TaxTMI 
TaxTMI 
2009 (2) TMI 859
X X X X Extracts X X X X
X X X X Extracts X X X X
....re-emptive rights. It held that the meetings held on 28.04.2006, 09.05.2006, 11.05.2006, 12.05.2006, 19.05.2006 and 20.05.2006 had not been properly convened and all the actions in the alleged meetings were in violation of the Articles of the Association and provisions of the Companies Act. It found that the purported act of increase of the authorised share capital from Rs. 1 crore to Rs. 2.5 crores on 28.04.2006 and again from Rs. 2.5 crores to Rs. 3 crores on 11.05.2006 were illegal having been passed without notices to the petitioner, who was a substantial share-holder. By the impugned order, the Company Law Board restored the status quo as regards the share capital of the company. The removal of the petitioner and his son from Directorship and induction of other Directors were found as having been done in violation of the statutory provisions of Section 191 and 284 of the Companies Act and the purported removal itself constituted gross oppression. The induction of new Directors on 09.11.2005 was also found to be illegal and status quo ante was ordered to be restored. It found its own justification in the nature of orders that were made by references to Section 402 (e), 407 and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f oppression and mis- management by the appellants? (vii) Whether the order dated 17.10.2007 passed by the Ld. CLB be sustained in view of wrong findings on the acts of oppression and mismanagement which is contrary to the facts and records of the case? (viii) Whether the commercial disputes be the subject matter of the petition under Section 397 and 398 of the Companies Act 1956? (ix) Whether a Single Technical Member of the Company Law Board can modify, terminate or amend the MOU between the shareholders for purchase of entire equity shares with the consent of 100% Shareholders with Third Party without obtaining the consent in terms of Section 402(e) of the Companies Act, 1956? (x) Whether a Shareholder who has received part payments of consideration for the sale of shares several times several times on behalf of other/all shareholders parties to the MOU can claim the relief under Section 397/398 of the Act when he is required to comply with the terms and conditions of the MOU? (xi) Whether the MOU where time is not the essence due to penalty clause and amendment clause provided therein and once penalty charged can be adjudged as an agreement where time is essence by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....kiat Singh (who was the co- brother of Ajmer Singh and brother-in-law of Amrik Singh), however, was stationed in India and he was looking after the affairs of the family. (ii) Introduction of a third party to family in company affairs by a contemplation of sale of property of company:- 5. The company was really dealing in real estate and had obtained allotment of a large extent of land and building within the limits of Chandigarh city. The admitted case is that the Ajmer Singh, Amrik Singh wanted to dispose of the property of the company at profit and apprehending that the transactions might result in a huge incident of capital gain tax, decided to adopt a contrivance of sale of shares of the company to a person named, Zora Singh, who wanted to purchase the property. The decision to sell the property was hence dropped and transfer of shares was to take place in the following manner. Initially on 29.10.2005, a decision was taken at meeting of the Board of Directors under which the Company had authorised the Directors to nogotiate and settle the terms and conditions of transfer of the Company's land and building and that MOU was to be executed authorising Ajmer Singh, Amrik Sin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be transferred to Zora Singh for a consideration of Rs. 15 crores. All other issues have been denied. Even the date of execution of the MOU is denied by Zora Singh by pointing out that although a recital of the document on the first page is made as though it was 09.11.2005, the document had been signed on the last page by Zora Singh only on 10.11.2005. This, according to the appellant will have a bearing on the last date before when the amount was to be paid. 9. Ajmer Singh admits the payment of the entire sale consideration before the date stipulated under the MOU and this fact was denied by the respondent by stating that the payments alleged to have been made on various dates either to Ajmer Singh or Malkiat Singh purported to be on his behalf are not any payments in the eye of law, since he had not given any such authority for receipt on his behalf. It is also contended on behalf of the respondent that all the payments which were supposed to have been made by cash could not have been true and that they were falsely receipted by Ajmer Singh or Malkiat Singh to oust Amrik Singh from the company and join with Zora Singh to carry on with the affairs of Company. V. In the absence o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s are not the owners of the property of the Company. Company and shareholders are distinct entities (Chiranjit Lal Chowdhary Vs. Union of India AIR 1951 SC 41). A shareholder that buys shares buys no interest in the property of the company which is a juristic person entirely distinct from the shareholder. The true position of a shareholder is that on buying shares as an investor, he becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of dividents among the shareholders. He has undoubtedly a further right to participate in the property of the company which would be left over after winding up but not the assets as a whole (Bach F. Gugdar Vs. CIT AIR 1953 SC 74, (1955) 25 Comp Cas 1). The ownership in the property is only with the Company and the MOU itself does not contemplate the sale of the property by the Company to Zora Singh. The MOU contemplates transfer of shares and the management of the Company. Consequently, the ownership in the property was to reside in the Company itself and it was only the ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dency of a civil suit. Such an argument made by the learned Senior Counsel on behalf of the appellants is not tenable in the eye of law for, a person who is complained of as having caused oppression and mismanagement cannot oust the jurisdiction of the Company Law Board by subsequently instituting a civil suit. Before the Civil Court, the relevant issue could be whether the plaintiff had performed his part of the contract and the non-execution of transfer of shares by Amrik Singh was justified or not. So long as Amrik Singh continues to be a shareholder, all the trappings of the Companies Act relating to the rights of such shareholders by entitlement to statutory notices and his own entitlement to participate in the proceedings of the Board cannot be ousted. VIII. Proof of service of statutory notices by certificate of posting-weak evidentiary value:- 16. Several meetings of Board under which new persons had been inducted into the Board, removal of Amrik Singh and his son from the Board, increase of share capital of the company have all serious consequences relating to the administration of the Comapny and its functions. The Company Law Board has found that no proof had been addu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t on the joint-holder named first in the register in respect of the share. (5) A document may be served by the company on the persons entitled to a share in consequence of the death or insolvency of a member by sending it through the post in a prepaid letter addressed to them by name or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied, by serving the document in any manner in which it might have been served if the death of insolvency had not occurred. 17. It will be wrong to read from this provision that there is any presumption regarding the service on an addressee even otherwise there is an express denial of receipt of the notices. However, a presumption is made under Section 27 of the General Clauses Act with regard to service of notices sent through Registered Post. But even there, the Courts have been very cautious in spelling out the nature of presumption and how the burden of proof is discharged. In Puwada Venkateswara Rao Vs. Chidamana Venkata Ramana (1976) 2 SCC 409 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f weighing the probative or persuasive force of certain facts proved in relation to other facts presumed or inferred. Sometimes a discretion is left with the Court either to raise presumption or not as in Section 114 of the Evidence Act. On other occasions, no such discretion is given to the Court so that when a certain set of facts is proved, the Court is bound to raise the prescribed presumption. But that is all. The presumption may be rebutted. Raising of a presumption, therefore, does not by itself amount to proof. The result of a mandatory requirement for raising a presumption cast on the Court, as there is Section 53(2) of the Companies Act, is that the burden of proof is placed on the person against whom the presumption against whom the presumption operates for disproving it. It is only if such person is unable to discharge the burden, that the Court will act on the presumed fact." 18. The Hon'ble Supreme Court also held in Mst. L.M.S. Ummu Saleema Vs. Shri B.B. Gujaral and another (1981) 3 SCC 317 that there was no conclusive presumption that the letters posted under certificate of posting were served on the addressee. Therefore, in this case, the fact that certificate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erring oppression and mismanagement of the act of the majority in a closely held family company in removing the directors that had minority shareholding without adequate notice was not merely invalid but would be an instance of oppression and mismangement. Holding board meetings without proper notice of removal of erstwhile old Directors and several other acts like change in clauses of Articles of Association giving room to a chain of events having serious consequences would operate as oppression and mismanagement. In the decision of the Hon'ble Supreme Court in Claude-Lila Parulekar (Smt) Vs. Sakal Papers (P) Ltd. and others (2005) 11 SCC 73, the Hon'ble Supreme Court cautioned that the majority cannot ride roughshod over the minority without adequate notices under Section 173 of the Companies Act. 20. When the receipt of all the notices were denied by the respondent, the mere production of such certificates do not satisfy the requirement of law. The actual services of notices on the respective dates is a matter of inference from a given set of facts and a rendering of situation by a Company Law Board that had decided to discount the value of certificates of posting canno....