TaxTMI 
TaxTMI 
2010 (7) TMI 820
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....sories in India. 4. The case of the petitioner is that it employed the second respondent, Sunil Sharma in order to set up a subsidiary company in India for the purpose of servicing its products and of its other associates. Accordingly, the company was incorporated with an authorised share capital of Rs. 30,00,000 divided into 3,00,000 equity shares of Rs. 10 each. The second respondent, his wife, the third respondent subscribed to the memorandum and articles of association of the company. However, they did not make any material investment of their own. The petitioner had transferred a sum of Rs. 7,50,000 by way of gift to the second respondent, which was invested by him towards his share capital thereby, allotting 75,500 equity shares of Rs. 10 each in his favour. Respondents Nos. 2 and 3 are mere name lenders and functioning not more than as trustees to the interest of the petitioner. 5. The petitioner had invested a sum of Rs. 22,42,500 towards the allotment of shares in the company upon which, 2,24,250 equity shares of Rs. 10 each were allotted on March 30, 2000, in favour of the petitioner constituting 74.75 per cent. of the paid-up capital of the company thereby, the company....
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....by the post office on June 30, 2003 and June 30, 2004, bore similar seal of the issuing post office contrary to the guidelines of the Postal Department, which alone cannot prove service of notice for the relevant annual general meetings. At the same time, the original notice of the fourth annual general meeting filed by the company with the Registrar of Companies did contain the special business for increasing the authorised capital from Rs. 30,00,000 to Rs. 1,00,00,000. The respondents had tampered the company's records by substituting the original copy of the notice with a fabricated document and attached the same to the original set of the returns filed in the Registrar of Companies. The notice dated June 30, 2003, forming part of records of the company in the Registrar of Companies was a fabricated and interpolated document. Moreover, the annual return as on October 27, 2003 and the balance-sheet for the year ended March 31, 2004 did not reflect the purported increase in the authorised share capital of the company. The increase in the authorised capital is not only without the knowledge and consent of the petitioner, but also contrary to the understanding between the parties. A....
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....yees who were loyal to the company and the parent company. He had exerted undue influence on the employees of the company by withholding salaries and threatening of taking criminal action for the alleged misappropriation, forcing them to leave the company. The above oppressive acts on the part of the respondents were continuing which were prejudicial to the interest of the petitioner and the company and therefore, the petitioner sought a declaration that the resolution to increase the authorised share capital from Rs. 30,00,000 to Rs. 1,00,00,000 passed at the fourth annual general meeting on September 30, 2003, was null and void ; to declare that the allotment of 1,60,000 equity shares made in favour of the second respondent on May 3, 2004, was null and void ; to order forfeiture of 75,750 shares of Rs. 10 each held among respondents Nos. 2 and 3, while imposing penalty of Rs. 1,00,00,000 on respondents Nos. 2 and 3 and damages of Rs. 1,00,00,000 and for other appropriate action for tampering with the official records. 8. After service of notice, the respondents entered appearance and filed a detailed statement of objections contesting the claim. It was contended that there were ....
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....ssociation of the company as amended from time to time and estopped from questioning the directorship of respondent Nos. 2 and 3. The shareholding pattern between the petitioner and respondents Nos. 2 and 3 could not remain all the time at the ratio of 75 : 25 per cent. of the paid-up capital of the company and there was no such stipulation in the articles of association of the company. By virtue of article 4, the company's shares were under the control of the board of directors and they were empowered to allot the shares to any person as they thought fit and the petitioner could not question the discretion of respondents Nos. 2 and 3 by challenging the impugned allotment more so, when the company had duly complied with the requirements of the articles, and sections 94 and 97 before increasing the authorised capital of the company with the object of particularly launching of UPS of the company in the market. 9. The respondents have offered explanation for the delay in supply of share certificates to the petitioner. They also contended that they have dispatched timely notices to the petitioner under section 171 of the Act in respect of the meetings of the members of the company as ....
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....e legal requirements nor ensured fair play and probity in corporate management. Thus, the said act amounted to gross oppression. The cumulative effect of the events showed that the respondents had been treating the company as a subsidiary of the petitioner and drawing support from the petitioner. Having regard to the facts and circumstances of the case, the Company Law Board was of the view that it would be more equitable for respondents Nos. 2 and 3 to part ways by selling their stake in the company to the petitioner. The petitioner was directed to adequately compensate the respondents group for all their efforts towards progressive growth of the company. Therefore, it proceeded to issue six directions as set out in its order. 12. The petitioner is aggrieved by the directions issued by the Company Law Board in so far as it has directed refund of allotment of Rs.16,00,000 to the second respondent and also directing the petitioner to pay a sum of Rs.25,00,000 on account of the services rendered and contribution made by the respondents towards promotion, progress and growth achieved by the company. The respondents are aggrieved by the finding recorded by the Company Law Board to the....
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....y the second respondent by way of a housing loan. Though the object of enhancing the share capital was for launching UPS, the same was not implemented at all. The way the meeting was convened, the contents of the notice of the meeting, which did not include the agenda for increasing the share capital, the subsequent tampering with the said notice and the fact that the notice served to the Income-tax Department and filed with the Registrar of Companies is different from the one on which the respondents rely on, clearly show that the increase in the share capital was done in a clandestine manner without notice to the petitioner, the majority shareholder, who had 74.75 per cent. of shareholding in the company. The effect of increase in the share capital and allotment of shares in a clandestine manner was that majority shareholder became minority shareholder and minority shareholders became majority shareholders. 16. By virtue of article 4, the company's shares shall be under the control and discretion of the board of directors who may allot or otherwise dispose of the same to such person or persons, whether he is a member of the company or not, for such consideration and on such term....
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....ehalf of the company. The fiduciary capacity within which the directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company. It follows that in the matter of issue of additional shares, the directors owe a fiduciary duty to issue shares for a proper purpose. This duty is owed by them to the shareholders of the company. Therefore, even though section 81 of the Companies Act which contains certain requirements in the matter of issue of further share capital by a company does not apply to private limited companies, the directors in a private limited company are expected to make a disclosure to the shareholders of such a company when further shares are being issued. This requirement flows from their duty to act in good faith and make full disclosure to the shareholders regarding the affairs of a company. The acts of directors in a private limited company are required to be tested on a much finer scale in order to rule out any misuse....
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....n and mismanagement. The said finding is based on legal evidence. We do not find any good reason to interfere with the well-considered order passed by the Company Law Board, keeping in mind the legal position and evidence as revealed from the material on record. 19. Regarding Point No. 2 : From the aforesaid facts, it is clear that the relationship between the petitioner and respondents Nos. 2 and 3 is strained. Realising this, the respondents, in their counter, have categorically stated that they are willing to part ways with the petitioner provided they are adequately compensated for giving up the brand name of the company and further, the respondents are allowed to retain the company to themselves. Therefore, it is clear that the parties have reconciled to the fact that they cannot do business any more together. It is in those circumstances, the Company Law board was justified in setting aside the resolution dated September 30, 2003, by which, the share capital was enhanced from Rs.30,00,000 to Rs. 1,00,00,000 and declared it as null and void. Consequently, the allotment of shares of Rs. 16,00,000 to respondent No. 2 was also set aside, which cannot be found fault with. It dire....