9911796707
TMI Blog2008 (4) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... ar of Companies notifying that the petitioners have resigned from the directorship of the company is illegal and void ab initio; (d) to frame a scheme for the vesting of the properties of the company in the hands of an administrator for distribution to all the shareholders as per their original shareholding or to dispose of the properties and distribute the proceeds to the shareholders in proportionate to their shareholding; (e) to declare that the further allotment of shares made by the company on June 29, 2002, June 30, 2003, December 30, 2004 and March 14, 2005, are illegal and void ab initio and not binding on the company; and (f) to direct the company to be wound up and distribute the proceeds of the sale of the properties in favour of the shareholders or in the alternative to distribute the properties in the ratio of the shareholding as it existed at the time of incorporation. 2. Shri K.V Satish, learned counsel, while initiating his arguments in support of the petitioners submitted: The company has been promoted in July 1997, by the petitioners and respondents Nos. 2 to 6, with the main object of carrying on construction activities. As at March 31, 2000, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 33/1 for ₹ 15,90,000) under two sale deeds executed on April 28, 2005. The specific plea of the petitioners raised in the main petition that during the last week of June 2005 one Sri S. Mohanan, s/o. Sri Shankaran Kutty, approached petitioner No. 1 and informed him that he is negotiating for purchase of the petition scheduled properties with respondents Nos. 2 to 6 and since petitioner No. 1 also happens to be a director of the company, he has approached him as he was not present during the discussions with the said respondents. Petitioner No. 1 was shocked and surprised to note that a decision had been taken by respondents Nos. 2 to 6 to sell the petition scheduled properties without calling for any board meeting of the company and without informing him has not been denied by respondents Nos. 2 to 6. The board minutes dated February 15, 2005, would show as if the directors deliberated about sale of the immovable properties of the company, which are untrue. The affidavit sworn on December 11, 2006, by the second respondent and produced before the Bench would only affirm the resolution authorising the bank account and not of the resolution deliberating the sale of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and committing breach of their fiduciary duties owed to the company, by acting contrary to the provisions of the articles of association and the Act. When the board of directors is guilty of misconduct, they will be liable to pay compensation under section 543 read with Schedule XI, as held in Life Insurance Corporation of India v. Hari Das Mundhra, [1966] 36 Comp Cas 371 (All). The properties have further been sold by the purchasers, namely, the seventh respondent, entered into an agreement dated December 9, 2005, for the sale of 3 acres and 35 guntas in favour of Shri V.G Malapur and three others for a sum of ₹ 1.74 crores. The eighth respondent entered into an agreement on December 9, 2005, in respect of 5 acres and 12 guntas for an amount of ₹ 2.39 crores with certain purchasers, who in turn developed the properties by converting into 176 sites and entered into an agreement dated April 3, 2006, with Science Institute Employees' Sites Purchasers Committee of the Indian Institute of Science, Bangalore, for sale of the sites at the rate of ₹ 300 per sq. ft., which would ultimately fetch ₹ 8.39 crores, whereas respondents Nos. 2 to 6 sold the whole o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XI, even though they are no longer continuing wrongs; and (b) these are the only two cases in which, on an application under section 397 or 398, the court is empowered to give reliefs in respect of past and concluded transactions, by way of exceptions to the general principle manifest from the language of sections 397 and 398 that the power of the court under both the sections is confined only to making an order for the purpose of putting an end to oppressive or prejudicial conduct and the court cannot make an order setting aside or interfering the past and concluded transactions which are no longer continuing wrong giving compensation to the company or the aggrieved shareholders in respect of such transactions, the Karnataka High Court declined to entertain such submissions, yet they are squarely applicable to the present case. Respondents Nos. 2 to 6 illegally filed Form No. 32 with the Registrar of Companies on July 6, 2005, notifying as if both the petitioners ceased to be directors of the company with effect from July 4, 2005, consequent upon their resignation from the office of director. The petitioners on the other hand at no point of time tendered any resignation from di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents Nos. 2 to 6 were allotted shares at face value in June 2002 and June 2003 almost equally on those occasions, the petitioners were offered only minimum number of shares and that too at a premium. The second petitioner had signed only the provisional accounts for the year ended March 31, 2002, disclosing the enhanced capital, which were to be finalised after consulting the chartered accountants. The balance-sheets produced by the respondents are not the audited balance-sheets certified by the chartered accountants. No share certificates have been issued to the petitioners. The company never received any consideration from respondents No. 2 to 6 towards such discriminate allotment of shares. The petitioner each held 14 per cent, prior to the impugned allotment, which came to be reduced to 11 per cent, by virtue of the allotments challenged in the petition. The impugned allotments, are therefore, illegal and not binding on the petitioners. Shri Dinesh Yora, became a director, as reflected in the annual return for the period as at September 30, 2000, to whom the third respondent sold his one-seventh shares and thereby he became a stranger to the company. These facts are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fected by the company. The petitioners are guilty of forum shopping by filing civil suits in respect of the subject-matter of the main petition, which are prior in point of time. All the averments raised in the civil suit are forming part of the company petition, which in addition deals with the impugned allotment of shares. The petitioners with ulterior motive pressed for interim reliefs in the civil court even after filing of the company petition and withdrew the suit only on July 15, 2006. The petitioners have initiated the present proceedings with a view to arm twist the respondents, compelling them to come to the terms imposed by the petitioners. The petitioners threatened respondents Nos. 7 and 8, with serious consequences, as affirmed by respondents Nos. 2 to 6 in an affidavit filed before this Bench, and therefore, the company petition is liable to be dismissed in-limine. The petitioners have not come with clean hands and therefore, the equitable reliefs should be declined to them. The impugned allotments are legally made with the knowledge of the petitioners. While the petitioners are challenging the allotments, they claim together 5,100 shares allotted on March 14, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e board meeting held on March 14, 2005, to sell the current assets, even though no board resolution is required for the purpose of selling the current assets of the company. Respondents Nos. 7 and 8 purchased the current assets of the company for a little more than the company's purchase price and paid the consideration by way of post dated cheques. At the board meeting held on May 23, 2005, it was decided to take steps to strike off the name of the company under the Simplified Exit Scheme. The petitioners did not attend three board meetings and they vacated their office on July 2, 2005. The legal notice dated July 4, 2005 and the telegram of July 4, 2005, sent by the first petitioner after sale of the properties would show that they are aware of the sale of the current assets of the company. The petitioners have been claiming the value of the properties differently at different places of the company petition. The petitioners have valued the properties at ₹ 1.65 crores both in the legal notice dated July 4, 2005 and in the company petition; ₹ 3 crores in the reply given by the second petitioner to the first petitioner; and ₹ 3.50 to ₹ 4 crores in the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the conduct of the petitioners, they should be denied the equitable reliefs claimed under section 397, save the prayer for a declaration that Form No. 32 filed with the Registrar of Companies, notifying the resignation of the petitioners from the office of director of the company as illegal and void ab initio. The company has made an application prior to filing of the company petition for striking off the name of the company under section 560 in accordance with the Simplified Exit Scheme, 2005, introduced by the Ministry of Company Affairs. The Company Law Board has wide powers, which includes the authority to wind up the company and therefore, the company may be permitted to be struck off from the register maintained by the Registrar of Companies. The Company Law Board, while exercising the inherent power cannot go against any statutory prescription in violation of the provisions of law as held in Jindal Praxair Oxygen Co. P. Ltd. v. Praxair Pacific Ltd., [2005] 61 SCL 93 : [2006] 129 Comp Cas 905 (CLB). Therefore, the interim order of this Bench directing the Regional Director to keep in abeyance the proceedings under section 560 against the company being in conflict with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the instant case. The seventh respondent has already sold the property acquired by him in two blocks as borne out by the sale deeds dated July 21, 2006 and August 30, 2006. The eighth respondent entered into a development agreement with a third party; developed 176 plots and already sold a large number of plots in favour of third parties. The respondents have sold after acquiring the properties, prior to filing of the company petition. The subsequent purchasers have not been impleaded as parties to the company petition. The civil suit filed earlier by the petitioners has been converted into the present company petition, which has to be dismissed. 5. I have considered the pleadings and arguments of learned counsel for the parties. The main grievances of the petitioners have arisen on account of- (a) sale of the immovable properties belonging to the company; (b) impugned allotment of shares; (c) cessation of the petitioners as directors; (d) re-appointment of the third respondent as a director; and (e) striking off the name of the company under section 560 of the Act, etc. It is on record that the company had acquired certain landed properties with a large n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cres 35 guntas in survey No. 32/2 by formation of lay out for ₹ 18,91,300. The eighth respondent, as borne by an affidavit dated October 29, 2006, sold 5 acres 12 guntas in survey No. 33/1 in favour of Shri G. Sudhakar Shetty (2 acres 12 guntas) and Shri Mohan B. Naidu (3 acres) for a total amount of ₹ 47.70 lakhs. Thus, respondents Nos. 7 and 8, claim that they have disposed the properties acquired from the company for an aggregate sum of ₹ 66,61,300. The petitioners aggrieved by sale of the properties, belonging to the company, which according to them, is without any authority of the board of directors have filed in January, 2006 a civil suit in O.S No. 16 of 2006 before the Court of Civil Judge at Bangalore for an order of permanent injunction restraining respondents Nos. 1 to 8 from selling, leasing, mortgaging, encumbering, parting with possession or changing the nature or putting up construction on the properties in any manner, which came to be withdrawn in July, 2006. The petitioners, in the meanwhile, have invoked the equitable jurisdiction of the Company Law Board under sections 397, 398, 402, 403 and 406 of the Act for a declaration that the sale of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the misapplication, retainer, misfeasance or breach of trust as its thinks fit. In this connection, reference, is invited to the decision in Life Insurance Corporation of India v. Hari Das Mundhra, [1966] 36 Comp Cas 371 (All), wherein it was held that the court may grant relief to a company under section 543 even, in the absence of any separate application as envisaged therein and that the directors who are guilty of misconduct are liable to pay compensation in terms of this section read with Schedule XL. It shall now be seen as to the applicability of these provisions in the facts and circumstances of the present case. The company admittedly bought the properties for an amount of ₹ 22.94 lakhs in August 1997 (survey No. 33/1) and in March 1998 (survey No. 32/2) which are situated about 30 kilometres from the city of Bangalore on Bangalore-Pune Highway, not only enjoying the locational advantage but also attracting any prospective buyer. The company valued the properties at ₹ 27,04,802 which is found reflected in the balance-sheet as at March 31, 2000. The minute, of the board meeting dated March 14, 2005, disclosed that the board of the company authorized the thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal notice to respondents Nos. 1 to 6 and the second petitioner setting out his grievances in relation to the immovable properties of the company at the instance of respondents Nos. 1 to 6 and reiterating a ready offer from an intending buyer for purchasing the said properties, namely the properties belonging to the company for a sum of ₹ 1,65,00.000 only There has been no response from any of the respondents in spite of the serious charges levelled by the first petitioner in his legal notice dated July 4, 2005. It is relevant to observe that the legal notice has been served upon respondents Nos. 2, 5 and 6, without invoking any response from them despite the fact that the properties were already sold on April 28, 2005, prior to the telegram and the legal notice for an amount of ₹ 27.94 lakhs and there was a ready and uncontroverted offer for sale of the properties of the company. It was rather obligatory and expected on the part of the respondents to have intimated the petitioner the fact of sale of the properties in April 2005 in favour of respondents Nos. 7 and 8 and release of the impounded sale deeds in the name of the company, pursuant to the High Court order m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiation of the present proceedings, is genuine as well as probable and to that extent the company suffered losses, apart from the amounts spent by the company (₹ 2,75,200) on the sale deeds executed in favour of respondents Nos. 7 and 8, on account of the conduct of the respondents. The second petitioner valuing the properties at ₹ 3 crores in his reply notice dated July 6, 2005, sent to the first petitioner, has little consequence, especially when respondents Nos. 2 to 6 had no knowledge of any offer at any point of time. The petitioners estimating the value of the properties between ₹ 3.5 crores and ₹ 4 crores in the company petition remains to be mere pleading and is not supported by I any material and, therefore, must necessarily be, ignored, while determining the quantum of losses suffered by the company. It is, therefore, doubtless that respondents Nos. 2 to 6 have been guilty of breach of trust in relation to the company by sale of its properties for an aggregate sum of ₹ 27.52 lakhs in favour of respondents Nos. 7 and 8, when the properties could have fetched not less than an amount of ₹ 1.65 crores as claimed, by the first petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 250 - 100 9,850 8. Nirmal Kumar R5 1,900 7,700 250 - 100 9,950 9. Sanjay Chand R6 1,800 7,700 250 - 100 9,850 Total 9,300 30,800 1,250 10,600 700 52,650 7. It is evident that while 42,100 shares were allotted in favour of respondents Nos. 2 to 6 at par with exception of 1,000 shares allotted at a premium in favour of the second respondent, the petitioners were allotted only 9,850 shares and that too at a premium, without offering any explanation for such discriminatory allotment of shares. The board minutes dated June 29, 2002, June 30, 2003, December 30, 2004 and March 14, 2005, merely disclose the allotment of 9,300, 30,800, 1,250 and 10,600 equity shares to the persons as per the list placed before the board, without giving any reasons for such allotments. No list of the allottees is available, as envisaged in those board minutes. 8. The allotments made on December 30, 2004 and March 14, 2005, carried premium, without offering any justification. The resolutions do not give any of the essential particulars regarding any yardstick or requirement of any funds for the company for the discriminatory allotment of shares, especially when, it does not pursue any business since i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board meeting reportedly held on March 14, 2005, as being asserted by the respondents. It is rather strange to observe from the board minutes dated March 14, 2005, that the second petitioner conveyed his acceptance on his behalf and on behalf of Mr. Anjanappa (the second petitioner's father) for allotting shares to the extent of putting money into the company at premium , whereas the second petitioner's father, namely, Anjanappa, died as early as on August 24, 2001, which throws a lot of doubts on the genuineness of the allotment of shares at the board meeting purportedly held on March 14, 2005. The second petitioner, by no stretch of imagination, would have conveyed his acceptance on behalf of his deceased father for allotting shares in his name, namely, deceased father, which establishes the hollowness in the claim of respondents Nos. 2 to 6, made in this behalf. The balance-sheet for the year ended March 31, 2002 and March 31, 2003, reflecting share capital of ₹ 24,99,910 signed by the second petitioner does not in any way improve the version of the respondents in establishing the further issue of shares, in view of the requirement of section 215(3) of the Act, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged on the basis of the records produced before the Bench. The board minutes dated March 14, 2005, containing the resolution on reappointment of the third respondent as a director, followed by Form No. 32, are not free from dispute and therefore, it is not sale to place any reliance on such disputed documentary evidence produced by the respondents. It is observed that while pleading in the civil suit (O.S No. 16 of 2006) that the third respondent had resigned from directorship with effect from August 14, 2000, the petitioners never questioned the status of the third respondent as a shareholder of the company. The first petitioner had sent the telegram as well as the legal notice in favour of among others, the third respondent, challenging the act of respondents Nos. 2 to 6 and the second petitioner in disposing of the properties of the company for a lesser value, without convening a meeting of the board of directors of the company and warning them not to take any steps without his knowledge either to sell the properties or creating any interest in favour of any third person. The first petitioner has not choosen to explain as to why the telegram as well as the notice was sent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in exercise of the powers under sections 397, 398, 402 and 406 read with section 543 as set forth in Schedule XI and with a view to bringing to an end the acts complained of in the affairs of the company, it is directed as under: (i) The petitioners shall stand forthwith inducted in the board oi directors of the company and the company shall file necessary Form No. 32 with the Registrar of Companies in accordance with the relevant provision of the Act. (ii) All the allotment of shares made by the company on June 29, 2002, June 30, 2003, December 30, 2004 and March 14, 2005, being oppressive as well as illegal are set aside as null and void and consequently, its share capital stands reduced. (iii) The company shall rectify the register of members in respect of all the impugned shares which are set aside, by deleting the names of the concerned allottees within 30 days of the receipt of the order. (iv) Respondents Nos. 2 to 6 shall contribute an amount of ₹ 1,40,23,200 (₹ 1,37,48,000 + ₹ 2,75,200) to the assets of the company by way of compensation on or before June 30, 2008, failure of which shall attract 9 per cent, simple interest for the period of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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