9911796707
TMI Blog2021 (3) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... - seeking to rectify the accounting entry wrongly posted as Unsecured Loan in the books of accounts of the 1st Respondent Company - seeking to take action against the 2nd and 3rd Respondents and the 1st Respondent Company for violating the provisions of Section 73 of the Act - seeking to appoint an independent Chairman for the Board of the Company with such powers as the Tribunal may deem fit - seeking to appoint an Independent Chartered Accountant to conduct an investigative audit and draw up the accounts of the Company to identify the Accounting Fraud in the Financial Statements of the Company - seeking to take action under Section 447, 448 ,449 and 450 of the Act against the 2nd 3rd Respondents for filing of false statement and adducing false evidence. Allotment of shares - HELD THAT:- On-going through the Company petition and the relevant records placed before this Tribunal, it is observed that application has been filed in the said company petition for ordering production of original of 107 documents under Rule 43 of the NCLT Rules, 2016 which is pending. This Tribunal note that Section 62(1)(a) of the Companies Act, 2013 deals with issuance of shares on the principle of Righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed about the bad financial position of the Company and in order to improve its financial position, the Board decided to transfer the professional fee to the loan accounts . The names of both the petitioners were mentioned in that minutes. It is also found from the counter statement that the Company would pay off all dues of the petitioners when the financial position of the Company is improved. Being a part of the Board Meeting and the discussions held therein and passing the agenda to transfer the professional fee and thereafter by making allegation of oppression against the Company cannot be accepted. Decisions taken by the 2nd and 3rd Respondent without complying with the provisions of Section 173 and Secretarial Standards - HELD THAT:- A perusal of Section 241(1) of the Act would show that a petition field thereunder may be based on a complaint that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member of members including any one or more of themselves. Thus it will be clear that the foundation of a petition under Section 241 (1) will be the allegation or complaint that the affairs of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st Respondent Company and consequently all other reliefs sought in the Company Petition is to be rejected. Petition dismissed without costs. X X X X Extracts X X X X X X X X Extracts X X X X ..... erala - 676510, India. 4. The main object of the 1st Respondent Company, as per the Memorandum of Association is to run hospitals and to carry on the business of clinical solutions such as hospital equipments, cardiac accessories, clinical tools, machineries and laboratory equipments etc. 5. The Authorised Share Capital of the 1st Respondent Company is ₹ 7,00,00,000/- (Rupees Seven Crores Only) divided into 7,00,00,000/- (Seven Crore) equity shares of ₹ 1/- (Rupee One Only) each. The issued subscribed and paid up capital of the 1st Respondent Company is ₹ 4,56,10,200/- (Rupees Four Crore Fifty-Six Lakh Ten Thousand Two Hundred Only) consisting of equity shares of ₹ 1/- (Rupee One) each. 6. The shareholding position of the Company as on the date of its incorporation is as follows. Sl No Name of shareholder No of Equity shares Per share value Position in Company Petition 1 Cheriya Kachery Byju 180000 ₹ 1/- 02nd Respondent 2 Karuvante Kelappan Valappil 20000 ₹ 1/- 03rd Respondent Total no of shares 200000 Submissions by the petitioners: 7. The Petitioners submitted that they are not holding any position in the Board of the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directors of the 1st Respondent Company. The Petitioners had provided an unsecured loan of ₹ 27,70,077/- (Rupees Twenty-Seven Lakh Seventy Thousand and Seventy-Seven Only) and had also provided 12.25 Cents of the immovable property as Collateral to the loan availed by the 1st Respondent Company, without knowing about the vacation of their office due to non-placement of the item in the Notice of Annual General Meeting held on 30.09.2014. 11. The petitioners further stated that the Respondents had made an untrue statement about the material fact about the Directorship of the Petitioners in the 1st Respondent Company and took undue advantage over the Petitioners by concealment of the fact of vacation of their office. These acts by the Respondents against the Petitioners are a mere misrepresentation that amounts to fraud in law. To bring the case within the scope of estoppel as defined in Section 115 of the Evidence Act, the learned PCS for the petitioners referred to the relevant portion from the decision in Sunderabai and Anr. v. Devaji Shankara Deshpande (AIR 1954 SC 82). The learned PCS for the petitioners argued that the 2nd and 3rd Respondents under the signature and cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eetings were convened. 2017-18: The 2nd Respondent and 3rd Respondent had filed e-Form MGT 7, Directors' Report and Form MGT 9 of the Company for the Financial Year 2017-2018, wherein it is mentioned that the 1st Respondent Company had conducted and convened 8 (Eight) Board meetings on 17.05.2017, 27.07.2017, 07.08.2017, 05.09.2017, 30.09.2017, 19.10.2017, 23.11.2017 and 15.03.2018 during that Financial Year in in which 100% of the Directors had attended all the said meetings. It is also explicitly mentioned in the said documents that the Annual General Meeting of the Company was held on 30th September, 2017 in which all the shareholders had attended. The petitioners argued that no such meetings were held during that period except the board meetings on 27.07.2017, 05.09.2017 and 19.10.2017 and the Petitioners had not attended any other meetings. No notices of the said board meetings were issued except the notice of the board meetings held on 27.07.2017, 05.09.2017 and 19.10.2017 and no such board meetings were convened. No minutes of the meetings were circulated as per the provisions of the Companies Act, 2013. 2018-19: The 2nd Respondent and 3rd Respondent had filed e-Form MGT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious persons. The intent of the law maker is to make the provisions regarding the "Rights issue" mandatory for all types of companies, including private limited companies. To fortify this statement, the learned PCS for the petitioners referred to the decision of State of Maharashtra v. Nanded Parbhani, Z.L.B.M V Operator Sangh, reported in AIR 2000 SC 725). 14. The learned PCS for the petitioners further argued that the 1st Respondent Company had shifted the registered office of the Company outside the local limits on 08th November, 2016, without obtaining the approval of the shareholders of the Company. No general meeting was held and no special resolution was passed for shifting of the registered office of the Company outside the local limits of the City. It is stated that the action of the Respondents are a continuous act of oppression and had prejudicially affected the interests of the Petitioners, other shareholders and the Company. So even though there are no specific prayers with respect to the shifting of the registered office, the same is to be construed as an oppressive act which is continuous and as an act in conjunction with other offences committed by the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Loan" in the Audited Financial Statements for the Financial Year 2017-18. 16. Therefore, the learned PCS argued that the act of the Respondents amounts to mismanagement of the affairs of the Company and against the legitimate expectations of shareholders. The 2nd and 3rd Respondents had not shown probity and good faith with respect to the duties attached to their office as Directors of the Company. The offence committed by the Respondents with respect to the alteration of "Head of Accounts" without obtaining the approval of Board of Directors and the Petitioners are of continuing nature and intended to deprive the benefit of Petitioners and Other Shareholders. 17. The petitioners further stated that the 3rd Respondent, who is the Statutory Auditor, had not carried out the duties and responsibilities attached to the Office of Statutory Auditor as envisaged under Section 143 of the Companies Act, 2013. The Auditor failed to exercise the duty with care while auditing the financial statements, though the Act had given him the explicit power to call for information and explanations and right to access to books of Accounts of the Company. The 4th Respondent, who is a Company Secretar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they have intentionally failed to talk about their non-investment in the Company. The Petitioners have, except for the investments brought in the year 2014 and 2015 (date of allotment of shares being 31st March 2014, 6th February 2015 and 17th April 2015 for Petitioner No. 2 and 6th February 2015 for Petitioner No. 1) of about 63,50,000/- (₹ 13,00,000/- by Petitioner No.1 and ₹ 50,50,000/- by Petitioner No.2), have not made any other investment in the Company. The Respondents further stated that the Petitioners have been attacking the Company in the following ways: a) Not bringing in any investment for the development and growth of the Company. b) Demanding money from the Company in the name of "Professional Fees" and filing false and vexatious applications. The Company and Respondent Nos 2 and 3 have never stated that they will not pay the said amount. They are ready to pay the amount, if they are ready to return to the Company and quit the competitor hospital group. c) When the Respondent Nos. 2 and 3 try to bring in money by raising capital through issue of shares, they challenge the said allotment of shares too. 21. The learned PCS representing the Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2013 allows issue of shares to any person, provided it is authorised by a special resolution and the price of such shares is determined by a valuation report of a registered valuer. Therefore, the learned PCS further argued that the argument of the Petitioners regarding the allotment of shares which is in contravention of law is false and baseless. 24. The learned PCS for the respondent further submitted that the allegation regarding violation of Section 73 of the Companies Act, 2013 by conversion of "Professional Fee payable" to the Petitioners to "Unsecured Loans", was done to project a better Current Ratio. An ideal current ratio is 2:1, i.e. Current Assets are double the Current Liabilities. As professional fees are a current liability, if the same were to be reflected in the balance sheet as Current Liability, it would disturb the balance of the current ratio and would indicate that the Company has more current liabilities than current assets. Therefore, in order to present a better financial position, the same was converted to "Unsecured Loans", as a long-term liability. The learned PCS submitted that the Company would pay off all dues of the Petitioners when the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the petition itself is not maintainable and is liable to be dismissed at the threshold. Counter filed by Respondent 4 & 5: 27. The learned PCS for Respondent No.4 & 5 submitted that the question of arraying these Respondent as a party to this proceeding does not arise since this professional is not rendering any services to any shareholders of a Company nor to any Director, individually nor to the Board of Directors collectively. The services rendered by a Practising Company Secretary (R4) and practicing Chartered Accountant (R5) are to the Company and those services are very limited in nature and are governed by the provisions of the Companies Act, 2013 read with Rules and Regulations thereon as well as Regulations issued by the Institute of Company Secretaries of India (ICSI) and Institute of Chartered Accountants of India (ICAI). The learned PCS further submitted that there are no allegations against this Respondents nor have the Petitioners sought any relief against these Respondents. Therefore, the Respondent Nos. 4 & 5 are neither a necessary party nor a proper party. 27. The Respondent no. 4 stated that they have nothing to do with the internal issues between the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial years 2015-16, 2016-17, 2017-18 and 2018-19, being the members of the Company they could have for once informed this Respondent that they have some grievance relating to books of account or audit of the Company. However, no such thing has ever been brought to my notice that warrants any revision or rethinking from the part of the PCA. The Respondent No. 5 further submitted that as an independent auditor he has the right to give up his position if he had even slightest manner of doubt with respect to anything falling within his scope of work. 31. Respondent no. 5 rebutted that the Respondent Company has never accepted deposits from public and hence the Section 73 of the Companies Act, 2013 will not be applicable. He clarified that the disclosure of amount payable by the Company under the head "unsecured loans" instead of current liabilities does not absolve them from being recognising them as liability. The grouping of a particular head of liability under a specific head in the financial statements is purely a business decision of the Company. This can be questioned only when the same is in violation of Accounting Standards or generally accepted accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dity of allotment of 15550200 equity shares of the 1st Respondent Company in favour of 2nd Respondent and other individuals in contravention of the provisions of the Companies Act, 2013 with an intention to take the control over the affairs of the 1st Respondent Company. ii. Violation of Section 73 of the Companies Act, 2013 against the Respondent Nos. 1 to 3 and also the wrong posting of accounting entry as "Unsecured Loan" instead of "Professional Fee payable". iii. Shifting of the Registered Office of the 1st Respondent Company outside the local limits in contravention of the provisions of the Act with an intention to deprive the right of the petitioners as shareholders and Directors of the 1st Respondent Company. 36. Point no. (i): Before this Tribunal examine this issue, it will be advisable to look into the legal provisions regarding issue of shares. Section 62 of the Companies Act, 2013 is applicable to all companies. It does not make any distinction whether it is a public or private Company. Section 62(1)(c) of the Companies Act, 2013 reads as under: - "62. Further issue of share Capital. -- (1) Where at any time, a Company having a share capital proposes to increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholding regarding the alleged allotments. The shares so issued must have the compliance of Section 62(1)(a). Therefore, in case shares are not issued under Section 62(1)(a), the law envisaged that special resolution is a must whenever the shares are to be issued under Section 62(1)(b) or 62(1)(c). The Respondents have produced documents to show that they have conducted the Board Meeting and passed resolution in this regard, and thereafter issued 'Letter of Offer of Right Issue' to both the Petitioners and allotment of shares has been offered at the face value of Re.1/-38. This Tribunal is of the opinion that the compliance of Section 62(1)(a) ensures that the allotment is done to existing shareholders at a price which is not prejudicial to the interests of other shareholders or to the interests of the Company. Certain conditions are put in the offer letter for offering shares to existing shareholders of the Company, they are as under : a. Unless the articles of the Company otherwise provide, the notice of offer shall contain a statement of right to renounce. b. the offer should specify the number of shares offered and confirms that the issue is open for at least 15 days and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e; and raise an issue when it does not suit you". In view of the above position, allotment of 11420200 shares can be held to be validly done as the Company had complied with the procedure, and when the petitioners have not responded to the offer, then it is to be considered as the offer is declined by the shareholder. 42. Apart from the allegation of share allotment the petitioners have in detail alleged about the Directorship and fraudulent filings. Section 161(1) of the Companies Act, 2013 speaks about the appointment of the Additional Director. The Board of Directors may appoint an Additional Director to the Board only if they have given power in Articles of Association. The Additional Director shall hold office from the date of appointment till the date of the ensuing Annual General Meeting or the last date on which Annual General Meeting should have been held, whichever is earlier. The person appointed as Additional Director shall hold office from the date of his appointment to the date of the ensuing Annual General Meeting or date on which Annual General Meeting to be held, whichever is later. The Additional Director so appointed has to vacate the office if the general meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GM which was proposed to conduct on 30.09.2016 was adjourned to 30.12.2016, by issuing a notice dated 05.12.2016. This Tribunal found that the adjourned AGM was held in the new Registered Office of the Company. In this connection, it is to be noted that for both the meetings the petitioners were attended and signed the attendance sheets, copies of said attendance sheets were annexed with the Counter affidavit. Thereafter, the notice issued for the 4th AGM on 05.09.2017 the new Registered Office and has been attended by the petitioners. Petitioners, who were the part of the same are not entitled to agitate about the acts and allege oppression and mismanagement in the Company. 47. This Tribunal is of the view that shifting of the Registered Office by itself may not be a reason or a ground to be raised in a petition under Sections 241 & 242 of the Act as long as the Company not suffered much loss on account of the shifting to the new address and that the petitioners could not made out a case that such exercise was undertaken to put an oppressive pressure and pain upon the Petitioners and due to this the respondents have incurred wasteful expenditure, which amounts to mismanagement wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred to 'Loan' & has obtained the Boards Report and Auditor's Report of each Annual General Meetings. 49. Before any direction can be given or relief can be granted under Section 241 of the Act, the Petitioner has to prove the acts of oppression and that too of a nature which would normally make out a case of winding up of the Company under just and equitable clause. However, winding up is not resorted to as it would prejudicially affect the interest of the Petitioners. If case of this nature is not made out, then directions under Section 241 cannot be issued. Normally, the petitions are filed invoking provisions of the Section 241/242 of the Act and in such petitions the court may see the distinction between the two provisions and examine the position, i.e., to see as to whether a particular allegation is oppression or of the mismanagement under Section 241. 50. A perusal of Section 241(1) of the Act would show that a petition field thereunder may be based on a complaint that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member of members including any one or more of themselves. Thus it will be clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing that the affairs of the Company were being conducted in a manner oppressive to some part of the members." In Needle Industries (India) Ltd vs. Needle Industries Newey (India) Holding Ltd {1981 (3) SCC 333}, the Hon'ble Supreme Court held that : "…an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. It was also pointed out that a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are part of the same transaction, of which, the object is to cause or commit the oppression of persons against whom those acts are directed." From a reading of the judgement of Needle Industries (India) Ltd vs. Needle Industries Newey (India) Holding Ltd (Supra) and Shanti Prasad Jain vs. Kalinga Tubes Ltd (Supra) it is clear that: "the person complaining of oppression must show that they have been constrained to submit a conduct which lacks probity, conduct which is unfair to them and which cause prejudice to them in exercise of their legal and proprietary rights ..... X X X X Extracts X X X X X X X X Extracts X X X X
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