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TMI Blog2004 (12) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... continues as a director of the company and for a investigation into the affairs of the company etc. 2. Shri Choudhary, Sr. Advocate appearing for the petitioner submitted: The company was incorporated in 1990 with an authorized capital of Rs. 1 crore divided into 50,000 equity shares of Rs. 100/- each, 25000 redeemable cumulative preference shares of Rs. 100/- each and 25000 unclassified shares of Rs. 100/- each. The undisputed paid up capital was Rs. 25 lacs comprising of 25000 equity shares of Rs. 100/- each. Out of this capital, the petitioners' group(Rawat group) held 50% shares and Tibrewala group - respondents- held the balance 50% shares. The promoters of the company being the 1st petitioner and the 3rd respondent, were the first directors along with the 2nd respondent who was a professional manager. The company was incorporated as a joint venture partnership between the 1st petitioner and the 3rd respondent with an understanding that the company would be managed as a quasi partnership with joint management. The main business of the company was to set up a mini cement plant of 50 tonnes per day for which the company acquired land in RIICO Industrial Estate and a term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the 1st petitioner convened a Board meeting on 18.11.1992 at the office of RIICO to discuss the details of the functioning of the company with due notice to other directors viz. respondents 2 to 4 and 17. None of them attended the meeting. Another meeting was convened by the petitioner on 30th Nov. 1992 at the office of RIICO. In the meanwhile, one Shri Ashoke Dugar purportedly representing respondents 3 to 5 informed the 1st petitioner that there could be an amicable settlement between the parties. Accordingly, the petitioner sent a draft of terms of settlement to Shri Ashoke Dugar. However, instead of reacting to the terms of settlement proposed by the 1st petitioner, the respondents' group sent another draft containing terms which were not agreeable to the 1st petitioner and as such no settlement was possible. 3. The learned counsel further submitted: The company had allotted 13500 shares on 17.10.1992 (Return of Allotment was filed on 19.1.1993) and further 11500 shares on 12.11.1990. By these allotments, outsiders were brought in as shareholders in breach of the principles of quasi partnership. The respondents 8 to 14 are outsiders. No notice for the Board Meetings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit for a total consideration of Rs. 1 52 lacs in the name of Gauri Cements. 5. The learned counsel for the respondents submitted; The petition is not maintainable, as, in terms of Sections 397/398, the acts complained of should continue till the date of the petition. All the allegations made by the petitioners relate to the period up to December, 1992 while the petition was filed only on 4.8.1993 that too after the 1st petitioner had taken over the factory of the company in an auction. Even though the petitioner and the 3rd respondent invested money equally in the project initially, yet, the petitioner was not willing to invest further funds. Since the project needed money, further shares had to be issued to whoever was willing to invest. There was no understanding or agreement that equality in the shareholding would be continued for ever. When Mr. Mohta was inducted as a shareholder, the equality was disturbed without any complaint from the petitioner. In so far as allotments of further shares are concerned, the relevant returns were filed with the ROC in time but the ROC took the returns on record belatedly and as such the question of fabrication of records does not arise. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds and the project commenced 3 month ahead of schedule because of the funds invested by the respondents. Yet with a view to ensure that the petitioner's group and the respondents' group held 50% shares each in the company, the respondents gave a proposal to RICCO by a letter dated 4.1.1993 by which the petitioners were required to invest Rs. 9 lacs in the shares and also to convert their unsecured loan of Rs. 17 lacs as share capital. If they had done so, they would be holding 50% shares in the company now. Instead of accepting the offer, the petitioner wrote a letter to RICCO on 8.1.1993 making all sorts of allegations against the respondents. Because of this, on the ground that there had been serious disputes and differences among the promoters, RICCO issued a notice on 1st Feb. 1993 recalling the entire loan of Rs. 74 lacs with 19.25% interest totaling to about Rs. 82 lacs and demanded payment within 15 days. In the notice it was also stated that in case the amount was not paid within 15 days, RICCO would take possession of the industrial unit and realize its dues by sale/mortgage of the assets of the unit. Since the company could not repay the amount, RICCO auctione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 543 read with Schedule XI of the Act against the petitioner for his various acts of misfeasance against the company. Therefore, the 1st petitioner should be held guilty of knowingly and deliberately committing offence punishable under Sections 542/543 of the Act and appropriate action should be taken against him. The learned counsel cited a number of decisions on the proposition that a director who is guilty of breach of trust and misfeasance is liable to make good the loss caused to the company. 8. I have considered the pleadings and arguments of the counsel. The main complaints of the petitioner relate to his removal as a director, issue of further shares exclusive to the respondent's group and outsiders and siphoning of funds by the respondents. The main reliefs sought for by him are to put him back on the Board of the company and also for cancellation of further issue of shares so as to maintain his 50% shareholding in the company. From the facts of this case, it is apparent that the company was envisaged with equal shareholding and equal participation by Rawat Group and Tibrewala group. In a number of cases, this Board has held that when there is equal shareholding an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has been made. It is on record that the 1st petitioner had offered Rs. 152 lacs for the unit in the auction signifying the fact that the project cost could not have been less than Rs.152 lacs. Since RICCO had funded the project only to the tune of Rs.74 lacs, naturally the promoters had to bring additional funds to complete the project which incidentally commenced production 3 months ahead of schedule. Thus, the need for funds to complete the project had been established. In view of the special relationship between the parties, the petitioners should have been offered proportionate shares which the respondents had not done. While the petitioners contend that they were willing to induct more funds, It is the contention of the respondents that the petitioners were not willing, Whatever may be the correct position, it is on record that the respondents had offered 50% shares to the petitioners in their letter to RICCO elated 4.1.93 but the petitioners did not accept the offer. The main object of a proceeding under Sections 397 is to put an end to the acts complained of. When the company was in need of funds and when the respondents had made an offer to restore the petitioners to 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any from receiving its legitimate dues from RICCO and with a view to protect the interest of Gauri Cement of which the 1st petitioner is a promoter and a major shareholder. The Company Law Board being a court of equity cannot come to the aid of a person who is acting against the interest of the company and who has filed this petition with an oblique motive. Therefore, the prayer that further issue of shares should be cancelled cannot be granted. 10. The learned counsel for the respondents urged for taking action against the 1st petitioner in terms of Sections 542/543 read with Schedule XI of the Act. The provisions of Section 542 would apply only in case of fraudulent conduct of business. The respondents have not furnished any material as to how the 1st petitioner had conducted the affairs of the company in a fraudulent manner. Even their allegation that the 1st petitioner had fraudulently taken over the control of the cement unit in collusion with RICCO had been negative by the Rajasthan High Court. Their allegation that either the 1st petitioner did not ensuring payment of dues to RICCO by Gauri Cement or that he has filed a civil suit for restraining RICCO from recovering its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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