9911796707
TMI Blog2008 (6) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... tal of the company was ₹ 20 lacs divided into 2,00,000 equity shares of ₹ 10/- each and the shareholding pattern of the company as per annual return made upto 30.9.2003 was petitioner- 60,100 shares; R-2-53,100 shares; and R-3- 86,000 shares. 3. In this petition the R-3 supports the case of petitioner alleging that the R-2 played fraud with the collusion of R-11 with R-3 and the petitioner. It was pointed out that the R-3 and the petitioner came in touch of the R-11 in the year 1999 when he was posted as Junior Engineer in Rural Engineering Services. R-11 persuaded the R-3 and the petitioner for forming a company with equal 1/3rd shareholding of R-2 (wife of R-11) with them. R-1 Company was accordingly formed in 1999 and the petitioner, R-2 and 3 were subscribed 100 shares each in the company and were named as Directors at the time of incorporation. 4. In the general meeting held on 18.9.2003 authorized capital of the company was increased from 20 lakhs and it was decided to allot shares to the three shareholders- directors on pro rata basis. In the Board Meeting held on 30.10.2003, it was decided that the shares of all the three directors/shareholders as duly ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the State Bank of Indore, Santa Branch singly. It was also decided that previous financial liability of Satna project shall be paid by R-2 on payment by the department. The work was left incomplete by R-2 as intimated by the PWD authorities on 13.10.2004 even after receiving payment of ₹ 1.56 crores from the PWD. 8. The Petitioner sent legal notice dated 1.11.2004 to R-2 to render account of the works, payments received from the PWD assets and liabilities created after the board meeting held on 10.4.2004 but without any result. The Bank was also informed on 18.10.2004 to close the account with immediate effect. Aggrieved by the state of affairs of the company, petitioner filed Suit No. 236/06 in the Court of Civil Judge, Allahabad which was challenged by R-2 on the ground that matter relates to the provisions of the Companies Act, 1956 to be adjudicated by the CLB. Their plea was accepted by the Court and the suit was dismissed on 2.2.2007 on grounds of jurisdiction. The present petition was subsequently filed by the petitioner in February, 2007. 9. The petitioner and the R-3 have brought my attention to the illegal appointment of R-4-10 as Additional Directors. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return has been fabricated by R-2 as petitioner never applied for these shares nor paid the share money of ₹ 1 lac with the company. Similarly, R-2 never applied for these shares nor paid the share money of ₹ 9 lacs to the company. No board meeting in this behalf was convened or held. The alleged minutes filed by respondents with their reply had been fabricated and do not bear the signature of petitioner. As per the annual return made upto 30.9.2004, singed by R-2 and Mr. Suresh Singh R-6, R-2 increased her shareholding from 53,100 shares to 1,56,666 shares by alleged transfer of 13,566 shares and allotment of 90,000 shares on 30.3.2004, which is false and illegal due to non payment of consideration of money of ₹ 1,35,660 to R-3 and ₹ 9,00,000 to the company. These shares also do not appear in the income tax return filed by her. Further, in the said annual return petitioner has been stated to hold 76,666 shares which is also wrong as he has also not paid any money to R-3 for alleged transfer of shares to R-3. The position was duly appraised to ROC vide letter dated 26.6.2006 by the R-3 after the cheques bounced. 13. Complaint was also made to Police Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any as he had admittedly put in his entire life savings in the company by way of 60,100 shares of ₹ 10/- each amounting to ₹ 6,01,000 and by way of unsecured loan advanced to the company amounting to ₹ 3,87,120 as per books of the company; (ii) the alleged letter of resignation filed by respondents with their reply is fraudulent in as much as the name of the company had been wrongly typed as Target Construction Private Ltd. instead of Target Constructions Pvt. Ltd. father's name has been wrongly typed as Late Ram Sharan instead of Late Ram Saran, and rubber stamps of the company/director has been affixed on the signature of petitioner which was not required by a person resigning from the company. Significantly, resignation letter of R-3 also produced by the respondents in their reply does not bear the stamp of company/director under his signature; (iii) Respondents have also misused other blank signed papers given by the petitioner. Petitioner's signature appear on the rubber stamp of the company as director in alleged letter dated 5.11.2005 addressed to Vijaya Bank in praise of R-2. It was contended that firstly, petitioner would not sign such a lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r about ₹ 10-15 lacs without any authorization by the Board and the same has not been accounted for in the books of the company. 18. In the absence of the plant, the company could not finalize the work on Lumbini Dudhi Marg at Sonebhadra (U.P.) as a result of which, PWD authorities imposed a penalty of ₹ 27,98,189 vide their notice dated 23.3.2005. Further, the company was allotted works at Banda-Allahabad Road on 18.7.2003 for ₹ 2.05 crores which was to be executed through the sister concern of R-2, M/s ANC Constructions Pvt. Ltd. but the work was not completed in time resulting in penalty of ₹ 4,70,000 subsequently reduced to ₹ 3,08,902; (ii) as per details of payments made to the company by the PWD authorities, filed alongwith the rejoinder of petitioner, 39 payments aggregating to ₹ 5,38,98,393 were made to the company during February, 2003 to September, 2005 in respect of construction of Satna-Chitrakoot Road. Further, 36 payments aggregating to ₹ 2.44 crores during the period 1.4.06 to 30.6.06 have been received by the company from the PWD authorities. 19. The company also received payments in respect of other project, details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Road, Allahabad, w.e.f. 10.5.2005 without any authorization by the Board. The alleged minutes of board meeting produced by respondents alongwith their reply have been fabricated and does not bear the signature of petitioner. Respondents have falsely alleged that record of the company is with the petitioner. (vi) the respondents are guilty of mismanagement and they have purposely not prepared and filed the audited accounts of the company for the last five successive years. A detailed investigation of the books of account of the company for the period 1.4.2003 to date can only reveal instances of defalcation, misappropriation and siphoning of funds of the company by R-2 and 11 and based on the report of inspector, recoveries may be made from respondents apart from legal action according to law. 21. Further, it was contended that the R-2 had refused to allow inspection of statutory record to the petitioner. Respondents have failed to comply with the orders of the Hon'ble CLB dated 1.3.2007, 17.5.2007 and 12.6.2007 directing them to allow inspection of statutory records of the company. Initially, petitioner visited registered office of the company on 19.3.2007 at 11 AM when R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (viii) payments made during the period 3.1.2004 to 26.5.2004 relating to Satna-Chitrakoot Marg in the handwriting of R-11; (ix) cheques issued by PWD to the respondent company for works done were mostly received by R-11 ever since January, 2004 and R-11 also received those amounts from the Banks. 24. It was further contended that R-11 is not a stranger to the company, as alleged by respondents and he is a necessary party to the present proceedings. He is a deemed director of the respondent company in terms of definition of Director under Section 2(13) of the Companies Act, 1956 and is personally liable for the various acts of oppression and mismanagement alongwith other respondents. 25. Responding to the allegation that the petitioner has been regularly signing the cheques, for instance 5 cheques dated 31.3.2004, 7.4.2004 and 18.10.2004 were signed by the petitioner, it was contended that the fact of the matter is that besides these cheques petitioner hardly signed any cheque. All these cheques have been signed by all the 3 directors, including the petitioner, as these cheques were issued in repayment of loans advanced by the drawers of these cheques as the said creditors wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orified partnership and consequently no public interest is involved. The petitioner has alleged certain minor infractions of some of the provisions of the Companies Act, 1956, which could not be a ground for oppression of the petitioner. It is a matter of record that the petitioner himself has been a working director of the company right from the inception and has been responsible for execution of works at site. He has been actively involved in the day to day affairs of the company and has also been one of the signatories of the Bank account of the company. 29. He can not now allege that there has been case of oppression and/or mismanagement. It was contended that the petitioner himself, with malafide intentions, mismanage the affairs of the company and when the matters went out of his control, he voluntarily agreed to quit the company and also transferred his shares to R-2 or her nominee at the face value. He also tendered his resignation vide his letter dated 31.10.2005. The petitioner, however, back tracked and did not transfer his shares with ulterior motives. The petitioner has deliberately concealed the aforesaid material facts and is, therefore, not entitled to any relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him as he is neither a director nor a shareholder of the company nor has been connected or concerned with the affairs of the company in any manner. It was argued that inclusion of the name of Sh. Subhash Chandra Singh in the array of respondents is an act of misjoinder and his name should be deleted from the array of parties. 33. Replying the allegations on merits, the counsel for the respondents contended that in terms of the settlement arrived at between the petitioner and the respondents, the petitioner has agreed to resign as director and also to transfer his shares. Pursuant to the settlement the petitioner did tender his resignation from the position of director but has now alleged that a blank signed paper given by him had been used by the respondents to write his resignation letter thereon. The petitioner has not denied the authencity of his signatures. He is well educated and has been a working director of the company, it is inconceivable that the man of his stature would give a signed blank paper to the respondents with whom certain disputes had arisen, he also did not file any report in this regard with the Police. Without prejudice to this, it was argued that once a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. 37. As regards the allotment and transfer of shares, the counsel for the respondents contended that the allotment of shares was approved by the Board of Directors at the meeting held on 30.3.2004. The petitioner, who was present at the said meeting, had consented to take only 10,000 shares. My attention was drawn to a copy of notice and a copy of the minutes of the Board of Director meeting held on 31.03.2004. The petitioner who was present at the aforesaid meeting refused to sign with ulterior motives and malafide intention. 38. It was contended that transfer of shares to R-2 and the petitioner was done on the basis of the transfer deeds executed by respondent for effecting the transfer of shares to R-2 and petitioner. The transfer of aforesaid shares was approved by the Board of Directors in its meeting held on 30.10.2003. My attention was also drawn to a copy of the minutes of the meeting. 39. Replying to the allegation of manipulation of accounts and misappropriation of assets and funds of the company, the counsel for the respondents contended that the petitioner has been actively involved with the management of the affairs of the company. It is because of mishandli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished. However, in a Section 397 petition, which is alternative to a winding up petition first, one has to establish that there is oppression. Without the element of oppression being established, the question of grant of relief does not arise. 44. However, it is difficult, if not impossible to lay down specific instances which alone would be considered to be acts of oppression. Whether an act amounts to oppression or not would depend on the facts of a case. Since Section 397/398 proceedings are alternative to a winding up proceedings, it is not that only those grounds which are considered to be just and equitable in a winding up proceedings to be the grounds in a Section 397/398 petition. The words, 'oppressive' is not defined, but it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are treating the company and its affairs as if they were their own property to the prejudice of the minority shareholders and in which just and equitable grounds would exist for the making of a winding up order but in which the alternative remedy provided by Section 397 by way of an appropriate order mig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 294, the court has held that once oppression is established, reliefs under Section 402 could be granted. 49. In the present petition in view of the uncontroverted allegations of acts of oppression and mismanaging the affairs of the Respondent Company, though it is a fit case of winding up, the winding up order would clearly prejudice the interests of the petitioner and other shareholders. On consideration of the facts and circumstances of the case and the law applicable in this regard I find that this petition cannot be thrown out at the threshold itself on account of preliminary objections which I find are not tenable. As regards the other preliminary objection regarding the mis-joinder of parties, R-11 who is the husband of R-2 is neither a shareholder nor a director of the respondent company, he is an employee of State Govt. and he cannot by virtue of the Rules of Conduct involve himself in the affairs of the R-1, the facts and circumstances of the case reveal a different picture in view of which this petition cannot be dismissed at the threshold on this ground. 50. On consideration of the pleadings, the legal contentions, the case laws cited by the parties in the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific allegations regarding the manipulation of accounts and statutory record as well as misappropriation of funds and assets of the R-1. The only reply given is that the petitioner was actively involved in the affairs of R-1 and the mishandling or mismanagement, if any, stands attributed to the petitioner himself. But the facts and circumstances of the case reveal a different picture. The chronology of events and the uncontroverted acts of oppression and mismanagement prove only the petitioner's and R-3's case. The specific allegations regarding increase and allotment of 1 lakh shares have not been met. Nor the proper purpose for such increase and allotment made out. 53. Further, bouncing of cheques issued by the R-2 have resulted in non-compliance of the decision to give 1/3rd shareholding to these three shareholders [petitioner, R-2 and R-3]. There is no reply to the fact of bouncing of cheques contributing to the petitioner's and R-3's case of ulterior motive and oppression and mismanagement by R-2 in connivance with her husband [R-11] and other respondents [R-4 to 10] who also have been illegally appointed in the absence of proper quorum and in violations ..... X X X X Extracts X X X X X X X X Extracts X X X X
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