TaxTMI 
TaxTMI 
2009 (4) TMI 448
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....ed order, the CLB had directed that the Board be reconstituted at the next Annual General Meeting to be held within one month from the date of receipt of the order. II. Background facts & the lis 2. Certain facts relating to the circumstances under which the petition came to be filed would require to be stated. The 7th respondent company had been incorporated as a Private Limited Company on 23-9-1965, having been promoted by the father of the appellant, S. Ajit Singh Jhikka and one S. Surain Singh. The company which began its principal business in chit fund transactions closed its operation after the coming into the force of Prize Chit and Money Circulation Scheme (Banning) Act of 1978 and the company started the business of hire purchase of vehicles. At its commencement, the Board of Directors consisted of 8 persons of whom S. Ajit Singh Jhikka died on 26-5-2002, Sh. A.N. Gautam died on 26-5-2002, S. Atma Singh died in the year 1983, S. Amrao Singh died in the year 1984 and S. Parkash Singh also died in the same year. At its commencement, all the 8 persons held 250 shares each at the rate of Rs. 100 per share. The appellant himself was inducted as Director of the company on ....
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....d for as far back as on 9-10-1999 and 16-3-2000 and the persons who had the knowledge about the so-called illegalities of increase of the shareholding and the non-transmission of shares did nothing till the year August, 2005 when they filed a petition before the CLB. The main objections to the petition were that the petition was highly belated and not maintainable being barred by limitation. The induction of an Additional Director could not be termed to be an act of oppression since the company could not have been carried on with one Director. The increase in shareholding itself ought not to have a cause for complaint since no serious prejudice has been caused by such increase. None of the petitioners had a locus standi to even file a petition since they are not the members of the company, their names having not been entered in the list of members and their status as legal heirs had not been established in the manner known to law and they lacked the locus standi to prosecute the petition. When the gravamen of the charge against the company was that the petitioner had been kept in the dark about the affairs of the company and they had no notice of any Annual General Meeting for seve....
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....mission as the case may be was delivered to the company. (iv)The increase of shares from 2000 to 5000 shares had been made after due notices to all the shareholders under postal cover on 19-1-1996 and the factum of increase had also been duly filed with the ROC. (v)Of the petitioners, only the 1st petitioner, who is the 1st respondent herein, had 250 shares and Smt. Kailash Wati Gautam had 200 shares in her name. As such, the petition was filed by the persons and consent of shareholders to the extent of 450 shares, it was only 9 per cent of the shareholding in the company and did not meet the statutory requirement of 1/10th of the shareholding to maintain a petition under sections 397 and 398 of the Companies Act. (vi)The reasoning of the CLB that Smt. Kailash Wati Gautam and the 1st petitioner, who constituted two out of fifteen shareholders met the alternative requirement of 1/10th of total number of shareholders but even such a finding was fallacious since there were only eight original shareholders and persons in whose favour the shares were yet to be transmitted could not be taken into consideration for the purpose of meeting the requirements of section 399(1)(a) of t....
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..... 836 (Mad.), where a Bench of the Madras High Court held that allotment of additional shares with the only object of gaining control of the company with no proof that the company required additional capital, amounted to oppression and mismanagement. The Division Bench held so by consideration of the fact that when no valid offer had been made even to the existing shareholders and the consequence of issue and allotment amounted to oppression and mismanagement and such issue was bound to be interfered with and set aside. Additional issues of shares were themselves to be considered in the factual context, said a decision of the Hon'ble Supreme Court in Dale & Carrington Invt. (P.) Ltd. v. P.K. Prathapan [2004] 54 SCL 601. While adverting to a case of a private company, the Court observed that though section 81 relating to allotment of additional shares was itself not applicable to private companies, there was still a fiduciary duty owed to issue shares for a proper purpose and the directors of the private company were expected to make a disclosure to shareholders in respect of issue of further shares. The non-applicability of section 81 itself cast a heavier burden on the directors o....
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.... having regard to the exigencies of the situation and the court must arrive at a conclusion upon analyzing the materials brought on records that the affairs of the company were such that it would be just and equitable to order winding up thereof and that the majority acting through the Board of Directors by reason of abusing their dominant position had oppressed the minority shareholders. The conduct, thus, complained of must be such so as to oppress a minority of the members including the petitioners vis-a-vis the shareholders which a fortiorari must be an act of the majority. Furthermore, the fact situation obtaining in the case must enable the court to invoke just and equitable rules even if a case has been made out for winding up for passing an order of winding up of the company but such winding up order would be unfair to the minority members. 147. The interest of the company vis-a-vis the shareholders must be uppermost in the mind of the court while granting a relief under the aforementioned provisions of the Companies Act, 1956." (p. 535) (ii) Legal representatives could maintain the petition 9. The objection regarding the maintainability of the petition at the inst....
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....Village Naulakha v. Ujagar Singh [2000] 7 SCC 543. Though these were not rendered in the context of dealing with the provisions of the Companies Act, they were cited as general propositions of law that "fraud and justice never dwell together" and it was erroneous to state that the Tribunal and the High Court has no jurisdiction to set aside an award on the ground of fraud disclosed later on. The effect of the decisions was that no specific action to set aside fraud be made but when a fraudulent transaction is shown in defence by any party, other party affected by such fraudulent conduct could point out to such fraud and avoid the same even in collateral proceedings. VII. Consideration of the rival contentions (i) Presumption regarding service not available when receipt of notice is denied by the addressee 11. Adverting to the defence taken by the appellant that the notices of meetings had been issued to the members under certificate of posting, learned counsel for the respondents refers to the decision of this Court in Bhankerpur Simbhaoli Beverages (P.) Ltd. v. Sarabhjit Singh 1996 (86) Comp. Cas. 842 that section 53 of the Companies Act contemplates the mode of services ....
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....and mismanagement and the said result would follow in a case where the action is mala fide and it is intended to wrest control and represents a majority of members to minority without adequate opportunity being given to the members for taking the additional shares. In this case, it would be seen that the increase was from 2000 shares to 5000 shares and it is not shown anywhere that the increase itself has caused any additional liability on the shareholders. The most potent objection could be that the entire increase in the additional holding got to be cornered by the appellant and the 8th respondent themselves. (iv) Legal representative who had not obtained transmission cannot complain of lack of notice 14. If only the additional allotment had been offered fairly to all the members or of the legal heirs of the existing members, who later died, there ought not to have been a cause for complaint. The notice of the AGM in which the increase in capital was to be issued and passed appears to have been issued only to two persons admittedly when the other legal heirs of the deceased had not been served with such notice. It is difficult to make a complaint about the want of notice to....
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....vative title through appropriate grants under the Indian Succession Act had been submitted already. They had after all remedy under some other provision to have their names included by resort to section 111 if there was an improper refusal by the persons held with the affairs to make such a transmission as required. 16. The observation of the CLB that the properties had been let out for low rent also appears to be not correct and the contention of learned counsel for the appellant that such letting had been made even before he had been appointed as a director cannot be rejected as without substance. The CLB itself had no materials before it to enter a finding that the letting had been for inadequate rents; it was purely conjectural. 17. The company is a profit making company and nothing has been brought out to show that by increase in shareholding there had been any prejudice to them. If the shareholding of the majority of persons who are legal representatives had rights to be offered with additional shares but it was not so offered, the respondents have to blame themselves for the laches on their part in failing to take action to come on board by appropriate action for trans....