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TMI Blog2020 (6) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... s is maintainable can be answered affirmatively and can be considered without any iota of doubt - This is also a fit case to consider the continuous acts of oppression and mismanagement against the minority shareholders. In such a situation, delay cannot be held against the aggrieved party to seek redressal - petition is maintainable. Whether the respondents in their capacity as directors of the company had failed in complying with the fiduciary duty towards expulsion of petitioners Nos. 1 and 2? - HELD THAT:- The first petitioner is the promoter of the respondent-company who has put his signature on the memorandum of association along with respondent No. 7. The first petitioner was also the managing director of the respondent-company till June, 2008. While deciding the issue of removal of petitioners as directors for not attending the boards meetings continuously, we have considered the proximity of board meetings, i. e., 5 meetings in a span of 4 months clearly raises doubts on the genuineness of the so-called board meetings. It appears from the records that no attempt was made by the respondents to duly inform the promoter director when he was not attending the board meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pulickal, Advocate For the Respondent : Benny Antony Paul, Vinod (V.) and V. Krishna Menon, Advocates ORDER 1. Company Petition No. 27 of 2013 was initially filed before the National Company Law Tribunal, Chennai Bench. Since the National Company Law Tribunal, Kochi Bench, has been constituted for the cases pertaining to the State of Kerala and Lakshadweep Union Territory, the case is transferred to Kochi Bench of the National Company Law Tribunal (hereinafter referred as Tribunal ). The case was taken on record at National Company Law Tribunal, Kochi Bench and renumbered as T. C. P. No. 01/KOB/2019. 2. The above petition filed under sections 241 and 242 of the Companies Act, 1956 (in short the Act ) by the petitioners together constitute more than one-tenth of the total members of respondent No. 1-company and hence satisfies the condition prescribed under section 244 of the Act for maintaining a petition under relevant provisions. 3. The respondent-company, namely, Gurukripa Ayurvedic Heritage P. Ltd., was incorporated on January 31, 2005 under the provisions of the Companies Act, 1956 as a private limited company having its registered office at NP-1/1043A, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reas the second petitioner and respondent No. 4 hold 14.2 per cent. each and the other shareholder holds 0.1 per cent. of the total authorised, issued and paid-up capital of the respondent-company. The first petitioner was the managing director and respondent No. 7 the chairman of the respondent-company and the first petitioner continued as managing director till June, 2008. All the newly admitted members except the aforesaid single share member, were also made directors of the respondent-company. Even though increase in the number of shareholders was facilitated by the first petitioner, respondents Nos. 2 to 5 and respondent No. 7 started teaming up against the first petitioner and working against him, creating hurdles in the smooth management of the affairs of the company. The first petitioner resigned from the office of the managing director in June, 2008 and his resignation was duly accepted by the company (annexure A5). Thereafter, respondent No. 2 was appointed as the new managing director of the respondent-company. 6. It is also submitted that after assuming charge as the managing director of the company, respondent No. 2 started all sorts of manipulations, including fabr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the situation improved. But now the scenario has changed and now there is no need for all the directors to be gainfully employed by the company on payment of large amounts as remuneration. 9. It is again submitted by the petitioners that being put on notice of the board meetings regularly, they used to attend the board meetings. However, the respondents stopped sending them notices of the board meetings after the board meeting held on June 15, 2008. The petitioners had attended the board meeting held on June 15, 2008. The petitioners subsequently learnt that respondent No. 2 with active complicity of the other respondents, had fabricated records to make it appear that notices of the board meetings after June 15, 2008 were sent to the petitioners, but they failed to attend 3 consecutive board meetings. Subsequently the petitioners were removed from the board of the respondent-company with effect from September 30, 2008 quite illegally and fraudulently by the management led by respondent No. 2. A true copy of the minutes of meeting of the board dated September 25, 2008 recording the removal of the petitioners from the board of the company is filed as annexure A9. A true copy of F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d voted against the proposal (annexure A12). Further, the votes cast in favour of the special resolution was not three times the votes cast against resolution as contemplated under section 189(2)(c). With the result, the special resolution moved at the annual general meeting had failed to be passed. However, respondent No. 2 and the other directors manipulated the records and treated the resolution as having been validly passed and claimed that the relevant clauses of the memorandum of association and articles of association as having been amended as per the law. 13. The petitioners came to know that respondent No. 2 and his fraudulent team had perpetrated further fraud on the company by allotting the entire increased share capital in favour of respondents Nos. 2 and 7 alone, whereby their respective holdings in the respondent-company were increased to 429 and 1,854 constituting 14.3 per cent. and 61.8 per cent., respectively. In the process the petitioners' shareholdings in the respondent-company stands reduced from 14.3 per cent. and 14.2 per cent. to 4.76 per cent. and 4.73 per cent., respectively. The above act was done even though there was no need for increase of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 14. Thus, effectively based on the above averments and allegations, inter alia, the petitioners have sought for the following reliefs, namely : (a) An order declaring that the increase of the authorised capital of the first respondent-company as per the resolution passed at the annual general meeting held on September 26, 2009 from ₹ 1,00,000 to ₹ 3,00,000 is illegal, null and invalid. (b) An order declaring that the allotment of 2,000 shares made by the board of the company in favour of respondents Nos. 2 and 7 is illegal, inva lid, null and void. (c) An order directing the first respondent-company to rectify its register of members deleting the additional 2,000 shares shown in the names of respondents Nos. 2 and 7 and restoring the shareholding pattern as existed prior to September 26, 2009 to show the petitioners as holding 143 and 142 shares, respectively, out of the total of 1,000 equity shares. (d) An order declaring that the removal of the petitioners as directors of the first respondent as per annexures A9 and A10 is illegal and void. (e) An order declaring that the appointment of the sixth respondent as director of the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective annual general meetings only, thus it is the personal grunt and bias of the petitioners against respondent No. 2 for putting forth the above accusation. The remuneration of the petitioner has been paid for the year 2006, 2007, 2008 and the same is reflected in the balance-sheets of the respective years and in one of the balance-sheets for the year 2006, the first petitioner has also signed as one of the signatories. 17. It is further contended by the respondents, that annexure 9 is the minutes of the meeting and annexure 10 is only an extract of annexure 9. Therefore, it cannot be similar to annexure 9. The respondents also claimed that to pass any resolution in any meeting when a director has vacated his office automatically under section 283(1)(g), the provision operates automatically without requiring any form of resolution either from the board/ shareholders. 18. It is also submitted that the annual general meeting held on September 26, 2009 the authorised share capital of the respondent-company was increased from ₹ 1,00,000 to ₹ 3,00,000. It is pertinent to point out that for the purpose of increasing the authorised share capital as provided in artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubscription of shares. 21. A reply has also been filed by respondents Nos. 3, 4 and 5 to the main company petition stating that respondents Nos. 3, 4 and 5 are the share-holders holding 143 shares each in the company. It is also stated that respondents Nos. 3 to 5 were directors of the company from September 20, 2005 to December 27, 2011 and the respondents resigned from their posts on December 27, 2011. Therefore, respondents Nos. 3 to 5 are not involved in the day-to-day affairs of the company and no longer hold the position of directors of the company. As on date, respondents Nos. 3 to 5 are merely shareholders of the company and are not privy to the corporate decisions relating further allocation of shares. Thus, respondents Nos. 3 to 5 are not privy to the further allotment of shares and they do not have any mala fide intent. They also averred that respondents Nos. 3 to 5 are not benefitted in any manner. 22. It is further submitted that respondents Nos. 3 to 5 teamed with respondent No. 7 and worked against the first petitioner and created hurdles in the management of the company is not true. They also denied the allegation that the appointment of respondent No. 6 as di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 have in their counter admitted that any alteration of the articles of association of the company requires special resolution. Thus, the resolution passed in the annual general meeting on September 26, 2009 with regard to increase in authorised capital is having infirmities. 26. The allegation that the profits earned by the company through lucrative business operation are being siphoned off by respondents Nos. 2 to 6 by way of remuneration to practically no work done by them is denied. They further submitted that no decision is taken in violation of any of the provisions of the Companies Act and also against the scope of memorandum of association and articles of association of the respondent-company. 27. The increase of share capital of the respondent-company is done under section 94 of the Companies Act, 1956. Section 31 of the Act is a general section and section 94 at the same time is a special provision exclusively deals with the increase of share capital. Therefore, the question of special resolution as contemplated under section 189(2)(c) of the Act does not attract in the present case and allegation to the contrary is devoid of merits are liable to be rejected. As th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld on September 26, 2009 in which the share capital of the company is increased. The first petitioner attended the annual general meeting in the year 2010 also and did not raise any objection with regard to the increase of the share capital of respondent No. 1-company annexure R6(e)(1). Rejoinder in response filed by the petitioners 32. A detailed rejoinder has been filed by the petitioners dated April 11, 2017 wherein the averments allegation stated in the petition has been reiterated. The petitioners further stated that the resolution purporting to increase the authorised capital in alteration of memorandum of association and articles of association of the respondent-company, the explanation given by respondents Nos. 1 and 2 for circumventing the provisions of the Companies Act, 1956 and the articles of association of the company, cannot be countenanced, since without altering clause 4 of the articles of association, the authorised share capital of the company remains unaltered. Thus, the increase of the capital has not taken place, the apportionment of the assumed increase capital between respondents Nos. 2 and 7 and the consequent returns/statements filed by the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the respective parties have been considered. It appears from the records that the second petitioner has passed away on May 23, 2018 thus, the order dated October 22, 2019 impleaded the legal heirs of second petitioner as additional petitioners Nos. 3 to 6. On April 11, 2017 respondent No. 8 is proceeded ex parte. All the other parties were duly represented and filed their counter in the matter. 38. At this juncture, it is required to consider whether the acts of respondents as alleged by the petitioners would indeed constitute an act of oppression against the minority shareholders which calls for the intervention of this Tribunal. To arrive at a decision in this regard the following issues are framed for consideration : (i) Whether the company petition filed after a delay of 4 years of cause of action is maintainable ? (ii) Whether the respondents in their capacity as directors of the company had failed in complying with the fiduciary duty towards expulsion of petitioners Nos. 1 and 2 ? (iii) Whether the increase of share capital of respondent No. 1-company was properly done ? Whether the apportionment of the increased share capital between respondents Nos. 2 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the abovementioned point : (i) Municipal Corporation of Greater Bombay v. Bombay Tyres Inter national Ltd. [1998] 4 SCC 100. (ii) T. V. Somasundaram Pillai v. Official Liquidator, Madras [1967] 37 Comp Cas 440 (Mad), which were also considered by this Tribunal. 40. While rebutting the submissions made by learned counsel for respondents, learned counsel for the petitioners has pointed out that no period of limitation has been mentioned in the Companies Act under which the main company petition was filed and they have referred to section 10GE of the Act which clearly states that it does not prescribe time limit for filing the company petition in regard to oppression and mismanagement under sections 397 and 398 of the Act under which the main company petition is filed. Section 10GE of the Act states as follows : The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to an appeal made to the Appellate Tribunal. 41. Further, they state that the petitioners also filed O. S. No. 15 of 2010 against the removal of petitioners as directors and for payment of remuneration as director and the suit decreed by the trial court but the judgment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under sections 397 and 398. (e) Once conduct is found to be oppressive under sections 397 and 398, the discretionary power given to the Company Law Board under section 402 to set right, remedy or put an end to such oppression is very wide. (f) As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact. 44. We have considered the above laid down facts in the instant case. The facts are overwhelmingly loaded against the respondents as the acts of oppression and mismanagement are continuing till date. Considering the facts of the present case the petitioners are continuously knocking the doors of various forums to redress their grievan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the statutory presumption. The High Court, on verification of those materials, has concluded that 'postal receipt with post office seal was produced to show that notice was sent to all shareholders by certificate of posting in the correct address as per the report'. Sub-section (2) of section 53 makes it clear that after expiry of 48 hours a notice duly addressed and stamped and sent under certificate of posting is deemed to have been duly served. In M. S. Madhu soodhanan v. Kerala Kaumudi P. Ltd. [2003] 117 Comp Cas 19 (SC) ; [2004] 9 SCC 204, this court held that the fact of posting has to be proved by the sender and that statutory presumption is only a rebut table presumption. In the case on hand, dispatch of notice in time by certificate of posting was proved. In addition to the same, the High Court has very much relied on the fact that the first appellant was party to the board meeting which decided the convening of annual general meeting on September 29, 2005. The above information pressed into service by respondents Nos. 1 and 2 cannot, lightly be ignored. The reading of the above judgment held that if any document is served on the petitioners through certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 30, 1978. What I have said above with regard to the meeting of the Board is equally true of the extraordinary general meeting said to have been held on April 26, 1978. The extraordinary general meeting was supposed to have been held on April 26, 1978. Notice of this meeting is of March 31, 1978 and is supposed to have been sent under certificate of posting on April 1, 1978. It is interesting to notice in this context that between March 24, 1978 and April 24, 1978 there were at least half a dozen letters written to the company on behalf of Khanna group which were registered A. D. covers and which remained unreplied. These are P7 to P9, and three of these are registered A. D. covers. Neither of these were replied to by the company. In that kind of a situation, one would have expected the company to send registered A. D. notice to Khanna whose removal was due to be considered even though it may be conceded that in view of the reduced majority of the Khanna group by that time, partly on account of the transfers and partly on account of the increased allotment, the decision with regard to Khanna would have been a foregone conclusion. It follows, therefore, that either these meetings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting either held or made to appear as held only to remove the petitioners from the directorship. While perusing annexure 9 (minutes of the board meeting held on September 25, 2008) and annexure 10 (Form No. 32 filed before the RoC) extract of the minutes of the board meeting depicts three main differences, viz. : Time mentioned in annexure 9 and annexure 10 Chairman of the meeting was different in minutes and in Form No. 32 filed with RoC The minutes appended with Form No. 32 item No. 4... thereafter the following resolution was passed . But no such resolution is mentioned in minutes of the meeting, i. e., in annexure 9. Thus, it raises a valid question on the genuineness of the act done by the respondents. After considering the above facts before us, we came to the conclusion that proper procedure was not followed by the respondent-company in removing the petitioners from the directorship. Issue (iii) 48. The third issue framed by us for consideration is whether the increase of share capital of respondent No. 1-company was properly done or not. Learned counsel for the respondents contended that the company is empowered to increase the share capital as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, the respondents disregarded the statutory prescriptions contained in sections 16, 31 and 189 of the Act. Counsel for the petitioners also contended that section 31 of the Act mandates, articles of association can only be altered by special resolution. As such in the instant case, the votes cast in favour of the special resolution as contemplated under section 189(2)(c) was not satisfied. With the result, the special resolution moved at the annual general meeting had failed to be passed. It is also contended by the petitioners that they came to know that respondent No. 2 and his fraudulent team had perpetrated further fraud on the company and the petitioners by allotting the entire increased share capital in favour of respondents Nos. 2 and 7, resulted in reduction of their shareholding from 14.3 per cent. and 14.2 per cent. to 4.76 per cent. and 4.73 per cent., respectively. To substantiate his argument learned counsel for the petitioners cited the hon'ble Supreme Court judgment as under : Dale and Carrington Invt. P. Ltd. v. P. K. Prathapan [2004] 122 Comp Cas 161 (SC) ; [2005] 1 SCC 212 (page 182 of 122 Comp Cas) : In the present case we are concerned with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business 5. Payment of remuneration to directors 6. Increasing of share capital 7. Appointment of new director general discussion (as permitted by the chairman) 8. The notice sent by the shareholder Shri K. Balagangadharan. However, the Act clearly laid down and distinguishes between the ordinary resolution and special resolution in an annual general meeting. In the present case under the agenda item special business the increase of share capital is listed and when an item is listed under special business, it has to be conducted accordingly and not otherwise. However, the resolution produced read as under : Increase of share capital The meeting decided by majority to increase the share capital of the company from ₹ 1,00,000 to ₹ 3,00,000 and to alter clause V of the memorandum of association and clause 4 of the articles of association as stated below. K. Balagangadharan and K. Vijayan dis sented : 'the authorised share capital of the company is ₹ 3,00,000 (rupees three lakhs only) divided into 3,000 (three thousand) equity shares of ₹ 100 (rupees one hundred only)'. which clearly indicates that the respondent-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case record, the following are the final findings. This Tribunal is of the considered view that the company's affairs in relation to the petitioners have been conducted in an oppressive manner by the respondents and that the facts would render that it is just and equitable to wind up the company. However, the same would unfairly prejudice the petitioners and other shareholders of the respondent-company and in the circumstances a case under the provisions of sections 397 and 398 of the Companies Act, 1956 has been made out and thereby the petitioners are entitled to reliefs under the said provisions and in the circumstances the following order has been passed : (a) We declare that increase of authorised share capital of the respondent-company at the annual general meeting dated September 26, 2009 from ₹ 1,00,000 to ₹ 3,00,000 is illegal, null and invalid and hence set aside. (b) Consequently, allotment of 2,000 shares made by the board of the company in favour of respondents Nos. 2 and 7 is illegal and set aside. (c) By exercising the power under section 111(5)(a), the respondent-company is directed to rectify the register of members deleting the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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