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TMI Blog2020 (12) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... nd therefore it has been stated that the adjudicating authority does not order for the confiscation of 3,32,640 shares/securities of Kumudam Publications Private Limited allotted to Noticee No. 3 (Shri A. Jawahar Palaniappan). After imposing penalties as above, the adjudicating authority also dropped the Charge of Regulation 5(1) of FEM (transfer or issue of security by a person resident outside India) Regulation 2000 r/w clause (b) of sub-section (3) of Section 6 Section 47 of FEMA, 1999 against all the three noticees. All these orders of the adjudicating authority, FIPB and RBI have held that there has been no violation on the part of the 1st petitioner and the adjudicating authority has not confiscated the shares issued to the 1st petitioner. However, AA has imposed penalties under Section 13, Sub-Section 1 of the FEMA for violation of Regulations. The respondents have stated that the adjudicating authority did not order for the confiscation of shares as it has already been cancelled/nullified by the respondents and therefore nothing is left to be confiscated. Such interpretation is somewhat inconsistent with the findings of the adjudicating authority that the responsibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to be invalid and illegal. Petition allowed. - TCP/26/2018, CP/54/2012, IA/246, 238, 237/2018 and 167/2019 - - - Dated:- 27-5-2020 - B.S.V. Prakash Kumar, Actg. President And S. Vijayaraghavan, Member (T) For the Appellant : Sudipto Sarkar, Sr. Advocate, P. S Raman, Sr. Advocate, T.K. Bhaskar, Aditya Verma, N. Priyadarshini, Medha A. Rao, Advocates For the Respondent : S.N. Mookherjee, Sr. Advocate, A.R. Poorvaja and Gowtham Kumar ORDER S. Vijayaraghavan, Member (T) 1. The First Petitioner, Dr A. Jawahar Palaniappan being the Director of the R1 Company held 3,32,640 equity shares of ₹ 100/- each, constituting 64.73% of the paid up capital of the R1 Company. The first petitioner is represented by his Power of Attorney holder Mrs. M. Krishna Meyyammai (daughter of the second petitioner). The breakup of 3,32,640 shares is as detailed below: Original holding 1,100 By inheritance 23,010 Pursuant to the Scheme of amalgamation of Kumudam Printers Private Limited with Kumudam Publications Private Limited as sanctioned by the Hon'ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging Director of the R.4 Company. Contents of the Petition: 1. Mr. SAP Annamalai Chettiar (hereinafter referred to as SAP), the late father of the first petitioner and the husband of the second petitioner, was the brain behind establishing the magazine Kumudam and who tirelessly worked from the year 1947 till 1994 for the upliftment of the magazine. The second petitioner, who is the wife of Late Mr. SAP, has been lending a helping hand to her husband right from the year 1947. During the year 1968, vide a Partition Deed, the business of the HUF was divided under two different entities viz. Publishing business of Kumudam and Kumudam Printers Private Limited. The entire paid up capital was held by SAP together with his family members till the year 1990. Mr. P.V. Parthasarathy (hereinafter referred to as PVP), father of the R2 and R.3 herein, who was working in the HUF as an employee was appointed as Company Secretary in both the new companies. SAP was managing the affairs of both the companies till his demise during the year 1994. 2. The First Petitioner being a Cardiologist by profession is residing at USA and very much interested in the business of the R1 Company as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omposition of the board right from the year 2003. The transferor Company viz., Kumudam Printers Private Limited was dissolved without winding up during the year 2003, by an order of the Hon'ble Court. The shares that were held by the R2 together with his family members were transferred in favour of the R4 Company, a Company that is completely owned and managed by the respondents. Therefore the first petitioner, second petitioner and the R.4 Company are the shareholders right from the year 2003 and there is no change in the shareholding pattern thereafter. 7. After the merger, having been appointed as Managing Director, the R2 went ahead and systematically started violating the basic principles of corporate governance, shareholders democracy etc. The R2 realizing the fact that the first petitioner is out of India and the second petitioner is quite old and could not take part actively in the day to day affairs of the Company, started managing the affairs of the Company as per his whims and fancies without paying any heed to the interest of the petitioners who are the majority shareholders of the Company holding almost 67% of the share capital. The Petitioners have inherited th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing them on the developments that were happening in the R1 Company. As the first petitioner was busy in his profession in USA and the second petitioner being quite old and not keeping good health, it took some time for the petitioners to understand the real intention of the R2. The gap between the petitioner and the respondent group widened year after year. 9. Following are few instances of mismanagement by the second respondent: (i) During March 2002 the R1 Company gave an undertaking to the Government of India for availing concessional rate of Excise duty with respect to the import of machineries. One of the conditions of the said license was that the Company should earn foreign exchange equivalent to US $ 45,64,880.25 within a period of 10 years i.e., on or before March 2012. The R2 who was virtually managing the affairs of the Company was unable to comply with the said condition imposed by the Excise department as a result of which the R1 Company has received show cause notices dated 22.10.2009, 13.05.2011, 06.07.2011 and 07.05.2012 from the Deputy Director - General of Foreign Trade, Ministry of Commerce and Industry, Chennai. As the export obligation period had expired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the instant case such tenets of corporate guiding principles are thrown to wind while fixing the remuneration. The first petitioner, due to implicit trust imposed on the R2 failed to notice the evil design of the R2. The copies of the balance sheet for the years ending from 31.03.2001 to 31.03.2009 which shows the abnormal increase of the remuneration of the R2 year after year are kept as Annexure. (iii) In spite of the decrease in circulation year after year under the management of R2, there is an increase in the remuneration drawn by him. The R1 Company has been entering into transactions with a firm viz., M/s. Lotus Inks in which R2 and R3 are partners. Any transaction with a firm in which directors are partners requires prior approval of the Central Government as stipulated under the provisions of section 297 of the Act. There are also several transactions for availing services from M/s. Devi Press, a partnership firm in which the Directors of the Company are partners requiring previous approval of the Central Government but the respondent having been the Managing director had not taken any effort to comply with the Law. All these non-compliances would prove beyond doubt t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations with respect to the Export Promotional Capital Goods (EPCG) Scheme and the managerial remuneration paid to the R2. The other qualification made in the balance sheet as at 31.03.2009 is more damaging. Auditors have very clearly brought out the fact that monies were given interest-free to entities in which directors are interested and the Company has no intention to recover the money from the respective entities. This only means that the R2 has adopted the back door method to siphon off money from the R.1 Company by way of illegally transferring funds of the R1 Company. There cannot be any other concrete evidence to prove that the R2 has been indulging in acts of mismanagement which is prejudicial to the interest of the R1 Company. (viii) The first petitioner with a view to bring the illegal acts of the R2 to an end, convened a Board meeting on 22/04/2010 after duly serving notices to the R2 and R3, both by mail as well as by speed post which was acknowledged by the said respondents. However, the R2 expressed his inability to attend the meeting due to his pre-occupation and prior engagements and had informed his willingness to be contacted during the meeting through telepho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lge in illegal acts even after the signing of the MoU. 10. The petitioners received a notice dated 15/9/2011 from the R2 convening a board meeting on 20/9/2011 with an agenda (i) to discuss the legal implications of the holding of equity shares by the first petitioner in his capacity as a foreign citizen and (ii) to discuss the issue of the first petitioner holding editorial position in the magazines published by the Company. The petitioners were unable to appreciate as to why R2 after having agreed to exit the R1 Company issued such a notice which is prima facie baseless. The first petitioner was born and brought up in India and is a major shareholder. The R2 is associated with the R1 Company right from the year 1990 and he could have raised these issues during 1990 itself if at all he had any reservations about the status of the first petitioner. Having worked with the first petitioner for almost 16 years, the R2 has now raised such issue which is absolutely baseless. The R2 with the malafide intention of depriving the family members having majority shares of the R1 Company and in order to grab the 100% ownership to his sole advantage has raised these issues at this juncture. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been passed on to the first petitioner herein is unlimited. This particular act of the two respondents is the most oppressive conduct unheard of in the past and squarely falls within the definition of Oppression against the petitioners. In fact, the matter was under examination by the enforcement directorate and the alleged cancellation of shares by the respondents would amount pre-judging the decision of the regulator of foreign exchange and usurping the powers of the Hon'ble High Court at Madras under Section 100 of the Act. The R2 also filed Annual Return in Schedule-V for the years ended from 31/03/2009 to 31/03/2011 reducing the number of shares held in the name of the first petitioner as a shareholder. Copies of the Annual Returns filed by the second respondent are kept as Annexure. 13. On receiving such letters from the R2 informing cancellation of the shares, the petitioners herein conducted a Board meeting on 26/09/2011 after giving due notice to the R2 and R3. Both the respondents after duly acknowledging the receipt of the notices failed to attend the meeting on the said date. At the meeting held on 26 /9/2011 the board passed resolutions (i) Removing the R2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chennai wrongly intimating the cessation of petitioners as directors of the first respondent Company with effect from 02/01/2012, as illegal, invalid and non-est in law; Any other order which in the opinion of this Hon'ble Bench is just and equitable and thus render justice. Interim reliefs sought: In view of the foregoing, the Petitioners pray for the following interim orders, pending disposal of this petition: (i) To confirm the suspension of Clauses 31(a), 32 and 39(b) of Articles of Association of first respondent Company till the disposal of the Company petition; (ii) To direct the R1 Company to maintain status quo with regard to the composition of the Board of Directors as on 01.01.2012 showing the 1st petitioner, 2nd petitioner, R2 and R3 as Directors of the Company and not take any policy decisions with regard to the affairs of the R1 Company; (iii) To direct the R1 Company to maintain status quo with regard to share holding pattern as on 19.09.2011; (iv) To permit the 1st petitioner to continue the exercise of his corporate rights including voting rights, right to dividend, bonus rights issue and other corporate benefits under the Companies Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Allotment/Transfer Mode of payment No. of shares Cumulative holding of 1st Petitioner Residential status of the 1st Petitioner on that date 01.08.72 Allotment (for consideration other than cash) Against sale of properties 10,150 10,150 Resident in India 16.08.72 Allotment For cash 100 10,250 Resident in India 23.03.74 Allotment For cash 50 10,300 Resident in India 29.06.82 Allotment For cash 26,000 36,300 Not a Resident in India 24.06.83 Transfer (Sale) For cash 36,300 NIL Not a Resident in India 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting was invalid since it requires shareholders' approval. (ii) The court held that all the said shareholders were the directors of the Company so when a board meeting was held, the notice to directors was the notice to shareholders and it was a valid allotment, as the directors who were shareholders have given their consent. Since Company Law Board's order was clear that if the contravention is upheld, the charges of oppression would fail and last paragraph of the judgement supports the case of the respondent. Allegations of oppression and Mismanagement: (i) At the board meeting held on 22.12.2008, casting vote was used by R2 to pass accounts as R2 and R3 voted in favour and 1st and 2nd Petitioners voted against. The objection to passing of accounts of 31.03.2008 is not on the ground that accounts do not reflect true and fair picture but on the ground of alleged excessive remuneration to R2. Adoption of accounts by exercising casting vote cannot be oppressive because if accounts are not approval then penal consequences follow for non-compliance under the Companies Act, 1956. Therefore the step taken by R2 for adoption of accounts by exercising casting vote is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extension for another 2 years. So, R1 Company had 10 years to perform obligations. The R1 Company could avail another extension of 2 years by making payment of custom duty @50% of shortfall as on date of seeking extension. (iii) The allegation is that R1 Company was aware that it would be unable to comply with export obligations and yet availed the Scheme. The allegation made with respect to EPCG liability is premised on incorrect understanding of facts. This liability has been duly disclosed in the balance sheet and all balance sheets till the year 2007 have been admittedly signed by the petitioners without protest. The R1 Company vide its affidavit dated May, 2014 has filed proof of the payment of entire liability towards EPCG. Therefore the allegations relating to EPCG liability were incorrect even to the knowledge of the petitioners and in any event are all irrelevant today. There is no allegation that the transaction benefitted the respondents personally in any manner. Alleged Excessive Remuneration: (i) The petitioners have alleged that R2 taking advantage of the management rights vested in him under the Articles of Association, has drawn excessive remuneration not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the case at hand; It is necessary to state that there is no universal rule which sets out that a majority can never be asked to exit or the minority cannot be given option to purchase the majority shares; These issues arise only when a case of oppression is made and based on the facts, it is the submission of the respondent that no case of oppression is made out or exists in this case; If R2's interpretation of the Adjudicating Authority's order is correct then the mechanism as laid down in the order of Hon'ble CLB dated 26.05.2015 comes into play and the charges of oppression and the consequent relief of rectification fails; The issue with regard to majority or minority buy out is adjudicated premised on the principle that it must be in the interest of the R1 Company; The rights of management have been entrenched with unaniMoUs consent in favour of R2 who has been groomed by the father of 1st petitioner and father of R2 to take over the printing business; 1st petitioner by his statement before the Directorate of Enforcement whereby he questioned the R1 Company as to why did the Company issue shares to a foreigner sought to lay the blame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar (father of Petitioner No. 1). 5. The contents of paragraph 5 are denied. As is evident from the Petition and the documents annexed thereto, Respondent No. 1 (the Company ) and Respondents No. 2-4 were aware of the foreign citizenship. Reference is made to the annual returns for 30.9.2005, 12.7.2007, 24.12.2008 and 24.12.2009 signed by R2 as Managing Director. Under the guidance of the Petitioner No. 1, the editorial content significantly grew over a period of time. R2 ensured that the FIR registered against him on 23.04.2010 was closed in the year 2010 and the police without carrying out any investigation into the matter closed the file on 21.05.2012 as mistake of fact . As soon as the Petitioners came to know of this closure, they filed a Protest Petition before the Chief Metropolitan Magistrate, Chennai on 21.08.2012 seeking a direction to the police to conduct a reinvestigation. The Protest Petition is pending as on date. The allegations regarding fall in circulation of magazines since Petitioner was an Honorary Editor is baseless. In fact, the readership of Kumudam magazine has falling steadily from 2011 - Q1 to 2012 - Q4. 6. The contents of paragraph 6 are denied, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In addition to the above, Respondents No. 2-4 were also given as a part of the MOU ownership of two magazines, namely Kumudam Reporter and Kumudam Snehidi. This demonstrates that there is no question of the Petitioners hijacking the Company from the Respondents, especially when the Petitioners were already owners of 2/3rd shares in the Company. 11. The contents of paragraphs 11-14 are denied, and the contents of paragraphs 6.10-6.13 of the Petition are reiterated. 12. The contents of paragraph 15 are denied, and the contents of paragraph 6.14 of the petitions are reiterated. (i) It is noteworthy that approximately only 20% of the export obligation of the Company has been satisfied under the management of R2. The Respondent No. 1 had to achieve an Export of around US $ 4.5 million over a period of 8 years commencing from 2002 onwards. The Respondent No. 1 had failed to achieve the same and further had also not made any provision in the books of accounts towards such liability. The auditors have qualified the accounts and have come to the conclusion that in view of non-provision of such liability the profits are overstated or losses are understated for the respective years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph 6.21 of the Petition are reiterated. The Petitioners have objected to the extravagant increase in the remuneration of R2 as sought to be reflected in the accounts after 2007, especially in light of the fact that the Company was facing losses. This was clearly explained by the Petitioners to R2 at the Board Meeting dated 22.12.2008. 16. The contents of paragraph 21 are denied, and the contents of paragraph 6.22 and 6.23 of the Petition are reiterated. After the re-appointment of retiring auditors, a subsequent letter from them stating that they are not willing to accept such appointment. This does not provide a justification to approach the Central Government for appointment of an auditor. By a letter dated 11.02.2011 signed by R2 to the Regional Director where the Company has sought permission to withdraw its application to the Central Government. If, according to the Company, an auditor has not been appointed at the Annual General Meeting, there is no reason or provision under which an application under Section 224(3) to the Central Government can be withdrawn. 17. The contents of paragraph 22 are denied, and the contents of paragraph 6.24 of the Petition are reiterat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nning to set up a Company in Jersey, Channel Islands in UK. The Petitioner No. 1 had immediately replied to the R2 on 18.08.1998 by fax sending all the documents asked for including a notarized copy of the US passport of Petitioner No. 1. Fourthly, on 24th May 2002, the R2 wrote a letter to Indian Bank, Purasawalkam Branch, Chennai stating that he is in discussion with the Petitioner No. I, who is NRI residing in USA, for the purposes of executing a lease deed between the Petitioner No. 1 as the landlord and Respondent No. 1 as a Lessee. In fact, the R2 had declared that the Nationality of the Petitioner No. 1 is Foreign as per the Annual Returns filed with the ROC from September 2005 to December 2009. Having received all these documents and being well aware of the citizenship of the Petitioner way back in the year 1998 itself, the R2 has filed a false affidavit before this Hon'ble Bench that he came to know of the citizenship/residential status of the Petitioner No. 1 only in the year 2009. This clearly shows that the R2 will go to any extent to ensure that the Petitioners are ousted from the control and management of the R1 Company. 21. The permission/approval sought by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion used that as a tool to cancel the shares of the Petitioner on that ground, while the complaint was still pending before the Enforcement Directorate. As regards the filing of application to FIPB and the complaint before the Enforcement Directorate the issues before those authorities are not to be adjudicated by this Hon'ble Bench. The allegation of R2 that R1 is engaged in real estate business is false and mischievous and it is clearly contrary to facts known to R2 himself. The main objects of the Company as stated in the Memorandum of Association which is approved by the ROC do not permit it to carry on real estate business . The Company along with its subsidiary company, acquired lands near Chennai during the year 1991 to 1994. These lands were acquired for the purpose of setting up a Polytechnic to train students in Printing technology as well as for the purpose of setting a school in memory of the founder Late Mr. S.A.P. Annamalai Chettiar. The Petitioners have also obtained Encumbrance Certificates for all the lands from 1991 till date. The Encumbrance Certificates clearly demonstrate that not even an inch of land has been sold by the subsidiary of the Company til ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. No. Date Acquisition of shares by 1st Petitioner Cumulative holding Mode of acquisition No. of Shares % of the total capital 1 Dec.1998 900 1,100 2% By allotment of shares by the R1 Company. 2 Dec.1998 1,000 2,100 4% By transfer from trusts/investment companies. 3 Feb.1999 22,010 24,110 48% By transfer from investment companies. 4 Sep. 2001 308,530 332,640 65% Shares allotted in pursuance of a Scheme of Amalgamation of Kumudam Printers Private Limited with Kumudam Publications Private Limited. The said Scheme was sanctioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany has therefore submitted a response based on records maintained by the Company on matters which pertain to the affairs of the Company. Para 4 and 5: The contents of para 4 and 5 are denied and disputed as the same are subjective submissions of the Petitioners. The Petitioners are put to strict proof of all submissions made in this regard. Para 6: (i) It is stated that the Petitioners are falsely contending that the issues raised in the Company Petition are not similar to the issues raised in the Suit filed for specific performance of the MoU (C.S. No. 139/2012), pending before the Hon'ble High Court of Madras. It is averred that there is commonality of pleadings and of facts in issues raised in C.S No. 139/2012 and OS. No. 7554/2011 in comparison to those stated in Company Petition (Chennai) No. 54/2012. (ii) The Respondents place on record the plaint filed in OS No. 7554/2011, the Application under Order 39 Rule 1 and 2 CPC, the Counters thereto as Annexure R1/C and the copy of the Order dated 27.4.2012 passed by City Civil Court and the copy of the Order dated 5.10.2012 passed by the Additional City Civil Court affirming the order of City Civil Court as Annexure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the day-to-day affairs of the Company was looked after by R2. The falsity of the pleadings stated by the Petitioners can be further ascertained from the fact that in para 6.4 of the Company Petition, the Petitioners have stated that during the lifetime of SAP, somewhere in the year 1990, R2 was inducted as a Director on Board of the Company whereas in the sub paras under reply there is a complete denial of any such request being made on behalf of late Sh. S.A.P. Annamalai Chettiar. It is a fact that R2 became a Director in the Company in the year 1990 itself and was appointed to manage the affairs of the Company. (iv) It is submitted that as per the Annual Return filed for the year ending March, 1990, the 2nd Petitioner No. 2 and Mr. P.V. Sowmyanarayanan (uncle of R2 and R3) vacated office on 3.7.1990 and R2 and Mrs. P.V. Saroja (mother of R2 and R3) were appointed as Directors of the Company. The said Annual Return bears the signature of SAP, (father of 1st Petitioner and husband of 2nd Petitioner). In the year 1990-91, the majority representation on Board of the Company was that of the Respondents family. The Petitioners are guilty of making false assertions and are liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known to have been ghost written by someone else, and which books were published and attempted to be sold at a gross loss to the Company. The books failed to find its readers and were eventually distributed as free copies. A statement reflecting the cost involved in publication of the two books and the loss suffered by the Company is annexed herewith as Annexure R1/H. (ix) Yet another instance of misappropriation by the Petitioners can be ascertained from the fact that four persons, namely, Mr. Desikan, Mr. Jayaram, Mr. S. llangovan and Mr. P.G. Saikumar, who were accustomed to work in the Company as per the instructions of the Petitioners, voluntarily resigned / suspended from the Company in September, 2011. In fact, in the case of Mr. Desikan, necessary compliances of informing the EPF authorities were also complied in this regard under the signature of Mr.Desikan. Copies of resignation letters and compliances effected with EPF authorities are placed on record as Annexure R1/I. (x) However, the Company realised in the month of November, 2011 that Petitioner No. 2 was issuing cheques under her signature the salary for all these four persons, which cheques were being duly en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the minutes) which is a day prior to the actual suspension. Two persons were suspended and subsequently dismissed from service for their criminal actions against the Company and the Management. 2nd Petitioner, in purported exercise of powers as an alleged Managing Director, unauthorisedly claimed to represent the Company before the Labour Court where the two employees have filed an action against wrongful dismissal and without authorization and knowledge of the Respondents agreed to re-employ these two persons. These facts were never informed to the Board of Directors of the Company and came to light much later. Relevant documents in this regard are collectively annexed as Annexure R1/M. (xiii) Logantha Trading Company Private Limited is a wholly owned subsidiary of R1 and 2nd Petitioner is the Managing Director has deliberately failed and neglected to hold the Board Meeting or Annual General Meeting from the Financial Year 2008-2009 to till date. R1 to place on record the evidence of reminders urging to hold the Board Meeting and Annual General Meeting, are marked as Annexure R1/N. (xiv) It is inconceivable that the Company and its publications can prosper under the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith unanimous consent of all directors and shareholders of the Company including the Petitioners herein who willingly participated in the decision making process. It is wrong and denied that the R2 had unilaterally appointed himself as Printer and Publisher of all the magazines published by the Company without obtaining unanimous consent of all the Directors. The Respondent place on record resolution dated 25.4.2007 of the Board of Directors which reflects that the resolution to appoint R2 as Printer and Publisher of all the magazines published by the Company was passed at a meeting held in Ohio, USA in the presence of 1st Petitioner. This resolution was approved at the Extra Ordinary General Meeting held at Chennai on May, 11, 2007 which again was attended by 2nd Petitioner in person and 1st Petitioner through Proxy. Copies of Resolution dated 25.4.2007 passed Board of Directors meeting and of Resolution dated 11.5.2007 is annexed as Annexure R1/0. (ii) Having participated in the meeting and having approved and adopted the resolution passed at the meeting, the Petitioners are stopped from questioning the validity of the said resolutions or of the business transacted at the meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th as Annexure R1/Q. This payment was made out of Company's own resources and internal accruals. The allegation made by the Petitioners that the Company will default in compliance even in the year 2014 has evidently been stated only with intent to prejudice the Hon'ble Company Law Board. Subject to the general economic conditions in the country and other relevant factors, the Company hopes to be able to close the EPCG license matter by February 2014 after part completion of exports/ payment of balance custom duty benefit. (ii) The recalcitrant and fractious attitude of the Petitioners is the sole reason for the Company not able to complete the Audit for the subsequent years and submit the necessary returns under the Companies Act and the Income-Tax Act. Para 25: (i) The contents in Para 25 are denied and disputed as the same are false and incorrect. The R1 reiterates the submissions made in 29 of its Counter. Clause 32 of the Articles of Association of the Company clearly sets out that the power of fixation of remuneration of the Managing Director is vested with the Board and the Managing Director is further entitled to the remuneration upto 11% as fixed by the Board. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Petitioners, as is apparent from the documents placed on record by Petitioners, the reason for declining to approve the Audited accounts for the year ending March, 2009 was the issue with regard to the creation of provision for the entire EPCG liability. It is pertinent to mention that the statutory auditors of the Company even after considering the objections of the Petitioners signed the accounts with necessary disclosures in this regard in the auditors' report and the same substantiates the contention of the Respondent that the objection of the Petitioners are frivolous and unsustainable. The Petitioners have acted arbitrarily and in a whimsical manner by declining to approve the audited accounts of the Company for the year ended 31st March 2009. Para 27: Requires no comments. Para 28: (i) The contents of para 28 reflect the malafide manner in which the Petitioners have acted in the instant case. By their own admission, 2nd Petitioner was a partner in the firm M/s. Tricom Vision till 01.04.2002. The LED was purchased by Tricom Vision in the year 2000 and hence the 2nd Petitioner was fully aware of the purchase cost of the LED Board and is feigning ignorance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o accept the appointment and the refusal to accept appointment would relate back to the appointment stage itself, and it cannot be stated that they have resigned from the office of the Statutory Auditor of the Company as is sought to be contended by the Petitioners. As no Auditors were appointed, the Company filed the necessary application with the Central Government. A copy of the letter dated 22.3.2010 of the Statutory Auditor is annexed herewith to clarify the issue and marked as Annexure R1/T (iii) The contents of para 31 are denied and disputed and the Company reiterates the submissions made in this regard in the corresponding paragraphs of its Counter which are not being repeated herein for sake of brevity. Para 32.1 : (i) The contents of para 32.1 are denied and disputed as the same are completely false and incorrect. In this sub para no details of the documents referred to have been given however, as the Petitioners have raised identical issue in sub para 32.6, it is being presumed that the Petitioners are referring to the same letter in page 13 of the Rejoinder (to the counter of R1) stated that as soon as the 1st Petitioner was issued the Overseas Citizen of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made on 15.05.2012 even before the Company Petition was filed. The document has been placed on record by the Respondent along with the documents to the Counter. (vi) By way of the said Application, the 1st Petitioner has specifically sought for the regularization of the acquisition of 3,32,640 shares of the Company and is now suppressing such a specific request made in the application to the FIPB. The submission made by the 1st Petitioner is contrary to the record. (vii) As the acquisition of shares by 1st Petitioner was in violation of the law of the land, the R1 Company and its directors R2 and R3 are duty bound to take appropriate remedial action to ensure compliance with law and to act in the interest of the Company, which is paramount than the interest of any of its shareholder. It is pertinent to mention that the offence of acquisition of the equity shares of the Company by the 1st Petitioner cannot be compounded by any authority. It is only when the continuing offence is corrected, the offender can approach the appropriate authorities for compounding. There is no power vested under the FDI Policy, MIB Guidelines, FEMA Regulations, to empower any authority to condone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the Company and charged to Indian Bank, citing reasons of his intention to develop the property for commercial purposes, a copy whereof is annexed as Annexure R1/U. It is therefore not open to the Petitioners to contend that the Company was not engaged in real estate business. Para 32.4 32.5: (i) The contents of para 32.4 and 32.5 are denied and disputed and the contents of Para 42(iv) of the Counter are reiterated. (ii) It is submitted that the Petitioners are guilty of suppressing the application made by the 1st Petitioner to FIPB, though the said application was made on 15.05.2012 even before the Company Petition was filed. The 1st Petitioner has specifically sought for the regularization of the acquisition of 3,32,640 shares of the Company and is now contending that no such specific request has been made in the application to the FIPB. There is a deliberate non disclosure of material facts before this Hon'ble Board and the Petitioners have non-suited themselves to seek any equitable relief from this Hon'ble Board. Para 32.6: (i) The contents of para 32.6 are denied as there is deliberate misrepresentation of facts and false averments have been made ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Having received a notarized copy of the said card, the \ corresponding denial of the Respondents in this para is a blatant lie . The above quoted statement of the Petitioners is a completely false statement and is denied as such. In this regard, it is stated that no such documents were received by the Respondents. It is pertinent to note that the fax message alleged to have been sent does not contain any fax number except for a reference to recipient as Kumudam . The fax receipt will reflect the information that has been fed by the user in the machine. It is verily believed that the fax receipt is fabricated by manipulating the information fed into the machine. (vii) There is no evidence of delivery of these documents to the Respondents. As regards, the courier receipt attached, it utmost signifies only that something has been dispatched vide courier however, the dispatch is not a proof that the documents referred to in para 32.1 were dispatched by Petitioners or received by Respondents. It is verily believed that the said courier receipt refers to some other document and is being falsely used by the Petitioners to allege that the document referred to in Page No. 77 is sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in making false assertions before various forums. Para 32.7:(i) The contents of para 32.7 are denied and disputed and the contents of Para 42(vi) and 42(viii) are reiterated. The Petitioners in collusion with each other suppressed the fact of the foreign nationality of the 1st Petitioner and illegally acquired the shares of the Company in contravention of various laws. The Company by declaring the shares as non-est at law has acted in the interest of the Company and its stakeholders including employees as the violation of the law would have resulted in the Company losing its publishing license. The fact that the Petitioner and the Company are issued show cause notice and the seizure of the funds kept with the bank has been directed, by the Enforcement Directorate, is a clear indication of the violation done by the Petitioners. The Petitioners by their illegal action put the Company to risk and caused serious damage and the Company reserves its rights to take appropriate legal action against the Petitioners for such an irresponsible act and abuse of power. (ii) As all the acquisitions of the shares of the Company by the 1st Petitioner were void ab initio, the Company took the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... craves liberty to refer to and rely upon the submissions made in the corresponding paragraphs of the Counter. Para 35: (i) The contents of para 35 are denied and the contents of Para 45 are reiterated. The Petitioners by their own admission accepted the receipt of notice of board meetings and did not attend any such meeting nor sought leave of absence. The likelihood of applicability of Section 283(1)(g)by operation of law was specifically brought to the notice of the Directors in the notice of board meeting for 2.1.2012 and the Petitioners chose to ignore the same. Consequently, they have vacated their office. The Petitioners did not seek leave of absence for the Board meeting of 20.9.2011 or for the subsequent two Board Meetings held on 10.10.2011 and on 02.01.2012 and hence by operation of law, they automatically vacate office of director. The Respondents further states that the Petitioners failed in their attempt to nullify the vacation of office of directorship in the Company under the provisions of Section 283(1)(g) of the Companies Act in the contempt proceedings initiated by the Petitioners against the Respondents in Contempt Petition No. 17 of 2012 before the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion shall be placed before the Company Law Board for final adjudication. 3. In this case, the Adjudicating Authority in the Directorate of Enforcement passed an order dated 22.05.2017 and a corrigendum to the same on 24.05.2017 with respect to FEMA violations. The Hon'ble High Court of Madras has vide order dt.22.11.2016 in Application No. 4914 of 2016 in C.S. No. 139 of 2012 permitted the withdrawal of prayers (b), (c), (d) and (e) and hence the petition has been placed before this Tribunal for final adjudication. However, it is seen that the petitioners have filed an appeal before the Hon'ble Appellate Tribunal for FEMA regarding certain portions of the order passed by the adjudicating authority. The following reliefs are being sought by the petitioners in para-8 (final prayer) of their petition. The main relief sought is stated in para 8.3 wherein the petitioners have sought to declare the resolution passed in the purported board meeting alleged to have been held on 20.09.2011 cancelling 3,32,440 equity shares of ₹ 100/- each held by the 1st petitioner as illegal, invalid and non-est in law. Vide para 8.2 the petitioners have sought for the rectification of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (AoA) with the consent of the petitioners started using these provisions in a manner oppressive to the majority shareholders as stated by petitioners especially with regard to remuneration paid to R2 and some other decisions of the Board wherein the position of the petitioners was reduced to such an extent that no decision of the majority shareholders could be implemented if it is against the interest of the respondents. In order to bring the disputes and to ensure smooth exit of the respondents, a Memorandum of Understanding (MoU) was signed among the parties providing for the exit of the respondents in return for consideration to be given to them as per the terms of the MoU. The petitioners have filed a Civil Suit regarding the enforcement of the terms of the MoU. But, however, the respondents have stated that the MoU was not implemented within six months and hence it is no longer valid and binding on them. The Civil Suit No. 139/2012 is still pending before the Hon'ble High Court of Madras. 5. However, the relations between the petitioners and the respondents deteriorated to such an extent that they started holding and convening parallel board meetings and passing res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowed. 8. The following findings of Foreign Investment Promotion Board (FIPB) and Reserve Bank of India (RBI) and the order of the adjudicating authority with regard to FDI Guidelines and FEMA Regulations are briefly mentioned herein in chronological order: 9. Foreign Investment Promotion Board (FIPB) by its letter dated 19th June 2013 after considering the proposal dated 6th June 2012 and subsequent clarification has communicated to the 1st petitioner that your proposal is treated as 'returned' as the equity shares were held/acquired by you on 'non-repatriation basis' without inward remittance and/or without debiting the NRE/FCNR Accounts and hence they did not constitute FDI and hence beyond the purview of FIPB . 10. The Reserve Bank of India (RBI) vide its letter dated 15th June 2015 it was held on careful examination of your application in the light of applicable provisions of the FEMA Regulations and based on the documents made available, it is observed that the entire shareholding of Shri AJ Palaniappan in Kumudam Publications Private Limited was held on non-repatriation basis and that Shri AJ Palaniappan had not purchased any of the shares so hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000 read with Section 42(1) of FEMA, 1999 read with clause (b) of Sub-Section 3 of Section 6 Section 47 of FEMA, 1999. (c) Sh. P. Vardarajan, Director of Kumudam Publications Pvt. Ltd. - ₹ 50,00,000/- (Rupees Fifty lac only) for contraventions of the provisions of Regulation 4 of FEM ( transfer or issue of security by a person resident outside India) Regulation 2000 read with Section 42(1) of FEMA, 1999 read with clause (b) of Sub-Section 3 of Section 6 Section 47 of FEMA, 1999. (d) Sh. P. Vardarajan, Director of Kumudam Publications Pvt. Ltd. - ₹ 50,00,000/- (Rupees Fifty lac only) for contraventions of the provisions of Regulation 7 of FEM ( transfer or issue of security by a person resident outside India) Regulation 2000 read with Section 42(1) of FEMA, 1999 read with clause (b) of Sub-Section 3 of Section 6 Section 47 of FEMA, 1999. (e) Sh. A. Jawahar Palaniappan, Director of Kumudam Publications Pvt. Ltd. - ₹ 50,00,000/- (Rupees Fifty lac only) for contraventions of the provisions of Regulation 4 of FEM ( transfer or issue of security by a person resident outside India) Regulation 2000 read with Section 42(1) of FEMA, 1999 read with clause (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the company petition would be dealt with upon the adjudication on the issue of violation of FEMA. The respondents have made detailed arguments regarding the decision of the FIPB and RBI. The Respondents have further contended that irrespective of the fact whether the violation is attributable to the petitioners or the respondents in terms of interim order of the Hon'ble Company Law Board, the shares which had been cancelled cannot be restored to the 1st petitioner. But FIPB and RBI are not vested with the jurisdiction to adjudicate on the issue of contravention of the provisions of FEMA. This statement has really placed the adjudicating authority on a higher pedestal as compared to FIPB and RBI which had been vested by FDI Policy Guidelines and FEMA with administrative and regulatory functions and Enforcement Directorate is supposed to initiate a show cause notice only if there is a prima facie violation of the guidelines or violation of any terms or conditions laid down by FIPB or the RBI. Therefore, the argument of the respondents that the clarifications offered by FIPB and RBI are not relevant to the present case is clearly untenable. Moreover, this Tribunal has no juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the 1st petitioner was not present and the petitioner has stated that in the notice there was no agenda item regarding the cancellation of shares. A resolution was passed in the Board meeting stating that the shares were issued without the approval of FIPB and in violation of the MIB guidelines. A resolution was also passed in the said meeting wherein the 1st petitioner was prohibited from editing/taking any role in the magazine/interfering with the editorial matters of any magazine published by the company owing to his residential/citizenship status. The petitioners sought to convene a meeting on 26.09.2011 wherein, as per the petitioners' statement, the meeting was to ensure that the issues were resolved between the parties concerned without going into the courts of law. However, R2 did not attend the meeting because, as per the version of petitioners, the interest of the company conflicted with their own personal interest. The petitioners passed a resolution restraining R2 from operating the bank account of the company and authorizing 2nd petitioner to operate the bank accounts and in the same meeting, the petitioners sought to annul the shares cancelled which has alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board meeting on 26.09.2011 at which both the petitioners were present has been suppressed. In this connection, the respondents have stated that the meeting dated 26.09.2011 was declared invalid in the City Civil Court by its order dated 27.04.2012. The petitioners have also contended that only the resolutions passed in that meeting were held to be invalid and not the meeting in itself. The petitioners have attended that meeting and in the absence of R2, the board was disabled from transacting any business. The petitioners have contended that even if the meeting was held without prescribed quorum still it has to be considered as a valid meeting because the question of quorum could be ascertained only after the meeting has been called to order. In support of their contention, the petitioners have quoted Section 288 of the Companies Act, 1956 which is reproduced below: (1) if a meeting of the Board could not be held for want of quorum, then, unless the articles otherwise provide, the meeting shall automatically stand adjourned till the same day in the next week, at the same time and place or if that day is a public holiday, till the next succeeding day which is not a public holi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the holding of the 1st petitioner has been restored by the orders given with respect to the reliefs sought in Para 8.3 of the petition, the action of the respondents to deprive the petitioners of their board directorship is also considered as oppressive to the interest of the majority shareholders and to the company itself as there is no cohesive board to consider important business decisions. 23. In view of these, it is hereby declared that the Form-32 filed by R2 with RoC, Chennai regarding the intimation of cessation of petitioners as directors of the R1 Company with effect from 02.01.2012 is invalid and non-est in law. 24. The petitioners vide their prayer at para 8.2 have sought to delete clauses 31(a), 32 and 39(b) of Articles of Association (AoA) which has been harsh and oppressive to the interest of the petitioners and subsequently amend the Articles of Association of R1 company. During July 2002, 2nd petitioner due to her old, advanced age resigned from the position of Managing Director and R2 was appointed as the Managing Director of the company. Articles of Association were amended in the Board of Directors Meeting held on 05.03.2003 and Extraordinary Genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asting vote to pass the accounts at the Extraordinary General Meeting held on 24.12.2008. The petitioners who had reservations with the remuneration drawn by the respondent-2 abstained from the meeting and did not vote against the approving of the accounts so that matters relating R-1 company could not come to a standstill. The accounts of the R1 Company for the financial year 2007-2008 were passed in the Extraordinary General Meeting despite the absence of the petitioners. In the Board meeting held on 23.12.2009, the petitioners once again voted against the accounts on the ground that the remuneration of R2 had increased to ₹ 2,70,72,000/- whereas the balance sheet of the company showed a loss of ₹ 29.35 lakhs. As was done during the previous years, the R2 used his casting vote to pass the accounts. At the Extraordinary General Meeting held on 24.12.2009, the petitioners voted against the account and no accounts were passed and since then no accounts of the company have been approved in the Extraordinary General Meeting upto the year 2008. During April 2010, the petitioners convened board meetings of the company after giving due notices to the respondents seeking a rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) This Tribunal is of the view that the petitioners were also part of the Board of Directors when R-1 company availed the EPCG Scheme during March 2002. The Tribunal is of the opinion that this a business decision which might have gone wrong based on over optimistic projections for foreign export earnings. A wrong business decision cannot, by itself, be termed as an act of mismanagement and hence the Tribunal finds no merit in the arguments of the petitioners. (e) However, during the arguments before this Tribunal, the counsel for the petitioners has stated that the allegations of mismanagement on this account is not being pursued by the petitioners as they are pursuing criminal proceedings against R2. Hence no finding with respect to this allegation is being made. (f) The petitioners have also contended that the remunerations drawn by R2 is clearly not commensurate with the financial performance of R1 company. They have also shown instances wherein the remuneration of R2 has increased disproportionately whereas the R1 company incurred losses in the financial years. However, the counsel for the petitioners during the course of arguments stated that they are not press ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reports. Such qualification by the Auditors are given as part of their professional duty and in no way establish any act of mismanagement or oppression. (m) In essence, no other findings regarding mismanagement or oppression is being given by this Tribunal with respect to various allegations made in the Petition apart from the earlier orders relating to cancellation of shareholding and removal from Directorship. In addition, to the reliefs sought by the petitioners given under para 8.3 of the Petition, the additional relief which has not been specifically sought has also been given in terms of the prayer of the petitioners under para 8.6. (n) The R1 company had cancelled 200 shares of the 1st petitioner based on the interpretation of the orders of the Adjudicating Authority during the pendency of the proceedings before the Hon'ble Company Law Board and this Tribunal. This cancellation is also being held as illegal and invalid and hence these cancelled shares should also be restored to the 1st Petitioner along with the earlier orders restoring the cancelled shares amounting to 3,32,440 (equity shares of ₹ 100/-) each. (o) The petitioners are also permitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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