TaxTMI 
TaxTMI 
2015 (12) TMI 1193
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....directing the company to rectify its register 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....
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....made the appointment of the Respondent Nos. 3 and 4 as additional 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 sur....
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.... the existing members :- (i) Respondent No.2 - 25,000 shares. (ii) 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 ....
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....r received from the ROC, inter alia contending that no board resolution showing transfer 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 ....
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....to 23.61%. 4. Based on the aforesaid facts and circumstances of the case, the Petitioner has prayed for the following reliefs:- (a) To pass 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....
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.... manner whatsoever in the Company, save and except with the prior written consent of the Petitioner; (ii) investing, selling, disposing off, encumbering or alienating any property or assets of the Company, save and except with 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,....
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....their reply. They have also justified the transfer of shares by the Respondent No.2 in favour of the Respondent Nos.3 and 4 by way of Gift Deed. According to the said Respondents, the said transfer of shares is made in accordance with law. They have also justified the appointment of the Respondent 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....
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....dered this argument and I am in full agreement with the law laid down in the aforesaid decisions. I, therefore, would like to deal with the issue relating to maintainability of the petition first and confine my discussions and findings on the averments made on the date of the petition, However, since the Petitioner 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....
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....rior to the filing of the Petition, therefore the question of refusal thereof does not arise. He pointed out that no application or intimation for transmission of shares was communicated in writing to the Company prior to filing of the present Petition by the Petitioner and, hence, the petition, being pre-mature, deserves to be dismissed on this 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 Co....
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..../Probate/Succession Certificate, as sought to be contended by the Petitioner. Mr. Joshi further submitted that in the present case, the Board of Directors was not agreeable to exercise such discretion, taking into consideration, firstly, the disputes between the family members; secondly, the allegations regarding existence of a will of the deceased; thirdly, the request is not simply 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 t....
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....y seeking to add his name in it by transmitting 7083.8 shares in his name. Mr. Joshi submitted that there can be no transmission of only a part of the shares. The Ld. Sr. Counsel further pointed out that, the Petitioner in the instant Petition has effectively sought a relief of partition of the estate and transfer of 7083.8 shares in his name, without himself applying for a partition or 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.....
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....d and hence, the Respondent company, in absence of any Letter of Administration/Probate/Succession Certificate, has no way of ascertaining how the shares are to devolve upon the legal heirs of the deceased. The Ld. Counsel submits that the shares held by the Respondent Company are not the only property in the estate of the deceased. There are other properties for which the partition suit is pending between the parties. 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....
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....itiated by the Respondent No. 6 before Indore District Court 'it was alleged' that Late Mrs. Jayshree Soni had left a 'Will' and thus, in absence of letters of administration/probate, it was not possible to confirm or admit Petitioner's claim. In response, the Petitioner had clarified that Respondent No. 6 never claimed to possess a will of Late Mrs, Jayshree Soni and this, allegation regarding the 'will' was made by the 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 whispe....
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....erused the record. Admittedly, Late Smt. Jayshree Soni was the mother of the Petitioner, It is also an undisputed fact that she has not left any Will, Therefore, according to the Hindu Succession Act, her five children are entitled to 1/5th share each of the shares left by her by operation of law. The shares of the deceased are movable property and are divisible. As far as immovable properties are concerned, in case of any dispute, it requires division by metes 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)....
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....n the only essential requirement that needs to be examined by the CLB is as to whether the person is entitled to in terms of Article 27, which in this case is established. In the instant case, the Respondents have nowhere pleaded that the Petitioner is not a legal heir of the deceased Jayshree Soni. It has not been pleaded that she has left any Will. In such a situation, in my opinion, being legal heir entitled to file the instant composite petition under Section 58/59 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 c....
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.... material available on record, if it comes to the conclusion that the serious question of facts and law are involved, in that eventuality the CLB may refer and/or relegate parties to the civil court for adjudication of their claims by way of filing a civil suit. I may like to reproduce the relevant part of the said decision;- "All the above indicates the limitation and the peripheral jurisdiction with which court has to act in spite of its exclusiveness it cannot take within 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. 3....
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....in or dispose of any suit or proceedings by or against the company. Once this discretion is exercised to have it decided by it, it by virtue of language therein excludes the jurisdiction of the civil court. So we conclude the principle of law as decided by the High Court that jurisdiction of Court Under Section 155 is summary in nature cannot be faulted. Reverting to the second limb of submission by learned counsel for the appellant that court should not have directed for seeking permission to file suit only because a party for dispute 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 involv....
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....o know that late Jayshree Soni is no more and she has left 5 legal heirs, who, in the absence of a Will, are entitled to equal shares by operation of law. Having not done so, it does not lie in the mouth of the Respondents that in the absence of any refusal by the company in regard to the transmission of shares, the petition is premature and it deserves to be dismissed. 42. On an overall discussion, I have come to the conclusion that this composite petition filed by the petitioner is maintainable and the preliminary objection taken by the 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 Petiti....
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....t owners to get their names entered in the concerned offices and departments in place of Smt. Jayshree Soni, i.e. the deceased. It was, therefore, argued that filing of such proceedings by the Petitioner and Respondent No.6 amount to forum shopping and on this ground the Petition deserves to be dismissed, being not maintainable. 46. Having considered the rival submission and on examination of record, I have come to the conclusion that this preliminary objection too is devoid of force. The Respondent No. 6 In his individual capacity has filed a 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 prese....
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....etitioner learnt that the contesting Respondents by way of an alleged Rights issue had increased their shareholding in the Company by issuing shares to themselves to the exclusion of the Petitioner and other legal heirs of Late Mrs. Jayshree Soni. The Ld. Counsel pointed out that by virtue of a special resolution passed by the Company on 9/9/2013, after the demise of Mrs. Jayshree Soni, the authorized share capital of the Company was increased from Rs. 50,00,000/- to Rs. 1,50,00,000/- by creation of 1,00,000 equity shares of Rs. 100/- each by offering equity 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.....
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....mselves. 55. The Ld. Counsel next argued that the contesting Respondents did not disclose that the address of Respondent No. 6 is also shared by Respondent Nos. 2 to 4. According to the Petitioner, the Respondent Nos. 2 to 5 were aware at all times that he is residing at Gwalior for 28 years. 56. The Ld, Counsel drew my attention to an order dated 17/2/2014 passed by this Board, wherein the Board had directed Respondents to file proof of service of notice of the rights issue upon legal heirs of Late Mrs. Jayshree Soni. However, according to the Petitioner, the 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 p....
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....of Rs. 80 lakhs. According to the Respondents' Counsel, when the Petitioner has colluded with the Respondent No.6, it is now not open for him to raise an objection with regard to the transaction entered into with Metalman. Further, the Respondent Company is a family company, the unregistered Lease Deed was relied upon and accepted by all the family members including the deceased, Mrs. Jaishree Soni. It is, therefore, not open for the Petitioner to raise an objection with regard to the transaction entered into with Metalman, that too at such a belated stage. 59. It was 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....
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....gued that the Petitioners have no locus to question the decision taken by the deceased during her lifetime. 64. Lastly, according to the Respondents, the Company was also in the urgent need of funds for the repairs of its building. The unutilized FSI in respect of the said premises needed to be consumed for which additional construction was necessary. Needless to say that such additional construction would entail considerable necessity of funds. 65. Citing the above reasons, it is contended that the Petitioner cannot now question the transactions that took place with Metalman and 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....
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....ingh, is false and defective. The Petitioner has not brought forward any evidence to substantiate his claim that there was no notice served by the Respondent Company and received by Mr. Muna Singh or that Mr. Munna Singh was not the watchman. It is further submitted that the Petitioner has raised a disputed question of fact and for proving the same, he will have to lead oral evidence as is held in the case of Dr. Mahesh Batra (supra). It is pertinent to note that the Petitioner and the Respondent Nos. 2 to 5 five in the same premises and, therefore, it should not be a matter of surprise that 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....
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....ansferred to the sellers of the Property. In addition, Metalman paid off the Company's creditor, to whom Rs. 75 lacs was owed. Hence, Metalman replaced the creditor in books of the Company. 73. It is further submitted on behalf of the Petitioner that the Company had also purchased two cars from Amulya Exports Limited of Rs. 39,51,000/- on 31/3/2012 and Rs. 34,48,659/- on 31/3/2013. However, Amulya Exports is not a third party but in fart is a company under huge debts, chaired and managed by the Respondent No. 5 (Mr. Rajiv Soni). The cans in question were not purchased by the Company but only transferred 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 o....
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.... SCR 391, B.M. Jain & Sons Co. (P.) Ltd. v. Bombay Cable Car Co. (P.) Ltd. [2002] 30 SCL 140, Pushpa Prabhu Das Vohra v. Vohra Exclusive Tools P. Ltd., Tea Brokers (P.) Ltd. v. Hemendru Prasad Barooah [1998] 5 CLJ 463 (Cal.), Sangramsinb Gaekwad v. 2005 AIR SC 809, Bajaj Auto Limited v. N.K. Firodia (1970) 2 SCC 550, Harinagar Sugar Mills Limited v. Shyam Sundar Jhunjhunwala (1962) 2 SCR 339 & Alexander v. Automatic Telephone Company [1900] 2 Ch. 56. 79. Before I enter into adjudication of the said issue, 1 would like to reproduce relevant parts of the two decisions rendered by the Hon'ble Supreme Court in 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 ....
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.... in the fact situation obtaining in that case. It does not lay down a law that fiduciary duty of a Director to the Company extends to a shareholder so as to entitle him to be informed of all the important decisions taken by the Board of Directors. Such a broad proposition of law, if understood to have been laid down in Dale and Carrington would be inconsistent with the duty of a Director vis-a-vis the Company and the settled law that the statutory duty of a Director is primarily to look after the interest of the Company, 68. In Bajaj Auto Ltd v. N. K. Firodia the Court was concerned with the discretionary exercise of power by the Directors in terms of Section 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 th....
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....ctors owe duties to the Company but the relevant decision has to be made by its members individually or collectively, and the Directors advise them as to the decision they should make. Such situations would include a proposed sale or disposal of the Company, assets and undertaking, a proposed merger or division of the Company, a proposed reorganization of the Company's share capital affecting existing members and a proposal for the voluntary Liquidation of the Company." 73. No law in absolute terms, thus, had been laid down therein. In the instant case, there had been no transaction of sale and purchase of shares between the Director and the shareholder. 74. The said decisions, therefore, have no application 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 t....
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....e Directors do not have any fiduciary duty to advise shareholders as to when and in what manner they should enter into transactions with the Company, including acceptance of an offer of additional shares. Such a fiduciary duty would arise inter alia in exceptional situations when the Director take upon themselves the task of advising the shareholders who may be their family members, or when a transaction of purchase or sale is entered into by and between the Director and the shareholders, wherein the former takes undue benefit or has ill or improper or ulterior motive or mala fide acts solely to make a pecuniary benefit and gain for himself and to the detriment of such shareholders. If a general fiduciary duty of a Director vis-a-vis shareholders is laid down, the 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 director....
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....ose like maintenance or acquisition of control over the affairs of the Company. Where the Directors seek, entering into an agreement to issue new shares, to prevent a majority shareholder from exercising control of the Company, they will not be held to have failed in their fiduciary duty to the Company if they act in good faith in what they believe, on reasonable grounds, to be the interests of the Company, but if the power to issue shares is exercised for an improper motive, the issue is liable to be set aside and it is immaterial that the issue is made in bona fide belief that it is in the Interest of the Company. 81. It is further well settled that the directors may exercise their powers bona fide and in the interest of Company. If the directors exercise their powers of allotment 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....
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....the company. It was also not for the proper purpose. The Rights issue was launched deliberately to sideline the Petitioner from the affairs of the company by reducing their shareholding and correspondingly increasing the shareholding of the Respondents. I, therefore, hold that the EOGM held on 9/9/2013 by the company. In absence of the Petitioner, without valid and proper service of notice, is bad in law, and deserve to be set aside. Similarly, the allotment of further shares is also bad in law and deserves to be set aside. I have also gone through the decisions cited by the Respondents hereinabove. As held hereinabove, the Company is always entitled to issue right shares but if it is mala fide, and has been issued for the purpose of increasing the shareholding of one group to get control over 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 Petitione....
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.... prepared with mala fide intentions to allow the Respondent Nos. 3 and 4 to participate in the alleged Rights issue which was open only to existing shareholders at that time and with intent to dilute the Petitioners' shareholding in the Company. The order of this Board which finds the contesting Respondents guilt of perjury, is self-explanatory. Based on the above, it was argued that transfer of shares by the Respondent No. 2 in favour of the Respondent No. 3 and Respondent No. 4 needs to be set aside. 89. Responding to the said allegations of illegal transfer of shares by the Respondent No. 2 in favour of the Respondent Nos. 3 and 4, the Ld. Counsel appearing on behalf of the Respondents submitted that the Respondent No. 2 transferred 10 shares each to Respondent Nos. 3 and 4 on 4/10/2010 by 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....
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....am Vankudre Vs. Rajkamal Kalamandir Pvt. Ltd. reported in AIR 1960 Bom 136; (e) Bipin Jain & Ors. Vs. Savik Vijay Engineering Pvt. Ltd. & Ors. Reported in (1998) 91 Com Cas 835 (CLB). (f) Dr. Mahesh Batra Vs. Gajraj Beverages Pvt. Ltd. & Ors. Reported in MANU/CL0092/2002. 95. Having considered the submissions advanced by the Ld. Counsels appearing for the rival parties and upon a close scrutiny of the material available on record, it is to be noted that the CLB vide an interim order passed on 1/9/2014 has held that the Gift Deeds, by which the Respondent No. 2 transferred the shares held by her in favour of the Respondent Nos. 3 and 4, are forged. Against this order, an appeal was preferred, which is still pending before the Hon'ble High Court of Madhya Pradesh. In view of the fact that the Hon'ble High Court of Madhya Pradesh 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....
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.... after death of Late Mrs. Jayshree Soni, retrospective appointments were all done by the contesting Respondents' as a part of a plan to gain control of the Company. 99. Refuting the aforesaid allegations by the Respondents it has been argued on their behalf by the Ld. Counsel appearing for them that it is pertinent to note that the Respondent Nos. 3 and 4 were appointed as additional directors with effect from 3/9/2010 and 1/9/2011, respectively. Further, they were confirmed as permanent directors on 29/9/2010 and 29/9/2011 respectively, all of which happened during the lifetime of the deceased Jayshree Soni and the same was known to her. 100. The Ld. Sr. Counsel for the Respondents submitted that merely because there was a delay in filing Form 32 In respect of appointment of directors, it cannot be said that the said appointment was illegal. Further, the 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 m....
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.... Petitioner's Counsel submitted that as explained in paragraph 15.5 of the First Rejoinder, pursuant to order dated 17/2/2014 passed by this Bench, the Petitioner took inspection of annual returns, balance sheets etc. and the Petitioner observed there was a conspicuous gap in filing the annual returns and none were signed by Late Mrs. Jayshree Soni. The Petitioner noticed that in the Balance Sheet for 2009-10, audit fees disclosed in Schedule 8 is Rs. 5618/- which amounts to Rs. 5000 + Rs. 618 (service tax @ 12.36%). However, in 2009-10, the service tax was only 10% and was revised to 12.36% only in 2012. Further, the Petitioner states that the balance sheets for 2009 to 2012 were not filed at the relevant time but were filed together in a span of 1 week after demise of Mrs. Jayshree Soni. The Petitioner states that not a single balance sheet is signed by Mrs. Jayshree 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....
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.... the said section; (b) there must be continuous acts constituting oppression up to the date of the petition; (c) the events have to be considered not in isolation, but as part of a continuous story; (d) it must be shown as a preliminary to the application of Section 397 that there are just and equitable grounds for winding up the company; (e) the conduct complained of can be said to be oppressive only if it can be said that it is burdensome, harsh and wrongful and the oppression involves at least elements of lack of probity and fair dealing to a member in matters of proprietary right as a shareholder. For the reasons discussed hereinabove, in my opinion, the Petitioner has succeeded to prove that the acts of the Respondents are burdensome, harsh, wrongful and lack in probity and fair dealing. The effect of acts complained of is continuous in nature. The petition, therefore, deserves 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....
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..... 2 to 5 have diverted/misappropriated the funds of the Company's funds, and the company has suffered any loss the same shall be recovered from their personal resources and be paid back to the Company. The parties are directed to extend their co-operation to the said Auditors. The fees of the said Auditors shall be paid by the Company. The Special Auditors shall submit their report to the Company after completion of the audit within six weeks with effect from the date of receipt of the copy of this order. e. In future, all the notices to the Petitioner shall be served through R.P.A.D by the Company. The Petitioner shall inform the Company his address on which the notice is to be served within 15 days hereof. f. Other reliefs sought for by the Petitioner are hereby declined, g. C.P. stands disposed of in the above terms. h. Interim order, if any, and the C.A, if any, stand disposed off accordingly, l. No order as to costs. h. Let copy of order be issued to the parties. ============= Document 1 दिवानी मà¥.नं. शà¥à¤°à¥€à¤®à¤¾à¤¨ अषà¥à¤Ÿà¤® जिलà....
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