9911796707
TMI Blog2017 (11) TMI 1981X X X X Extracts X X X X X X X X Extracts X X X X ..... taken therein, amounts to acquiescence on her part and that she recognized the Board by addressing letters dt.22-08-2013, 25-09-2013, 07-10-2013, 08-102013 and 20-10-2013, is perverse and unsustainable. It is declared that: (i) acts of respondent Nos. 2 to 7 are oppressive; (ii) the meetings of the Board of Directors held on 09-04-2013, 10-04-2013 and 11-04-2013 are null and void and all resolutions passed therein as well as forms/returns filed therein are set aside; (iii) resolutions passed at the Annual General Meeting of the Company held on 18-12-2013 are null and void and forms filed by respondents with regard to resolutions passed at the said AGM are set aside; (iv) the Board of Directors of the Company as existing as on today shall stand superseded and respondent Nos.2 to 7 are removed from the Directorship of the Company, and all forms-32 filed for their appointment as Managing Director/Director/Whole Time Director of the Company are declared as null and void ab initio; (v) the transmission of 4,00,691 equity shares held by late Dr.Vijaykumar Datla to respondent No.2 is illegal, null and void; (vi) consequently, that the register of members shall stand r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets and properties; alternatively to constitute a Committee consisting of representatives of the appellants to function as such Administrator and/or Special Officer; to declare as illegal, null and void, the Board Meetings of the Company held on 09-04-2013, 10-04-2013 and 11-04-2013; to remove respondent Nos.2 to 5 as Directors of the said Company and set aside all Form Nos.32 filed for appointment as Directors/Managing Director/Whole Time Director as null and void; to declare the transmission of 4,00,961 equity shares held by late Dr.Vijay Kumar Datla to the 2nd respondent as illegal, null and void and consequently rectify the Register of Members by ordering transmission of those shares to appellant No.1; to declare that respondent Nos.6 and 7 are not shareholders/members of the Company and consequently rectify the Register of Members of the Company by deleting their names; to restrain respondent Nos.2 to 9 from permanently dealing with the properties of the Company in any manner whatsoever; to declare that respondent Nos.2 to 9 are jointly and severally liable for all damage caused to the Company and to the appellant No.1 as may be determined by an independent Auditor appointed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asanth Kumar (settler), Dr.D.V.K.Raju and Vijay Kumar Datla (Trustees) settling an amount of ₹ 1000/- for the benefit of respondent Nos.3 and 4. The duration of this trust was till 1992. The trust deed was amended by Dr.Vijaykumar Datla and the 1st appellant for the benefit of respondent Nos.2 and 3 on 31-03-1992 and the duration of the Trust was extended up to 2010. This trust is 2nd appellant in this appeal. 11. Another trust deed had been executed on 08-12-1980 by G.Bharathi (settler), Dr.Vijaykumar Datla and Dr.D.V.N.Raju (Trustees) for settling an amount of ₹ 500/- for the benefit of the 2nd respondent and the children who may be born to her, and the duration of the trust was till she reached 18 years of age. The above trust deed was amended on 16-07-1995 by Dr.Vijaykumar Datla and appellant No.1 and its duration was extended till 31-03-2010. This trust is the 3rd appellant in this appeal. 12. The appellant No.1 is a qualified medical professional with a doctorate in Clinical Pharmacology and was appointed as Medical Director of the Company in 1988 and was involved in the affairs of the Company. On 29-08-1991, she was appointed as the Executive Director of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the Company which was acknowledged on 08-04-2013. However he addressed a letter on 09-04-2013 purporting to withdraw his resignation from the Board of Directors of the Company and held a Board Meeting on 09-04-2013 inducting respondent No.4 as a Director of the Company in the place of late Dr.Vijay Kumar Datla. 23. According to appellant No.1, the resignation of a Director of a Company is not required under law to be accepted by the Board of Directors and becomes effective from the moment it is given, and therefore respondent No.5 ceased to be a Director from 06-04-2013. She contends that the resignation cannot be unilaterally withdrawn by respondent No.5, that he cannot act as a Director after 06-04-2013, that he had to be re-elected as an Additional Director by the Board of the shareholders at a General Body Meeting, which did not happen, and therefore he could not have called for or held any Board Meeting on 09-04-2013. It is further contended that as per Article 150 of the Articles of Association, no Board Meeting could be held without a ten day notice in writing being given to the other Directors; that no such notice was given to appellant No.1 by respondent No.5 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out insisting on any indemnity from respondent no.2, the Will dt.14-2-2005 produced by respondent No.2 was accepted by the Board for transmitting 4,00,961 shares (81%) of late Dr.Vijay Kumar Datla to respondent No.2. 28. The appellant No.1 contended that on 10-04-2013, when she was sitting in the chambers of her late husband, the Company Secretary of the Company rushed to her and informed that the Vice President and Assistant Vice President of the Company were illegally removing all records from her chamber, and that when she and the Company Secretary tried to come out of her chambers, they found that the main door was locked till 9-30 p.m., and that she lodged a police complaint against the said persons with the Chikkadapally Police Station, Hyderabad. She contended that these persons acted at the instance of respondent Nos.2 to 4. 29. On 11-04-2013, another meeting of the Board of Directors was conducted in which respondent No.2 was appointed as Managing Director of the Company and 11 shares were purportedly transferred by respondent No.2 in favour of respondent Nos.6 and 7. 30. Appellant No.1 contended that as with the previous two Board Meetings, no notice regarding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts could not sell properties to M/s.ITC Limited. She contended that they then decided to hive off undertakings of the Company to companies incorporated and managed by respondent Nos.2 to 4 so that it would be convenient for them to dispose of assets of the Company and siphon off the monies to the detriment of the Company and the shareholders; that they filed scheme of arrangement under Sections 391 to 394 of the Act before this Court for de-merger of livestock business undertaking in favour of B.E.Immunology Private Limited (Respondent No.8) and of the vaccine business undertaking of the Company to B.E.Vaxco Private Limited (Respondent No.9); and these acts are acts of mismanagement committed by respondent Nos.2 to 7. She alleged that respondent Nos.2 to 4 bought three high-end cars each worth ₹ 1.5 crores using the funds of the Company for their personal use and this indicates their intention to reduce the Company into a shell company. 36. She therefore contended that for the alleged acts of oppression and mismanagement, reliefs sought by her should be granted. 37. The respondents however contend that the appellant No.1 had consented to all the above Board Meetings in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its members, whichever is less, are entitled to maintain a petition under Section 397 or 398 of the Act; this restriction was sought to be bypassed by appellant No.1 by incorrectly arraying appellant Nos.2 and 3 as petitioners in the Company Petition; appellant Nos.2 and 3 are Trusts which hold shares in the Company and the beneficiaries of those shares are respondent Nos.2 to 4; and so this C.P. could not have been preferred by the Trusts against their own beneficiaries. 44. It is also contended that appellant No.1 cannot represent appellant Nos.2 and 3 in view of a notice dt.04-12-2013 issued by respondent Nos.2 to 4 to the appellant No.1 and that since respondent Nos.2 to 4 have not given any consent for filing of the C.P., it has to be dismissed. 45. This contention is refuted by the appellants by relying on Section 153 of the Act. They contend that no notice of any Trust, express, implied or constructive, shall be entered on the register of members; that as per annual return of the Company for the Annual General Meeting held on 30-09-2011, there were 13 members of whom one was Dr.Vijay Kumar Datla, who died on 20-03-2013; so excluding him there were 12 members including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the conduct of business of the Company, pending disposal of the C.P. 51. This was questioned by the respondents in S.L.P.Nos.12831, 12835 and 20338 of 2015 before the Supreme Court. 52. On 06-04-2015, the Supreme Court allowed the S.L.Ps. and set aside the order dt.15-04-2015 observing as under: As in the course of hearing, some grievance was expressed on behalf of Respondent No.1 that her status on the Executive Director of the company, stands undermined due to uncalled for surveillance imposed at the instance of the existing Board of Directors, we make it clear, as has been assured before us, that she ought to be allowed to function in the aforesaid capacity being provided with all facilities and privileges attached to the office as permissible in law, so much so that she does not have any occasion to complain in this regard. This indeed ought to be in accord with the letter and spirit of the undertaking offered by the Board of Directors to the CLB. The Respondent No.1 too would cooperate in the day to day management of the affairs of the company in her said capacity. The existing Board of Directors would also abide by the undertaking as recorded in the order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants, without prejudice to their right to contest the amendments. They opposed the amendments sought to some of the interim applications by the appellants. 57. However on 24-03-2016 (according to para-97 of the impugned order of the CLB), the CLB recorded that the respondents orally agreed to the proposed amendments to be carried out to the main petition i.e. from para (i) to (vii) and that amendment to para (viii) can also be allowed, subject to objections of the respondents. However no order in fact allowing the said amendments or C.A.No.1 of 2016 was passed by the CLB. 58. Appellants filed an amended Company Petition on 05-04-2016 and the CLB states in the impugned order that it considered the contentions in the amended C.P. filed by the appellants. 59. It is contended by appellants that though amended CP was filed by the appellants incorporating the amendments agreed to by the respondents, they did not at any point of time, give up their right to seek the other amendments opposed by the respondents, and that without deciding why the other amendments opposed by the respondents should not be allowed, the CLB proceeded and thus committed a serious error of law causing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent their case by order dt.21-04-2016 itself. The CLB then heard Senior Counsel for respondents as well as the Counsel Sri C.Ramachandra Raju for appellants and appellant No.1 in person, who sought adjournment, and then reserved the matter for orders by closing arguments. It gave opportunity to the parties to file their written submissions within ten days before 16-05-2016. 66. This order was questioned in Company Appeal No.6 of 2016 in this Court, but the said appeal was dismissed on 22-07-2016 stating that only against the final order of the CLB, appeal would lie and that this appeal is not maintainable challenging the order 03-05-2016. This Court opined that it would be premature to go into the issue, whether in the given facts, the CLB erred in not granting adjournments, or not dismissing the appeal for default and instead reserving the case for passing final orders, whether sufficient opportunity ought to have been afforded, and refusal of request for adjournment was not validly made; and that these matters can be gone into when proceedings are taken against the final order of the CLB. 67. The learned counsel for the appellants vehemently contended that there was deni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Petition dealing with interim reliefs cannot be considered. 70. It also noted that appellants did not file any written submissions in the Registry in spite of opportunity being granted on 03.05.2016 in its order to file such written submissions. 71. Dealing with the issue No.(i) relating to the possession by the appellant No.1 of requisite qualification under Section 399 of the Act to invoke jurisdiction of the CLB under Section 397 / 398, and the issue as to whether any case had been made out under Section 111-A of the Act, the CLB observed that appellant No.1 had filed O.S.No.184 of 2014 in the Civil Court to declare that she is the absolute owner of 4,00,961 shares which belong to her late Husband (Late) Dr. Vijay Kumar Datla by virtue of a Will propounded by her and had sought direction to defendants nos.4 to 13 therein to transmit the same for recording her name, and delivery possession of share certificates to her by way of mandatory injunction, etc.; that the said suit was filed prior to the filing of the Company Petition; and since the Supreme Court in its order dt.06.10.2015 directed the Civil Court to dispose of the suit for the same relief sought in the C.P, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a of possessing support of 1/10 of shareholders to maintain a petition under Section 397, as prescribed under Section 399, has not been fulfilled. It therefore held that the Company Petition is not maintainable and was liable to be dismissed as not maintainable. 74. Having taken the said view, however, the CLB went into the other issues also claiming that it would give a quietus to the lingering litigation. 75. Then the CLB dealt with the issue whether the Board meetings held on 09, 10 and 11th of April, 2013 were legal and valid? . 76. It noted that though 5th respondent received letter dt.06.04.2013 addressed to the Board of Directors of the Company and requested to file Form-32, the appellant no.1, being the other Director, received the resignation on 08.04.2013; that there was a meeting among the family members of (Late) Dr. Vijay Kumar Datla which was attended by respondent no.5 wherein it was agreed by appellant no.1 and all other family members unanimously to appoint respondent no.2 as Managing Director of the Company and to induct respondent nos.2 to 4 as Additional Directors to the Board of the Company; that the family members felt that the continuance of the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the said shares on the basis of the Will dt.04.12.1987 stating that the said issue is subject matter of O.S.No.184 of 2014, and opining that the CLB cannot decide such disputed issues with regard to inheritance of the shares which is pending before the Civil Court. It therefore, held that the said Board meeting on 10.04.2013 was also valid and the share transfer in favour of respondent no.2 is in conformity with Section 109 of the Act. It noted that in the very same Board meeting, respondent nos.2 and 3 were appointed as Additional Directors, that appellant no.1 was aware of the Board meeting and did not challenge it till C.P.No.1 of 2013 was filed, and so the said Board meeting held on 10.04.2013 was valid. 80. Coming to the Board meeting dt.11.04.2013, the CLB held that the said meeting was attended by respondent nos. 2 to 5, and in that meeting, the respondent no.2 was appointed as Managing Director of the Company and proposed transfer of shares in the names of respondent nos.6 and 7, and as per Article 145 of the Articles of Association of the Company, the respondent no.2 was validly appointed as Managing Director. 81. It opined that the appellant no.1was aware of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2, it noted that the said event took place in the Board meeting held on 10.04.2013, that appellant no.1 had already filed O.S.No.184 of 2014 in that regard even prior to the filing of the present C.P.; that the Supreme Court also directed the Civil Court to dispose of the suit; and so appellant no.1 cannot ask for any declaration in respect of the above shares before the CLB since the same is subject matter of the said suit. It also relied on the judgment of the Supreme Court in Sangramsinh P. Gaekwad and others v. Shantadevi P. Gaekwad (Dead), through LRs [(2005) 11 SCC 314] to hold that issues relating to inheritance of shares being civil in nature, the CLB cannot deal with it. 87. Coming to issue no.(iv) relating to the validity of the Annual General Meeting on 18.12.2013, the CLB held that in C.P.No.1 of 2013 appellant no.1 had sought for stay of the said Annual General Meeting, but the stay was declined on 17.12.2013 and the resolutions passed therein were made subject to the outcome of the C.P.; that the Annual General Meeting was then held on 18.12.2013; and in that Annual General Meeting, the decisions taken in the Board meeting on 9th, 10th and 11th of April, 2013 were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warranting winding up of the company and unless such a situation exists, no relief can be granted under Sections 397 and 398, as held in Hanuman Prasad Bagri v. Bagress Cereals Private Limited [2001 (4) SCC 420]. 90. It held that time and again the Company stated to the appellant no.1 to visit it s registered office during business hours to inspect the documents, but she did not avail of the said offer and this shows that fair opportunity was given to her by the company and its management. 91. It also held that appellant no.1 suppressed the letter dt.15.04.2013, and therefore, did not come with clean hands for seeking equitable relief under Section 397 of the Act. 92. On issue no.(vi), as to what relief should be granted and to what extent, the CLB held that there is not a single act of oppression or mismanagement made out by appellant no.1; that acts complained of by appellant no.1 are in the nature of directorial complaints; and no case had been made out by her for winding up of the company. 93. It thus dismissed the C.P. vacating all interim orders passed by it therein including an undertaking recorded by it made by respondents on 06.08.2014 and also unnumbered appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdiction of the appellate forum is restricted to the question whether, on the facts as noticed by the CLB and as placed before it, an inference can reasonably be arrived at that such conduct was against probity and good conduct, or was mala fide, or for a collateral purpose, or was burdensome, harsh or wrongful. This Court would interfere under Section 10-F if the conclusions of the CLB are (a) against the law or (b) arise from a consideration of irrelevant material or (c) omission to consider relevant material. It is ordinarily not open to the appellate court to substitute its own discretion for that of the CLB and if the CLB has acted unreasonably or capriciously, or has ignored relevant facts or has adopted an approach which is incorrect, the appellate court is not only empowered, but is under a duty to interfere with the discretion of the CLB. This Court however, while exercising jurisdiction under Section 10-F, would not re-appreciate evidence analysed by the CLB and a finding on a question of fact is open to attack as erroneous in law only if it is not supported by any evidence or if it is unreasonable or perverse. 100. In Manoj Kumar Kanunga and others (3 supra) it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsmission of 4,00,961 shares in favour of appellant no.1 and this is subject matter of O.S.No.184 of 2014, even prior to the filing of the C.P., such relief under Section 111-A cannot be claimed by appellants in the C.P. It observed that appellants cannot take a stand that the C.P. is a composite petition filed under Section 111-A and other provisions of the Act and that it will treat the C.P. as if it is filed only under Sections 397 / 398, 402 to 404 and 406 of the Act. 108. This issue has been considered in Manoj Kumar Kanunga and others (3 supra). In that case, there was a composite petition filed under Section 111 and Section 397 / 398 of the Act. It was held therein that the composite petition is maintainable, and there is no bar for filing such a composite petition in law. This Court held that Regulations 13, 14, 16 and 20 of the Company Law Board Regulations, 1991 permit filing of composite petitions provided if appropriate fee is paid. 109. The Court in Manoj Kumar Kanunga and others (3 supra) noticed that in a large number of petitions filed under Section 397, the primary allegation of oppression is that the faction in control of the company has either intentionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o law since the C.P. is filed under both provisions as permitted by law. The CLB cannot, in law, take a view that such composite petition either is not maintainable, or that it will not treat it as one under sec.111-A and will treat it as one only under Sec.397/398 of the Act. 113. Question (i) is thus answered in favor of the appellants. Objection raised by respondents in this Appeal as to appellants not possessing requisite shares under Section 399 for maintaining the C.P. before the CLB 114. Under this head, I will consider the following questions: (ii) Whether the shareholding required for maintaining a petition under Section 397 to 399 of the Act has to be reckoned from the date of dispute about the legality and validity of an act amounting to an act of oppression and mismanagement or from the date subsequent to the illegal act leading to acts of oppression and mismanagement being committed? (iii) Whether the learned CLB erred in relying on the illegally amended shareholding for purposes of Section 399 of the 1956 Act when it is settled law that the shareholding has to be counted prior to the date that the issue arose? 115. Section 399 of the Act d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders and leave them with no remedy. This is because the dismembered minority shareholders would then, technically, not qualify for maintaining a petition under Section 399 of the Act, being not members at all. As the minority shareholders can complain only after the acts have occurred, and when they have been removed from the membership of the company, Section 399 should be so understood and interpreted so as to further the object of the relief to be given in a situation governed by Section 397 of the Act, and not to foreclose the options of an aggrieved person and deny the very relief sought to be extended to the complaining minority shareholders. This Court in Manoj Kumar Kanunga and others (3 supra), also relied upon the decision in Vijayan Rajes v. M.S.P. Plantations P. Ltd [(2009) 151 Comp Cas 413 (Karnataka)], where such a view was taken. 120. In the instant case, there is no dispute that after the death of (Late) Dr. Vijay Kumar Datla on 20.03.2013, prior to the Board meeting of 09.04.2013, the only two Directors of the Company were the appellant no.1 and respondent no.5. It was only in the Board meeting of 10.04.2013 that 81% shareholding of (Late) Dr. Vijay Kum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la(HUF) 4594 459400 0.93 3. Mrs. Poomima Mantena 4357 435700 0.88 4. Mrs. Indira P.Raju 4357 435700 0.88 5. Miss Mahima Datla 11205 1120500 2.26 6. Dr.Vijay Kumar Datla (Trustee Poomima Indu Trust) 1999 199900 0.40 7. Dr.Vijay Kumar Datla (Trustee of Mahima Trust) 1685 168500 0.34 8. Poornima Indira Mahima 187 18700 0.06 9. Dr.Vijay Kumar Datla Dr.(Mrs) Renuka Datla 5813 581300 1.17 10. Miss Mahima Datla Dr.(Mrs) Renuka Datla 14172 1417200 2.86 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent as if they respectively had been signed by the Company and by each member, and the contained covenants on its and his part to observe all the provisions thereof. They constitute the contract between a Company and its members in respect of their ordinary rights as members. (See H.P. Gupta v. Heeralal [(1970) 1 SCC 437] and John Tinson Co Pvt Ltd v. Surjeet Malhan (Mrs) and another [(1997) 9 SCC 651]) 131. In V.B. Rangaraj v. V.B. Gopalakrishnan [AIR 1992 SC 453], the Supreme Court held that though shares are transferable like any other movable property, if there is a restriction on the transfer of shares of a Company in the Articles of Association, it will bind. It was also held that in determining the extent of any restriction on transfer contained in the Articles, a strict construction is to be adopted. 132. Therefore, when respondent no.2 did not produce any probate or letter of administration or succession certificate in relation to the Will dt.14.2.2005 propounded by her, the Board in its meeting dt.10.04.2013 could not have transferred the 4,00,961 shares (81% shareholding) to respondent No.2 and such transfer is illegal. 133. No doubt the proviso to Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sub Section (2). So their contention is meritless. 138. Therefore question (iv) is answered that the CLB cannot ignore the law and the provisions of the Articles of Association with relation to the transmission of shares in case of death of a shareholder and more particularly on the basis of an alleged Will dt.14-2-2005 which is disputed, and yet hold that such transmission of shares is valid. 139. Question (v) is answered in favor of the appellants that the CLB ought not to have relied upon the Will dt.24-12-2005 and held that transfer of shares on 10-04-2013 was valid. 140. Question (vi) is also answered in favor of the appellants holding that when suit relating to the validity of the Will dt.04.12.1987 is pending, it could not have expressed any opinion on the entitlement of respondent no.2 to the 4,00,916 shares on the basis of the Will dt.14.12.2005. 141. In view of the above, I hold that on the death of (Late) Dr. Vijay Kumar Datla, since inheritance cannot be kept in abeyance, and since neither the Will dt.04.12.1987 set up by appellants nor the Will dt.14.2.2005 propounded by respondent no.2 can be accepted in view of Article 66, both of them have to be igno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders granted on 07.08.2015 in I.A.No.748 of 2015 in O.S.No.599 of 2015 in respect of 2nd appellant and I.A.No.749 of 2015 in O.S.No.598 of 2015 in respect of 3rd appellant wherein the appellant no.1 was restrained from acting as trustee of the said trusts. How an order passed by the Civil Court on 07.08.2015, subsequent to the date of filing of the C.P. on 31.07.2014, can be taken into account by the CLB (to say that as on 31.07.2014, the appellant no.1 cannot act on behalf of appellant nos.2 and 3), is not explained by the CLB. Thus its action is perverse and contrary to law. 149. Therefore question (vii) is answered in favor of the appellants that CLB cannot rely on the interim order in the civil suit passed subsequent to filing of the C.P. 150. Likewise, how the CLB can rely on the letter dt.04.12.2014 allegedly written by respondent nos. 2 and 3 informing appellant no.1 not to act as trustee of the appellant no.2 and 3 trusts, if it were to consider the extent of shareholding as on 31.07.2014, is also not explained by the CLB. 151. In view of the above reasoning, the objection raised by the respondents as to the locus of the appellants to file the C.P., and the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, Hyderabad; (iii) a third unnumbered application before the CLB to disclose on oath the original copies of share certificate alleged to have been issued by the Company in favour of respondent No.2 transmitting the shareholding of late Dr.Vijay Kumar Datla in favour of respondent No.2 on the basis of the Will dt.14-02-2005 propounded by her. 154. On 09-03-2016, appellants filed in the C.P.No.36 of 2014, Company Application No.1 of 2016 before the CLB for amending the Company Petition by adding certain paragraphs in the body of the said petition and also amend/modify the prayers made therein and also to add certain prayers. 155. They also filed in April 2016, a fifth unnumbered application against the respondent Nos.2 to 4 alleging that the latter had committed breach of the order dt.06-08-2014 in C.P.No.36 of 2014 wherein respondent Nos.2 to 4 undertook not to alienate the movable and immovable properties of the Company and also to continue appellant No.1 as Executive Director of the Company. The C.P. was finally heard by it on 2nd / 3rd May, 2016 and final order was passed on 30.05.2016. 156. In para 96 of its order, the CLB only makes a reference to its order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id order ought not to have been interpreted by the CLB as a mandate to decide the C.P. without deciding the interim applications filed by appellants and which were pending before it. 164. So I also hold on question (ix) that the CLB was not right in interpreting the order of the Supreme Court in a manner whereby justice was sacrificed for speed. 165. This above unreasonable and capricious conduct of the CLB makes it imperative for this Court to interfere with its order. 166. However, I wish to make it clear that the plea of the appellants that there is no adequate opportunity given to them by the CLB to contest the C.P. by addressing arguments cannot be accepted since after 16.03.2016, appellants did not get ready for arguments, though the CLB insisted on various dates that they should make their submissions. 167. So I hold that except to the extent that it did not consider the interim applications filed by appellants in the C.P before deciding the C.P., on point (x) that no bias and prejudice can be inferred from denial of the CLB further time to appellants; on question (xi) that it cannot be said to have wrongly exercised it s discretion under regulation 26(1) of the CLB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directors shall pass a resolution to the effect that the Director has vacated his office, such resolution to be passed within 6 calendar months from the happening of the event whereby such Director has vacated his office. On 16.05.1907, the Managing Director of the Company sent notice in writing to the company requesting the latter to accept his resignation as Managing Director and to send a cheque for salary. Before any meeting of the Board of Directors was held, the Managing Director sent another letter dt.23-05-1907, wherein he has stated that he sent his resignation under a misapprehension and that he absolutely withdraws the letter dt.16-05-1907. Both letters were received by the company on 24-05-1907 and on that day, a special meeting of the Directors was held and it was declared that he vacated his office. Neville J considered the question whether the defendants were right in treating the plaintiff as having vacated his office as Managing Director in consequence of the written notice sent by him to the Company requesting their acceptance of his resignation as Managing Director. He answered the said question in the following manner: ..That seems to me to depend entirely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the office is made to be the vacation of the office, and the proviso is added to the effect that the directors may suspend the matter until they pass a resolution accepting his vacation. It seems to me, therefore, that the second part of this motion fails. 174. Thus the Court held that the director who resigned cannot claim to continue as such till resolution by Directors is passed to the effect that the Director who resigned has vacated his office in spite of the proviso to Article 84. It held that as regards the Director who resigned, he vacates the office and the vacancy would arise upon a resolution being passed by the Board within 6 calendar months. It made a subtle distinction between vacation of office by a Director by resignation and arising of vacancy in the office of the Director. 175. The Supreme Court in Moti Ram v. Param Dev [(1993) 2 SCC 725], approved the decision in Glossop (13 supra) in the following terms: 17 Similarly in Company Law, a Director of a company is entitled to relinquish his office at any time he pleases by proper notice to the company and acceptance of the resignation is not required. [See: Glossop v. Glossop and Halsbury s Laws of Eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as withdrawn and the same was acknowledged by appellant No.1, it is not open for her to contend that she was the only Director of the Board of the Company. Merely because the letter dt.09-04-2013 of respondent No.5 withdrawing the resignation tendered by him on 06-04-2013 was acknowledged by the appellant No.1, it does not follow that the resignation stood automatically withdrawn in law. 184. It cannot also be held, as contended by respondents that appellant No.1, acting as a Director of the Company, had permitted respondent No.5 to withdraw his resignation and act as a Director. No such permission in writing prior to the Board meetings of 9-4-2013,10-4-2013 and 11-4-2013 was produced by respondents 1-7. 185. The further contention of respondents that even if his resignation became effective immediately, his action in inducting fresh Directors ensuring the continuity in management is an action taken bonafide in the interest of the Company and is valid in law on the basis of the passage in Needle Industries Limited Vs. Needle Industries Newey (India) Holdings Limited that [(1981) 3 S.C.C. 333] anything illegal but done in good faith and in the interest of the Company may not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without giving any notice of the meeting to the appellant No.1, who was the sole Director on the Board of the Company; without any quorum, he held the meeting and inducted respondent No.4 as a Director of the Company; on 10-04-2013, he convened another meeting of the Board without serving any notice of the said meeting on appellant No.1 and inducted respondent Nos.2 and 3 as Additional Directors of the Company and also transferred 81% shares standing in the name of Dr.Vijay Kumar Datla to respondent No.2 on the basis of the Will dt.14-2-2005 produced by her in violation of Article 66 of the Articles of Association even though she did not produce any Succession Certificate or probate; he did not take any indemnity from her; and then convened another Board meeting on 11-04-2013 wherein respondent No.2 was appointed as Managing Director of the Company. 189. Thus there is a series of illegal acts by respondent No.5 ( as will be explained more in detail later) , which are part of the same transaction to cause oppression on appellant No.1 and show his malafide intention. These violations by him are burdensome, harsh and wrongful to appellant No.1. So I am of the view that the statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illiant Bio Pharma Ltd v. Brilliant Industries Ltd.[ (2013) 180 Comp Cas 168]. 196. In Euro Brokers Holdings Ltd. (20 supra), the Court of Appeal in England approved Oliver J s statement in Re New Cedos Engineering Co. Ltd [(1994) 1 BCLC 797 at Pg.814] where he summed up the Duomatic principle as under : the ratio of Buckley J s decision is that where that which has been done informally could, but for an oversight, have been done formally and was assented to by 100% of those who could have participated in the formal act, if one had been carried out, then it would be idle to insist upon formality as a pre-condition to the validity of the act which all those competent to effect it had agreed should be effected. 197. A reading of the above decision indicates that existence of consensus-ad-idem among all the shareholders of a company for a particular course of action is a condition precedent for application of the said principle. Only then they would be precluded from later turning around and questioning the non-adherence to the Articles or to provisions of the Act. In the instant case, there is no such consent of appellant No.1 to the acts of the respondents in the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time and any fraction contained in that 1/3rd being rounded off as 1), or 2 Directors, whichever is higher. 207. When the resignation of respondent No.5 came into force on 06-05-2013, and it could not be withdrawn as per Law, he had no authority in law to convene the above meetings or hold them. 208. Assuming for the sake of argument without conceding that he continued as Director and that his resignation was validly withdrawn, still being the only Director present at the meeting of 09-04-2013, and in the absence of minimum quorum of 2 as mandated in the Articles of Association, he still could not have held the meeting. 209. Once there is no quorum, Article 152 of the Articles mandates that the Board meeting shall automatically stand adjourned to a future date to be fixed by the Chairman. This was not done by respondent No.5 and he thus violated this Article also. 210. In Amrit Kaur Puri Vs. Kapurthala Flour Mill [(1984) 56 Comp. Case 194 (Punjab and Haryana)], the Punjab and Haryana High Court held that even the Articles cannot provide for a quorum lower than what is prescribed in Section 287. This being the legal position, the question of there being any waiver by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uant to Article 123 of the Articles of Association, the same could only have been done by a validly called Board meeting. Without there being quorum as prescribed under the Articles or under the Act, there could not have been any valid Board meeting of 09-04-2013 and no valid appointment of respondent No.4 as Director could have been made therein. 217. Consequently, the finding of the CLB that the Board has the power at any time to appoint any other qualified person to be a Director to fill up a casual vacancy, that respondents stated that the said Board meeting of 09-04-2013 was convened and so it is validly held, is clearly contrary to law and unsustainable. 218. As per Section 286 of the Act, notice of every meeting of the Board of Directors of a Company shall be given in writing to every Director for the time being in India, and at his usual address in India to every other Director. This provision is also, in my opinion, introduced in public interest to avoid meetings being held without proper notice to the Directors. 219. As per Article 150 of the Articles of Association, 10 days notice in writing should be given to each of the Directors of the Company unless there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Director of the Company, allotting 11 shares of the Company each to respondent no.6 and 7 , permitting respondent no.2 to be an authorized signatory for the Company s bank accounts in the Bank of Baroda, ICICI Bank, State Bank of India, and (ivi) all other decisions taken therein are also invalid in law and illegal. Such decisions will not bind the Company. 227. I therefore hold on question (xvi) and (xvii) that all the three Board meetings held on 09-04-2013, 10-04-2013 and 11-04-2013 were not validly held, that respondent Nos.2 to 4 were not validly appointed as Directors, and the transfer of 81% of the shares held by late Dr.Vijay Kumar Datla in favour of respondent No.2 is not valid in law and cannot be recognized, and all decision taken therein are not valid and will not bind the Company. The finding view of the CLB that all the three above Board meetings and decisions taken therein are valid, is therefore set aside. 228. Once respondent nos. 6 and 7 allotment of shares is declared illegal, their consequent appointment as Whole time Directors of the Company in the meeting of the Board held on 22.8.2013 is also not valid and is accordingly set aside. Non- Complianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs/documents about this letter. It is pointed out that in the rejoinder to the counter affidavit of the Company filed by the appellants, it is stated that this letter was manufactured at one place and at another place that it is obtained by coercion to over come the quorum issue; plea of coercion is raised in the rejoinder filed by the appellant to the counter of respondent No.2 at one place and at another place it is stated that this letter was supposedly written by appellant No.1; and in the rejoinder in the counter of respondent Nos.3 and 4, she stated that she was in deep mental agony and took several months to come to normalcy and did not send any such letter voluntarily to the office of the respondents. It is stated that in this appeal at para 3.2.15, appellant No.1 stated that the letter dt.15-04-2013 is fabricated/manufactured and in para-35 of the rejoinder filed by appellant No.1 to the counter filed by respondent Nos.1 and 2 in C.P.No.1 of 2013, she stated that the letter dt.15-04-2013 was a great errata (suicidal) of her life, which she would wish to correct, if she were to live it over again. 236. No doubt it is also brought to the notice of the Court that in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the pleadings in the C.P., in view of the above legal position, cannot therefore be put against the appellant no.1 because it would have made no difference in law. When contrasted with the conduct of the respondents which has been set out above and the fact that they want to take advantage of their own wrong, which is impermissible in law ( as will be explained below) , this is not fatal to the appellant no.1. 244. Admittedly Dr. Vijay Kumar Datla died on 20-03-2013 after a prolonged illness. The appellant No.1 had been married to him since 1967, almost for half a century. Naturally his death would have been quite traumatic for her. On top of that, without issuing any notice of the Board meetings of 09-04-2013, 10-04-2013 and 11-042013 to her, respondent Nos.2 to 4 wrested control of the Company taking advantage of the distressed mind of the appellant No.1. By that date in fact not even one month had elapsed from the death of Dr.Vijay Kumar Datla. These facts can t be ignored by the Court. 245. The CLB overlooked the distressed state of mind of a widow who lost her husband of 50 years and came to a perverse conclusion that she acquiesced in the said Board meetings or the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of his own wrong. 255. In Kusheshwar Prasad Singh v. State of Bihar [(2007) 11 SCC 447] the Supreme Court held: 13. The appellant is also right in contending before this Court that the power under Section 32-B of the Act to initiate fresh proceedings could not have been exercised. Admittedly, Section 32-B came on the statute book by Bihar Act 55 of 1982. The case of the appellant was over much prior to the amendment of the Act and insertion of Section 32-B. The appellant, therefore, is right in contending that the authorities cannot be allowed to take undue advantage of their own default in failure to act in accordance with law and initiate fresh proceedings. 14. In this connection, our attention has been invited by the learned counsel for the appellant to a decision of this Court in Mrutunjay Pani v. Narmada Bala Sasmal [AIR 1961 SC 1353] wherein it was held by this Court that where an obligation is cast on a party and he commits a breach of such obligation, he cannot be permitted to take advantage of such situation. This is based on the Latin maxim commodum ex injuria sua nemo habere debet (no party can take undue advantage of his own wrong). 15. In Union ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st in law ? (xix) Can an AGM be called and held by strangers to a company ? 260. It is the case of the respondents that the AGM. held on 18.12.2013 had ratified all decisions taken in the Board meeting of 09.04.2013, 10.04.2013 and 11.04.2013. 261. I have already held that after his resignation, respondent no.5 could not have conducted the meeting on 09.04.2013 or the subsequent meetings on 10.04.2013 and 11.04.2013 wherein 4th respondent was inducted as Director, respondent Nos. 2 and 3 were inducted as Additional Directors and respondent No.2 was appointed as Managing Director. Consequently, there could not have been a validly convened AGM on 18.12.2013 at all by the same persons who are therefore strangers to the Company. 262. Therefore, I hold on question (xix) that the said AGM could not have been called by strangers to the Company such as respondent nos.2 to 5 and on question (xviii) that the decisions taken in the AGM on 18.12.2013 are non-est in law. 263. It is not in dispute that the appellant No.1 had filed C.P.No.1 of 2013 in this Court and sought stay of the Annual General Body Meeting to be held on 18-12-2013. The CLB on 17-12-2013 declined to grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1978 and inducted a third party as Director and also as a Managing Director later. The Board thereafter sold two buses of the company which were its only assets. The Madras High Court held that since the meeting of 20-05-1978 was not attended by the other two Directors, there was no quorum, that it is not a valid meeting, any decision taken therein cannot be treated as valid. It refused to accept the contention that Section 290 would save the decisions taken in the said Board meeting stating that it would not apply when there is total absence of appointment or a fraudulent usurpation of authority. Similar view was taken by the Delhi High Court in Eastern Linkers (P) Limited Vs. Dina Nath Sodhi [(1984) 55 COMP CAS 462 (Delhi)]. 270. In the present case, there is clearly an usurpation of authority by respondent nos.2 to 4 with the collusion of respondent no.5. Therefore, Section 290 cannot come to the aid of the respondents. 271. Therefore I hold that the AGM held on 18-12-2013 cannot in any way remove the defects in the meetings held on 09-04-2013, 10-04-2013 and 11-04-2013 and there was no acquiescence by the appellant No.1 either to the said meetings or the decisions taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable by the company should be wound up. If these conditions exist, the CLB may pass appropriate orders. 277. In Needle Industries (17 supra) it was held that the word oppression means burdensome, harsh and wrongful ; and that a the fact that a company is prosperous and making substantial profits is no obstacle to its being wound up, if it is just and equitable to do so;. It however cautioned that the just and equitable clause ought not to be confined to proved cases of mala fides. It was held that the person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. 278. In Sangram Singh (1 supra), the Supreme Court held that oppression complained of must relate to the manner in which the affairs of the company are being conducted and the conduct complained of must be such as to oppress the minority members. By reason of such acts of oppression, it must be shown that the majority m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the respondent Nos.2 to 4 obtained a predominant voting power in the conduct of the Company affairs. 283. So I hold that the appellants have made out a case for exercise of jurisdiction by the CLB/this court under section 397 of the Act. Whether the appellants have made out a case for exercise of jurisdiction by the CLB/this court under section 398 of the Act : 284. According to the appellants, respondent Nos.2 to 4 initially sought to sell off their stake in the company with Private Equity Investors, but the same failed; that thereafter, there was an attempt to sell immoveable properties to M/s. I.T.C. Ltd. by respondents, but appellant no.1 wrote to the said company and cautioned them about illegal shareholding and directorship of the Company, and so the said sale did not go through; thereafter, respondents tried to hive off undertakings of the Company to Companies incorporated and managed by respondent Nos.2 to 4 so that it would be convenient for them to dispose of assets through those Companies and siphon off the money as per their whims and fancies to the detriment of the Company and actual shareholders. 285. According to her, a Scheme of Arrangement was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es before the said Court in the petition pending before it. It is stated that two cars were purchased in 2011-12 and only one car was procured by the Company in 2014. 290. The CLB did not deal in detail with these allegations in the impugned order. It observed that the Company is a profit making Company and one of the most successful vaccine companies in the country; that its profit before tax for the financial year 2014-15 is ₹ 497.18 crores, which is more than the cumulative profit earned in the entire sixty years of its existence; that for fiscal year ending 2016 (unaudited), its profit before tax was ₹ 384.32 crores and that appellant no.1 miserably failed to place on record any iota of evidence regarding mismanagement of the affairs of the Company, detrimental to the interest of shareholders. 291. In this Appeal, the appellants did not seriously contest these findings. Therefore, I do not propose to interfere with the said findings. What relief can be granted to appellants in this Appeal 292. For the aforesaid reasons, I therefore declare that: (i) acts of respondent Nos. 2 to 7 are oppressive; (ii) the meetings of the Board of Directors held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Directors; respondent no.2 cannot act as Managing Director; respondent nos.6 and 7 cannot act as Whole-time Directors of the Company. 295. Therefore, appellant no.1 alone who was Director as on 06.04.2013 can continue as a Director. Admittedly, her father founded the Company. She is a qualified medical professional in Clinical Pharmacology and had been appointed as a Medical Director of the Company in 1988 and was continuously involved in all the affairs of the Company till the death of her husband. She was the Executive Director of the Company even by 6.4.2015, the date of order of the Supreme Court, and thereafter also for some time. Therefore it cannot be said that she is a total novice and is incapable of managing the affairs of the Company. In contrast respondents 2-7 were never even Directors prior to 9.4.2013. 296. As per Section 149 of the Companies Act, 2013, there should be minimum of three Directors for a public company and two Directors for a private company subject to maximum of fifteen. Admittedly, the 1st respondent-Company is a public limited company. Therefore, it requires three Directors. Under Section 174 of the 2013 Act, minimum quorum for meeting of Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 2013 is similar to Regulation 75 in Table A, Schedule-I of the Companies Act, 1956. It states: 69. The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company, but for no other purpose. 305. The learned counsel for respondent No.2 had in fact relied in his written submissions on Regulation 75 in Table-A, Schedule-I by raising a plea that appellant No.1 by her letter dt.15-04-2013 announcing respondent Nos.2 to 4 as Directors, exercised power under the said Regulation and increased the strength of the Board to gain quorum. Though that contention cannot be accepted for reasons already mentioned, the said Regulation shows the way as to how this Court ought to mould relief. Therefore, another possible solution could be to permit appellant no.1 to increase the number of Directors to 3. 306. However, Article 128 of the Articles of Association of the Company stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were not subjected to retirement by rotation; that the learned Single Judge directed that a vacancy among these Directors should be filled up by the Central Government or the Courts, as the case may be; and this violated Section 255 which stipulated that at every Annual General Meeting, not less than 2/3rds of total number of Directors of a public Company, be persons whose period of office is liable to determination by retirement of Directors by rotation. It was further contended that the period during which the reconstituted Board was to operate has been fixed at 7 years thereby depriving shareholders of their right to have full corporate management over its affairs and dealing for such long period of 7 years through elected Directors to the extent of 2/3rds of the total number, has been drastically curtailed. It was pointed out that in order to give effect to his order the learned Single Judge had amended the original Article 95 of the Articles of Association of the respondent No.1 Company and according to the modified Article 95, it has been provided that at each ordinary General Meeting, the Directors elected by the shareholders shall retire from office, and there is no pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the Company. It observed that if under Section 398 read with section 402 the court is required by its order to provide for the regulation of the conduct of the company s affairs in future because of oppression or mismanagement that has been occurred during the course of normal corporate management, the court must have the power to supplant the entire corporate management, or rather corporate mismanagement by resorting to non-corporate management which may take the form of appointing an administrator or a special officer or a committee of advisers etc., who could be in charge of the affairs of the company. If the court were to have no such power, the very object of the section would be defeated. The Bench upheld the order of the learned Single Judge including the amendment made to the original Article 95 of the Articles of Association of the Company, while passing orders under Section 398 r/w Section 402 of the Act. It rejected the contention that reframing or insertion of a new Article like Article 95 as was done by the Single Judge will be hit by Section 9(b) holding that the Court s powers under Section 397, 398 and 402 are wide and are not subject to other provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n normal circumstances will not come in the way of this Court s powers under Section 10-F r/w Section 397 and 402 of the Companies Act, 1956 r/w Section 241 and 242 of the Companies Act, 2013 to pass orders for bringing to an end the oppression complained of by appellant No.1 and to prevent further oppression in future. Therefore notwithstanding the same, I hold that the appellant No.1 shall act as a Director of the respondent No.1 Company and be entitled to increase the number of Directors in the Board of the Company to 3. 320. The appellant No.1 and the Directors nominated by her shall hold office for a period of 3 years from the date of their assuming charge notwithstanding anything contained in Section 152(6) of the Companies Act, 2013. It is open to appellant No.1 to appoint a committee of advisers to advise the Board for the future management of the Company. 321. After the expiry of 3 years period referred to above, fresh Board of Directors may be constituted as provided in the Act and the Articles of Association of the Company. THE CONCLUSION/RELIEF 322. In the result, the Company Appeal is allowed; the order dt.30.5.2016 in C.P.No.36/2014 of the CLB is set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) of the Companies Act, 2013, to regulate the conduct of the affairs of the respondent No.1 Company in future, the appellant No.1 is authorised to increase the number of Directors in the Board of the said Company to 3; (c) part-I of Schedule-V of the Companies Act, 2013 which prescribes maximum age of 70 years to be a Director, shall not apply to appellant No.1; (d) the appellant No.1 and the Directors nominated by her to the Board shall hold office for a period of 3 years from the date of their assuming charge notwithstanding anything contained in Section 152(6) of the Companies Act, 2013; (e) it is open to appellant No.1 to appoint a committee of advisers to advise the Board for the future management of the Company; (f) after the expiry of 3 years period referred to above, fresh Board of Directors may be constituted as provided in the Act and the Articles of Association of the Company. 324. The appeal is accordingly allowed with costs of ₹ 25,000/- to be paid by respondent Nos.2 to 4 to the appellant No.1 within 4 weeks. 325. However, this judgment shall not come into effect for a period of 4 weeks from today and during this period also, there shall be n ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
