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TMI Blog2014 (11) TMI 1201X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by them in the Company - the Petitioners are eligible to file the present petition under Section 397/398 read with Section 402 of the Act in terms of the provisions contained in Section 399 of the Act. Whether the Petition is barred by law of limitation? - HELD THAT:- According to the Ld. Counsel, to the Respondents did not file the Annual Statement with the ROC timely and as soon as the Petitioners came to know about the wrong doings deliberately committed by the Respondents depriving the Petitioners' right as the shareholders, the Petitioners immediately, without any delay, approached the Court for redressal of their grievances and hence, the questions of in-ordinate delay and laches on their part, do not arise as contended by the Respondents. It is established that the Respondents actions are harsh, unfair and prejudicial towards the Petitioners. They lack in probity. There are series of acts of oppression as narrated above, the effect of which is still continuing on the rights of the Petitioners being shareholders of the Company. It is an established law that once the CLB gives a finding that the acts of oppression have been established, winding up of the Company o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cate, i/b V. Mishra Co. JUDGMENT Ashok Kumar Tripathi, Member (J) 1. The Petitioners have filed the present composite petition under Section 111 of the Indian Companies Act (hereinafter referred to as the Act in short) and under Sections 397/398 read with Sections 402, 403 and 406 of the Act, seeking various reliefs as contained in the Petition. 2. Before I proceed further, it seems useful to refer to few facts relevant for the purpose of adjudication of the Petition, as set out therein, here as under:- 2.1 The Respondent No. 1 Company (hereinafter referred to as the Company in short) was incorporated on 27/05/1982 with the Registrar of Companies, Gujarat and Ahmedabad. The main objects of the Company are set out in its Memorandum of Association. The authorized share capital of the Company, at the time of its incorporation, was ₹ 5,00,000/- divided into 5000 Equity Shares of ₹ 100/- each, which was subsequently increased to ₹ 10,00,000/- divided into 10,000 Equity Shares of ₹ 100/- each, as per Annual Return filed on 30/4/2005. According to the Petitioners, until th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without notice to the Petitioners. In their absence and without obtaining their consent, unilaterally increased authorized share capital of the Company from ₹ 10 Lakhs to ₹ 15 Lakhs in the EOGM purportedly held on 30/5/2005. The Petitioners have challenged the validity of the said EOGM on the ground of non service of notice to the shareholders and on other grounds as well. 2.5 It is further averred that on 4/06/2005 and 23/06/2005, the Respondents illegally increased the paid-up share capital to ₹ 15 lakhs unilaterally by allotment of additional 2000 shares and 5,000 shares of ₹ 100/- each to the Respondent No. 2 without following due course of law and no Annual Return for the said allotment was filed with the Registrar of Companies, Maharashtra (hereinafter' ROC in short), 2.6 It is further stated that in continuation of their efforts to oppress the Petitioners and dilute their share holding, the Respondents without offering the shares to the Petitioners and in gross violation of provisions of Clause 40 of Articles of Association of Company transferred shares in their own name. The details of transfers made is given in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt's order dated 24/02/2012. Against the said order the Petitioners filed an appeal in District Court at Bharuch on 5/03/2012, which was also dismissed vide its Order dated 14/05/2012. 2.10 It is further averred that on 15/06/2012, the Respondents further issued a notice for calling, convening and holding EOGM to give absolute powers to the Respondent Nos. 2 and 3 as directors of the Respondent No. 1 Company to sell the assets of the Company. Being aggrieved, the Petitioners wrote a fetter to Respondent No. 1 pointing out the illegalities in the noticeon 23/06/2012. Thereafter, the Petitioners filed complaints to the ROC concerned on 23/06/2012 and 29/06/2012 regarding the non-filing of statutory documents and fraudulent filing of the documents by the Respondent No. 1 Company. 2.11 It has been further alleged by the Petitioners that on 3/07/2012, the Respondents unilaterally issued an advertisement for sale of assets of the Respondent No. 1 Company inviting the offers, pursuant to a resolution purportedly passed in the meeting held on 30/06/2012 inspite of illegal notice. Consequently, on 16/07/2012 the Petitioners withdrew their suit at Ankleshwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities in compliance by the Company and to initiate legal action for non compliances. 4. Pursuant to the notices, the Respondent Nos. 1 to 8 appeared and filed their reply. The Respondent No. 9, the Registrar of Companies, Gujarat, Ahmedabad, is a formal party. None appeared for it. 5. In reply to the Petition, the Respondent Nos. 1 to 8 have initially challenged the maintainability of the Petition and sought its dismissal on the grounds that the Petition is time barred; that the Petitioners are not eligible to file the petition under Section 397/398 of the Act in terms of the provisions contained in Section 399 of the Act; that the Petitioners have deliberately suppressed the material facts and vital documents and have not approached the CLB with clean hands, and therefore, on the said grounds the Petition deserves to be dismissed. 6. On merits, the Respondent Nos. 1 to 8 have denied all the allegations relating to the alleged acts of oppression and mismanagement leveled by the Petitioners upon them. It is stated that the Petitioners have never co-operated in the affairs of the Company, and therefore, in the AGM held on 30/4/2005, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d objection, it was argued by the Ld. Counsel on behalf of the Respondent Nos. 1 to 8 that the attitude of the Petitioner after subscription of the shares of the Company has never been co-operative. He alleged that the Petitioners did not take any interest in the affairs of the Company. According to the Ld. Counsel, the Company was requiring infusion of funds for running its activities smoothly and for growth of the Company and for the said purpose an AGM on 30/4/2005 was convened and called. In the course of deliberations with respect to the financial position of the Company, the Petitioners declined to contribute more funds. Further, they surrendered their shares physically to the Respondent Nos. 2 and 3 and left the meeting. It was further argued by the Ld. Counsel that after surrender of the shares by the Petitioners, the Respondent Nos. 1 to 8 paid the consideration of the shares in kind and the Petitioners promised to sign the share transfer forms, which were sent to them, but they did not sign the transfer deeds. However, due to close blood relation, the Respondent Nos. 2 to 8 did not pursue it. It is further contended that the Petitioners since 2005, until November 2011, di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioners. I am, therefore, of the view that the Respondent Nos. 1 to 8 have failed to discharge their onus to prove the fact that the consideration was paid to the Petitioners for transfer of the shares-in-question, as contended by them. It is further an established law that transfer of shares without consideration is unlawful, ultra vires and void. In addition to the above, it is pertinent to mention here that, the Petitioners have filed a copy of Register of Members of the company as Annexure 'A-6' to the Petition, which clearly shows that the Petitioners' name still exist in the Register of Members of the Company. The Annual Returns filed by the Respondents with the ROC further confirm the said fact. Lastly, non-compliance of Section 108(1) of the Act clearly establishes that the Petitioners never transferred or intended to transfer the shares held by them in the Company. I, therefore, hold that the Petitioners are eligible to file the present petition under Section 397/398 read with Section 402 of the Act in terms of the provisions contained in Section 399 of the Act. 13. Now, I proceed to consider the next issue as to whether the Petition is barr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, as is seen from the perusal of the petition, the principal grievance of the Petitioners is with respect to unilateral allotment of additional shares in favour of the Respondent No. 2, on account of which the Petitioners shareholding has been reduced from 25% to 13.33%, whereas the shareholding of the Respondents has increased from 17.50% to 78.93%. In my view, the effect of the said act is still persisting. Therefore, in my view, the petition cannot be said to be barred by law of limitation as contended by the Ld. Counsel for the Respondents. In this regard, I may like to cite a decision in the case of suhasini P. Kurkure v. Metalurgical Laboratories (P) Ltd. Ors. [2012] SCC 112 (CLB) wherein it has been laid down that if the alleged act of oppression has a continuous effect, then the issue of limitation is of no consequence. In addition to the above, having examined the material available on record, I have come to the conclusion that the Petition does not suffer from inordinate delay and laches as contended by the Respondents. These preliminary objections are, therefore, rejected being devoid of substance. 18. The next preliminary objection raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. Furthermore, in the absence of any cogent and reliable evidence, it is difficult for me to accept that a consideration in any kind whatsoever was paid by the Respondent Nos. 1 to 8 to the Petitioners in respect of the aforesaid shares as contended by them. Merely by handing over share certificates in the course of the deliberations in the AGM held on 30/4/2005, it cannot be said that the Petitioners expressed their desire to renounce their shareholding in the Company or intended to sell the said shares. The Petitioners have categorically refuted the allegation of the Respondent Nos. 1 to 8 that the Petitioners had intended to transfer their shares in favour of the Respondent No. 2. Last but not the least, the Petitioners admittedly did not execute any Transfer Deeds in respect of the said shares in favour of the Respondent No. 2 as required under Section 108(1) of the Act which is a mandatory requirement in law for transfer of shares. In this regard, I would like to cite the decisions in the cases of Mannalal Khetan vs. Kedar Nath Khetan (1997) 47 Comp Cases 185 and Claude-Lila Parulekar (Smt.) vs. Sakal Papers (P) Ltd. Ors. [2005] SCC 73, wherein the Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Petitioners therefore, stands proved. In my considered view, the said act of the Respondent Group amounts to oppression as defined in Section 397 of the Act. 24. Now, I proceed to consider the next complaints made by the Petitioners against the Respondents regarding illegal, unauthorized and unilateral increase of the authorized share capital of the Respondent No. 1 Company made in the EOGM held on 30/5/2005, and further making of allotment of additional 7000 equity shares to the Respondent No. 2 without offering the proportionate shares to the existing shareholders of the Company. 25. In this connection, the case of the Respondent Nos. 1 to 8 is that the Company had served notice upon the shareholders including the Petitioners on 9/5/2005 for holding EOGM scheduled on 30/5/2005 for the purpose of increase or authorized share capital of the Company from ₹ 10 Lakhs to ₹ 15 Lakhs. To support their case, the Respondent Nos. 1 to 8 have fried a copy of Notice dated 9/5/2005 purportedly for holding EOGM at Ex. R-1-A, Postal Receipts to show that the notices were dispatched to the Petitioners, at Ex. R-1-B, copy of Minutes of the EOGM d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the EOGM held on 30/5/2005 cannot be said to be a valid meeting in the eyes of law. 27. It is a settled proposition of law that a shareholder of a company has a statutory right to receive a notice of the AGMs and EOGMs and participate in the meeting. Denying such right to a shareholder, in my view, constitutes an act of oppression. The above said charge of act of oppression leveled by the Petitioners also stands proved. 28. Mow coming to the next complaint which, in fact, is the principal grievance of the Petitioners, that the allotment of additional 7000 shares is allegedly made by the Company unilaterally in favour of the Respondent No. 2 without offering it to the existing shareholders on the proportionate basis in contravention of Articles of Association of the Company and in contravention of the provisions of the Companies Act. 29. It has been further argued by the Petitioners' Counsel that the Respondent No. 2, with an ulterior motive to dilute the Petitioners' shareholding, made allotment of additional 7000 equity shares at par without making proportionate offer to other shareholders and the Petitioners and further ig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Respondent No. 1 Company had given Notices to all the shareholders and offered the shares on proportionate basis by producing any cogent material on record. Furthermore, the contention of the Respondent Nos. 1 to 8 that the allotment of the shares was made in compliance of the Articles of Association is also not substantiated by producing material on record. Upon a careful examination of the record, it is found that the Respondent Nos. 1 to 8 have failed to prove the fact that despite their offer, no one came forward to infuse funds in the Company and it was only the Respondent No. 2 who was willing to infuse the funds in the Company by purchasing the said additional shares. It is further matter of record that these Respondents did not file statutory returns regarding allotment of shares for a considerable period and successfully concealed this fact from the Petitioners. 33. The Hon'ble Supreme Court in similar facts and circumstances has, in the case of Date and Carrington Invt. (P) Ltd. vs. P.K. Prathapan [2004] GLHEI - SC7184, held that acts of directors in a private limited company should be tested on much finer scale in order to rule out misuse o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sale of undertakings along with assets and thereby to give power to the Board of Directors to obtain tenders and quotations from various interested parties. According to the Ld. Counsel appearing on behalf of the Petitioners, this meeting was also invalid for want of service of notice to the Petitioners, being the shareholder-members of the Company, and this amounted to an act of oppression. It is not in dispute that the notice for the said meeting was not given to the Petitioners nor did they attended such meeting. It is also not in dispute that the Respondent No. 2 and his associates have unilaterally made an attempt to sell the assets of the Company. Therefore, it goes without saying that such an act is another instance of oppression as defined in Section 397 of the Act. 37. Based on the above discussions, it is therefore established that the Respondents actions are harsh, unfair and prejudicial towards the Petitioners. They lack in probity. There are series of acts of oppression as narrated above, the effect of which is still continuing on the rights of the Petitioners being shareholders of the Company. It is an established law that once the CLB gives a findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in favour of the other persons of the Respondent No. 2 also deserves to be quashed. In doing so, a question may be raised that such cancellation may amount to reduction of the share capital of the Company for which the CLB is not vested with such powers. In this regard, I would like to say that I am directing cancellation of the allotment of additional 7000 shares and consequently reduction of the share capital of the Company in exercise of the powers conferred upon the CLB by virtue of Section 402 of the Act, which is consequent to my finding that the Respondent Nos. 1 to 8 are guilty of oppressive acts. To support my view, I would like to refer to a decision rendered by the Hon'ble Supreme Court in the case of Cosmosteels (P) Pvt. Ltd. Vs. Jairam Das Gupta [1978] AIR SC 375, which states that there is no need to follow the provisions of Section 402 of the Companies Act in the proceedings under Section 397/398 of the Act. 39. Having come to the conclusion that the Petitioners have successfully established their allegations regarding the acts of oppression and mismanagement, the last question that arises for my consideration is as to what reliefs would be just ..... X X X X Extracts X X X X X X X X Extracts X X X X
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