TaxTMI 
TaxTMI 
TaxTMI 
2015 (12) TMI 1193
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....ster of members, by entering his name to the extent of the aforesaid shares. The Petitioner has also made various complaints against the Respondents, alleging various acts of oppression and mismanagement for purportedly committed by the Respondent Nos.2 to 5 in the conduct of the affairs of the Company and has set out various reliefs as sought out in the petition. 2. Along with the Company Petition, I am also considering the Company Application, being C.A. No.291 of 2014, filed in the Company Petition thereby assailing its maintainability and seeking Its dismissal on the grounds stated therein. 3. The facts of the case, in brief, are as follows:- 3.1 The Petitioner is the son of Mr. Janakraj Soni (deceased) and Mrs. Jayshree Soni; (deceased). The Petitioner is one of the successors to the Estate of Mrs. Jayshree Soni, who passed away, intestate on 31/12/2012. The Petitioner is thus legally entitled to 7083.8 shares (14.17% of the shares of the company) forming one fifth (1/5th) of the shares held by Mrs. Jayshree Soni at the time of her death. 3.2 M/s Neo Finance Private Limited, the Respondent No. 1 Company (hereinafter referred to as "Neo" or "the Company") was incorporated u....
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....tional directors of the Company with retrospective effect i.e. from 3/9/2010, and 1/9/2011, respectively. However, Form 32s with respect to the appointment as additional Directors were filed with the ROC on 3/9/2013, after the demise of Mrs. Jayshree Soni in order to effectuate the plan and scheme of the Respondent Nos.2 to 5. Further, no resolutions, that were required to be passed and confirmed in order to make such appointment legally valid, were annexed to any of the Form 32s filed with the Registrar of Companies. 3.8 Further, the Respondent Nos. 3 and 4 were purportedly, re-designated as Directors of the Company on 29/9/2010 and 29/9/2011 respectively. However, the aforesaid Form 32s in respect of the reappointment of Respondent Nos.3 and 4 as Directors of Respondent No. 1 Company were also filed only on 11/10/2013. Further, no resolution passed for confirming such re-designation, and which are the requirements of law, were annexed to any of the Form 32s filed with the Registrar of Companies. 3.9 It is further case of the Petitioner that after the death of Mrs. Jayshree Soni, the Respondent No. 2 was the only surviving Director of Company. In the circumstances, the Responden....
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....Respondent No.3 - 37,500 shares. (iii) Respondent No.4 - 37,500 shares. 3.13 It is alleged that the Petitioner was denied his legitimate entitlement of the 1/5th shares held by the late Jayshree Soni, and the Respondents refused to transmit the said shares in order to deny and avoid offering the Petitioner and other legal representatives of late Jayshree Soni an opportunity to subscribe to these additional allotment of shares, and so that the Respondent Nos.2 to 4 could take control of the Company by converting their minority shareholding into a controlling majority shareholding. After the above impugned allotment of shares to these Respondents, their combined shareholding went from 29.16% to 76.39%. It is alleged that the said allotment is per se illegal, oppressive, fraudulent, contrary to the provisions of law and detrimental and detrimental and damaging to the estate of the late Jayshree Soni and her legal representatives. 3.14 It is further alleged that thereafter, between the period from 8/11/2013 to 12/11/2013, the Company filed balance-sheets, annual returns and compliance reports for the FYs 2009-2010, 2010-2011, 2011-2012 and 2012-2013. It is alleged that though the Co....
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....nsfer of shares has been produced on record for appointment of the Respondent Nos. 3 and 4 as Directors; that the appointments of these respondents being illegal, the subsequent actions of allotment of shares would consequently be illegal; that the company had failed to provide complete documents/response that the compliance under Sections 166, 169 and 174 of the Act was forged and fabricated and, therefore, investigation was required to be conducted in the affairs of the Company. 3.17 It is further stated that the shares, to which the Petitioner was entitled, to, were intentionally and willfully not transmitted to him after the demise of Jayshree Soni in order to enable the Respondent No. 2, in collusion and connivance with the Respondent Nos. 3 to 5, to do so as they wish in the Company, including fabricating and ante-dating the records and documents, and inter alia in order to try and legitimize the illegal, fraudulent and back dated appointments of the Respondent Nos. 3 and 4 as Additional Directors/Directors. This was solely for the benefit and self-aggrandizement of the Respondent Nos. 2 to 5 and to the immeasurable harm, injury and prejudice of the Petitioner and other heir....
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....s appropriate orders, reliefs and directions u/s 58/59 of the Companies Act, 2013, for recording the transmission in favour of the Petitioner and the Respondent Nos. 6 to 8 and to rectify the Register of members of the Company to a status quo ante as on 1st January, 2013. (b) To pass appropriate orders, reliefs and directions under Sections 397, 398, 402 and 403 of the Companies Act, 1956 to bring an end to the acts of oppressions and mismanagement perpetrated by the Respondent Nos. 2 to 5 and for necessary orders and reliefs in respect thereto, including as prayed for herein. (c) To pass appropriate orders, reliefs and directions under sections 397, 398, 402 and 403 of the Act for management of the Company and for that purpose, such fit and proper person(s) be appointed, as this Bench may deem fit as Administrator(s) and/or Special Officer(s) and/or an Independent Committee of management be appointed to carry on the business of and to manage the affairs of the company for such period and on such terms and conditions as this Bench may deem fit. (d) To pass an order thereby removing the present auditors and appointing an independent auditors for carrying out special audit of t....
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....h the prior written consent of the Petitioner; (iii) interfering with or disturbing the shareholding pattern of the Company; (iv) creating any liability in the Company, giving loans or transfers in the company, save and except with the prior written consent of the Petitioner; and (v) utilizing the funds of the Company for the purpose of the instant litigation in any manner whatsoever. (l) To pass an order thereby restraining the Respondent Nos.2 to 5 by a perpetual order and injunction restraining them from in manner whatsoever making any false and incorrect records in respect of the Company and/or filing any false and incorrect statutory records in respect of the Company with the Registrar of Companies, Gwalior and/or addressing any correspondence whatsoever for and on behalf of the Company. (m) To pass an order thereby declaring that all or any acts done by the Respondent No. 3 and/or the Respondent No. 4, as Additional Director(s) and/or as Director(s) of the Company are null and void, illegal, without authority, non-est, bad in law, contrary to and/or in violation of the interest of the company and/or the Petitioner, and that the same is not binding on the Company and....
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....nt Nos.3 and 4 as directors on the Board of the Company. They have also denied the charge levelled by the Petitioner as to fabrication of balance sheets and Annual reports. Based on the above they have sought dismissal of the petition. 6. The Respondent No.5 has also filed an identical reply. 7. Thereafter, the parties exchanged the affidavits in support of their respective claims. 8. Mr. Zal Andhyarujina, Ld. Counsel argued the matter on behalf of the Petitioner. On the other side, Mr. Gaurav Joshi, Ld. Sr. Counsel argued the matter on behalf of the Respondent Nos. 1 to 4. Mr. Sagar Divekar, Ld. Counsel argued the matter on behalf of the Respondent No. 5. However, the argument of Mr. Gaurav Joshi, Ld. Sr. Counsel and Mr. Sagar Divekar, Ld. Counsel, were common as Mr. Sagar Divekar, Ld. Counsel, had adopted the arguments advanced by Mr. Joshi, Ld. Sr. Counsel, I have also perused the record and other material available on record. 9. At the outset, the Ld. Sr. Counsel appearing on behalf of the Respondents, raising preliminary issues, challenged the maintainability of the Petition. The Ld. Counsel contended that the Petitioner is not a shareholder and member of the company as o....
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....tioner has sought amendments in the petition, which relate back to the date of filing of the petition, as can be seen from the petition, would also be taken into consideration looking to the settled proposition of law that the amendments relating back to the date of filing of the petition can be taken into consideration. I proceed accordingly. 12. Elaborating the first preliminary issue as to maintainability of the petition, the Ld. Sr. Counsel submitted that pre-conditions for filing a Petition under Sections 397 and 398 are set out in Section 399 of the 1956 Act. Under the said Section, only members representing, not less than l/10th of its total number of members or holding not less than 1/10th of the total issued share capital of the company, are entitled to maintain a Petition under Sections 397 and 398. According to the Ld. Sr. Counsel, the Petitioner has not satisfied any of the aforesaid conditions, which conditions are sine qua non for maintaining a Petition filed under Sections 397 and 398 of the Act. 13. The Ld. Sr. Counsel pointed out that the term "Member" has been defined in Section 41 of the Companies Act, 1956. As per Section 41(1), a subscriber of Memorandum of t....
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....ground. 17. The Ld. Counsel further submitted that assuming, whilst denying, an oral application or transmission is permissible, the Respondents have denied any such request having been received by the Company. Furthermore, the same is a disputed question of fact requiring oral evidence and such question cannot be decided in a summary manner. According to him, this Board, therefore, cannot entertain such a plea, or in the alternative, oral evidence would have to be recorded. Further, assuming, whilst denying, that such a procedure should be adopted, the Petitioner would have to prove his claim by stepping into the witness box. Mr. Joshi, therefore, contended that the matter in such circumstances needs to be adjourned for recording oral evidence. The Ld. Counsel further pointed out that no application for transmission was served on the Company, according to the Respondents, and the Petitioners deliberately sent the application at the wrong address. Further, the service of the application on the erstwhile Advocates cannot be presumed as a sufficient service on the Company as it does not meet the requirement of the provisions. He, therefore, contended that the precondition for filing....
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....mply for transmission in favour of the estate of the deceased but for partition of her estate etc. The decision of the Board of Directors was, therefore, bona fide decision and cannot be challenged in the present proceedings. According to the Ld. Sr. Counsel for the Respondent, on the death of the deceased, all the legal representatives of the deceased member, whose name is still on the Register ought to have obtained Letters of Administration/Probate/Succession Certificate in respect of the estate of the deceased or an order of the testamentary Court for division/partition, in respect whereof the latest suit filed by Respondent No. 6 is pending. It is only thereafter that the estate of the deceased can be divided or partitioned. 20. Based on the above, Mr. Joshi submitted that the shares now belong to the estate of the deceased and would be distributed, in accordance with law, after a valid order of a competent testamentary court is obtained. According to Mr. Joshi, the Petitioner who is not a member, in the absence of the above documents, cannot claim to be acting on behalf of or through the deceased member or representing her estate. It was, therefore, contended that the Petiti....
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....administration of the estate of the deceased or by following the procedure available in law, in respect whereof there is now a suit for partition filed by Respondent No.6 pending in the District Court at Indore. Mr. Joshi submitted that such relief cannot be granted by the CLB as the Petitioner indirectly seeks partition of the estate of the deceased in so far as the shareholding of the deceased in the Respondent Company is concerned. The Ld, Counsel further pointed out that the Petitioner is in effect seeking a partition and administration of the estate of the deceased which cannot be done by this Board and the jurisdiction whereof is exclusively with the Civil Court only. He, therefore, contended that Petition deserves to be dismissed being not maintainable. In support of these submissions the Ld. Counsel relied upon the following decisions : i. Hemlata Saha v. Stadmed P. Ltd. AIR 1965 Cal 436; ii. Kalyani Sundaram v. Shardlow India Ltd. and Ors. (1990) 67 Comp Cas 306 (Mad) iii. Samcon Resort & Hotels P. Ltd. 2014 SCC online CLB 293; 24. In continuation of the aforesaid arguments, the next argument advanced by the Ld. Sr. Counsel is that the Petition fired by only one of ....
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....arties. Further, there is a single share certificate pertaining to the shares held by the deceased. The said certificate is not traceable in the records of the Company or by the Respondent Nos. 1 to 4. In absence of the said share certificate, there is no way of finding out whether or not the shares of the deceased are encumbered. In absence of evidence of the Petitioners' entitlement to the shares of the deceased, the Respondent Company is not obligated to effect transmission of the said shares. Referring to a decision in the case of Sangram Singh P. Gaekwad & Ors. Vs. Shantadevi P. Gaekwad & Ors. (2005) 11 SCC 314, it was contended that this Board cannot go into the issue of succession between the legal heirs of the deceased as it involves complicated questions of fact and law which have to be decided by a Civil Court, and therefore, the Petitioner cannot claim separate right in respect of 7083.8 shares in absence of partition/administration of the entire estate of the deceased made under an order of a civil court. The Petitioner also relied upon the following decisions in support of the above contentions: a. National Insurance Co. Vs. Glaxo India Ltd. 1999 Vol. 101(2) Bom.....
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....Respondent No. 2 herself as reproduced in the plaint filed before the Indore District Court and Article 27 of the Articles of Association of the Company does not require the legal heir of a deceased member to produce a succession certificate for transmission of shares. No reply was received to the Petitioner's response. This issue was raised by the Respondent Nos. 1 to 5 once again in their First reply in Paragraphs 10 and 18, which was clarified by the Petitioner in his First Rejoinder in Paragraph 8. Thereafter, in Paragraph 5 of Respondent No. 5's Affidavit in reply, it was alleged that till date, none of the legal heirs have found any will of Late Mrs, Jayshree Soni. It is also pertinent to mention that there was not a whisper regarding 'the alleged will' by the contesting Respondents at the time of final arguments. 28. The Ld. Counsel for the Petitioner submitted that as per the own admissions of the contesting Respondents in its pleadings, as can be seen from paragraph 6 and 25 of the First Reply, Paragraph 15.4 of the First Rejoinder and Paragraph 12 of the Second Reply, the Petitioner is a legal heir of Late Mrs, Jayshree Soni and the Petitioner was treated....
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....es and bound, despite the fact that all the successors get the shares in the property as per the Hindu Succession Act. Therefore, the shares cannot be compared with the immovable property(ies) left by a deceased shareholder in a company. In case of shares of a company, there is always a provision in the Articles of Association of the Company providing the consequences upon death of a shareholder. The AOA of the Company is a contract between the Company and its Members and Members inter-se. It is, therefore, appropriate to look into the provision of AOA as contained in the AOA of the Respondent No.1 Company. It is binding between members inter-se as held in the case of V. V. Ranga Raj v. V. B. Gopalkrishnan [1991] 6 CLA 211 (SC). In the case of instant company, Article 27 of the AOA is relevant in this context which is being reproduced for the sake of easy reference. Article 27 "Any person becoming entitled to or to the transfer of any shares in consequence of the death or insolvency of any sole holder thereof or any way other than by transfer upon producing such evidence of his title thereto or that be substains the character in respect of which he proposes to act under this arti....
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....of the 2013 Act read with Section 397/398 of the 1956 Act for transmission of shares and rectification of Register of Members and for oppression and mismanagement and he is qualified to file the petition in terms of Section 399 of the Act. 35. In addition to the above, I would like to refer to the pleadings of the Respondents from their reply(s) that they have themselves admitted the Petitioner is a member of the Company, being legal heir of late Smt. Jayshree Soni. According to the Respondents' own case, the Petitioner was also offered Rights shares. The Rights shares can only be offered to an existing member/shareholder of the company. Therefore, the contention of the Respondents that the Petitioner is not competent to file this petition In terms of Section 399 of the Act, is not tenable. It deserves to be rejected. The pendency of the suit(s) has no relevance, in so far as the prayer for rectification of Register of Member is concerned. In the case of Pearson Education Inc. v. Perntice Hall India (P.) Ltd. [2006] 134 DLT 450 it has been held that a composite petition filed under Sections 58, 59 read with Section 397/398 of the Act, would be maintainable. 36. In so far as t....
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....its lap outside this scope of rectification. This is indicated even by Sec. 155 itself: Section 155: Power of Court to rectify register of members (l) If- (a) the name of any person - (i) is without sufficient cause, entered in the register of members of a company, or (ii) after having been entered in the register, is, without sufficient cause, omitted there from; or (b) default is made, or unnecessary delay takes place, in entering on the register the fact of any person having become, or ceased to be a member; 31, the person aggrieved, or any member of the company, or the company, may apply to the Court for rectification of the register. 32 Sub-section (1) (a) of Section 155 refers to a case where the name of any person without sufficient cause entered or omitted, in the register of members of a company. The word 'sufficient cause' is to be tested in relation to the Act and the Rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the Rules or what ought to have been done under the Act and the Rules but not done. Reading of this sub-clause spells out the limitation under which the court h....
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....pute sake states that the dispute raised is complicated question of facts including fraud to be adjudicated. The Court should have examined itself to see whether even prima facie what is said is complicated question or not. Even dispute of fraud, if by bare perusal of the document or what is apparent on the face of it on comparison of any disputed signature with that of the admitted signature the Court is able to conclude no fraud, then it should proceed to decide the matter and not reject it only because fraud is stated." 39. On a critical analysis of the facts of the instant case, I do not find that any complicated question of facts and law is involved. Furthermore, in so far as the first civil suit being NO.178A/2014, is concerned, it is evident that the Petitioner has not filed the same. It has been filed by Respondent No.6, which is not binding on the Petitioner herein. Secondly, as held in the case of Ammonia Supplies Corpn (P.) Ltd. (supra) the exclusive jurisdiction for rectification of Register of Members is with the CLB only, therefore, in other words the civil court is not competent court to grant any relief with respect to the rectification of Register of Members. Furt....
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....he Respondents challenging the maintainability of the petition on the ground that the Petitioner being not a "member" on the date of filing of the petition, is not competent to file the petition, is not tenable and deserves to be dismissed. This point Is answered accordingly. 43. Assailing the maintainability of the Petition, the next point argued by the Ld. Sr. Counsel appearing on behalf of the Respondents, is that the Petitioner, in connivance of the Respondent No.6, who is his real brother, has indulged in forum shopping and hence, the petition is not maintainable. In this regard, it was argued that prior to the filing of the present Petition, the Respondent No.6 had on or about November, 2013, filed a civil suit in the District Court at Indore. The Ld Counsel submits that the instant Petition is filed during the pendency of a Civil Suit filed by Respondent No.6 in collusion with the Petitioner, claiming identical/similar reliefs as are claimed in the Petition, the Petitioner is guilty of forum shopping. The Ld. Sr. Counsel further submits that the interim reliefs as prayed for in the said civil suit were refused on merits vide an Order dated 26/11/2013. The Ld. Sr. Counsel su....
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....civil suit which, in my opinion, is not binding on the Petitioner. It cannot be said that on account of the said civil suit this petition is not maintainable. I have already held hereinabove that for rectification of Register of Members the CLB is only the competent adjudicatory body which can entertain and decide the petition as held in the case of Ammonia Supplies Corpn (P.) Ltd. (supra). In my opinion, the civil suit filed by the Respondent No.6 and is pending before the Civil Court, Indore cannot be a reason for dismissal of the petition. 47. The next point argued by the Ld. Sr. Counsel appearing for the Respondent is that the present petition should be stayed in view of the proceedings pending in Civil Court at Indore filed by the Respondent No.6 and another Civil Suit filed by the Petitioner himself, wherein the prayers sought in said Civil Suit are almost identical to the relief sought for by the Petitioner in the case in hand and in this regard he has relied upon the dicision of (i) Swagath Marine Products Pvt. Ltd. v/s. Shri K. Muthusamy reported in (2006) 134 Comp Cas 182 (CLB) ; (ii) Challapalli Sugars Ltd. vs. Swadeshi Sugar Sugar Supply Pvt. Ltd. reported in AIR 1983 ....
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....y shares of Rs. 100/- each for cash at par to all existing members In the ratio of 2:1 equity shares for every one equity share held by them on 9/9/2013. The Ld. Counsel submitted that pursuant to the allotment, the shareholding of the Respondent Nos. 2 to 4 was increased from 29,16% to 76,39%. Thus, Respondent Nos. 2 to 4 converted their minority shareholding into a controlling majority shareholding and the entitlement of the Petitioner and other legal heirs to the shares of Late Mrs. Jayshree Soni in the Company was reduced from 70.84% to 23.16%. Consequently, the shareholding of each legal heir was effectively reduced from 14.17% to 4.72%. 52. According to the Petitioner, no offer letter was received by the Petitioner, the alleged rights issue was done at the behest of the Respondent Nos. 2 to 5 only with a view to usurp and consolidate their control over the Company and although the Company did not require any funds. It was, therefore, argued that the allotment of shares was illegal and therefore, the alleged Rights issue ought to be set aside, 53. In addition to the above, it was submitted on behalf of the Petitioner that, the Petitioner never received an offer letter to par....
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....contesting Respondents' First Reply does not furnish proof of service of notice and thus, the Respondents are in clear breach of the order dated 17/2/2014 passed by this Board. According to him, the alleged reminder letters dated 11/10/2013 were produced 10 months after directions were issued on 17/2/2014 by this Board to furnish proof and that too, after filing their reply and sur-rejoinder during the intervening period. The Ld. Counsel contended that even assuming that the notice was issued to the Petitioner, yet the intimation did not allow for 30 days although the minutes of EOGM specifically provided for such period. In this regard, the Petitioner relies upon the case of Martin Castelino v. Alpha Omega Ship Management Ltd. 2001 104 Comp Cas 687 CLB wherein an EOGM was held to be invalid on account of non-issue of notices, Consequently, increase in share capital and allotment was set aside & register of members was rectified. 57. Refuting the defence put forth by the Respondents that the Company was in requirement of urgent funds, it was argued that the Company does not carry on any business activity and has at all times acted as a holding company for the Soni family and f....
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....as further submitted that the said rent paid by Metalman and liabilities towards Metalman had always been reflected in the Balance Sheet of the Company, even at the time when the deceased was alive and signing the Balance Sheets of the Respondent Company. Further, as on 31/3/2013, there was a negative balance of the Reserves and Surplus at Rs. 54,32,303/-. According to the Respondents' Counsel, on 1/4/2013 the said lessee vacated the premises and upon such vacation, the Respondent company became liable to refund the security deposit amounting to Rs. 80 lakhs that was accepted at the time of leasing of the said premises. In furtherance thereto, Metalman also informed various authorities of the change of address. Metalman addressed a letter to the Collector, Indore intimating him about the change of its address to 602B, Devdarshan Apartment, AB Road, Indore - 452001. Further, Metalman also informed the Tehsitdar, Indore that it had ceased to be a lessee of the Respondent Company. 60. Taking me through the record, the Respondent's Counsel submitted that the Petitioner has admitted that Metalman was in possession of the building of the Respondent Company and that a sum of Rs. ....
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....d Amulya during the lifetime of the deceased nor can they contend that the Rights issue made by the Respondent Company was made in a mala fide manner or only to raise the shareholding of these Respondents. 66. Further, denying the Petitioner's allegation that Rights issue was made at a ridiculously low price and only with a view to capture the premises of the Respondent Company, it was argued on behalf of the Respondents that the directors have power to Issue shares at par even if the market price is higher, being primarily a matter of policy. The Ld. Counsel submits that the judgment of the Hon'ble Supreme Court in Sangrams Singh's case (supra) reiterates and affirms this position at paragraph 67 which provides that significantly, in Needle Industries (supra) it was categorically held that the Directors have power to issue shares at par even if their market price is higher being primarily a matter of policy. Based on the above, it was argued that the company was in bona fide need of funds so as to necessitate the issue of shares on Rights basis as explained in the Explanatory Statement annexed to the Notice of the Rights issue. 67. The Ld. Counsel further argued that....
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....any service on the Petitioner and Respondent No. 6 gets accepted by the watchman of the building, i.e. Mr. Munna Singh. Further, during oral arguments advanced before this Board, the Ld. Counsel for the Petitioner raised doubts as to how a watchman can sign a receipt in English language. It is, therefore, contended that such an argument is not only unsupported by cogent legal basis but also proceeds to undermine the ability of the watchman. Further, the Petitioner has nothing on record to show that a person who is employed as a watchman is in any manner incapable of signing documents in English language. 70. In Rejoinder arguments, the Ld, Counsel appearing on behalf of the Petitioner, denied the alleged bona fide requirement of funds suggested by the Respondents for the purpose of Rights issue. As regards Metalman issue, it was that in 1999, the Company was leasing the Property i.e. premises at New Palasia, Indore to Metalman Industries Limited (Metalman). On 1/4/2013, the Company vacated the premises and became liable to refund the Security Deposit of Rs. 80 lacs taken by the Company from Metalman. However, as clarified by the Petitioner in paragraph 15,6 of the First Rejoinder,....
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....ransferred by Amulya in order to avoid attachment of the cars by the DRT, Jabalpur. The cars in question were then personally utilized by the Respondent Nos. 2 to 4. 74. As regards repairs and further constructions, it was argued by the Petitioners' Counsel that the contesting Respondents have alleged that the Property was in need of repairs and renovation and the building had unutilized FSI, which could be utilized by undertaking further construction. 75. For the above stated reasons, it was argued that there was no need for funds by the Company and the reasons stated above on behalf of the Respondents are entirely bogus and hence deserve to be rejected. Consequently, the Rights issue ought to be set aside. 76. Dealing with the issue as to wrongful allotment of shares, the Petitioner's Counsel submitted that pursuant to the special resolution passed on 9/9/2013 for the alleged rights issue, on 23/10/2013, the Company allotted additional shares to the Respondent Nos. 2 to 4. In this regard, it was pointed out that it was only at the time of the rights issue that a bank account was opened by the Company for the first time, the rights issue was completed in less than 30 da....
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....n the cases of Sangramsingh Gaikwad (supra) and Nanalai Zaver (supra), which have been relied upon, in fact, by both the parties. 'a. Sangram Singh P. Gaekwad (supra) wherein it is held as under:- 61 Evidently, therefore, the ratio which emerges from the decision is that the duty to disclose as regards issue of additional shares is relatable to proper purpose thereof. If the purpose is proper and the action of the Director is bona fide, the ratio should not be extended so as to hold that such a duty of the Director towards the shareholder is absolute despite the fact that there is no legal requirement therefore. Duty of disclosure to shareholders in that case had a strong nexus with the affairs of the Company. Dale & Carrington is not an authority for the proposition that the purported fiduciary duty of a Director towards the shareholder is absolute although the transaction in question may not have a direct co-relationship with the affairs of the Company. 62. Moreover, the Bench did not have the advantage of considering the for-judge Bench decision of this Court in Nanalal Zaver. It furthermore did not have the advantage of noticing the decisions of other jurisdictions whi....
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....111(3) of the Companies Act. In the fight of refusal by the Director to register a transfer, the Court held that it is necessary for the Directors to act bona fide and not arbitrarily in the following terms: *12. Article 52 of the appellant Company provided that the Directors might at their absolute and uncontrolled discretion decline to register any transfer of shares. Discretion does not mean a bare affirmation or negation of a proposal. Discretion implies just and proper consideration of the proposal in the facts and circumstances of the case. In the exercise of that discretion the Directors will act for the paramount interest of the Company and for the general interest of the shareholders because the Directors are in a fiduciary position both towards the Company and towards every shareholder. The Directors are therefore required to act bona fide and not arbitrarily and not for any collateral motive." 69. This Court therein also applied the bona fide test of the Director and for the benefit of the Company as a whole. In that case, the Directors assigned reasons which were tested from three angles viz. (i) whether the Directors acted in the interest of the Company, (ii) wheth....
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....cation in the instant case. In a way it instead of supporting the contention of Mr. Desai, counters his, views. 75. It is interesting to note that in Needle Industries this Court said even in certain cases the Directors' attempt to maintain their control over the Company or in newly acquiring control over the Company may not amount to abuse of their fiduciary power stating: "Applying this principle, it seems to us difficult to hold that by the issue of rights shares the Directors of NIIL interfered in any manner with the legal rights of the majority. The majority had to disinvest or else to submit to the issue of rights shares in order to comply with the statutory requirements of FERA and the Reserve Bank's directives. Having chosen not to disinvest, an option which was open to them, they did not any longer possess the legal right to insist that the Directors shaft not issue the rights shares. What the Directors did was clearly in the larger interests of the Company and in obedience to their duty to comply with the law of the land. The fact that while discharging that duty they incidentally trenched upon the interests of the majority cannot invalidate their action. The ....
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....same would lead the Directors to the risk of multiple legal actions by dissenting minority shareholders. b. Nanalal Zaver v. Bombay Life Assurance Co. Ltd. AIR 1950 SC 172, wherein it is held as under:- "It is convenient here to state what the true approach should be to a question of this nature when it arises in a case. It is well settled that in exercising their power whether general or special, the directors must always bear in mind that they hold a fiduciary position and must exercise their powers for the benefit of the Company and for that alone and that the Court can intervene to prevent the abuse of a power whenever such abuse is held proved, but it is equally settled that where directors have a discretion and a bona fide acting in the exercise of it, it is not the habit of the Court to interfere with them. When the Company is in no need of further Capital, directors are not entitled to use their power of issuing shares merely for the purpose of maintaining themselves and their friends in management over the affairs of the Company, or merely for the purpose of defaulting the wishes of the existing majority of shareholders. It appears to me that the learned Judges in the....
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....t of shares bona fide and in the interest of the Company, the said exercise of powers must be held to be proper and valid and the said exercise of powers will not be questioned and invalidated merely because they have any subsidiary additional motive even though this is to promote their advantage. An exercise of power by the directors In the matter of allotment of shares, if made mala fide and in their own interest and not in the interest of the Company, will be invalid even though the allotment may result incidentally in some benefit to the Company. 82. Admittedly, in the EOGM-in-question, the Petitioner was not present. In my view, the Petitioner has successfully established the fact that notice with respect to holding of the EOGM on 9/9/2013 was not validly served on him. The alleged service on Munna Singh, a person whom the Respondents claims Petitioner's employee, in my view, is not reliable. Therefore, the EOGM-in-question is non-est, illegal and void. 83. On the basis of submissions advanced by the Ld. Counsels for rival parties, and the law discussed above, the next question that arises for consideration is as to whether the allotment of shares under the Rights Issue ....
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....ver the affairs of the other group, is bad in law. Therefore, the decisions cited by the Respondents do not assist their case. This issue is answered accordingly. 85. The next grievance ventilated by the Petitioner as to the acts of operation is that the Respondent No. 2 has illegally gifted the shares to the Respondents Nos. 3 and 4. It was in this connection argued on behalf of the Petitioner by the Ld. Counsel as stated below. 86. Dealing with the said issue, the Petitioner's Counsel urged that for the first time, the Respondent No. 2 in her reply to the Petitioners complaint to the ROC alleged that she had gifted 10 shares each to her sons, the Respondent Nos. 3 and 4. The Ld. Counsel then pointed out from reply that the Respondent No. 2 alleged that during Mrs. Jayshree Soni's lifetime, the Respondent No. 2 had gifted shares to her sons, Respondent Nos. 3 and 4. The alleged 'duly stamped Transfer Form' were executed to effect the transfer the shares in favour of the Respondent Nos. 3 and 4. The Ld. Counsel submits that the Petitioner states that as explained in paragraphs 11 and 12 of the First Rejoinder, the Petitioner filed an application under the Right to....
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....executing share Transfer Forms in their favour, respectively. 90. According to the Ld. Counsel, the Respondent No. 2, being the mother of Respondent Nos. 3 and 4, transferred the shares held by herself and that no shares held by the deceased were ever transferred to the Respondent No. 3 and Respondent No. 4. Further, the Respondent No. 2 has the right to dispose off her shares as per her wishes as the shares are her absolute property. Pertinently, the said shares were transferred during the lifetime and to the knowledge of the deceased Mrs, Jaishree Soni. Further, the Respondent No. 2 also executed gift deeds in favour of Respondent Nos. 3 and 4 in addition to executing the share transfer forms. The execution of gift deeds was not a legal requirement in view of the execution of the share transfer forms. According to the Ld. Counsel, it is sufficient to note that the transfer of shares took place during the lifetime of the deceased Jayshree Soni and therefore, it is now not open to the Petitioner (who is claiming to be the heirs of the deceased) to challenge the said transaction. 91. Referring to the order dated 1/9/2014, the Ld. Counsel submitted that the said Order has been chal....
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....sh is seized of the matter, I would like to refrain myseff from rendering any finding on this issue. This issue is answered accordingly. 96. The next instance cited by the Petitioner as an art of oppression is that the Respondents have illegally appointed Respondent Nos. 3 and 4 as the Directors on the Board of the Company without following due course of law in order to gain majority and thereby control the affairs of the Company. In this regard, the Petitioner's Counsel submitted that on 3/10/2010, FORM 32 for appointment of Respondent No. 3 as additional director of the Company was filed with the ROC for retrospective appointment with effect from 3/9/2010, Further, the Petitioner states that on 3/10/2010, FORM 32 for appointment of the Respondent No. 4 as additional director of the Company, was filed with the ROC for retrospective appointment with effect from 1/9/2010. Further, on 11/10/2013, FORM 32 for appointment of the Respondent No. 3 as director of the Company was filed with the ROC for retrospective appointment with effect from 29/9/2010. Further, on 11/10/2013, FORM 32 for appointment of the Respondent No. 4 as director of the Company was filed with the ROC for retro....
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....he Petitioner has brought nothing on record to show that such appointment of the directors was illegal. According to the Ld. Counsel, it is a settled law that filing of Form 32 in respect of an appointment of a Director of a company is a mere procedural formality and any delay therein can be cured by paying a penalty that may be imposed by the ROC for such belated filing. It is, therefore, contended that the Respondent Company had passed resolutions for the appointment of Respondent Nos. 3 and 4 as directors in accordance with law. In view of the aforesaid, the contention of the Petitioner that the appointment of Respondent No. 3 and Respondent No. 4 as directors of the company being illegal, is wholly misplaced. In any event, the Form 32s were filed by the Respondent Company much prior to the filing of the present Petition which was filed on or around 2/2/2014. This fact unequivocally obviates any malpractice on the part of the Respondent Company. 101. Lastly, it was submitted that, without prejudice to the above, no adverse inference can be drawn on account of the delayed filing of the transfer forms. It is submitted that if any such adverse inference is to be drawn, the contest....
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....ee Soni. The Petitioner states that Balance Sheets for the period 2009-2011, when Mrs. Jayshree Soni was alive and director of the Company, are not signed by Respondent Nos. 2, 3 and 4. The Ld. Counsel for the Petitioner pointed out that the Director's Report for the year ending 31/3/2010 is signed by Respondent No. 3 on 4/9/2010, a day after his appointment as additional director on 3/9/2010. The Secretarial Compliance Certificate for the FY 2010, 2011 and 2012 states that several board meetings were held. This was during the lifetime of Mrs. Jayshree Soni. However, no notices/minutes have been produced by the Company. It was, therefore, argued that balance sheets and other documents filed with the ROC were fabricated, backdated and illegally done. 105. The Ld. Sr. Counsel appearing on behalf of the Respondents has rebutted the said allegations and contended that all documents are genuine and were duly filed in accordance with the provisions of Law. 106. Having analysed the allegations made above with respect to the act of management, I am of the view that the documents referred to above, reveal certain manipulations committed by the Respondents. In my opinion, this dispute ....
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....rves to be allowed. 109. A careful analysis of Section 397 would show that the winding up on just and equitable grounds would be automatic and this Board has to only form an opinion that such winding up would not be in the interests of the Company/shareholders and, accordingly, to mould relief with a view to put an end to the matters complained of. 110. It is a settled proposition of law that where any shareholder is denied his most valuable rights in utter disregard of the statutory provisions, the making of a winding up order, on the ground that it is just and equitable would be justified. Therefore, having regard to the facts of the case in hand, the necessary ingredients of the provision contained in Section 397 which provides that: "to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just a equitable that the company should be wound up; also stands proved. 111. On the basis of aforesaid conclusions, to bring an end to the acts complained of and to do substantial justice between the parties. The C.P. is disposed of in the following manner:- ORDER a. C.A....