TaxTMI 
TaxTMI 
2015 (10) TMI 1524
X X X X Extracts X X X X
X X X X Extracts X X X X
....TA had allotted him share on various occasions. In the alternative it has been prayed to deliver him back the original share certificate. A further direction has also been sought to restrain the HTA to effect any change in the Board of Director which may adversely affect the rights of the shareholders. In order to put the controversy in its proper perspective few facts may first be noticed. The petitioner was appointed as an artist to work with HTA on 14.1.1971. It is the case of the petitioner that in 1973 HTA incurred colossal loss of Rs. 26 lakhs and was trapped in a financial crisis. Then efforts were made to salvage HTA from the financial crises by requesting the management or non-management staff to purchase the shares of the HTA. On 10.6.1974 an MOU was signed between the HTA and its employees which stipulated that 35% shares of HTA would be owned by non-management staff and the remaining 65% share would be held by the management staff. The agreement also resolved for increase of the capital of HTA from 50000 to 1,00,000 in the ratio of 65:35 between management and non-management staff respectively. It was also provided that one director on the Board would be nominated by A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 35% shares of non-management which are required to be maintained as per binding stipulation in MOU in 1974. The Petitioner has also asserted that on 29.6.1998 with an oblique motive and mala fide intention to usurp 35% share quota of the employee union the HTA amended Articles of Association without issuing notice to the employee union; and without any resolution which was in contravention of various provisions of the Act. The amendment was contrary to the MOU dated 10.6.1974. On account of drastic amendment carried in the Articles of Association the entire 35% equity share of non-management staff had completely dwindled. The amendment stipulated the surrender of shares by retiring employees. The payment of surrendered shares was to be made in accordance with the values assessed by the Board of directors. It was further stipulated that if the employees refuse to surrender original share then duplicate shares could be issued negating the original shares. A VRS scheme was also floated on 2.8.2000 for non-management staff with the age of 40 years having service of 10 years. According to the Petitioner all this was done to compel HTA staff to surrender their shares at the time of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her amendment of Articles of Association on 29.6.1998 (annexure 8 reply). Article 9 as amended stipulated that every member of the HTA company who is its employee had agreed to abide by the provision of articles 10 to 14 which provided that on ceasing to be employee of the HTA he was not to have any right to transfer the shares held or owned by him. He was to cease to be a shareholder of the HTA. As per the provision of Article 13(b) the value of the shares would be fixed by the Board of Directors which would be binding. These shares were not to be credited to HTA and were required to be distributed to the staff as per the stipulations made in Articles of Association. The amendment to the Articles of Association has not ever been challenged. Not even in the instant petition. The HTA has also raised preliminary objections that (a) petition is not maintainable u/s 397 to 405 of the Companies Act because the petitioner held only 402 equity shares of Respondent No. 1 company which is less than 10% of the shareholding. Thus it fails to satisfy the requirement of section 399 of the Act. The petition has also been filed by single member not by those representing 10% of the total members ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....equity share capital. As a result some of the employee who were transferred to Contract Advertising (India) Ltd. continued to hold shares in HTA. A reference has also been made to 49th AGM and 53rd AGM of HTA where equity and bonus shares were allotted to the shareholders. On the desire expressed by J Walter Thompson Holding Ltd. which is now known as WPP Holding (Mauritius) Ltd. 56th AGM of HTA was held to facilitate the sale of 49% of equity shares capital in HTA held by the shareholders to the WPP Holding (Mauritius) ( for brevity WPP). In the AGM special resolution was passed to amend Articles of Association and clauses 9 to 18 of HTA's Articles of Association were replaced by new clauses 8A to 18. Thereafter a scheme was prepared by the Board of Directors in which all shareholders of HTA were given opportunity to sell shares to WPP in proportion to their total shareholding in HTA. On 14.1.1994 the scheme was placed before the shareholder of HTA in which the non-management staff and other shareholders of HTA participated and transferred maximum number of shares which they could sell. The face value of each shares of HTA was Rs. 100/- and 12005 equity share with face value o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ition have been effectively countered. In any case there is no denial of these averment by filing any rejoinder. I have heard learned counsel for the parties at a considerable length and have perused the record minutely with their able assistant. On behalf of the petitioner it has been urged that HTA had illegally linked the shares with the employability. In other words the petitioner has been compelled to surrender his share owned by him on ceasing to be its employee. According to the learned counsel the amendment carried in the Articles of Association in the year 1998 were mala fide and with an oblique motive to dilute the sanctity of MOU entered into between petitioner and HTA on 10.6.1974. It has also been submitted that transfer and retransfer, selling and reselling of shares from one company to another was riddled with the sole purpose of taking control of the entire shares of 35% held by the non-management employee of HTA which amounted gross mismanagement and oppression. Mr Aggarwal on behalf of the respondent submitted that once there was amendment in Articles of Association of HTA carried at EOGM held on 24.11.1978 and 29.6.1998 with notice to the petitioner then he can....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the parties and minute examination of the documents on record I find that there are a number of insurmountable hurdles in the ways of the petitioner. The petition u/s 397 & 398 of the Act would not be maintainable because the petitioner fails to answer the requirement of section 399 of the Act, He does not hold 10% shareholding nor he has been able to join adequate number of shareholders with himself to prove representation of 10% of the members. On a bare perusal of section 399 it becomes evident that the petitioner is not eligible to invoke jurisdiction u/s 397 & 398 of the Act. Thus the petition is liable to be dismissed as not maintainable. It would be profitable to read section 399(1) which set out below:- "399 Right to apply under sections 397 and 398. (1) The following members of a company shall have the right to apply under section 397 or 398:- (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....retirement or from any other cause whatsoever shall not have right to transfer the shares held or owned by him and shall thereupon cease to be the shareholder of the Company and the Chairman of the Company or any other person appointed by the Directors shall be constituted the Authorised Attorney of the said employee-shareholder to effect the transfer of his shares with full power to execute, complete and deliver in the name and on behalf of the said employee shareholder, transfer of the shares held by him hitherto to such employees as the Directors may determine at their discretion from time to time and such employees name shall thereupon be entered in the Register of Members and the name of the said employees ceasing to be the employed of the company as aforesaid shall be removed as the member of the company from the register of members. A perusal of article 14 of Articles of Association makes its patently clear that on the retirement of an employee he loses, the right to transfer shares as held or owned by him and his name is liable to be removed as the member of the company from the register of members. According to the provision of Article 16 such an employee on surrender hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s members. [see Hickman v. Kent or Romney Marsh Sheep Breeders' Association (l) and Beattie v. Beattie]. If under a contract, a promise prescribes the manner in which the promise is to be performed, the promisor can perform the promise in the manner so prescribed, (see s. 50 of the Contract Act)..." Apart from the above the HTA Employees union had raised all these issues in a suit filed before the learned Additional Division Judge Delhi (Suit No. 222/2003) which was dismissed on 25.3.2004. An appeal against the judgment and decree (RFA No. 247/2004) was also dismissed on 5.8.2013. All arguments advanced on behalf of the Petitioner herein were also raised before Delhi High Court which have been repelled. On behalf of the Petitioner it was submitted that amendment in Articles of Association contravened the MOU executed between employee and the HTA. The aforesaid submission was repelled in paras 11, 12 & 13 of the judgement which read as under:- 11. Once the amendment to the Articles of Association of the Company had come into effect on 29th June, 1998 and which freed the Company from the obligation to, in effecting transfer of shares maintain the ratio of 65:35, the appellant/....