2018 (4) TMI 547 - HC - Companies Law

Court Upholds Company Law Board Decision on Shareholder Oppression

Panday Minerals Private Limited, Laxmi Narayan Panday s/o Shri Amrit Lal Panday, Mohit Panday S/o Shri Prabash Panday, Rakhee Panday w/o Mr. Rohit Panday, Prabhash Panday s/o Laxmi Narayan Panday, Vimla Panday w/o Prabha Panday, Rohit Panday s/o Prabhash Panday, Ritika Panday Versus Sanjay Sukhwal s/o Late Shri Laxmi Narayan Sukhwal, Registrar of Companies, Deepak Vijaywargiya S/o Vishwasnath Vijaywargiya

The court upheld the Company Law Board's decision, dismissing the appeal. It found the petition maintainable under Sections 397 and 398, deemed the ... Oppression and mismanagement - Appointment of Ms. Rakhi Pandey as Director of the Company - no notice was given to the first Respondent and the Appellant no.2 herein was the only Director present in the meeting and thus, for want of proper quorum - illegal transfer of the shares - Held that:- There is no evidence on record showing that notice of Extra-ordinary General Meeting held on 9.10.09 was given to the first respondent, wherein the paid up share capital of the Company was increased from ₹ 1 lac to ₹ 3 lac but the Form No.5 was filed with the Registrar of Companies on 12.10.09 under the digital signature of the first respondent. There was nothing on record suggesting that the digital signature of the petitioner was misused and thus, the CLB rightly arrived at the finding that there appears proper acquiescence on the part of the petitioner in respect of the increase of authorised capital of the Company from ₹ 1 lac to ₹ 3 lacs. The alleged transfer of the shares by the first respondent in favour of the appellant no.2 herein, has been declared illegal by the CLB while deciding a separate petition preferred by the first respondent. Though the first respondent had contended before the CLB that special notice dated 14.8.10 under Section 284 read with Section 190 of the Act of the Board Meeting held on 30.9.10, was served upon the first respondent but no documentary evidence was produced to establish the factum of service of the notice as alleged. Apparently the petitioner was not given an opportunity to explain his position against the proposed removal from directorship. Violation of mandatory provisions of Section 284 of the Act, the removal of the first respondent from directorship of the Company has rightly been held illegal by the CLB. It is also not in dispute that Smt. Rakhee Panday, the appellant no.4 herein, was appointed as Director of the Company in the Board Meeting held on 30.9.10 wherein the first respondent was removed from directorship. No notice of Board Meeting was given to the first respondent and therefore, he was absent in the meeting, thus the appellant no.2 herein, being the only Director present in the meeting, there was lack of proper quorum. In this view of the matter, the finding arrived at by the CLB holding the appointment of appellant no.4 herein, as Director of the Company was not validly done, cannot be faulted with. The first respondent had already been removed as Director of the Company w.e.f. 30.9.10 and therefore, no notice of the Board Meeting held on 6.1.10 wherein Shri Mohit Kumar Panday, the appellant no.3 herein, was appointed as Director, was issued to the first respondent. The shareholdings of the first respondent being restored and his removal from the directorship of the Company being found illegal, for parity of the reason i.e. non service of the notice of the meeting held on 6.1.10, has rightly been held invalid for want of quorum. The shares originally held by the first respondent stand restored by the order of the CLB and thus, on account of non allotment of the shares to the first respondent proportionately, his shareholdings in the Company stand considerably reduced. As observed by the CLB, the increased 60,000 shares of ₹ 10 each have been allotted to individuals of Panday Group having same residential address, which has resulted in absolute majority of the Group and thus, the same is rightly been treated to be an act oppressive against the first respondent. Respondent had filed the petition before the CLB on the basis of continuing acts of mismanagement and oppression on the part of the appellants herein. That apart, subscribed and paid up capital was further increased on 27.8.12 with the issuance of 60,000 shares and Form No.2 in this regard was filed with the Registrar of Companies, Jaipur on 15.9.12. The Company Petition was filed by the first respondent before the CLB on 23.7.13 and therefore, it cannot be said that the petition filed suffered from inordinate delay and laches. Moreover, the first respondent had challenged transfer of 2500 shares by way of separate petition before the CLB, which was allowed vide order dated 19.3.14. Other acts of oppressions as alleged were consequential in sequence. In any case, the CLB exercising discretion having entertained and decided the same on merits, this court does not find any justifiable reason to entertain the objection raised on behalf of the appellants at this stage. Appeal dismissed. Issues Involved:1. Maintainability of the petition under Section 397 & 398 of the Companies Act, 1956.2. Legality of the removal of the first respondent from directorship.3. Validity of the increase in share capital.4. Validity of the appointment of new directors.5. Allegations of oppression and mismanagement.Issue-wise Detailed Analysis:1. Maintainability of the Petition:The appellants argued that the first respondent did not meet the mandatory shareholding requirement under Section 399 of the Companies Act, 1956, as he did not hold 1/10th of the paid-up capital of the company. The court noted that the eligibility of the petitioners to maintain the petition in terms of Section 399 of the Act cannot be determined based on the increased share capital, which was itself a subject matter of the challenge. The court emphasized that the eligibility should be determined based on the shareholding prior to the acts complained of. The first respondent held 2,500 shares out of 10,000 shares before the alleged acts of oppression, making the petition maintainable.2. Legality of the Removal from Directorship:The first respondent was removed from directorship without being given an opportunity to represent himself, violating the mandatory provisions of Section 284 of the Act. The appellants failed to provide documentary evidence of serving the special notice required under Section 284. Consequently, the removal was held to be illegal.3. Validity of the Increase in Share Capital:The court found no evidence that the first respondent was given notice of the Board Meetings where share capital was increased. The increase from Rs. 1,00,000 to Rs. 3,00,000 was acquiesced by the first respondent as Form No.5 was filed under his digital signature. However, for the increase to Rs. 9,00,000, no notice was given, and the shares were allotted to individuals of the Panday Group, resulting in an oppressive act against the first respondent by reducing his shareholding proportionately.4. Validity of the Appointment of New Directors:The appointments of new directors, including Mohit Pandey and Rakhi Pandey, were held invalid due to the lack of proper notice and quorum in the meetings where these appointments were made. The first respondent was not given notice of these meetings, and the appointments were made without his consensus, violating the provisions of the Act.5. Allegations of Oppression and Mismanagement:The first respondent alleged that the appellants were mismanaging the company’s funds and diverting them for personal use. The court found that the acts of increasing the share capital without proper notice and the removal of the first respondent from directorship without following due process were indicative of oppression and mismanagement. The court observed that these acts were part of a continuing sequence of oppressive actions against the first respondent.Conclusion:The court dismissed the appeal, upholding the findings of the Company Law Board (CLB). The petition under Sections 397 and 398 was maintainable, the removal of the first respondent from directorship was illegal, the increase in share capital without proper notice was oppressive, and the appointments of new directors were invalid. The court found no justifiable reason to entertain the objections raised by the appellants and concluded that the acts complained of constituted oppression and mismanagement.