TaxTMI 
TaxTMI 
2017 (1) TMI 462
X X X X Extracts X X X X
X X X X Extracts X X X X
....le of Association is to carry out business of design, manufacture, engineering, conversion, reconditioning, repairing, development, testing and proto typing of extra high voltage equipment and other objects as stated in Memorandum of Association. 4. According to the Petitioner initially he was having 20,000 equity shares of Rs. 10/- each but the same was diluted by the respondents unilaterally by increasing shares of Respondents. The petitioner being a graduate engineer having three decades of industry experience in design, development and management of extra high voltage equipment and hence his main contribution is primarily technology. The first respondent company received vide applaud in the market in the field of designing and manufacturing of extra high voltage equipment used in various industries, considering the expertise, knowhow and experience of the petitioner. 5. However, in order to compete in the market, petitioner invited respondent No. 2, Respondent No. 4 who is friend of R-2, and R-6 who is the brother of R-2, to join the first Respondent company and they readily accepted the invitation having satisfied with the technical skills of the petitioner. Respondents ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of the Petitioner and entrusted the same to R-2 & 4. (g) Petitioner has not been given access to all the records, registers, transactions, alienations of the first respondent company. (h) R-2 transfer huge funds from 1st Respondent company to the concern of R 2 and Green Electrical a group concern of R-6. 10. According to the petitioners enough cause has arisen to wound-up R-1 company but winding-up would result in prejudice to the valuable rights of the petitioner. 11. In the rejoinder it is stated that insertion of clause 51-A of the Articles of Association is against the provisions of the Act and is against the democratic pattern of the management. The insertion of the said clause in the Articles of Association is itself an act of operation and mismanagement. The Criminal Complaint was lodged by the 2nd respondent only to harass petitioner and prevent him from taking any action against the acts of oppression and mismanagement committed by the respondents. The present worth of company is in crores of rupees on account of escalation of fixed assets of the company, the management of which is in the hands of respondents who only infused small amounts. It is also stated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thereby lost all rights to participate in any voting in respondent company. When confronted with aforesaid facts, petitioner apologized and offered to close down the said venture. This was the starting point of the difference between the petitioner and respondent No. 2. Petitioner himself voluntarily called EOGM of the 1st R-company on 1st July 2011 in the Board meeting held on 20.06.2011, which was presided over by him and signed the minutes. It is in that meeting it was mutually agreed upon that Articles of Association be altered and powers of management of the company were given to Managing Director of R1 company. Therefore, even prior to EOGM itself it was resolved in the Board meeting dated 20-06-2011 to alter the Articles of Association of the company whenever necessary for which the petitioner never raised objection, except in this application. The very facts that the petitioner signed in the balance sheet of the financial year and Annual Accounts for the year 2010-2011 on 5.09.2011 in the capacity of whole time director rules out possibility of petitioner not having knowledge of EOGM. Even after the EOGM petitioner once again started acting adversely to the interest o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tor of the company. Petitioner can obtain copies of the documents from ROC. Respondents stated that there is no agreement, or commitment to infuse Rs. 6.00 Crores by them and by imagination, the petitioner stated the figure as Rs. 6.00 Crores. Petitioner has approached this tribunal with unclean hands and has suppressed the material facts. 14. The following are the points that emerge for determination: (1) Whether the removal of Petitioner form the Directorship of 1st Respondent company on 13-06-2013 has been validly done or not? (2) Whether the removal of 1st petitioner as Director amounts to act of oppression or mismanagement or not? (3) Whether the alteration of Articles of Association was validly done or not? (4) Whether the alteration of Articles of Association giving the powers of management to R2 amounts to act of oppression or mismanagement (5) Whether EOGM held on 1-07-2011 was held behind the back of petitioner and if so it amounts to act of oppression or mismanagement. (6) Whether the increase in share Capital and allotment of 82,500 shares to M/s. Transpower Technologies private limited took place behind the back of petitioner or not? (7) Whether....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovided further that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 265 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation. (2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed. (3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting. (4) Where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so, - (a) in any notice of the resolution given to members of the company....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irectorship mainly on the grounds that respondents have not followed the procedure laid down under sections 190 & 284 of the Act, and it has been done with an intension to have complete control over the management of the affairs of the company to his exclusion. Petitioner has also taken a plea that the alleged theft of intellectual property was levelled against him only with a view to remove his as a director. Petitioner stated that he joined in other companies which are not at all competitive to the petitioner company and no prejudice or loss has been caused to the company in its business or in conducting the affairs of the company. In this context it is the plea of the respondent that in view of the misdeeds of the petitioner, and in view of petitioner offered to share the technology of the R-1 company by writing emails to the competitive company, respondent have to resort to file a criminal case for theft of intellectual property rights, criminal breach of trust etc., and thereby necessitated the removal of the petitioner as director of the company. According to the respondents it is the petitioner that voluntarily called a meeting on 20.04.2013 vide Exhibit R-4 and it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... learned Counsel for the petitioner how the special notice dated 24.04.2013 was enclosed to the covering letter dated 01.05.2012 and therefore, the special notice is a concocted one. The reply given by the respondent is the date on covering letter is mentioned as 01.05.2012 instead of 01.05.2013 and the petitioner want to take undue advantage of the topographical mistake and want to circumvent the procedure that has been correctly followed in the process of removal of petitioner as director. A perusal of the special notice and the covering letter and the fact that the both were received by the petitioner admittedly on 04.05.2013 goes to show that the date appearing on covering letter through which special notice copy was sent to the petitioner is nothing but a topographical mistake. It is contended by the learned Counsel for the petitioner when the EOGM was convened on 11.05.2013 there must be 7 days' clear notice and there is no such 7 days' clear notice in this case. To strengthen his argument, he contended that the date of notice and date of meeting and three more days for mode of service shall be excluded. In the case on hand admittedly the notice was received ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was a decision in the case of Life Insurance Corporation of India v. Escort Ltd. in this case judges held that the shareholders in any case should not be restrained from calling a general meeting to remove existing directors and appoint new director. Similarly, there was another decision in the case Ravi Prakash Singh v. Venus Sugar Ltd. the judgment in this case made it clear that where articles of association confer power on the hoard of' directors to remove a director, such power is not affected by the provisions of section 284. On the other hand, there are many cases where Hon'ble court has decided that a Director can be removed for obvious reasons but on the other hand contrary to this at many circumstances an issue relating to removal of directors have emerged where director is removed only on the will of shareholders, Central government. Company law board. There was a case Vinod Kumar Mital v. Kaveri lime Industries Ltd. wherein it has been held to be a good ground for removing a director where it was found as a fact that the director had made misleading complaints to various government authorities which resulted in raids on the companies premises and the concerned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Further Petitioner did not choose to disclose his interest in other companies to Respondents at a right point of time. The crucial test whenever a director was removed from the board of the directors is, whether it has been done with an intention to keep the removed director away from the management of the company to have their own man in the management of the company or with a view that the presence of the removed director is detrimental to the interest of the company. In the background of the facts narrated above, but for the acts of the petitioner there appears to be no reason or gain for the persons in management of the company to remove the petitioner from the directorship of the company. Even if the petitioner continues as one of the directors of the board still the respondent's groups have got majority of directors on their side. In view of the discussion on points 1 and 2 it is clear that petitioner was removed as director legally and by following the procedure laid down under the Act and Articles of Association. 18. POINT Nos. 3, 4 and 5: Admittedly Articles of Association was amended in the EOGM held on 1-07-2011. The following Articles are amended. They ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction taken without the consent of Mr. Keyur G. Shah and/or Twinkle Shah shall be termed as null and void. The Fundamental issues shall be in respect of the following matters to be undertaken by the company: (a) Changing the name of the company. (b) Appointment of independent directors. (c) Appointment of Directors, Senior Executives and day to day operations of the company (d) Composition of Board of Directors (e) Altering the provisions of the Memorandum and Articles of the company or the rights attaching to any shares of the company. (f) Issuing, allotting or redeeming any shares or securities, including any warrants, plant any options over the company's share approve the terms of a public issue by the company to any person (including shareholders) (g) Changing (including the reducing the share capital) the share capital structure and/or the control/management of the company. (h) Delete or distribute any dividend or other payment out of the distributable profit of the company. (i) The appointment of the company's auditors, any change in the company's accounting policies and opening of bank account(s) of the company. (j) Acquire (whether ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l as Director. Therefore, it cannot be said that Articles of Association was amended without his Knowledge and to his detriment. It is contended by learned counsel for Petitioner that newly inserted Article 51A gives all powers relating to management of company to 2nd respondent and is against democratic corporate governance. R1 company is private limited company and the shareholders have got a right to amend the Articles of Association. The majority shareholders are with 2nd respondent. Unless and Until it is shown that entrustment of all the powers to one individual i.e, R2 results in acts of oppression to petitioner or resulted in mismanagement it cannot be said that such entrustment of powers per-se amount to act of oppression. Sec. 31 of the Companies Act 1956 provides that a company may by passing a special resolution alter regulations contained in Articles of Association subject to provisions of Companies Act and the conditions contained in Memorandum of Association. 21. POINTS 6 and 7: INCREASE IN SHARE CAPITAL AND ALLOTMENT OF SHARES Chapter VI of the Companies Act deals with prevention of oppression and mismanagement. Section 397 deals with relief in cases of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Tribunal may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. In a number of judgments, Hon'ble Supreme Court considered in extenso the scope of Sections 397 and 398." The following are the judgments that could be usefully referred to: (a) Needle Industries (India) Ltd. and Others vs. Needle Industries newey (India) Holding Ltd. and Others, (1981) 3 SCC 333. (b) Sangramsinh P. Gaekwad & Ors. Vs. Shantadevi P. Gaekwad (Dead) Throught L.Rs. & Ors. (2005) 11 SCC 314 22. From the above decisions, it is clear that oppression would be made out: (a) Where the conduct is harsh, burdensome and wrong. (b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-a-vis the others. (c) The action is against probity and good conduct. (d) The oppressive act complained of may be fully permissible under law but m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and in favour of R4 and R5 Transpower Technologies private limited owned by R2 and R4, without his knowledge till he searched the record of company in ROC, denying his right to have allotment of those shares to him. 24. In the reply it is stated that petitioner also signed on the share certificates under which shares were transferred on 25-03-2008 vide Annexure R-5. Annexure R-14 of reply show that petitioner attended and chaired the Board Meeting dated 25-03-2008. Resolution No. 4 of the above said Board meeting clearly approved transfer of 63,000 equity shares of each Rs. 10/- and the petitioner was authorised to sign and endorse on respective share certificates. It is also mentioned that petitioner is not willing to purchase any shares. A perusal of share certificates dated 25-03-2008 which are part of Annexure R-5 show that petitioner also signed on those share certificates. Moreover, the transfer of shares that took place in the year 2008 when the petitioner was one of the Director is questioned in the year 2013 under the guise of oppression and mismanagement that too after petitioner was removed as director. Therefore, there is nothing in the allotment of 17000 shares o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ease in the paid up share capital or allotment of shares to his group is an act of mismanagement unless and until it is shown that such course of things are detrimental to the interests of company and causes prejudice to the exercise of rights by the minority shareholders. 26. POINT NO. 8: - Resignation of R4 and R 6 as Directors etc., - It is stated that Respondent No. 4 was appointed as Director on 25-03-2008 and resigned on 9-02-2012. R6 was appointed on 25-03-2008 and resigned on 28-06-2010. R3 wife of R2 was appointed as Director on 15-07-2011 and she is still on board. One Girishchandra N. Shah was appointed on 1-07-2011 and resigned on 9-02-2012. It is also alleged that the above said appointments and removals were made without conducting any meetings as required and without notice to petitioner. In reply to it is stated that R6 resigned in the year 2010 and his resignation was accepted in the board meeting attended by petitioner vide Annexure 9. The resignation of other directors referred to above was duly accepted in the Board meeting attended by petitioner. Perusal of Annexure 9 show that R6 resigned and it was duly accepted in the board meeting attended....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (i) the managing director, (ii) any other director, (iii) and (iv) omitted (v) the manager, upon such terms and conditions as may, in the opinion of the 1[Tribunal] be just and equitable in all the circumstances of the case; (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned; (f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (g) any other matter for which in the opinion of the Tribunal it is just and equitable that provision should be made. In Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 2 SCR 720 Hon'ble Supreme Cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....can be safeguarded. The Company Law Board must also make an endeavour to find out as to whether an order of winding up will serve the interest of the company or subvert the same. Further, if an application is filed under Section 433 of the Act or Section 397 and/or 398 thereof, an order of winding up may be passed, but as noticed hereinbefore, the Company Law Board in a winding up application may refuse to do so, if any other remedy is available. The Company Law Board may not shut its doors only on sheer technicality even if it is found as of fact that unless the jurisdiction under Section 402 of the Act is exercised, there will be a complete mismanagement in regard to the affairs of the company. In Sangramsinh P. Gaekwad v. Shantadevi Gaekwad through Lrs. & Or's., reported in (2005) 11 SCC 314 it is observed that the powers of the court to grant appropriate relief under section 397 of the Companies Act is wide amplitude and while exercising its discretion, the court was not bound by the terms contained in section 402 of the Act if any particular facts situation a further relief or reliefs was warranted. 31. In the light of the above said legal position and in order to do....