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TMI Blog2007 (2) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... 2nd respondent as the MD was not recorded in the minutes. Through another application, they sought for holding of the annual general meeting of the company for the year ending 31-3-2005. 2. The facts of the case are that the 5th petitioner and the 2nd respondent are brothers. The first 4 petitioner companies are under the control of the 5th petitioner. The company became a sick company and accordingly a reference was made to BIFR. BIFR has sanctioned a scheme of revival and one of the terms of the revival scheme was that IDBI would be allotted shares worth ₹ 23 crores with the liberty to the 2nd respondent, being the promoter of the company, to purchase the shares held by IDBI. Shares worth ₹ 23 crores were allotted to IDBI. The petitioners filed the Company Petition No. 35/2005 alleging that even though the petitioners were also co-promoters of the company, the 2nd respondent holding around 16 per cent shares in the company, with a view to grab the company, had misrepresented before BIFR that he was the sole promoter, thus, getting the right to purchase the shares held by IDBI. I had decided the petition in favour of the petitioners and the said order was taken on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors and also a signatory to the memorandum. She, in her capacity as a promoter of the company, has been continuing as a director right from the beginning and has been one of the signatories to operate the bank accounts having similar powers as that of the 2nd respondent. The company had circulated an agenda for the board meeting to be held on 13-10-2005. In this agenda, three items, highly oppressive to the petitioners had been proposed. One was to withdraw the cheque signing powers from Ms. Poonam on the ground that registered office had been shifted to new premises, the second was not to reappoint Shri S.S. Dhanova, a nominee of the petitioners on his retirement by rotation on the ground that he had not expressed his desire to seek re-appointment and the third is that to call for the balance money on unpaid shares with 9 per cent interest from November, 1996 till the date of payment. 4. Elaborating on the above proposals, the learned counsel argued: The reason given in the agenda for withdrawing the cheques signing powers from Ms. Poonam was that the registered office had been shifted. However, in the sur-rejoinder, it is alleged that her powers had been withdrawn on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), it may be seen that no body has signed the minutes. There is not even an indication that the earlier decision of the board not to charge interest was taken into consideration by the said committee. Further when the board had decided the matter, a Committee cannot take a decision contrary to the decision of the board. In addition, the decision of the Grievance Committee had not even been placed before the board for its approval or rectification. In the board meeting held on 13-10-2004, Ms. Poonam opposed the resolution but the same was overruled by the 2nd respondent. In terms of the resolution, notices dated 28-10-2005 have been received by the petitioners asking them to pay ₹ 4.21 crores being the unpaid money on the shares at the rate of 9 per cent effective from 5-11-1996 stating that if the amount was not paid within 30 days, the shares shall be forfeited. Therefore, the calling of the unpaid amount after the disputes had started, that too at an interest of 9 per cent, clearly indicates the mala fide intent of the 2nd respondent. In terms of article 30A, the general body has the power to extend the period within which the calls are to be paid and therefore, this matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntment of four additional directors was only to strengthen the hold of the 2nd respondent in the board. It is to be noted that even the names of the additional directors were not disclosed nor their bio-data or consent had been placed before the board. When the petitioners had sought for holding of an AGM, if at all there was any need to appoint directors, it could have been done in the AGM. Therefore, the appointment of the four directors should be set aside especially when BIFR has already appointed a Special Director on the board by an order dated 4-12-2006. In other words, the justification given for appointment of four additional directors that IDBI nominee had been withdrawn, no longer survives in view of the Special director appointed by BIFR. Kerala High Court has held in Dr. T.M. Paul v. City Hospital (P.) Ltd. [1999]97Comp. Cas. 216 that even though items not in the agenda could be considered by the board and even additional directors could be appointed without being included in the agenda, yet, the powers should be exercised bona fide and not with a view to strengthen the position of a majority in the board. In the present case, it is quite obvious that only when he was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court would prevail and therefore, this Board has no jurisdiction to adjudicate on the petition. Further, except the allegation relating to calls in arrears, other matters are already before BIFR. The petitioners had filed an application before BIFR (Annexure R-2) wherein they sought for appointment of a qualified independent person as the MD. This application has been disposed of by BIFR without any order in October, 2006. Their insistence on convening an AGM itself is a mala fide as is evident from the fact that it is the petitioners who sought for restraining the company from holding the AGM for the year 2004-05. Only when they came to know that IDBI was not likely to support the 2nd respondent, they sought for an AGM with a view to remove the 2nd respondent as the MD notwithstanding the fact that this petition has been pending for over a year. As a matter of fact, since as per the BIFR scheme, the 2nd respondent is the promoter and he has been charged with revival of the company, he cannot be removed. In the application CA No. 389 of 2006, the only ground given is that four additional directors had been appointed. If the petitioners are aggrieved with the appointment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present petition. Referring to NGEF Ltd. v. Chandra Developers (P.) Ltd. [2005] 8 SCC 2191, Kerala State Financial Enterprises Ltd. v. Official Liquidator [2006] 10 SCALE 28, the learned counsel submitted that in terms of section 32(1) of SICA, the provisions of SICA have an overriding effect over the provisions of the Companies Act and therefore, this Board has no jurisdiction to entertain this petition. 9. He further submitted: Further, the petitioners have alleged that the 2nd respondent is mismanaging the affairs of the company. Since BIFR is seized of the matter and has appointed a Special Director in terms of section 16(4) of SICA, the management of the company has come under the purview of BIFR now. As a matter of fact the petitioners have raised similar issues and have sought the removal of the 2nd respondent as the MD before BIFR. On that application, BIFR has already passed an order on 10-12-2006 directing that if dues of IDBI are settled by way of OTS, the shares allotted to IDBI could be allotted to the promoters and their associates. By this order, BIFR has already rejected the prayer of the petitioners for removal of 2nd respondent as the MD. The company has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a call at any time. Article 39/40 permit forfeiture of shares after a due notice, in the event of failure of a shareholder to pay the call money. The very fact that the petitioners have stated that they would be prepared to pay the call money if the shareholders approve the same, it would indicate that their questioning the decision of the board to call the unpaid money is not only mala fide but also against the interest of the company when the company being a sick company, is in need of funds. It is to be noted that most of the other shareholders to whom notices were issued to pay the call money, have already paid and only the petitioners are alleging that the same is an act of oppression. 12. Insofar as the appointment of 4 additional directors on 28-10-2006 is concerned, the learned counsel submitted: Under article 117 of the AOA, the board has the power to appoint additional directors to hold office up to the date of the next AGM. When IDBI withdrew its nominee, the need arose to appoint additional directors more particularly because the company was in a revival path requiring various steps to be taken. They were appointed to look after different activities of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght from the beginning. He has undertaken huge liabilities in terms of the scheme sanctioned BIFR and has also given personal guarantees to the lenders. Further, the 2nd respondent has been appointed as the MD for a period of 5 years and even the BIFR has recognized him as such in the scheme. One of the allegations of the petitioners is that there have been a delay in finalizing the accounts. The company could not finalize the accounts because the statutory auditors of the company N.D. Kapoor Co. are biased towards the 2nd respondent and are colluding with the petitioners. Therefore, unless and until the auditors are removed and a neutral auditor is appointed, it is not possible to finalize the accounts. As a matter of fact, the petitioners themselves have agreed before BIFR in the hearing held on 24-7-2006 for appointment of another auditor. 14. Summing up his arguments, the learned counsel submitted that the 2nd respondent has been managing the affairs of the company to its best interests. So far the company has paid, in spite of all odds, a sum of ₹ 21.93 crores to the lenders and is trying to arrive at a settlement with its secured creditors. In spite of this, withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before BIFR, shareholders have no right. Even in case of winding up, the shareholders have rights as contributories. Even the sanctioned scheme by BIFR exempt the applicability of only four sections of the Companies Act to the scheme and therefore, it has to be presumed that in respect of other matters, the provisions of Companies Act would prevail. The admitted fact is that petitioners hold 52 per cent shares while the 2nd respondent holds only 16 per cent shares. When the petitioners sought for restraining the company from holding AGM since accounts were not ready, the 2nd respondent opposed the application before the High Court. By packing the board with four of his nominees, the 2nd respondent had disturbed the equality in the board which is highly oppression to the petitioners. Even though the respondents have contended that in the SLP the petitioners have raised a question of law whether CLB will have powers under section 397/398 of the Act in respect of a company before BIFR, yet, the same was with reference to the judgment of the Delhi High Court and the petitioners still hold the view that CLB has complete jurisdiction to deal with the petition. The very fact that the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legal proposition . In the same paragraph, it is further observed section 397/398 deal with mismanagement and oppression, namely section of the shareholders which is aggrieved by oppressive act of the other group of shareholders can approach the court against such oppression or in case their acts of mismanagement that can be complained of. However, once allegation is that this act of oppression flows from the scheme, namely acts of non-implementation of the scheme sanctioned by the BIFR one will have to approach the BIFR as in essence what is complained is that the scheme is not properly implemented . Further, in paragraph 80, the learned Judge has summed up Therefore I am of the opinion that CLB had no jurisdiction to entertain the petition under section 397/398 of the Act to deal with the issues which related to SS and are within the exclusive domain of the BIFR . From this judgment it is apparently clear that as long as the acts complained of are not related to the scheme sanctioned by BIFR, this Board has the jurisdiction to entertain a petition under section 397/398 of the Companies Act. This being the legal position, I have to only examine whether the allegations in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting held on 13-10-2005, the reason given for withdrawal of power was that the registered office had been shifted. Only in the pleading that too in the sur-rejoinder, allegations have been made that she had mis-utilized the cheque signing powers. Normally, the validity of the decision of the board must be judged by the reasons mentioned in the minutes and the same cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, a decision which is bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. Time and again this Board has held that decisions/actions taken during the period of cordial relationship cannot be challenged after the relationship had become sour. There is nothing on record that at any time Ms. Poonam was confronted with the alleged misutilisation of powers. It is not made clear as to how shifting of registered office has any relation to the cheques signing powers. It is to be noted that the alleged misutilisation of the cheque signing powers occurred in 2002 when the parties had cordial relationship. Since Ms. Poonam has been enjoying the powers for a ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any details of these appointees being placed before the board, they were appointed by the exercise of casting vote by the 2nd respondent. Minutes of the board meeting held on 28-10-2006 in which these appointments were made does not appear to be on record. However from the letter dated 30-10-2006 signed by the Company Secretary and addressed to the petitioners, I find that the appointments were made with a view to strengthen the management as the IDBI had withdrawn its nominee from the board. It is also stated in that letter that during the course of the meeting, copies of bio-datas were furnished to all the directors. In the written submissions it is stated that additional directors were appointed to look after different activities of the company. Since there is controversy as to whether the three directors supporting the petitioners moved a resolution to remove the 2nd respondent as the MD or not, I do not propose to examine this issue. It is on record that just a few days before the board meeting, one of the petitioners had sought for holding the AGM by a letter dated 25-10-2006 and since additional directors can hold office only up to the date of the next AGM, there was no need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that at every AGM held in pursuance to section 166, the balance sheet and profit loss account have to be laid before the members. Therefore from these provisions it is apparent that holding of AGM in terms of section 166 does not depend on the availability of the balance sheet and the profit loss account. One of the most important statutory rights of shareholders is to attend general meetings and as a matter of fact in terms of section 167 of the Act, if a company does not hold an AGM, any member of the company could apply to this Board with a prayer to call or direct the calling of an annual general meeting. In the present case, the AAIFR has only stayed the directions of BIFR that the company should adopt the annual accounts in the AGM to be held before the end of February. As observed earlier, holding of AGM and adoption of accounts are two different issues as besides adoption of accounts, the AGM transacts other statutory businesses, like, appointment of directors in place of retiring directors in terms of section 255, appointment of auditors in terms of section 224 and declaration of dividend in terms of section 205. I find from the notice issued for the AGM convened on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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