TaxTMI 
TaxTMI 
2016 (9) TMI 716
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....nd reducing the petitioners to minority was challenged in the said proceeding. The petitioners Nos. 1 to 7 along with the respondent No.2 are the founder directors of the respondent No.1. They were the original subscribers to the Memorandum of Understanding of Association of the respondent No.1 Company. The petitioners Nos.1 to 5, 7 and 8 are Doctors by profession. The respondent No.2 was entrusted with the construction of the Nursing Home building and the set up of the Nursing Home. The required funds were generated by obtaining bank loans and also by raising share capital from the petitioners and the respondent No.2 who were the only contributories to the company. The petitioner No.8 was appointed as a director of the company with effect from 20th June, 2009. The dispute arose after 31st May, 2013. Prior to 31st May, 2013 the issued and paid of capital of the company was Rs. 20.80 lacs consisting of 2,08,000 equity shares of Rs. 10/- each out of which the petitioners together hold 1,04,750 shares. The appointment of the respondent Nos.3 and 4 in the Board of Directors of the Company and allotment of 5776 shares to the respondent No.3 in the Board meeting held on 31st May, 2....
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....eters from the Nursing Home and the respondent No.2 has run a comparative business from the said centre where ECG and other facilities are provided and thereby diverting the patients from the Nursing Home. The respondent No.2 wrongfully and with mala fide intention filed two sets of Form 32 annexing therewith a copy of the purported Memorandum of Understanding (MOU) dated 1st June, 2010, removing the petitioners No.1 to 8 from the Board of Directors of the respondent No.1 company and also appointing the respondents Nos.3 & 4 as Directors in the Board of the Company. The petitioners contended that the removal of the petitioners Nos.1 to 8 and the appointment of the respondents Nos.3 & 4 have been illegally and wrongfully done with a view to reduce the petitioners from majority to minority to get control and the management of the petitioners. The petitioners alleged that no notice convening any General Meeting was issued either by the shareholder or by the Board, as required under Section 284 of the Companies Act. Inasmuch as no such notice has been filed with the Registrar of Companies. In addition, the respondents have filed one Form No.2 showing allotment of 5,776 equity shares....
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....sequently, the entire management of the Nursing Home was handed over to the respondent No.3. Thereafter, in discharging the obligations pursuant to the terms of the said MOU dated 1st June, 2010, the respondent No.3 had arranged necessary funds for discharging of the existing liabilities of the company as on 31st May, 2010. In terms of the said MOU, the respondent No.2 repeatedly requested the petitioners to resign from the Board of Directors of the Company so as to facilitate him to be in the management of the Nursing Home. In spite of such requests, the petitioners have refused to resign. Consequently, in order to implement the terms of the MOU dated 1st June, 2010, the respondent had filed Form 32 showing the removal of the petitioners as Directors under Section 284 of the Companies Act, 1956, as the petitioners had agreed to be removed as Directors, which is recorded in the said MOU dated 1st June, 2010 and the respondents had merely given effect to the terms of the MOU in showing that the petitioners no longer remained as Directors of the Company. The respondent No.2 injected funds in the Company when the Company was in need of funds, and such infusion of funds were treated as....
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....hiv Darbar Vinimay Pvt. Ltd. and Adarsth Pratishtan Pvt. Ltd. have paid a sum of Rs. 10,00,000/- by Chq No.014549 on 3rd June, 2010, Rs. 10,00,000/- by Chq No.014492 on 3rd June, 2010, Rs. 10,00,000/- by Chq No.015005 on 3rd June, 2010, Rs. 5,00,000/- by Chq No.014467 on 4th June, 2010 and Rs. 10,00,000/- by Chq NO.016849 on 10th June, 2010 respectively in aggregate sum of Rs. 45,00,000/- and subsequent thereto the entire amount was repaid to the said five companies on 31st December, 2011, 23rd April, 2011, 4th February, 2011, 4th February, 2011 and 4th February, 2011 respectively and, accordingly, the consideration for issuance of shares in lieu of such payments could not and does not arise and there was no material before the Company Law Board for which the Board could arrive at a conclusion that the shares issued in favour of the respondent No.3 or other entities on the basis of the Memorandum of Understanding, the authenticity of which the petitioners dispute is contrary to record and such finding is perverse. Mr. Mookherjee has relied upon the decision of the Hon'ble Supreme Court in Kamal Kumar Dutta & Anr. Vs. Ruby General Hospital Ltd. & Ors. reported at (2006) 7 SCC 613 an....
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....iled and it is only on the basis of an alleged MOU which is illegal. The allotment of shares is also contrary to Article 6B of the Articles of Association of the Company. Mr. Mookherjee has relied upon the decision in Claude-Lila Parulekar (Smt) Vs. Sakal Papers Pvt. Ltd. & Ors. reported at (2005) 11 SCC 73 and also in the case of John Tinson & Co. Pvt. Ltd. & Ors. Vs. Surjeet Malhan (Mrs.) & Anr. reported at (1997) 9 SCC 651, wherein it was held that "any allotment contrary to the Articles is void". It is being argued that there was no need for raising any fund by way of share capital by the Company at the relevant point of time or no such requirement was ever made known to the petitioners who were the Directors and shareholders at that point of time. Also, no opportunity of acquisition of shares was granted to the petitioners who were the existing shareholders in the company before allotment of shares in favour of the respondent No.3 and such allotment was made with a malafide object to take control of the Company by the respondent No.2. In support of such argument, reliance has been placed to the decision in the case of Dale Carrington Investment Pvt. Ltd. (supra), to state that....
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....he petitioners. The understanding was such that the respondent No.2 being an industrialist will take care of all financial transactions and issues relating thereto and petitioners being doctors by profession will render professional services only. After commencement of business the company was not able to generate enough funds to meet its financial commitments to its bankers as the petitioners were neither finding adequate time to look after the affairs of the company after attending to their professional duties nor allowing the respondent No.2 to run the Nursing Home as agreed amongst them. The respondent No.2 being the only director from Sharma Group did not have final say although he was a founder member. The respondent No.1 company started incurring losses which resulted in non-payment of bank dues and by March, 2010 the respondent No.1 Company had an outstanding Bank loan of Rs. 189.56 lacs. The petitioners, thereafter, approached the Sharma Group with a proposal to take over management of the company on certain terms which were recorded in a Memorandum of Understanding dated 1st June, 2010. Although the said MOU was executed by the petitioners with the respondent No.3, a b....
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....of corresponding value, which would disturb the agreed shareholding ratio of 51:49 agreed by and between the Sharma Group and the Doctors Group as recorded in the MOU. That the Sharma Group brought in such loans aggregating Rs. 45 lacs, which in turn were used to repay the dues of the banks. The aforesaid sums were spent by the respondent No.1 Company for making payment to its bankers, which payments were made by the company by cheques issued under the signatures of the petitioner Nos.1 and 3. The aforementioned loans aggregating Rs. 45 lacs were repaid by the company only on 4th February, 2011, 23rd April, 2011 and 31st December, 2011, respectively. The loans were repaid to the entities from which the same were received without any interest. The Sharma Group as such clearly performed all its obligations under the MOU, thereby obliging the petitioners to perform their obligations under the same as well. Despite being obliged to perform their obligation under the MOU, the petitioners did not do so. It is in these circumstances that in order to give effect to the MOU the Sharma Group was compelled to issue and allot the said 5776 shares in the name of the respondent No.3 thereb....
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....7 and 398 of the Companies Act, 1956, the interest of the company must be considered to be paramount. In this regard reference was made to the following decisions:- a) Mohanlal Ganpatram & Anr. Vs. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. & Ors. reported at AIR 1965 Guj 96 (Paragraph 53); b) Nanalal Zaver & Anr. Vs. Bombay Life Assurance Co. Ltd. & Ors. reported at AIR 1950 SC 172; (Paragraph 27); c) Needle Industries (India) Ltd. & Ors. Vs. Needle Industries Newey (India) Holding Ltd. & Ors. reported at (1981) 3 SCC 333; (Paragraph 121, 111) It was submitted that the petition is liable to be dismissed on the ground of suppression as the petitioners have deliberately suppressed the MOU dated 1st June, 2010 and deliberately misrepresented the facts in connection therewith. The facts would reveal that even by accepting that a MOU had been entered into with one of the members of the Sharma Group, namely, the respondent No.3, the petitioners alleged that upon the respondent expressing a desire to invest in the respondent No.1 Company, a MOU was prepared and executed on 1st June, 2010. Subsequently, realizing that there was something wrong with the MOU, the same wa....
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....rosanct and an agreement entered into between the two groups of shareholders who are essentially the partners in the company must be honoured. The directors are required to act in good faith. The shareholders are essentially the partners in the company and their actions should bind the company. The respondent No.1 is a partnership of two groups of shareholders and in such a case the principles of partnership have been applied which requires that the shareholders must act in good faith and the principles of uberrimaefidei is applicable. In this regard the learned Senior Counsel has relied upon the case of O'Neill & Anr. Vs. Phillips and Ors. reported at (1999) 2 All ER 961 wherein the House of Commons held that for the purpose of Section 459 of the 1985 Act (which is equivalent to Sections 397 and 398 of the Companies Act, 1956), although a member of a company would not ordinarily be entitled to complain of unfairness unless there had been some breach of the terms on which he had agreed that the company's affairs should be conducted, equitable considerations might make it unfair for those conducting the affairs of the company to rely on their own strict legal powers. That would be s....
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....grant any relief to such petition. The MOU of 1st June, 2010 was executed in the benefit of the company. Despite having admitted the execution of the said MOU, the petitioners have, however, attempted to suppress material facts and made false statements with the object of acting contrary to the terms of the said MOU. Such false and misleading statements clearly demonstrate the intention of the petitioners to act against the interest of the company. Inasmuch as the petitioners' acts lack probity, they are in any event not entitled to any relief in the instant company petition. The nerve centre of the litigation is Astha Nursing Home Pvt. Ltd. It emerged from the pleadings that there are two principal groups who are trying to establish control and the management of the said Nursing Home. This is apparent from the fact that the respondent No.2 all throughout before the Company Law Board has asserted that he is representing all the respondents. The corporate shareholders do not come and say that they are not supporting the respondent No.2 in this litigation. Even if it is assumed that the respondent No.2 does not represent Sharma Group but the support of the other respondents ....
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....ompany, then he/she is bound to transfer its holding in company to party of first part only. 5. That the party of first part shall not pay any dividend or interest on investment made by party of second part for establishing the said nursing home during the first year of its operation but the party of First part shall liable to pay interest at bank fixed deposit rate (at floating rate) to party of Second part on total investment other than share capital made party of Second part, till this amount is refunded. 6. That the party of First par shall invest sufficient fund to initially repay bank term loan overdue and other over dues liabilities. Further, the party of First part shall invest sufficient fund for development of the company. 7. That the party of Second part will form a Doctor's committee for better running of the nursing home and for the development of individual departments. 8. That all the directors and its relatives can increase their shares whenever he/she wishes to. It is not in dispute that the said Memorandum of Understanding has been signed by some of the doctors. The Memorandum of Understanding was entered into on 1st June, 2010. Under the said Memor....
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....hiv Kumar Sharma has infused any amount or he had arranged for the funds or that he had taken over all the existing liabilities as on 31st May, 2010 and was allowed to take over the management of the said company. It is true that the entire loan was repaid without any interest and the bank might have extended the repayment holiday which certainly has benefitted the company to some extent but the fact remains that the said fund was taken out from the company which cannot be viewed as an act for the benefit of the company since the company became poorer by Rs. 45 lacs and the same is against the spirit of alleged MOU. There was no correspondence between the respondent No.2 and 3 with the petitioners or with the company alleging that the infusion of fund had taken place on the basis of Memorandum of Understanding and the Company was benefitted by the said amount and further sums were invested in the company by Shiv Kumar Sharma. This aspect of the matter is important when a plea of legitimate expectation is raised to justify an allotment of shares dehors the articles in favour of the respondent Nos.3 and 4. The respondent No.2 has failed to disclose any document between December, 2011....
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....o Mr. Shiv Kumar Sharma but in effect the true intent and spirit of the agreement was that Sharma Group would control 51% equity shares of the company. It is now immaterial as it appears that Shiv Kumar Sharma or Sharma Group did not fulfil its obligation under the MOU inasmuch as the MOU does not contemplate complete exit of the Doctors Group from the management inasmuch as they have right to increase their shares whenever they desire. There cannot be any doubt that the Court ought not to confine itself to a narrow legalistic view and allow technical pleas to defeat the beneficial provision of the section and that in certain situations the Court is not powerless to do substantive justice between the parties, the facts of this case do not merit such a course of action to be taken and return a finding in favour of allotment of shares. The claim of respondent No.3 is in the nature of specific performance of an alleged MOU. As alluded above there is a failure on the part of the respondent No.3 or Sharma Group to fulfil its obligation and at the time of allotment of shares the Company was not in need of fund. Moreover, there has been wrongful usurpation of authority by the respondent N....