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TMI Blog2011 (9) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... ab initio and non est; annulling the appointment of respondent Nos. 2 and 3 as additional directors as the same have been appointed by the respondent No. 1 in back date after the order of the Company Law Board ('CLB') dated 5th November, 2009 by manipulating, forging and fabricating documents without any authority; directions allowing the petitioner, to takeover the ownership, control and management of the respondent No. 5-company; orders annulling all decisions that respondent No. 1 by misrepresenting to the Registrar of Companies ('RoC') may have taken on behalf of respondent No. 5. The R-5-company was incorporated on 9th August, 2007 and is having its registered office at D-63 Ground floor, Naraina Vihar, New Delhi-110028. The authorised share capital of the company as per the balance sheet as at 31st March, 2008 is ₹ 1,00,000 divided into 10,000 equity shares of ₹ 10 each. The issued, subscribed and paid-up capital of the company is ₹ 1,00,000 divided into 10,000 equity shares of ₹ 10 each. The company was incorporated to carry on the business of purchasing, selling and developing and type of land and plot that may belong to the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the petitioner by way of cheque and cash receipts, in addition, to the aforesaid amount the petitioner also gave to the R-1 and amount of ₹ 2 lakh, which was reinvested from the profits derived from another project. It was pointed out that initially for reason of the representations made, had implicit faith and no reason to distrust or suspect the respondent No. 1. She believed that her interest and investment were secure and allowed the respondent No. 1 the larger responsibility of managing the affairs of the respondent No. 5-company. But subsequent events have ubiquitously proved and unequivocally established that the intention of the respondent No. 1 all along was to dupe, defraud and cheat the petitioner who was forced to register a criminal complaint/FIR dated 6th April, 2009, against the respondent Nos. 1 and 4. Subsequent to the initiation of the criminal proceedings more particularly the registration of the FIR and charge sheet the respondent No. 1 has conducted himself in manner completely unbecoming of a director and utilised his fiduciary powers contrary to all accepted standards of fair dealing. Pursuant to gaining knowledge about the mala fide of respondent No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the constitution of the respondent No. 5-company, the petitioner and respondent No. 1, were jointly entitled to sign cheques and operate the bank account. Without and in absence of the respondent No. 1 and for want of quorum no decision for running the respondent No. 5-company could be taken. Respondent No. 1, despite knowing about the said restrictions, had deliberately failed to cooperate, and mala fidely kept himself from attending the said meetings and made it impossible for the petitioner or the respondent No. 5-company to clear debts and liabilities due and payable and or to carry on day-to-day functions of the respondent No. 5-company. There was deadlock in the company. 6. It was pointed out that since she was unable to convene a Board meeting, in the larger interest of the company and its creditors she applied to the CLB under section 186 of the Act read with rule 11 of the Company Rules, 1959 ('CLB Rules') and regulation 44 of the Company Law Board Regulations, 1991 and prayed for permission to convene an EGM. The CLB, New Delhi Bench allowed the petition and permitted the petitioner to call an EGM of the company for appointment of one more director for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 25th December, 2009. Thereafter, instead of immediately acceding to the request of the petitioner and respondent No. 5 Punjab National Bank, Indrapuram vide e-mail dated 29th January, 2010 decided to unilaterally give respondent No. 1 one week's time to approach the CLB. 8. Further, the counsel for the petitioner pointed out that pursuant to Board meeting dated 12th November, 2009 the petitioner approached the RoC on 26th December, 2009 to submit Form 32 intimating the appointment of additional director Mr. Sanjiv Gupta. Thereafter when the petitioner subsequently checked the official website of the RoC on 4th January, 2010 she was surprised to see 2 more names that of Rekha Agarwal and Love Garg as directors. On inspection of the records on 7th January, 2010 of the RoC, the petitioner discovered that the respondent No. 1 had been furiously trying to clandestinely, surreptitious and illegally take control of respondent No. 5-company by fabricating and forging back dated documents and Boards resolutions and other documentation, etc. It was noted that without convening any Board meeting on 9th May, 2008, additional allotment of 90,000 shares of respondent No. 5-company wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner. Apart from being contrary to law, even otherwise there was no need or necessity to increase the share capital. The increase in the share capital is mala fide and not out of any bona fide need to benefit the respondent No. 5-company but merely as a strategy devised solely to achieve personal motives by breach of his fiduciary duty and abuse of his position and to change the pattern of shareholding to the obvious detriment of the petitioner whose shareholding has been reduced from majority to minority whose equal representation on the Board has been marginalised. 10. The counsel for the petitioner pointed out that the construction in the project at C-45, Gagan Enclave, Ghaziabad , was to be completed in a time bound manner, completion and sale of the flats were co-terminus with schedule prescribed by the PNB Housing Finance Ltd. for repayment of loan. The respondent No. 1, however, had deliberately delayed the timely completion of project and has maliciously caused it run into a loss, the respondent No. 1 has deliberately allowed various financial liabilities against loan taken to mature and has failed to repay installment on time though the funds were available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the same bank having good track record of repayment of the same. It was pointed out that the said bank had confidence in the respondent No. 1 as his other properties in his name and in the name of his other company are also mortgaged with the said bank and on those loans he had repaid most of the amount with excellent track record. Both the petitioner and the respondent had also given their personal guarantee in regards to the loan, it was contended that due to overall slump in the economy and specially in the real estate market in National Capital Region of Delhi there was no booking for the proposed flats and for the same reasons the construction was getting delayed and due to relentless pressure from the petitioner respondent No. 1 agreed to her demand for repayment of her loan to the company on the condition that in such case the amount loaned by him to the respondent No. 5-company shall be converted into equity and which shall be allotted to the respondent No. 1 or his nominees. For allowing such further allotment the authorised capital of the company was raised to ₹ 10 lakh from the existing ₹ 1 lakh on 9th May, 2008, and a Form 5 was duly filed with the RoC. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The respondent Nos. 1 and 3 moved a petition dated 9th April, 2009, with the hon'ble Allahabad High Court for quashing of the FIR filed by the petitioner on 6th April, 2009 and also to obtain stay order on arrest in this case. The hon'ble court granted the stay on arrest and admitted the writ petition and the matter is still under consideration before with the hon'ble Allahabad High Court. The petitioner with the help of her brother Mr. Sanjeev Mohan Gupta started harassing the respondent No. 1 and tried to take the possession of the property situated at plot Nor C-45, Gagan Enclave, Dundahera, Ghaziabad developed by the company, due to such acts of the petitioner the respondent No. 1 was in tremendous mental and financial pressure. The property was also getting disrepute and its sale value was getting depressed with every passing day. 15. R-1's case is that when the PNB Housing Finance Ltd. also started pressing for the repayment of loan amount as EMIs of the secured loan taken by the respondent No. 5-company tried to settle the matter with the petitioner out of court. During the period starting from 6th April, 2009 to December 2009 the respondent No. 1 was ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going to expire soon else they also told him his personal guarantee can be invoked and his other property, documents of which were still with banks may be auctioned. The respondent No. 1 due to the actions of the petitioner was under severe financial threat on not only the business of the respondent No. 5 but his other business and his reputation as a businessman was under severe threat. Under such circumstances respondent No. 5 through respondent No. 1 sold its stock of flats at a best available price due to paucity of time to repay the Bank and also the property by now had become disrepute and not attracting more buyers. 17. The R-1 pointed out that on 3rd February, 2010, an agreement to sell was executed and register for the sale of all of the stock held by the respondent No. 5 at one go for ₹ 40 lakh and out of the proceeds the dues of the PNB Housing Finance Ltd. were repaid in full. 18. The R-1 contended that though the petitioner and her brother were otherwise in touch through mails exchanged between her brother, Mr. Sanjeev Mohan Gupta, and the respondent No. 1 in the process of settlement with the mediation by Mr. Pradeep Garg who is the statutory auditor of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case reduction is held to be an oppressive act, the CP is maintainable, the petitioner is entitled to relief. As regards the preliminary objection that the respondent-company was initially not impleaded as a respondent, the objection is not tenable because subsequently R-5-company was impleaded as a respondent in this petition. Moreover, technical defects cannot get preference when pitted against substantial justice. 20. In the present matter it is noted that after the CLB allowed the petitioner on 5th November, 2009, to convene an EGM and appoint an additional director to end the deadlock, the R-1 on 23rd December, 2009 and on 28th December, 2009 filed back dated Form 5, Form 32 and Form 2 showing allotment of further shares and appointment of additional directors. Even the registered office of the R-5-company and the e-mail id of the company was changed in back date. The R-1 has failed to prove the Board meetings dated 9th May, 2008, 19th February, 2009, 26th March, 2009, 23rd July, 2009. It is also noted that the R-1 also took assistance from PNB, Indrapuram to work according to his design by receiving information from the Bank and by getting extended time to let the R-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a status quo order with regard to immovable asset, the order would become meaningless. It was not so. Status quo order was in respect of these flats, the only immovable asset of R-5. The petitioner has rightly moved a Contempt Application No. 168 of 2010 which was also heard along with this company petition. It is noted that the R-1 has acted in defiance of the CLB's orders. Sale of flats was in defiance of the CLB's orders and it was done surreptitiously for his personal profit in breach of fiduciary duties and misusing his position as a director. The liability arises from the mere fact of a profit having been made as stated and noted in the facts and circumstances of this case. The profiteer cannot escape the risk of being called upon to account. Director standing in a fiduciary duty is : accountable for the profits which he has made out in the affairs of the company in breach of fiduciary duty and by misuse of his position as a director. The liability to account must remain. Even when a director enters into a transaction lawfully, in good faith and indeed avowedly in the interests of the company, however, that does not absolve him from accountability for any profit wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company. In the matter of issue of additional shares the directors owe a fiduciary duty to issue shares for a proper purpose. This duty is owed by them to the shareholders of the company. Though section 81 of the Act which contains certain requirements in the matter of issue of further share capital by a company does not apply to private limited companies, the directors in a private limited company are expected to make a disclosure to the shareholders of such a company when further shares are being issued. This requirement flows from their duty to act in good faith and make full disclosure to the shareholders regarding affairs of a company. It is well settled that in a private limited company the acts of directors are required to be tested on a much finer scale to rule out any misuse of power for personal gains or ulterior motives or merely for the purpose of defeating the wishes of the existing majority of shareholders. In some respects, directors resemble trustees. And equity p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sustained and is required to be set aside. 25. Objects and purpose of sections 397, 398, 402 and 408 of the Act is two fold - to set right the wrongs and take remedial action to prevent occurrence of wrongs in future. Thus, both preventive and curative action can be taken by the CLB to regulate the conduct of the company's affairs in future and to bring to an end the matters complained of. To do substantial justice between the parties, I hereby direct the R-1 to restore the sale consideration received in respect of the sale of flats and other amounts siphoned off from the R-5-company's accounts forthwith for which purpose the R-5-company is required to appoint an auditor and valuer to ascertain the siphoned off sums of money and the market price of the immovable asset of the R-5-company on the date of sale shown by the R-1. The R-1 is hereby directed to bring back the amounts so ascertained to the R-5-company's account within a period of three months. R-1 is also required to pay cost of ₹ 20,000 to the petitioner for having acted in violation of the CLB's orders. Further, to meet the ends of justice increase in the authorised share capital, all allotments ..... X X X X Extracts X X X X X X X X Extracts X X X X
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