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TMI Blog2005 (12) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... quity shares held by the petitioner in favour of the third respondent made on 05.10.2001; and (ii) the allotment of 1,75,000 equity shares of ₹ 10/- to M/s Woodbriar Financial Services (P) Limited and 83, 216 equity shares of ₹ 10/- each to Woodbri Air Travel (P) Limited made during the year 2003-04. The petitioners' claim that .13,126 shares have been transferred by way of force and coercion in favour of the third respondent can be adjudicated in a civil court, but not before the CLB invoking the provisions of Section 111A, after a period of three years as against two months from the date of transfer of such shares. The transfer deed has been signed by the petitioner on 29.09.2001 and the transfer has been effected on 05.10.2001. According to the petitioner himself, the transfer deed has been signed on 06.08.2002. The annual return for the year ended 31.03.2002 filed on 30.11.2002 with the Registrar of Companies reflects the transfer of shares effected in favour of the third respondent. Any application for oppression and mismanagement has to be filed within three years from the date of transfer, whereas the present company petition has not been filed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn that there is just and equitable cause for winding up the company, that the acts of oppression complained of are continuous, but not single and that the conduct of the majority shareholders is burdensome, harsh and wrongful, which are lacking in the present company petition. There are no pleadings about inability of the Company to continue its operations or circumstances which warrant winding up of the Company. The requirements of Section 397, as laid down by the Supreme Court are reinforced by the Orissa High Court in N.K. Mohapatra v. State of Orissa (1999) 96 CC 49; the Madras High Court in V.M. Rao v. Rajeswari Ramakrishnan; V.M. Rao v. V.L. Dutt (1987) 61 CC 20 and the Delhi High Court in Suresh Kumar Sanghi v. Supreme Motors Limited (1983) 54 CC 235. The Calcutta High Court in Mohta Bros. Private Limited v. Calcutta Landing and Shipping Company Limited (1970) 40 CC 119 held that in an application under Sections 397 and 398 the petitioner must give full particulars of acts of mismanagement, misappropriation, fraud or oppression and prove prima-facie that on those facts an investigation is called for. Vague and uncertain allegations of mismanagement and oppression, though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any case in this behalf, without which the prayer for reconstituting the board of directors of the Company and for preparing a scheme of Administration to regulate the affairs of the Company, being consequential, cannot be granted by the CLB. The petitioner is aggrieved of his removal from the board of directors. In a Section 397 petition, directorial complaints cannot generally be agitated except in cases of closely held companies as held in Karedla Surayanarayana v. Ramadas Motor Transport Limited (1999) 98 CC 518. In the present case, 30.20% of shares is held by the outsiders and therefore directorial grievances cannot be entertained. 2. Shri Krishna Srinivasan, learned Counsel, while opposing the company application submitted: Any application challenging the maintainability of the main company petition has to be filed at the threshold. The present application filed after ten months of the filing of the company petition, whereby the pleadings are completed, is an after-thought and liable to be dismissed in limini. The company petition cannot be rejected at the threshold, as it would cause serious prejudices to the petitioner. The CLB in Kishan Khariwal v. Gan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g certified copy of the annual return of the Company for the year ended 31.03.2002 on 03.02.2003 and therefore the company petition is not barred by limitation, especially when no time limit is fixed in Section 111A, as interpreted by the Bombay High Court in Finolex Industries Limited v. Anil Ramchand Chhabria 2000-(CC2)-GJX-0090-BOM. This contentious issue cannot be decided at the threshold. The further issue of 2,58,216 shares allegedly made at the extraordinary general meeting held on 25.11.2003 came to light subsequent to the filing of the company petition and is being challenged by the petitioner. The issue of further shares being a subsequent event made, without any justification by conversion of the loans given by the two group companies to the Company and with the object of bringing down the shareholding of the petitioner from 18.29% to less than 10% must be set aside as malafide. The allotment is in contravention of Section 81(1A). This section provides that in the event of further issue of capital, such further shares must be offered to the existing shareholders, in proportion to their holding. The petitioner has been a shareholder during the year 2003-2004 when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be illegal can be set aside even without any prayer by the aggrieved party. The court while acting under Section 397 or 398 read with Section 402, has ample jurisdiction and wide powers to pass such orders and give such directions as it thinks fit for regulating the conduct of the company's affairs in future, and there would be no limitation or restriction or such power that the same should be exercised subject to the other provisions of the Act dealing with normal corporate management or that such orders and directions should be in accordance with such provisions of the Act. as held in Pramod Kumar Mittal v. Andhra Steel Corporation Limited (1985) 58 CC 772. The petitioner has set out in para 14 of the company petition various acts of oppression and mismanagement as well as statutory violations committed by the respondents 2 to 6. This Board granted reliefs in several cases where - (a) issue of further shares was not found to be in the interest of the company; (b) allotment of further shares created new majority; (c) director was removed without complying with the procedure prescribed in the Act; (e) proper purpose doctrine was not followed by directors and (f) meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 399, in which case he does not hold one-tenth of the issued capital of the Company. The CLB in Turner Morrisson Limited v. Jenson and Nicholson (India) Limited (1998) Vol.93 CC 347 held that in composite petitions. where the title to shares, which entitles a person under Section 399 is in dispute, the same should be adjudicated first without considering the matters under Section 397 or Section 398. Therefore, this Bench has to decide the preliminary issue of maintainability to avoid abuse of process and multiplicity of proceedings. Notwithstanding the merits of the company petition and without prejudice to the claim of the respondents, the respondents 2 - 6 are willing to purchase the shares of the petitioner at a fair price, which may be determined by the CLB. 4. I have considered the elaborate arguments put forward by learned Counsel. The short issue before me is whether maintainability of the company petition can be decided as a preliminary issue in the facts and circumstances of the present case? The petitioner should hold 10% of the issued capital in the Company to maintain a petition under Section 397 or Section 398, but his share holding according to the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be freely transferable and except as provided under Sub-section (3), failure of which, empowers the CLB to rectify the register of members within two months from the date of transfer of any shares. The instrument of transfer in respect of the impugned shares was signed by the petitioner on 06.08.2002, as reflected in para 5 of the company petition. The two month period prescribed under Section 111A(3), in my view, applies to the transfer of shares effected in normal course of transactions but not in respect of transactions, in which the shareholder has been deprived of his shares without free consent by way of coercion or duress or force. For forming this view, support is drawn from the decisions of this Board in Bhuwaneshwar Nath Nigam v. Hindustan Lever Limited (2002) 111 CC 590 and Shailesh Rajnikanth Parekh v. Starline Travels Private Limited (2004) 111 CC 145, wherein it has been held that the period of limitation cannot strictly be applied in the case of fraudulent transfer of shares on the basis of forged transfer forms. The Bombay High Court in Finolex Industries Limited v. Anil Ramchand Chhabria (supra), while considering the totality of provisions of Sections 111 and 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling of company petition and therefore the petitioner in his rejoinder sought to set aside those shares in the following words: Even assuming for a moment without admitting the further allotment of shares referred to in para 2.3 of the counter is true, the same is in contravention of Section 81(1) of the Companies Act. Section 81(1)(a) requires that whenever there is a further issue of capital, such further shares being issued shall be offered to person who at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on these shares at that date. The petitioner is an equity shareholder of the Company and was during the year 2003-04 when the further issue was made. The Petitioner is taken to surprise as he is hearing for the first time from the Respondents through their counter that he has been made as a minority shareholder in his own company. The Petitioner most respectfully states that he is not aware of any such further issue and the same deserves to be set aside as malafide, exfacie illegal and vindictive. Thus the further allotment made by the Company is clearly not only illegal, ultra vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 03.02.2005 to file a rejoinder meeting the allegations made in the counter-statement, which is found to be duly complied with by the petitioner. Thereafter, the respondents filed a sur-rejoinder in terms of the order dated 05.04.2005. Therefore, the further allotment of 258216 shares challenged in the rejoinder by the petitioner and justified by the respondents in their surrejoinder must necessarily be adjudicated in the present proceedings. However, the grievances raised in this behalf whether can be remedied, without any prayer being sought in the company petition, cannot be considered at the threshold. It is in this context when the holding of a petitioner is reduced below 10%, due to further allotment of shares and such allotment is impugned, the petition would be maintainable under Section 399 on the strength of his holding before the further allotment of shares as held in Kishan Khariwal v. Ganganagar Industries Limited and T.N.K. Govindaraju Chetty And Company v. Kadri Mills (Cbe) Limited (supra). The petitioner's holding of 19526 shares after ignoring the impugned transfer of 33,126 shares, accounts for 18.29% of the issued capital, which got reduced to 5.34% on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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