TaxTMI 
TaxTMI 
2015 (6) TMI 428
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.... son of the Respondent No. 2. 2.2 It is the case of the Petitioner that he being a non-resident Indian retired as the director of the Company in view of the applicable laws in or around 1978. However, the Petitioner, though retired as the director, continues to hold 50% of the equity share of the Company. The Respondent No. 2 and the Petitioner were the subscribers to the Memorandum and Articles of Association of the Company. 2.3 It is further alleged that the Respondent Nos. 2 and 3 are presently in possession and control of the Company. It appears that the disputes arose between the parties relating to the conduct of affairs of the Company as well as on other issues. The Petitioner, therefore, approached this Board by way of filing the instant petition complaining therein the following acts of oppression and mismanagement purportedly committed by the Respondent Nos. 2 and 3 in the affairs of the Respondent No. 1 Company. 2.4 The main grievances ventilated by the Petitioner are that at his behind, the Respondent No. 2 unilaterally, in contravention of the provisions of the Companies Act, and the Articles of Association of the Company and without convening a valid sharehol....
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....ppoint the Petitioner as Director or an independent director as this Board may deem fit. c. To hold the purported allotment of equity shares by the Respondent No. l to himself as illegal and to cancel the same. d. To direct the Respondent No. l not to issue any cheques or any other instrument towards remuneration and/or other financial benefits to the Respondent Nos. 2 and 3. e. To restrain the Respondent Nos. 2 and 3 from acting as the Directors of the Respondent No. l and/or from participating in any manner whatsoever in the affairs of the Respondent No. l. f. To restrain the Respondent Nos. 2 and 3 from drawing any further remuneration/commission from the Respondent No. 1. g. To restrain the Respondent Nos. 2 and 3, their officers, agents etc. from drawing up or withdrawing from or in any other manner operating the bank accounts of the Respondent No. 1 without the prior approval of this Board and on such terms and conditions as this Board may deem fit. h. To direct the Respondent No. 2 and 3, Respondent No. l, its officers, agents etc. to deposit the daily cash receipt received by the Respondent No. 1 from its various sources to a separate bank account and furt....
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....Petitioner has no locus to file the petition, secondly, the petition is hit by the provisions of law of limitation and thus it is barred by time, thirdly, the Petitioner's conduct is mala fide and he has filed this petition with ulterior motive and for collateral purpose and lastly that the petitioner has approached this Bench with unclean hands and therefore, the petition deserves to be dismissed. On merits, the Respondents have denied all the allegations levelled against them by the Petitioner with respect to the alleged acts of oppression and mismanagement. It is also submitted that the conduct of the Petitioner is mala fide. It is further alleged that the Petitioner's own actions have been detriment to the interest of the Company. Therefore, the petition deserves to be dismissed on this ground also. 4. To the reply, a Rejoinder was filed by the Petitioner on 17/10/2014. The Respondents filed their Sur- Rejoinder on 24/11/2014. 5. I have heard the Ld. Counsel appearing for the parties and perused the record. 6. Before I proceed to consider the rival submissions, it is pertinent to mention here that the Respondents had filed a Company Application, being CA No. 19....
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....rportedly held by the Petitioner in the Company, is still holding 1950 shares constituting 26.7% of the total paid-up capital of the Company and thus, the Petitioner being eligible under Section 399 of the Act is entitled to file the present petition. The Ld. Counsel for the Respondents pointed out that they preferred an appeal against the said order dated 25/09/2014 before the Hon'ble High Court of Bombay. According to him, although the said Appeal was dismissed, the Hon'ble High Court of Bombay kept the contentions of the parties open, including the one raised by the Respondents in the Application to the effect that the Petitioner is not competent to maintain the said petition being not a shareholder of the Company as on the date of filing of the petition. The Ld. Counsel further submitted that the Petitioner had gifted the shares held by him in the Company in 1976-77 in favour of the Respondent No. 2 and, therefore, the Respondents may be given an opportunity to lead evidence to prove the factum of gift. The Ld. Counsel submitted that, as per the settled proposition of law, this Board has power to record oral evidence, and the principles of natural justice also require t....
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....issions, I do not find any substance in the case of the Respondents. As per own admission by the Company, by way of showing the Petitioner's shareholding in the Annual Returns filed until 2012, this fact is very clear that the Petitioner was holding 1950 shares in the Company. It is needless to say that the admission is the best evidence against the party who makes it. Therefore, in my opinion, the Respondents cannot be allowed to assert the fact that the impugned shares were transferred in favour of the Respondent No. 2 in 1976-77 by way of gift. In addition to the above, it is a well settled law that for a lawful transfer of shares the execution of transfer deeds, as provided in Section 108(1) of the Act, is a must, as held in the case of Manalal Khetan v. Kedar Nath Khetan [1977] 185 SCC 47. In the present case, the Respondents have failed to produce any transfer deeds to show that the Petitioner has transferred the shares in favour of the Respondent No. 2, as alleged by them. The compliance of Section 108 of the Act is mandatory. In the case of its non-compliance, the transfer of shares cannot be held valid in the eye of law. Furthermore, it is also a well established propo....
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....f happened more than 3 years prior to the filing of the petition, the same could not be looked into. It was further held in the said decision that Article 137 of the Limitation Act, 1963 which prescribes limitation of 3 years applies to the petition under Section 397/393 of the Act. Therefore, the present petition, being time barred, deserves to be dismissed on this ground alone. 13. Responding to the above contentions, it was argued on behalf of the Petitioner that the Petitioner has retired as a Director in the year 1978 in view of the reason that he was staying in USA and had become a Non- Indian resident, and therefore, to avoid the violation of the FERA and FEMA Regulations, he had to resign as a Director. However, the Petitioner continued to be a 50% shareholder in the Company. According to Ld. Counsel, the Petitioner's main grievance is that the Respondents, without convening a valid shareholders meeting and without notice to the Petitioner, issued further equity shares thereby reducing his shareholding from 50% to 26.7%, The Ld. Counsel submitted that this reduction in the shareholding of the Petitioner was made by the Respondents with oblique and mala fide motive to....
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....above, it was also argued that the Respondents, without adopting the due course of law, issued further shares with mala fide intent to gain control over the company without notice, consent and knowledge of the Petitioner, which is a continuous cause of action, and therefore, the present petition is within time. 15. I have considered the submission and perused the record. As regards the limitation, it is an established proposition of law as held in the cases of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (dead) through L.Rs [2005] 11 SCC 314 that an act of oppression is a continuous wrong until it is brought to end by passing an appropriate order. In the case of Pearson Education Inc. v. Perntice Halt India (P.) Ltd. [2006] DLT 450, it was held that if the act complained off amounting to oppression has a continuing effect, in that case, the question of limitation does not arise. In the case of Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd. AIR 1966 Cal. 512 it was held that a petition under Section 397 would be maintainable if the effect of the alleged act of oppression persists indefinitely. In the case of Suhasini P. Kurkure v. Metaturgical Laboratories (P.) Ltd. [2012....
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....sed material and vital facts and the documents which disentitle him for grant of any reliefs sought for from this Bench. It is further submitted that the petition is filed as an abuse of process of law with mala fide intention, ulterior motive and collateral purpose and therefore, it deserves to be dismissed on these grounds also. 18. In this regard, it has been argued on behalf of the Respondents that in the pleadings, the Petitioner has alleged that he had resigned as a director but he continued to be a shareholder, which has been denied by the Respondent in their pleadings and it has been contended that since 1976-1977 after the gift of the said shares the Petitioner did not remain even as a shareholder and, therefore, no notices of the meetings and/or Annual Reports were forwarded to him from 1977. This proves and supports the Respondent No. 2's case of the gift, because if the Petitioner has not received any notices of AGM so many years he was not supposed to sleep over the matter for all those years and ignored the same from 1977, but on the contrary, he ought to have protested against the same from 1977, and taken some actions against the Respondents which he did not ....
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....etition at a late stage with ulterior motive. According to the Ld. Counsel, this is further established by the parallel proceedings that the Petitioner has adopted in the civil court to claim share in the Sonawala flat. According to the Ld. Counsel, this establishes his motive and that he has filed the Petition to exert pressure on the Respondent No. 2 to submit to the Petitioner's wrongful demand or claim in the flat at Sonawala building. Further, except making bald allegations, the Petitioner has not produced any documentary or other evidence satisfying the ingredients of Sections 397 and 398 under Companies Act, and this aspect of making bald allegations without documentary evidence also shows that the Petition is filed as an abuse of the process of law. 21. Refuting the aforesaid submission, it was argued on behalf of the Petitioner that he has approached this Bench by way of filing this petition under Section 397/398 of the Act on account of infringement of his rights as shareholder of the company. The Ld. Counsel submitted that the Petition is bona fide and the Petitioner has sought the reliefs as contained therein from this Bench under Section 402 of the Act, which ar....
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....orating the aforesaid proposition of law, it has been held by various courts that the ground of alleged suppression cannot arise unless it is demonstrated that (i) firstly, the fact was "vital and material" to the issue to be decided in relation to the reliefs claimed; (ii) secondly, that such vital fact was not to the knowledge of the Respondents or that the document could not have been in the knowledge of the Respondents, or that the document was not a public document and (iii) lastly, that by suppression of such fact, orders were obtained which would not have been granted if the correct and true facts were pleaded. In this regard, the following decisions and the relevant observations therein are relevant to be cited :- (i)Enercon Gmbh v. Enercon (India) Ltd. [2008] 143 Comp Cas 687 (CLB). ''In the present case, no relief has been granted as yet and whether the documents which are alleged to have been not been disclosed are material documents is a matter yet to be determined. Once the other side has produced all the documents, then, the question of suppression of material documents to apply the decision of the Supreme Court does not arise ......." ....
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.... the opposite party." (Emphasis supplied.) (vi)The above principle has been reiterated in a recent judgment of the Supreme Court in the case of Dalip Singh v. State of U.P. [2010] 2 SCC 114 wherein it is inter alia held; "1. ... it is now well established that a litigant, who attempts to pollute the stream of justice or who touches the pure fountain of justice with tainted hands, is not entitled to any relief, interim or final." 25. In light of the above proposition of law, I have examined the facts referred to by the Respondents claiming to be suppression of alleged material fact and vital document by the Petitioner and the misconduct on his part. 26. In my opinion, non- disclosure of the shares of the Company by the Petitioner is not fatal to the case. The explanation offered by the Petitioner that he did not disclose his shareholding in the proceeding before the USA Insolvency Court thinking that the Company was a defunct Company, is a good reason. Moreover, this is not a case where this Board was misled by the Petitioner by suppression of the said fact in order to obtain an interim order/ protection in this case. Furthermore, the insolvency proceedings f....
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....ant to violate the FERA provisions. Thereafter, on 20/11/1974 further capital was raised by issuing 2000 shares, out of which it was found that if 750 shares were allotted to the Petitioner, he would be within the limitation of 40% and there would not be any violation of the FERA provisions and thereon on 20/11/1974 out of 2000 shares, 1250 shares were allotted to the Respondent No. 2 and 750 shares allotted to the Petitioner within the rule, resulting that in 1974 the Respondent No. 2 held total 3450 shares working out to 63.9% shareholding of the Company and 1950 shares by the Petitioner which worked out to 36.1% shareholding of the Company within the permissive limits of the FERA provisions. 30. It is further submitted on behalf of the Respondents that the further shares were issued on 17/3/1975, 22/9/1975, 21/1/1977 and 18/2/1977 as tabulated here under, within the knowledge, approval and consent of the Petitioner and this is evident from the fact that he never raised any objection to the above position since 1971. Date No. of shares issued to the Respondent No. 2 No. of shares issued to the Petitioner Total as of 1974 3450 1950 17/03/1975 600 - ....
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....2. It is next submitted on behalf of the Respondents that if the Petitioner had held the shares of Respondent No. l Company, he would have stated so in his Declaration. However, his statement of holding no property was only made by him in view of his gift of the said shares of the Company to Respondent No. 2. In as much as if the Petitioner was the shareholder, as on that date, he ought to have declared the said shares as his property before the Bankruptcy Court in U.S.A. He has failed to do so. This itself proves on his admission that he had no stake in the Company as shareholder or otherwise, and he had no shareholding in the said company as he has already gifted the said shares to Respondent No. 2, in the circumstances as stated above. 33. Furthermore, according to the Ld. Counsel for the Respondent No. 2, the very same fact has been once again reiterated and admitted by him even subsequently in his Affidavit dated 28th August 2009 filed by him before the Superior Court, Guilford County-North Carolina, in which he has clearly and unambiguously stated that the Company belongs to Respondent No. 2 and the Petitioner was permitted to stay in the Apartment belonging Company becaus....
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....Petitioner from his shares with mala fide motive and for no valid reason, in my opinion, amounts to grave act of oppression. It is continuous wrong and is still persisting. In my opinion, this singular act of oppression is enough to grant appropriate reliefs to the Petitioner in this case. 36. Now coming to the aspect of siphoning off funds alleged by the Petitioner. In this regard, the Petitioner has alleged that the Respondent No 2 diverted the siphoned funds and the Business of the Company to the sole proprietary firm M/s Aquarius Impex, owned by the wife of Respondent No. 2. The business carried out by the said Company is also similar to that of the Respondent No. l, whereby the Company started incurring huge losses. The Respondents in their reply to the Company Petition have admitted the fact that the firm, M/s Aquarius Impex, owned by the wife of Respondent No. 2 is being run in the premises of the Company since last 30 years. The Petitioner's Counsel submitted that the office premises, plant and machinery of the Company is also being used by the Respondent No. 2'swife for her business without paying any compensation and rent to the Company. Furthermore, the staff ....
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....d for the consideration amount and hence the profitability of the company ought to have gone up and dividends ought to have been declared. 39. The Petitioner's Counsel next alleged that the Respondent No. 2 has also misappropriated/ siphoned off the funds to the tune of around Rs. 12 crores borrowed from the Central Bank of India for business purpose. The Petitioner submits that due to non-repayment of the loan amount to Central Bank of India, the Bank auctioned the Company's factory premises situated at Vapi, Gujarat and the plant and machinery lying therein, below the market value. 40. Responding to the aforesaid allegations, on behalf of the Respondents it was argued that the said allegation is incorrect. It is the Petitioner who mismanaged the assets of the company and he was privy to the act for the sale of properties of the company for his own benefits. 41. I have considered the submissions. Since the Petitioner has not impleaded M/s Aquaries Impex and the purchaser of the property i.e. M/s Millennium Developers Pvt. Ltd., the allegation with respect to siphoning off the funds, in my opinion, cannot be looked into at this stage. This issue is answered accordi....