2017 (11) TMI 1981 - HC - Companies Law

Court allows composite petition under Companies Act, deems share transmission invalid. Relief granted for oppression.

The Court held that the composite petition under Sections 111-A, 397, and 398 of the Companies Act was maintainable. Shareholding for the petition should ... Direction to supersede the Board of Directors of the said Company by appointing an Administrator and/or Special Officer to take over its management and affairs, as well as its assets and properties - constitution of Committee consisting of representatives of the appellants to function as such Administrator and/or Special Officer - HELD THAT:- The resignation of the Director respondent no.5 in writing came into effect immediately and did not require acceptance. 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 - there is no valid withdrawal of resignation of respondent no.5 in law and consequently the Board meeting held on 9.4.2013 is non-est in the eye of law. The view taken by the CLB that the issuance of the said letter by appellant No.1, notwithstanding the filing of CP No.1 of 2013 by her questioning the decisions 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passed at the said AGM are set aside; (iv) the Board of Directors of the Company as existing as on today shall stand superseded and respondent Nos.2 to 7 are removed from the Directorship of the Company, and all forms-32 filed for their appointment as Managing Director/Director/Whole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 rectified by transmission of 1/4th of the 4,00,691 equity shares to appellant No.1, pending decision on the validity of the Will dt.04-12-1987 propounded by appellant No.1 and Will dt.14-2-2005 propounded by respondent No.2 by the competent Civil Court and subject to its decision; (vii) respondent Nos.2 to 4 and 6 and 7 have no authority to deal with the movable or immovable assets of the Company including the various Bank accounts of the Company in Bank of Baroda, ICICI Bank, State Bank of India or in any other Bank hereafter; (viii) the Board Meetings held on or after 20-3-2013 as null and void and all resolutions passed therein are set aside; and (ix) All Forms, documents, returns filed by respondent no.s 2-7 on behalf of the Company with/before any Government authorities on or after 20-3-2013 are declared as null and void. 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. Issues Involved:1. Maintainability of Composite Petition under Section 111-A read with Section 397, 398, 402 to 404, and 406 of the Companies Act.2. Shareholding required for maintaining a petition under Section 397 to 399.3. Validity of transmission of shares based on disputed Wills.4. Withdrawal of resignation of a Director and its legal implications.5. Validity of Board meetings held on 09-04-2013, 10-04-2013, and 11-04-2013.6. Validity of the Annual General Meeting (AGM) held on 18-12-2013.7. Acts of oppression and mismanagement.8. Reliefs to be granted.Detailed Analysis:1. Maintainability of Composite Petition:The Court held that a composite petition under Section 111-A and Sections 397/398 is maintainable. The CLB erred in treating the petition as only under Sections 397/398. The principle laid down in Manoj Kumar Kanunga and others [(2013) 179 Comp Cas 504 [A.P.]] and Charanjit Khanna and others [(2011) 164 Comp Cas 315 (Delhi)] was followed, allowing for composite petitions to avoid multiplicity of legal proceedings.2. Shareholding Requirement:The Court held that the shareholding required for maintaining a petition under Section 397 should be reckoned from the date prior to the act of oppression. The CLB erred by considering the shareholding after the alleged oppressive acts. The shareholding prior to 10-04-2013 should be considered, and the appellant No.1's shareholding would cross the 10% threshold required under Section 399.3. Validity of Transmission of Shares:The Court found that the transmission of shares to respondent No.2 based on the Will dated 14-02-2005 was invalid as it violated Article 66 of the Articles of Association, which requires a probate, letter of administration, or succession certificate. The CLB erred in relying on Section 109, which does not apply to the transmission of shares of a deceased member. The Court held that the shares should be equally divided among appellant No.1 and respondent Nos.2 to 4 pending the decision on the validity of the Wills.4. Withdrawal of Resignation:The Court held that the resignation of respondent No.5 as a Director was effective immediately upon submission on 06-04-2013 and did not require acceptance. The withdrawal of resignation on 09-04-2013 was invalid. The CLB's finding that respondent No.5 continued as a Director was erroneous.5. Validity of Board Meetings:The Court held that the Board meetings held on 09-04-2013, 10-04-2013, and 11-04-2013 were invalid due to the lack of quorum and the absence of proper notice to appellant No.1. Consequently, the decisions taken in these meetings, including the appointment of respondent Nos.2 to 4 as Directors and the transmission of shares to respondent No.2, were invalid.6. Validity of AGM:The Court held that the AGM held on 18-12-2013 was invalid as it was convened by persons who were not validly appointed as Directors. The decisions taken in this AGM, including the ratification of the Board meetings held on 09-04-2013, 10-04-2013, and 11-04-2013, were null and void.7. Acts of Oppression and Mismanagement:The Court found that the acts of respondent Nos.2 to 7 were oppressive towards appellant No.1. The respondents' conduct was harsh, wrongful, and prejudicial to appellant No.1's legal and proprietary rights as a shareholder. The Court held that the appellants made out a case for relief under Section 397 of the Act.8. Reliefs Granted:The Court declared the acts of respondent Nos.2 to 7 as oppressive and set aside the Board meetings held on 09-04-2013, 10-04-2013, and 11-04-2013, including all resolutions passed therein. The AGM held on 18-12-2013 and its resolutions were also declared null and void. The Board of Directors as existing was superseded, and respondent Nos.2 to 7 were removed from Directorship. The transmission of 4,00,691 equity shares to respondent No.2 was declared illegal. The register of members was ordered to be rectified by transmitting 1/4th of the shares to appellant No.1. The Court also authorized appellant No.1 to increase the number of Directors to three and to appoint a committee of advisers for the future management of the Company. The appellant No.1 and the Directors nominated by her were to hold office for three years.The appeal was allowed with costs of Rs. 25,000 to be paid by respondent Nos.2 to 4 to appellant No.1 within four weeks. The judgment was stayed for four weeks to allow for any further legal actions.