TaxTMI 
TaxTMI 
2017 (3) TMI 825
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....and mismanagement. 2. In CP 54 the 2nd Respondent Mr. Satish Kumar Singh is the Petitioner in CP 75; whereas, the Petitioners 1 and 2 in CP 54 are Respondents 2 and 3 in CP 75, besides two other Respondents Mr. Vinod Kumar Singh and Syndicate Bank (Respondents 4 and 5 respectively). In both the Petitions, the Company is 1st Respondent. The main relief in CP 54/16 is to set aside Form SH-7 dated 5.3.2015 relating to increase of authorized capital of the Company from 11 lacks to 50 lacks; whereas in CP 75/2016, the main relief is to declare that the Respondent No. 2 therein who is the Petitioner No. 1 in CP 54/16 has caused breach of fiduciary duty as Director of the company. In both the matters, the other reliefs are either supplementary or incidental to the above reliefs and this common order mainly addresses on those core reliefs. For the purpose of convenience, in the discussion, the parties are referred as per their array in CP 54/2016; and whenever necessary, special reference to their status will be given. Before dealing with divisive facts of the case, certain admitted facts have to be placed on record. The Company was incorporated on 31.7.2006 with an initial author....
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.... appointment of engineers etc and of sub-contractors, which amounts to oppression. vii. The Respondent No. 2 has committed financial mismanagement by buying various materials at a much higher prince, accepting 'kickbacks' and collected the money from the suppliers. He has also indulged in taking the bills for higher qualities of steel, cement and other material but received lesser quality and took differential amount in cash from the vendors. viii. During FY 2015-16, the Respondent No. 2 has raised funds from individuals including Mr. Ganga Sagar Singh, in a sum of Rs. 55,99,714, without authorization and approval from the Petitioner and no approval from the Board was given. Further, the Respondent no. 2 did not provide proper accounts relating to utilization of those funds. ix. The Respondent No. 2 paid Rs. 5,72,715 to Vinod Kumar Singh-one of the share holders (Respondent No. 4 in CP75/16) without any reason or purpose, merely because, Mr. Singh happened to be close associate of Respondent No. 2. x. Having collected huge amount towards booking of flats in Palm Heights, the Respondent No. 2 has not account for that amount to the Company. He has refused to furni....
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....ject funds are required but the Petitioner was expressing his inability to provide further funds and therefore, the Company applied to bank for financing the said project and for that purpose only, the authorised share capital had to be increased and it was so resolved in the meeting of Board (vide paragraph 11 of the Reply). In the aftermath of the huge difference of opinion and mutual distrust between Petitioner and Respondent No. 2, who are the only two directors of the Board, the business of the Company came to a standstill that led the parties to hurl allegations and counter allegations in these two Company Petitions, claiming oppression and mismanagement against each other. We examine the disputes involved on the basis of material available on record in the following paragraphs. 5. Question No. 1: Whether increasing of authorised share capital from 11 lakhs to 50 lakhs is duly resolved in the Board meeting dated 5.2.2015? 5.1 A perusal of para 11 of the Reply with reference to the Annexure 19 available at page 329 of the Reply paper Book shows that date of Board meeting is not given in the reply para 11. The copy of resolution of the Board is signed by Respondent No.....
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....alue of this letter for the simple reason it is not a sworn affidavit of the maker of that letter to be used as evidence in the judicial forum. What is the necessity of the Petitioner obtaining the letter from Mr. Ravi Shanker Singh on very same day i.e., 5.3.15 is unknown. However, at the same time, we are to hold that the burden is on the Respondent who is asserting that the Petitioner and other members attended the EOGM On 5.3.15 by producing the attendance register and the original minutes containing the signatures of the members attending the EOGM. In the absence of that best evidence we are compelled to hold that the EOGM was not convened and the members did not approve the increase of authorised capital of the Company from 11 lacks to 50 lacks. 5.4 The Petitioner made application to direct the Respondent No. 2 to produce all documents relating to Board Meetings viz., minute books, and attendance registers etc and also the account books of the company. As this application was made at the time of final hearing of the matter, we did not entertain that application and it is coming along with this order for disposal. What has to be understood from this application is that t....
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.... the position of minority shareholder in the company by an act of the company or by its Board of Directors malafide, the said act must ordinarily be considered to be an act of oppression to the said member. The member who holds the majority of shares in the company is entitled by virtue of his majority to control, manage and run the affairs of the company. This is a benefit or advantage which the member enjoys and is entitled to enjoy in accordance with the provisions of company law in the matter of administration of the affairs of the company by electing his own men to the Board of Directors of the company" The ratio evolved in Dale & Carrington Investment (P.) Ltd. (supra) was followed with approval by Apex Court in Shri V S. Krishnan & Ors vs. M/s Westfort Hi-tech Hospital Ltd. & Ors. (2008) 3 SCC 363 Examining the case on hand, we find no pleading made by the Petitioner in CP 54/2016 to the effect that increasing of the authorised share capital was with a malafide view of reducing the petitioner to minority. Therefore, that circumstance, in our considered view, does not amount to oppression. 6. Question NO. 2: Whether Change of name of the Company is without following ....
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....tably as to what is the loss or prejudice sustained by the petitioners or the Company. On the other hand, his own affidavit given to the Bank shows that in the best interests of the Company in order to get loan sanctioned to the company to complete the project, he has declared that there is no 'conspiracy' in the difference in the name of the company appearing in the sale deed and the certificate of incorporation. At the instance of the petitioner, therefore, there is no evidence of prejudice caused to the members or to the company by the change of the name. Whether the change will be approved by the Government or not is not an issue before us. We therefore hold that change of the company's name does not amount to oppression or mismanagement. 7. Question No. 3: Whether the Respondent No. 2 has resorted to financial mismanagement prejudicial to the company? 7.1 One of the allegations made in this regard is that the Respondent No. 2 has siphoned off 'about 30 lakhs' of the company's money without showing accounts, taking advantage of the fact that he is the sole signatory for bank operations. In para 6.12, the petitioner has asserted in this regard th....
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....titioner is that the Respondent No. 2 has resorted to 'obnoxious, mischievous and deceptive' methods, namely buying material for higher prices and taking kickback in cash from suppliers; procuring material in higher quantities but receiving less quantity and encashing the balance quantity. In para 6.17 of the Petition, it is averred that the Petitioner got this information in confidence from some suppliers of material. That means, except his own self serving statement, the Petitioner is not having any evidence to prove such allegation. In as much as the bank is supervising the cash outflow and inflow, being a lender interested in getting back its money, and as the Valuer has given the certificate regarding value and stage of construction and as the Bank did not raise any question so far on the cash flow aspect, we find no justification to accept the statement of the petitioner to hold that the Respondent has embezzled any amount of the company by deceptive methods as alleged by the Petitioner. 7.5 The 3rd instance cited by the Petitioner in his effort to brand the Respondent as to have mismanaged the affairs of the Company, is that Respondent raised funds from Ganga Saga....
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.... (xi) any non-interest bearing amount received or held in trust; The above clauses show that if funds are raised from relative of a director, it is a loan. A 'brother-in-law' is not 'relative' as per Rule 4 of the Companies (Specification of Definitions Details) Rules, 2014 read with Sec. 2 (77) (iii) of the Companies Act, 2013. Even if Ganga Sugar Singh, being brother in law of Respondent No 2 is not falling within the expression 'relative' under cl. (viii), because the amount is taken as interest free loan, it is regarded as a loan in trust under cl. (xi) and so, it does not fall within the sweep of 'deposit' attracting the procedure under Sec. 73 of the Companies Act, 2013. 7.9 Even otherwise, in a worst situation, if it is presumed that the loan was raised without authority, it is not with malafide intention but only to safeguard the company's interest to meet the requirements of terms and conditions stipulated by Syndicate Bank and no loss or otherwise prejudice is appearing in that transaction so as to accept that it amounts to mismanagement. Further, our view is reinforced by the fact that a joint letter was written by the Petitione....
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.... you are hereby requested to kindly provide me statement of accounts on my maid ID given hereunder." On that letter, an endorsement in hand writing is appearing as below: "Sir, A/c Blocked on 15.02./2016 as per request." 8.2 The Petitioner has also written a letter to the Respondent No. 2 on 16.2.2016 (at page 372 as Annexure R 27) about the letter addressed to the Bank to stop operation of accounts until 'the dispute in the management of the company is resolved and a fresh instruction to the bankers are given after discussing the same in the proposed board meeting'. In as much as the Bank has stopped the operation of account of the Company in pursuance of the letter on 15.2.16, the Respondents in their CP 75/16 urge that such act of the Petitioner amounts to oppression and sought the relief of directing the Petitioner to withdraw that letter. 8.3 The events subsequent to 15.2.16 have to be referred at once because they have a considerable bearing on the analysis of situation undertaken by us. They would only show that both the directors are locking in horns. Petitioner issued a notice on 29.2.2016 (Annexure R-28, page 374) that he is proposing to hold a Board M....
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....ors and suppliers of materials appointed by the company iv. to take note of various bank accounts of the company and to decide on the mode of operation of the accounts; 8.5 Interestingly, the Petitioner did not attend this meeting. The Petitioner objected for the venue of the meeting. Ultimately, vide letter dated 26.3.16, the project site of the company was fixed as venue. The respondents then objected for the presence of special invitees, as proposed by the petitioner. There is thus a impasse created in management of the affairs of the company, perceptibly for the reason that there are only two directors. The respondent was weighing up to introduce another Director into the Board so that majority decision will prevail but the Petitioner is objecting for this on the pretext that Mr. Vinod Kumar Singh is close associate of the Respondent, forgetting the fact that Mr. Vinod Singh is also a share holder of the company having 2000 equity shares. 8.6 With this back ground on hand, what is appearing to us from the circumstances on record is that both the Directors who are at the helm of affairs of the company are not pulling the cart in one direction, losing mutual confidence i....
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....any; and 1[(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.] (2) Without prejudice to the generality of the powers under sub-section (1), an order under that sub-section may provide for- (a) the regulation of conduct of affairs of the company in future; (b) to (i) xxxxxxx (h) removal of the managing director, manager or any of the directors of the company; (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; 8.8 Section 402 of the Companies Act contemplates issue of directions with reference to administration and management of the affairs of the company. The power of the Tribunal under Section 397 is to make 'such order as it thinks fit', with a view to bringing an end to the matters complained of. Having regard to the very wide nature of the power ....
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....oint. That means, the Tribunal, for the reasons, may remove the existing directors etc substitute the Board by new directors; or, without resorting to removal of present directors, can also appoint directors to the Board to report to the Tribunal. 9. Result: Keeping in view the overall circumstances of the case, and the interests of the Company and of the prospective purchasers of the flats of the Company's project and those who have already booked the flats and the objective of Sections 397, 398 and 402 of the Companies Act, 1956 read with Sec. 242(2)(h) and (k) of the Companies Act, 2013 the following Order is passed: (1) (a) That the Syndicate Bank shall nominate one of its officers as Additional Director of the Company who shall co-ordinate with the present two Directors namely, Shri Sanjeev Agarwal and Shri Satish Kumar Singh to hold Meeting of the Board within 45 days and take decisions on the following subjects, besides the other issues pending between both the directors; (i) Appointment of additional director from any of the members; (ii) Proper utilization of the funds for the projects; (iii) To take steps for proper and timely implemen....