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TMI Blog2019 (5) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... ent failed to substantiate their averments by producing substantial evidence except some emails, which has little evidentiary value. The 2nd Respondent has not given any suitable explanation as to why the Respondent No.2 was allotted shares at par without premium and allot shares to the Petitioners at premium except simply stating that it is a mistake and unintentional but no action was taken to rectify it so far. The Respondents are resorting to acts of oppression and mismanagement which are further to be investigated by the Registrar of Companies and Principal Director of Income Tax (Investigation) with whom the complaints are already pending submitted by the Petitioner. It would be just and proper to prevent the present management to perpetuate further acts of oppression and mismanagement and to prevent misuse of funds, by making an interim arrangement by appointing independent Chairman as to see the affairs of the Company should be conducted in accordance with law. Prof. (Dr.) O.V. Nandimath, Professor of Law Registrar, National Law School of India University, Nagarbhavi, Bangalore-560242, are appointed as independent Chairman for M/s. World Schools Private Limited to look afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner Directors are null and void and the decision taken on the said meetings will not bind the Petitioner Directors and other individual investors and shareholders, etc. 2. Brief facts of the case, as mentioned in the Company Petition, which are relevant to the issue in question, are as follows: (1) M/s. World Schools Private Limited (hereinafter referred to as Company) was incorporated as a private Company limited by shares on 24.01.2005 under the Companies Act, 1956 ('Act') in the State of Karnataka, and at present, the Registered Office of the Company is situated at New No.76, Old No. 29, 1st Main Road, Chamrajpet, Bangalore - 560 018, which is also the residence of 4th Respondent, who is the mother of the 2nd Respondent. The Authorised Share Capital of the Company is ₹ 1,00,00,000/- (Rupees One Crore Only) divided into 10,00,000 Equity Shares of ₹ 10/- each and the paid-up capital of the Company is ₹ 95,58,060/- (Rupees Ninety-Five Lakhs Fifty-Eight Thousand and Sixty Only) divided into 9,55,806 Equity Shares of ₹ 10/- each. The main objects of the Company, in brief, are to establish and run in any part of India or elsewhere colleges or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid-up of the Company. However, he was allotted said 50,000 shares without any premium, whereas the allotment of shares made at premium of ₹ 50/- per share to the other 5 investors of the R-1 Company wherein the 1st and 2nd Petitioner were also allotted shares with premium. The 3rd Petitioner has been allotted shares 12,269. It is stated that allotting shares to the R-2 without premium was not discussed in any of the Board Meeting and it was decided by the R-2 unilaterally, who is being the MD of the Company. The disparity in the allotment of shares to the R-2 is challenged in the Petition. (6) At present, there are 9 Directors and out of which the R-2 is the Managing Director and he is a resident of USA. Though the 2nd Petitioner has given his local address in the Company, he is also residing at USA as such all the Petitioner Directors are residents of USA. Except R-4 and R-5, all other Respondent Directors are residents of USA. Since the Directors R-4 and R-5 alone are residing at Bangalore, R-2 with an ulterior motive without giving notice to all the Directors, convened the Board Meetings and made various allotments. It is alleged that the Petitioner Directors have not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o call for a special meeting of all the investors to discuss the matter, however, for the best reasons known to him the said meeting was never called. Though the said act on the part of Respondents had not been carried out further, it would show the intention of the Respondent Directors. (9) The Respondents never sent any reply to the most of the mails sent by the petitioners except with regard to the audit and its scope. The Respondents were not bothered about the investors and never thought fit to send reply to the mails of the investors. It is also stated that the R-2 purposefully treated the investment made by the 3rd Petitioner as in IND currency to somehow take this for his personal advantage of RBI transaction in some ways. The 2nd Respondent has not taken seriously the emails sent by the 3rd Petitioner about the currency status. The R-2 has given very shorter notice to the investors and he had admitted that couple of AGMs were held at Chicago and the AGMs conducted out of registered office are invalid. Not only this, the R-2 had also given only shorter notice when the AGM was held at Bangalore. The 3rd Petitioner had also concerned the 2nd Respondent's non-cooperation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndents are not interested to divulge necessary information to the Auditor to finish the audit. This fact alone would show that the ulterior motive of the contesting Respondents. The Auditor in the report under the heading Sources of Funds and its utilisation had observed the following: e. Investors' funds comprising of monies received from existing and proposed shareholders towards equity shares allotted, share premium account, shares pending allotment unsecured loans. The monies received have been verified with the bank statements and the same is satisfactorily reflected in the books of account. However, the confirmation of total investment made by each investor was not available for review to confirm the balances outstanding in share Pending Allotment as on 31.03.2012. f. Secured loan of ₹ 1300 lakhs was availed from SBI, Industrial Finance Branch, Bangalore by the Company during the period of review. g. Other current liabilities of ₹ 223.75 Lakhs mainly consists of following amounts. Sl. No. Particulars Amount (In Lacs) 1. Fees received in advance 29.97 2. Account Payable 45.90 3. Caution deposit from students 23.52 4. Payable to Mr. Ven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. (13) It is stated that the affairs of the Company and the Trust are being conducted in the manner prejudicial to the interest of the Shareholders and there will be likelihood of manufacturing or fabricating documents to suit the convenience of the contesting Respondents. They have not rendered any proper accounts during the audit leave alone proper accounts and they may fabricate accounts to show that everything has been done in accordance with law. Therefore, an investigation in the affairs of the Company is very much necessary to find out the truth in the affairs of the Company. The Company is running a school and continuation of management of the school in the hands of the contesting Respondents would prejudice not only the shareholders of the Company but also the students studying in the Company. Therefore, an interim management committee has to be appointed with an Independent Chairman to manage the affairs of the Company. The Hon'ble Bench is empowered to order an inspection and investigation of the affairs of the Company to bring out the true facts out in the open and give an effective judgment over the dispute and appoint an interim management committee to manage t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Nos.1 and 2 were removed from the Board of Directors through a Board Resolution dated 07.03.2016 in accordance with Section 167 of Companies Act, 2013 because they had failed to attend the meetings of the Board for over a year despite having been notified of the Board Meeting in advance on each occasion. They ceased to be Directors w.e.f. 07.03.2016. (5) It is contended that the instant Petition is barred by laches and limitation. The Petitioners are inter alia challenge allotment of shares in the Company, made in the years 2008 and 2011, after a period of 8 years and 5 years, respectively. It is asserted that Petitioners are well aware of the said allotments for several years now. In any event, all clarifications regarding the said share allotments were provided at the Board Meetings held on 09.06.2014 and 24.03.2014, which were attended by the Petitioners No. 1 & 2. (6) Petitioners No.1 and 2 were also Directors of the Company until March 2016. They have been aware of the functioning of the Company throughout. They are belatedly raising questions about the functioning of the Company for ulterior motives. The Petitioners have already indicated to R-2 that they would like the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommittee was appointed by the Board, which included Petitioner No.1, to look into the queries raised in the unsigned, informal financial report prepared by V&K. This Committee prepared a reply to the various queries raised in the said report. The said reply was also placed before the Board of Directors at the meeting held on 24.03.2016 where Petitioners No.1 and 2 were present. Subsequently, the signed minutes of the meeting were circulated and Petitioners No.1 and 2 did not raise any objections regarding the financial review until date of this Petition. (11) It is stated that the Petitioners have not contributed towards the management of the Company or acted in the best interests of the Company. On the contrary, the acts of the Petitioners have been highly detrimental to the interests of the Company. For example: a. Petitioners Nos. 1 and 2 have failed to carry out their fiduciary duties as Directors. b. The Petitioners have never assisted the Company in addressing its financial challenges. R-2, apart from managing the affairs of the Company, has also given personal guarantees for the refinanced loans obtained in 2012 by the Company. R-2 has provided his personal properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reply dated 04.08.2017, by inter alia, contending as follows: (1) Respondent No.6 was one of the initial investors in World Schools Private Limited ('Company'). He was appointed as a Director of the Company on 05.08.2005. Respondent No.6 continued as a Director of the Company until he was removed from the Board at the meeting held on 07.03.2016 due to failure to attend Board Meetings for over a year, in accordance with the relevant statutory provisions. Since there were genuine reasons why R-6 had been unable to attend Board Meetings of the Company for over a year, R-6 explained these reasons to the Board of Directors and sought re-appointment as Director by assuring the Board that he would regularly attend Board Meetings in future. Subsequently, at the Board Meeting held on 29.06.2017, the Board considered R-6's representations and assurances and re-appointed him as Director of the Company. (2) The Petition has been filed after an inordinate delay and R-6 suspects that it has been filed in response to Petitioner No.1 and 2's removal from the Board of the Respondent Company. Petitioners No.1 and 2 were removed as Directors at the Board Meeting held on 07.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident that the Petitioners' allegations in this regard are false. Not only was the notice for the meeting sent to all the Directors including the Petitioners but minutes were also circulated. (5) The Petitioners have also made a number of serious allegations, including allegations of fraud and fabrication against R-2 and certain other Directors of the Board, who are arrayed as Respondents in the present Petition. Such allegations have been made without providing the necessary particulars or producing any evidence to substantiate the same. (6) It is stated that Petitioners No.l and 2, despite being initial investors, have not come forward to help the Company in times of acute financial difficulties. It is further contended that there is no evidence on record supporting the Petitioners' contentions that they had offered to give personal guarantee and/or pledge their properties on behalf of the Company. On the contrary, in the draft minutes of the meeting held on 07.10.2012, Petitioner No.2 had asked that the Petitioner Directors be excluded from providing personal collateral on behalf of the Respondent Company. Therefore, the Respondent 6 urged the Tribunal to dismiss the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inition of the term 'oppression' is too wide and wide application. The meaning of these words for the purpose of Company Law should be used in a broad generic sense and not in any strict literal sense. It was held by the Apex Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 1 Comp. L.J. 193 at 204 as under: "The essence of the matter seems to be that the conduct complained of should at the lowest, involve a visible departure from the standards of fair dealing, on which every shareholding who entrusts his money to the company is entitled to rely." (4) As per Sections 166 and 210 of the Companies Act, 1956, the AGM is to be held within 6 months from the closure of the Financial Year. Further, the Company had to be sent to the members of the Company at least 7 days prior notice about the AGM. In terms of Section 219 of the Companies Act, 1956, Financial Statements had to be given to all the members with a notice of 21 days. For most of the AGMs, the said law was not followed. Further, during the years 2006, 2007, 2008, 2009 and 2010, 2011, the AGMs were conducted in Chicago and never in Bangalore. To cite one example, email dated 26.09.2010 evidences the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended the meeting. (6) Due to the unauthorised acts of the Respondent Directors and fraudulent allocation of shares, misappropriation of cash and cash investments, etc., the Petitioner Nos. 1 and 2 requested for an independent audit. In a mail dated 26.04.2012 from R-3 to all the then Board Members, it was sought for 3-5 days independent audit from an external CA. In response, vide email dated 28.04.2012, Petitioner No.1 stated that 3-5 days would not suffice and required a comprehensive audit. This external audit was stalled by the Respondents citing that Company was not financially sound for almost one year. On 22.04.2013, the Petitioners sent a Legal Notice seeking for review of allotment of shares by the external Chartered Accountant (CA).The Respondents immediately appointed Petitioner No.1, R-2 and R-5 for monitoring the audit, in order to have hold on the audit. On 13.06.2013, Petitioner No.1 vide email, sought for an in-depth Audit to be carried out, from the years 2005 till 2013. The Audit itself did not start properly due to lack of documents and support from the Respondents. After a long period of time, the auditor gave a draft report. In an email dated 08.02.2014, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly Respondent Nos. 4 & 5 ae resident of Bangalore/India. As per law, all Directors of the Company are to be given due notice for conducing any Board meeting. However, evidence show that several Board meetings are conducted in US instead of at Bangalore. Though the Petitioner No. 1 & 2 and Respondent 6 are appointed as Directors on 5.08.2005, they were removed from the Directorship by Board Resolution dated 7.3.2016 as per section 16.7 of Companies Act, 2013. However, the Respondent No 6 was re-appointed as Directors during the Board Meeting held on June, 29, 2017 leaving the Petitioner No. 1 & 2 by showing discrimination between them. Admittedly, the first Petitioner and the sixth respondent hold substantially equal number of shares. When the Petitioners have invested their hard earned money in R-1 Company, they would expect of equal treatment and moreover, several of the Board meetings in question were not conducted in accordance with law and the Petitioners are not adequately put on notice. 9. With regard to constitution of Trust in question also, the Respondents have not acted bona fidely as alleged by the Petitioners and the Respondents themselves have been appointed. Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducing substantial evidence except some emails, which has little evidentiary value. The 2nd Respondent has not given any suitable explanation as to why the Respondent No.2 was allotted shares at par without premium and allot shares to the Petitioners at premium except simply stating that it is a mistake and unintentional but no action was taken to rectify it so far. As stated supra, the Audit Report finds several financial irregularities which require further investigation by the Statutory Authorities. 12. The above facts and circumstances prima facie shows that the Respondents are resorting to acts of oppression and mismanagement which are further to be investigated by the Registrar of Companies and Principal Director of Income Tax (Investigation) with whom the complaints are already pending submitted by the Petitioner. It would be just and proper to prevent the present management to perpetuate further acts of oppression and mismanagement and to prevent misuse of funds, by making an interim arrangement by appointing independent Chairman as to see the affairs of the Company should be conducted in accordance with law. Since R-1 Company deals with imparting education, it would be in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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