TaxTMI 
TaxTMI 
TaxTMI 
2012 (7) TMI 33
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....ment raise is whether a management that is found guilty of converting the majority group of shareholders in a company into a minority by issuing further shares in the company without notice to the majority group is liable to be dislodged in every case. The allottee-appellant rakes up an issue of natural justice and contends that an allotment of shares in a company cannot be questioned in proceedings under sections 397 and 398 of the Act and the matter disposed of in the absence of the allottee or allottees of such shares. The petitioners before the Company Law Board suggest that the error of law committed in the order under appeal is in the impugned allotments of shares not being cancelled despite the allotments being found to be illegal and otherwise improper. 3. The facts are hardly in dispute. The group of shareholders represented by the petitioners before the Company Law Board was, admittedly, the majority shareholders in the company prior to the first of the impugned allotment of shares therein. In fact, the group of shareholders represented by the petitioners before the Company Law Board was the overwhelming majority group in the company prior to April, 2004, when, on or abo....
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....s been shown by the Agarwal group to demonstrate as to why the material that it now seeks to rely on could not be produced before the Company Law Board for more than two years that the proceedings remained pending before it. 5. Though the Sarda group claimed before the Company Law Board that it held shares making up more than 70 per cent of the paid-up capital in the company after the transfer of shares amounting to 30 per cent of the paid-up capital in the company to the Agarwal group, the Company Law Board found that the petitioners before it held shares that made up slightly less than 30 per cent of the paid-up capital in the company. The Company Law Board found that despite the petition before it challenging only two lots of allotments of shares in the company subsequent to the Agarwal group being inducted in the management thereof, there was a third allotment which the Agarwal group had kept concealed till deep into the proceedings. The suppression is apparent from the affidavit-in-opposition filed by the Agarwal group before the Company Law Board. There is no doubt that the Agarwal group tried to mislead the Company Law Board as to the shareholding position in the company by....
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....f the company as they continue to be defaulters and are, as such, disqualified, the Company Law Board ought to have taken such matter into consideration and allowed a successful management to remain in control of the company by directing the petitioners before the Company Law Board to be appropriately compensated in respect of their investment in the company. It is further asserted by the Agarwal group that since the shares of the Sarda group remain attached in proceedings instituted before the appropriate Debts Recovery Tribunal by the West Bengal Financial Corporation in respect of another Sarda group company, it is more likely than not that the Sarda group would not be able to retain control of the company upon the shares held by it in the company being sold in furtherance of the claim in the recovery proceedings. 8. The Agarwal group refers to a judgment reported at Bajrang Prasad Jalan v. Mahabir Prasad Jalan AIR 1999 Cal 156, for the proposition that there can be no hard and fast rule as to whether the oppressors should buy out the oppressed or the majority should buy out the minority or those in management should buy out the complainants or otherwise. The Agarwal group emph....
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....; that is to say, that ordinarily the wrongs complained of, if found to be justified, have been corrected in this jurisdiction but the majority shareholders have been permitted to continue in management upon the minority being permitted to be bought over by the majority at an appropriate price if the continued existence of the two groups has been found to be detrimental to the interest of the company. Over the recent decades, and corresponding to levels of commercial morality sinking to new lows, seemingly righteous petitioners in proceedings under sections 397 and 398 of the Companies Act have clamoured for those found guilty of oppression or mismanagement to be removed from the management ; and it has increasingly become acceptable to courts and Tribunals to require those found guilty of oppression or mismanagement to sell their shareholding in the concerned company to the complainants on the argument that there should be no premium for dishonesty by allowing the wrongdoers to remain entrenched and pushing those who have been wronged out of the company. There are other factors that have weighed in favour of those found to be more adept at managing the business of the company, irr....
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....g up more than the 75 per cent control of a company, such control itself has another intrinsic value. Likewise, a group of shareholders holding shares making up more than 50 per cent of the paid-up capital of a company have the right to install or form the board of directors or the management of the company ; and such holding has an additional value over and above the collective value of the shares. A group holding shares making up above 25 per cent. of the paid-up capital of a company can block a special resolution and such block will command an extra value in addition to the cumulative value of its shares. A group holding 10 per cent of the paid-up capital of a company can exercise the statutory right of instituting proceedings under sections 397 and 398 of the Act and that, by itself, has an inherent value in addition to the summative value of the shares. The value of a block of shares is, therefore, not necessarily a product of the value of one share and the number of shares held. For any group of shareholders to be denied the property reflected by its block of shares, in addition to the value of the shares, an exceptional case has to be made out. If then the onus of making out....
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....party to the proceedings. Upon the petitioners before the Company Law Board discovering the third allotment, their contention was that the shares issued under the third allotment were to the Agarwal group itself. The Agarwal group was aware of the charge and did not object to the issue being taken up in the absence of Ambo Credit P. Ltd. More importantly, it was the conduct of the company and its management that was called into question in respect of the third allotment. Once it was found that the third allotment was both illegal and improper, that the beneficiary of the unfair allotment was not before the Company Law Board mattered little even if it were accepted that Ambo Credit P. Ltd., was not a part of the Agarwal group. There is no merit in the point of breach of the principles of natural justice urged by the appellant in the second of the two appeals. 14. The contesting respondents in the two appeals-the petitioners before the Company Law Board-are, however, justified in their assertion in the cross-objection that as a natural corollary, the three allotments of shares should then have been cancelled and the shareholding of the company assessed thereafter. It appears from th....
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....f any money prior to the general meeting of the company being held in accordance with the directions contained in this order. (iii) The money adjusted by the company following the allotments of February 14, 2006 and March 19, 2007, will stand cancelled. No refund need be made of the money adjusted against the allotment of shares on February 14, 2006 and an appropriate decision in such regard will be taken in the best interest of the company by the management to be installed following the general meeting of the company to be held in accordance with this order. (iv) No refund will be made in respect of the allotment of shares on March 19, 2007, to Ambo Credit P. Ltd. The money will continue to be shown as an unsecured loan in the accounts of the company and may be repaid, after June 15, 2012 and after the general meeting in terms of this order is held, only upon it being found payable in an appropriate action being instituted. (v) A general meeting of the company be convened by the company to be held by April 30, 2012. Due notices for such general meeting be issued to all the shareholders of the company as were recorded in the register of members of the company i....