the oppressor, that the person in management should have the right to purchase the shares held by others etc. No doubt, this Board has adopted all these courses of action depending on facts of each case. But in the present case, I do not propose to adopt any of the alternatives suggested by the learned counsel. It is on record that the 2nd respondent assumed control of the company on invitation by other family members and has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amily members, of the 1.53 lakh shares allotted on 26.2.200 to the 2nd respondent group, each group would be entitled to 38,250 shares. This being the case, the 2nd respondent group will also be entitled to only to 38,250 shares and the excess allotment made to that group will have to be adjusted against the entitlement of the other groups. Under the authority of this order, these three groups will send an intimation, in writing, to the company indicating number of shares that each group desires to acquire out of 38,250 shares along with a demand draft at ₹ 13 per share drawn in favour of the 2nd respondent. This should be done by 10th December 2003. On receipt of the intimation along with the demand draft, the company will effect the transfer in its Register of Members by 25th December and send the demand drafts to the 2nd respondent thereafter. The usual procedure regarding transfer of shares is dispensed with. The certificates relating to the shares transferred as above will be cancelled and fresh certificates will be issued in respect of the transferred shares. The above directions will put an end to the complaint relating to the allotment of shares. 26. As far the man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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