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TMI Blog2007 (5) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... nd - Mr. Colin McFarlane who was a Master Builder by profession joined hands with R-2 to be equal participants in the joint venture in the respondent company. 3. Shri Rahul Sharma, Counsel for the respondents raised the preliminary objection that tin. petitioner holding only 8% shares in the Respondent No. 1 company was not entitled to file the petition under Sections 397 and 398 of the Act. Further, raising the second preliminary objection it was contended that the petition deserves to be rejected at the threshold for the reason that the same has not been instituted by a person who is duly authorized to represent the petitioner herein and therefore fails to comply with provisions of Section 399 of the Companies Act. The petition is stated to have been instituted for and on behalf of the petitioner through her appointed attorney. The original power of attorney was not produced along with the petition at the time it was filed and a photocopy produced along with rejoinder was not duly attested and stamped as required under law. Subsequently at the fag end of the final arguments, a freshly attested power of attorney was produced by the Advocates representing the petitioner. 4. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This Board has always taken the view that if shareholding of the petitioners is reduced below 10% on account of further issue of shares and if the issue of further shares is also challenged in the petition, then, the petition will not be dismissed as not maintainable in terms of Section 399. Instead, the allegation relating to the issue of further shares would be examined first as to whether the same is an oppressive act and if it is found to be so, then only other allegations in the petition would be examined. In the present case as admitted by the respondents petitioners shareholding before further issue of shares in March, 2003 was 30% being 3074 shares in the company. 6. As regards the second preliminary objection that Power of Attorney was not notarised by the High Commission or Consular Office, in my view the mere technicality of getting it notarised, which ofcourse has been got done now, cannot stand in between the petitioner and the substantial justice prayed for in the petition on merits of the case. To do substantial justice between the parties if technical defects and substantial justice are pitted against each other preference must be given to substantial justice an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposited in the company account. It suffices that it was received through proper banking channels. In this case this was the joint NRO account maintained by the Petitioner's husband and the Respondent No. 2. The petitioner further argued that the monies remitted were spent for the benefit of the company as work was in. progress. In fact the bank records indicate that it was the Gaffinos who were drawing most of the cash monies which were presumably spent on the project. In the aforesaid circumstances, it was argued, it is evident that respondent No. 2 manipulated the position with the RBI in Panjim by crediting only 1 crore 23 lakhs into the company account and disregarding the balance of funds all of it spent on the project and thus capable of being treated as equity - falsely claiming that this was the amount for subscription, contradicting his own letter at Exhibit B of the Rejoinder. The petitioner contended that the respondent No. 2 has no sensible explanation as to the two share certificates which were only signed by him without the company stamp, (these share certificates are annexed at page 97 and 98 of the petition, marked as exhibits E3 and E4). He does not dispute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Colin MacFarlane refused to subscribe to the increased share capital , and that the respondent No. 2 in its reply at paragraph 48 at page 20 wherein it was stated that the loan taken by the company from the Economic Development Corporation, Goa was a drain on other resources of the company and in order to retire the loan and avail of a cheaper loan from the Bank of India Margao, die Bank of India informed the company that it would have to improve its debt equity ratio in order to avail of the loan facility, it was argued by the counsel for the petitioners that- a. The explanatory statement pursuant to Section 173 of the Companies Act does not record the allegations made by Respondent No. 2. b. No premium was Fixed, if the intent was to discharge the debt then a premium should have been fixed. c. The monies collected at the time of the subscription from the purported increase in capital could not have paid off the loan as the respondent No. 2 stated that the loan was paid off on March 7,2003 when the monies were only collected after 31st March. d. Vivek Vaz's letter shown as exhibit C to the Rejoinder states that the respondent No. 2 had discharged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd bonafides of the purported shares subscription. Further, it was argued that the law on this point is very clear, that further shares can only be issued for the benefit of the company and not with a view to create a new majority or to reduce a majority even if the power to issue shares is vested in the board. If the purpose of issue of shares is for upsetting the existing shareholding to the detriment of one group, then such an allotment of shares is to be held as an act of oppression whether or not partnership principles are applied, B.M. Jain and Sons Co. Pvt. Ltd. v. Bombay Cable Car Co. Pvt. Ltd. and Ors. 2002 (108) Comp. Case 91 refers. Similarly, it was argued, in a Pvt. Company that either the allotment is malafide with the sole purpose of reducing one's shareholding or that a long standing practice of allotment on proportionate basis had been breached then a shareholder can complain. G. Ramaraju and Ors. v. South India Research Institute P. Ltd. and Ors. 2004 (118) Comp. Case 156 refers. As regards the issue of the purported transfer of interest in the hotel property by way of selling time shares from the Respondent No. 2 to Respondent No. 8 for a consideration of 930 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that the Respondent Company ever complied with the obligation to inform the petitioner and her husband about board meetings or anything else in relation to the company. At page 31 of the reply it is alleged by the Respondent No. 1 that the petitioner and her husband were informed telephonically informed of the board meetings and affairs of the company and further through post sometimes. Thus on its own admission, the Respondent No. 1 accepts that no proper notice was ever given to the petitioner and her late husband. It was argued that in such circumstances, and bearing mind the ratio of the judgment referred to, it is evident that the Respondent No. 1 cannot rely on Section 283(1)(g) of the Companies Act as alleged. Further it was contended that neither has the respondent company offered any sensible explanation of the Registrar of Companies search shown in annexure U to the petition as that apparently represented that Colin MacFarlane and Shieila MacFarlane resigned as directors as per the Form 32 filed with the Registrar of Companies on 20.5.03. It is material that at paragraph 47 of the Respondents reply there is an admission that the search report dated 3.4,04 is subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r company law for malfeasances and misfeasance. The counsel for the petitioners relied on a plethora of case laws to support his contentions. 8. The counsel for the respondents argued that besides their preliminary objections, the petition is further liable to be rejected as it fails to disclose or set out any act of mismanagement or oppression committed by the respondent. It was stated that admittedly the petitioner has never involved herself in the business of the respondent company and as per her own admission she last visited India in 1995. There was complete inaction on the part of the petitioner in involving herself in the business of the respondent company. It was argued that it is settled proposition that law comes to the aid of that vigilant alone and unless reasonable vigilance is shown in the prosecution of a claim to equitable relief, the Court, acting on the maxim vigilantibus non dormeintibus subveniunt leges , will decline to interfere , It was contended that the allegation of oppression and mismanagement cannot be sustained in the facts as pleaded in the present petition and the allegations are, therefore, liable to be rejected. It was pointed out that the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified claim can be made by the petitioner with respect to the said property. 10. As regards the shareholding it was argued that the petitioner and her husband held only 3074 shares as against the 5000 equity shares as is being claimed by the petitioner. It was stated that pursuant to an initial understanding as recorded in an agreement dated 22.9.1995, the respondent No. 1 filed an application dated 22.1.1996 with the Reserve Bank of India seeking permission under Section 29 of F.E.R.A. 1973 to sell 5000 equity shares at a premium of Rs. 3900/- per share plus the face value of Rs. 100 per share to the petitioner's/husband. The R.B.I granted an in principle approval, authorizing respondent 1 to issue 5000 equity shares of Rs. 100/- each to the respondent and her husband, for a cash premium of Rs. 3900/- per share, for a total consideration of Rs. 2 crores, on the conditions contained in the said approval letter. One of the conditions of the in-principle approval of RBI required the respondent No. 1 to issue the shares only after obtaining final approval from RBI's Regional Office at Panaji by submission of the F.I.R.C. The RBI was informed on 12.3.1996 that an amount of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner's allegation that balance shares were issued bearing signatures of only one director is denied as false and the respondent has submitted that the company issued no shares beyond 3074 shares to the petitioner. The respondent has stated that share certificates Nos. 9 and 10 alleged to be issued to the petitioner and her husband have not been issued by the respondent company and they are fabricated documents. It was argued by the counsel for the respondents that it has been contended and argued on behalf of the petitioner that the petitioner's husband and the respondent No. 2 entered into an agreement to develop a property whereby the land with some construction on it was owned by the Respondent No. 2 and the petitioner's husband was to bring in investment to complete the construction. According to the petitioner the respondent No. 2 had already done any construction except built some minor foundation on the land, prior to their joint partnership in the project. The petitioner has stated that her husband had evaluated the project cost at around Pound Sterling 5,50,000 and that he was expected to invest around 3,65,000 Pound Sterling, leaving a balance of 1,85, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondents have reflected an increase in share capital of respondent. No. 1 company. The petitioner has contended that the share capital of the company was increased from Rs. 10,00,000/- to Rs. 40,00,000/- and the issued and paid up capital of the company was also shown to be increased from Rs. l0,00,000 to Rs. 3 9,70,400/-. The petitioner states that no prior notice was given to the petitioner's husband of any resolution to be moved at a Board meeting for increasing the authorized share capital, nor was any notice given of any General Meeting convened to approve the said increase, nor of any resolution to end the capital stating that they were not in a position to purchase any of the increased capital because of his illness. The allotment was carried out with a view to retire the debt/loan of EDC, Goa, invested more than Rs. 1 crore when the petitioner and her husband were inducted as shareholders. The petitioner's reference and reliance upon e-mails were denied as the respondent is computer illiterate and does not know how to operate computers. The respondents contested and disputed the veracity of the e-mail correspondence produced. The respondent also denied that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a negligible minority. The petitioner has stated that no premium was charged for the new shares issued pursuant to the increase in the authorised capital while the petitioner and her husband were charged a premium of Rs. 3,900/- per share. The counsel for the Respondent denied that there was any systematic plan to drive the petitioner and her husband out of the company holding 30% of the shares before March, 2003 when the share capital was increased. It was pointed out that the share capital of the company was increased in the interest of the company and with the knowledge of the petitioner and her husband. The notice dated 1.3.2003 for holding Extraordinary General Body Meeting of the company on 2.3.2003 was sent to them by courier which was received by them. The petitioner's husband gave No Objection on his behalf and that of the petitioner for increasing the share capital stating that they were not in position to purchase any of the increased capital because of his illness. The allotment was carried out with a view to retire the debt/loan of EDC, Goa, amounting to Rs. 70 lakhs as the said loan carried a very high rate of interest of approx Rs. 10 lakhs per year which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rling was remitted to the company. The petitioner has stated that sometime in early 2001 it was decided to avail of the loan offered by the Economic Development Corporation of Goa, Daman and Diu (EDC) and that the Respondent gave the petitioner's husband the impression theat he had given a personal guarantee for the aforesaid loan availed of by the company from the EDC, without any further security but the respondent had, in reality, mortgaged the said property and hypothecated the plant, machinery, fixtures, vehicle et to the EDC as security for a term loan of 70,00,000/-. The petitioner stated that the respondent at the time of taking this loan sought to foist an agreement on the loan and interest the petitioner's husband would be obliged to sell his shares to the Respondent for Rs. 2,50,000/- The respondent however denied that the petitioner came to India after 1995. It was pointed out that the Company had already availed of a loan sanctioned by EDC in January 2002 and the outstanding amount towards loan was approx. Rs. 70 lakhs. The respondent denied that the company ever considered selling the project. All correspondence that is relied upon by the petitioner in this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Mumbai that the petitioner's husband had acquired only a minority of the total shares in the company and that the petitioner has erroneously stated that the petitioner's husband and petitioner had collectively acquired 50% share. Subsequently the name of the Company was changed back from Gaffino MacFarlane Resorts and Motels P. Ltd. to its original name. The explanatory statement pursuant to Section 173 of Companies Act, 1956, stated that the change in the name of the company was proposed since the foreign collaborators of the company had expressed their desire to exit from the company. The petitioner has submitted that at no time had the petitioner or her husband ever indicated their desire to exit from the company as alleged by the Respondent in the explanatory statement. It is the case of the petitioner that Form 32 had also been filed by the Respondent wit the ROC dated 12.12.2002 by which it is falsely alleged that the petitioner and her husband resigned/ceased to be directors on 2.12.2002. The petitioner stated that neither the petitioner nor her husband ever resigned as Directors of the company. It was pointed out that her husband ceased to be a director only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for holding Extraordinary General Body Meeting of the company on 22.3.2003 was sent to them by courier which was received by them. The petitioner's husband gave No Objection on his behalf and that of the petitioner for increasing the share capital stating that they were not in a position to purchase any of the increased capital because of his illness. It was denied that increase of share capital of the company from Rs. 10 lakhs to Rs. 40 lakhs is illegal or null and void. It was denied that the petitioner and her husband held or hold 5000 equity shares as alleged. It was denied by the respondent that there has been an act of deceit in increasing the share capital of the company and subsequent allotment as alleged or at all. It is submitted by the respondent that the name of the company was changed with effect from 11.2.2003 and it was denied that the explanation given in the explanatory statement is false and fraudulent. It is submitted by the respondent that the petitioner and her husband ceased to be directors of the company wef 2.12.2002 since they absented from three consecutive meetings of Board of Directors for continuous period of three months without obtaining leave of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner and stated that R-2 does not know how to operate the computer and therefore could not have corresponded with petitioner's husband on emails. Further, the analysis report produced by the petitioner alleging that the email had not been sent from the computer of petitioner's late husband is of no relevance as an email account can be accessed from any computer terminal and the fact that an email had not been sent from a particular computer does not canvass the case of the petitioner any further. 14. I have considered the pleadings and the documents filed therewith as well as the arguments of the counsels for the petitioners and the respondents. Preliminary objections raised in the case as said earlier are not tenable. Coming to the merits of this case I find that the respondents have not been able to meet even a single allegation against them. They have depended on mere denials. What they have stated is not borne out from the records. Most of the allegations have been met with stony silence. Chronology of events reveals a different state of affairs then what the respondents have tried to paint Even the case laws relied upon do not come to their support in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to purchase shares. This statement is difficult to believe in view of the fact that on the date when the respondents issued shares to themselves the petitioners money nearly 28 lakhs (three lakh less than what was stated to be required for raising through the increase in share capital) was already lying with the company, till date it is admitted lying with the company as application money. The so-called proper purpose of issuing further share to pay off the EDC loan is also not made out by the respondents in that they have failed to meet the petitioner's argument pointing towards the fact that the monies collected at the time of the subscription from the purported increase in capital could not have paid off the loan as the respondent No. 2 himself has stated that the loan was paid off on 7.3.2003 whereas the share allotment monies were collected subsequently only after 31.3.2003. And the respondents have maintained stony silence as to why no premium was charged on these allotments whereas the petitioners had been earlier charged premium at the rate of Rs. 3900/- per share. All these circumstances only point out that the increase and allotment of shares was done with an ulteri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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