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TMI Blog2018 (4) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... ing by the parties to be available as and when the notice is received when the details of actual meeting have been finalised. Sending Notice with Agenda and documents does not get dispensed. Therefore, we hold that no notice was served upon 2nd and 3rd respondent. Increase of authorised share capital - We are not able to convinced that sending a calendar of events in advance and not sending any further notice for the particular meeting alongwith agenda and other necessary papers be treated as a valid notice either under law or as a good corporate practice. Therefore, we hold that that the holding Board Meeting without calling one of the directors of the company and general meeting was held without notice to the contesting respondents for increase of authorised share capital in the EOGM held on 28.11.2013 is invalid. Whether or not bringing an outsider as a shareholder is in violation of the Articles of Association and constitution of Private Limited Company? - As we have already held that increase in the authorised share capital is invalid, capital issued in pursuance of such increased capital cannot be sustained irrespective of whether proper procedure has been followed or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BALVINDER SINGH, MEMBER (TECHNICAL) These two appeals, being Appeal No.338/2017 and 373/2017 has been preferred by the appellants against the common order dated 3rd October, 2017 passed by the National Company Law Tribunal (hereinafter referred to as the Tribunal ), Mumbai Bench, Mumbai in Company Petition No.44 of 2015. In both these appeals the facts are the same, parties are the same and similar relief has been sought in both the appeals, therefore, we will dispose off these appeals by a common order/judgement. 2. The Tribunal vide its impugned order dated 3rd October, 2017 has held as under: i) Since these Respondents held Board Meeting without calling one of the directors representing majority of the shareholding of the company and general meeting was held without any notice to the Petitioners for increase of authorized share capital, the increase happened in the EOGM held on 28.11.13 is hereby held as invalid. ii) Allotment of shares to outsider is hereby held as invalid. iii) The allotment of shares made to R2 and R3 is bad in law and prejudicial to the interest of the Petitioners. iv) This Bench hereby declares holding of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the auditor, shall refund the funds actually infused by R5 either in the form of share capital or in the form of loans within three months from the date valuation of share value and after preparation of forensic audit report. If such payment is not made within three months as stated above, the petitioners shall pay interest @10% over the amount payable to R5 after completion of three months as stated above. 4. The brief facts of the case are that the 2nd and 3rd respondents in appeal had filed a Company Petition No.44/2015 as petitioners before the Tribunal under Sections 397, 398 read with Section 402 of the Companies Act, 1956 being aggrieved by the acts of oppression and mismanagement committed by the appellants (2nd to 4th respondent in Company Petition) in 1st Respondent. It was also alleged in the company petition that the appellants in collusion and connivance with each other, have illegally and without any sanction and authority, filed false and frivolous documents with the Registrar of Companies (ROC) and on inspection of records available with ROC, it came to the knowledge that the appellants herein have illegally and unauthorisedly allotted shares of 1st responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st respondent would lie with the 2nd and 3rd respondent and day to day affairs of the 1st respondent would be managed by 1st to 3rd appellants under intimation to and prior approval from the 2nd and 3rd respondents. It was also understanding between the parties that the 2nd respondent will procure high quality raw materials from across the world and supply the same to 1st respondent who will thereafter process the raw materials into final products. After manufacturing final products, 1st respondent will export them to the 2nd respondent who will thereafter invest its time and resources to trade the final products in the market. As per the understanding, 1st respondent was entitled only to the processing charges for the above manufacturing and nothing else. 9. Being majority shareholders, 2nd respondent incurred huge expenditures to meet out the day to day expenses of 1st respondent and paid monies towards the salary of employees of the company. That the 2nd respondent made various payments with respect to the business of 1st respondent and the payment so made have not been accounted for. 2nd and 3rd respondents have been making all efforts to augment the business of 1st respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Directors and stressed that the same is sufficient notice to the shareholders within the meaning of Section 172 of the Companies Act, 1956. It is further argued that the appellants were not required to give separate notice of each meeting to the 2nd and 3rd respondent as they were not resident in India. 12. It is next argued by the appellants that Section 81 of the Companies Act, 1956 is not applicable to the private companies and the shares have been allotted as per Article 5(1) of the Articles of Association of the 1st respondent. Learned counsel next argued that the allotment of unsubscribed portion of the rights issues of shares of a private company to a non-shareholder of that private company is valid and the Tribunal can not set aside the allotment of unsubscribed portion of the rights issue of shares of a private company to a non-shareholder and the company is not bound to allot right issue of shares of a private company to a non-shareholder at a premium. It is further argued that the appellants did not dilute the shareholding of the 2nd and 3rd respondent but the 2nd and 3rd respondent did not subscribe to the rights issue of shares and therefore unsubscribed portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board of Directors were within their rights when terminating the office of 3rd respondent as director and no notice was required to be given to that particular director against whom Section 283(1)(g) of the Companies Act, 1956 is being invoked and the said director had wilfully absented him from attending the Board Meeting. 16. It is argued that the Tribunal has wrongly issued direction that respondents shall take over the management of the company on restoration of 2nd respondent as a director and liberty to appoint more members as directors of the company. The Tribunal has also wrongly reinstated 3rd respondent after being aware about his intentions while being in the Management and Tribunal has also wrongly held that the appellants shall not be director of company and the forensic audit is to be conducted from 1st April, 2013 till date and the exit route will be provided to the appellants on fair valuation taking 31st March, 2017 as the cut off date. 17. It is argued that the Tribunal has not considered that the respondents are liable to pay outstanding amount due to the company for the invoices raised by the company for processing charges. 18. The respondents stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 3rd respondent. It is further stated that the said Form retrospectively removes the 3rd respondent from 14.12.2013, whereas the Board Meeting was convened on 30.01.2014. It is stated that 3rd respondent has been removed illegally and shareholding of the 2nd and 3rd respondent has been diluted through illegal means. It is argued that in order to reverse the illegalities committed by the appellants, as per impugned order the appellants were removed from the Board of 1st respondent 15 (fifteen) days from the date of the said order and 4th respondent (appellant in appeal No.373/2017) was removed from the directorship position with immediate effect from the date of the order. 20. It is further argued that the ex parte interim order dated 17.10.2017 passed by the Appellate Tribunal may be vacated as no notice was issued to the 2nd and 3rd respondents. The company appeal filed by the appellants were served on respondent on 18.10.2017 at 4.30 PM. 21. We have heard the learned counsel for the parties and perused the record. 22. The appellants have raised an issue that when a calendar of events which discloses when meetings of the Board of Director of Company are to be held is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents' Counsel submits that in addition to the calendar of events of Financial year 2013-14, on 27.11.2013, a reminder letter was sent to P2 regarding holding AGM to remind the Petitioners that EOGM was going to be held on 28.11.2013. The answer from the Petitioners' side to this belated reminder is, this reminder reached to them on 0212.2013 i.e. almost 3-4 days after meeting was held. Had there been any intention to these respondents to send notice to the petitioners on time, what prevented them to send this notice immediately after Board Meeting held on 04.10.2013? More than one month fifteen days left in between, they did not admittedly send any notice, perhaps, to ensure that it should not reach to the Petitioners in time, so that they could not attend to the meeting on 28.11.2013. This notice was not sent by e-mail. It was sent by post from India to America one day before the meeting. Could anybody believe that a postal notice would reach to US from India on the very next day? Would anybody expect that a man living in America, even if it is assumed that it was reached on 27.11.2013, would be able to reach to the meeting scheduled to be held on the very following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the shares to the outsider have not been issued as stipulated in Section 81(1A) of the Companies Act, therefore, the allotment of shares made to an outsider is invalid. The Tribunal below has given its observations on this issue as under: 17.According to Article 5 of Articles of Association of RI company, Board is authorized to increase the subscribed capital of the company by way of allotment of further shares, subject to the provisions of section 81(1A) of Companies Act, 1956, the Board shall issue such shares in the manner set out in section 81(1) of the Act. 18. If we read section 81, it is a section deals with rights issue for allotment of shares offering them to the holders of the equity of the company in proportion to the capital paid up on those shares as on the date of subscription, if any of the existing shareholders, failed to respond to the offer of allotment within 15 days from the date of notice, then it can be deemed as declined by such existing shareholder/s, meaning thereby, these shares could be issued to the remaining existing shareholder/s, this section 81 (1) does not deal with as to the procedure to be followed if such shares are to be issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the record and find that the 3rd respondent is shown as vacated office on the basis that he has not attended a single board meeting since April, 2013 till January, 2014, but the appellants filed Form 32 showing as if 3rd respondent vacated office u/s 283 basing on a resolution allegedly held on 23.1.2014 stating that 3rd respondent was not associated with the company w.e.f. 14.12.2013 since he was not attending the meetings. A Board Meeting notice dated 30.01.2014 was issued on four agendas including vacation of office by 3rd respondent. The notice for Board Meeting for 30.1.2014 was issued by the appellants and it was not mentioned in the notice that what meetings have not been attended by 3rd respondent and when these meeting were held. Form No.32 filed by 1st appellant, it appears as if Board Meeting was held and resolution was passed on 20.03.2014 with a confirmation that 3rd respondent is not associated with the company w.e.f. 14.12.2013. All these documents shows that as per notice sent by 1st appellant to 3rd respondent on 23.1.2014, meeting should have been held on 30.01.2014, whereas in Form 32 it was shown as meeting held on 23.12.2013. Therefore, both the documents are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent ₹ 18100000/- and he was allotted the unsubscribed shares of the company and according to him there were no allegations of syphoning and so the directions for forensic audit was not necessary. We find from impugned order that direction (iv) uses the words siphoning of funds, if any . According to us looking to the impugned order directing take over of the company by the original petitioners No.1 and 2 and restoration of original petitioner No.2 as director, the original petitioners can ascertain from the records the infusion of funds by R5 towards loan and share capital. It would be reasonable and win win situation for both sides if the petitioners are directed to ascertain from records the infusion and utilization and if satisfied, immediately pay back the funds infused by R5 within two months of the order in these appeals. The disputes qua Respondent No.5 shall then rest at that stage. The forensic audit directed by NCLT will then be done for other Respondents. However, if the original petitioners, for any reason, do not pay back the funds infused by original R5 within the above period, Company should be liable to pay interest if the auditor later finds that am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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