TaxTMI 
TaxTMI 
TaxTMI 
2014 (8) TMI 1111
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....ncorporation, petitioners Nos. 1 to 3 and respondents Nos. 2, 3, 4 and 5 were promoters and, hence, were appointed as first directors and respondent No. 2 was appointed as the managing director of the company under article 34 of the articles of association. Thus, the respondent-company is a closely held family company as quasi-partnership concern. The company has built-up a resort for marriages and other parties and functions at a farmhouse at Village Bal Khurd, Fatehgarh, Churian Road, Amritsar admeasuring 18 Kanal 8 marla. 2. The petitioners' advocate has alleged that the basic trust and confidence was breached by the respondents when the petitioners objected to the style of functioning by respondent No. 2 in the board meetings held on April 28, 2008 and June 24, 2008, when the petitioners protested that entire receipts by way of bookings at the resort have not been accounted for in the books of the company. In addition, there was also clash of interest by the respondents who were carrying on competitive business of hiring the marriage hall at their personal premises at M-47-48, Green Avenue, Amritsar. Not only this, the petitioners highlighted that thereafter, the responden....
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.... It has further been averred that the alleged notice for removal of the petitioners as directors in the alleged extraordinary general meeting convened on December 14, 2010, is bad in law and null and void as the requirement of special notice in terms of section 284 of the Companies Act, 1956, have not been complied with. 4. In his reply, the respondents' advocate submitted that the petition is not supported by the legal and proper affidavit of the petitioners. In addition, it has also been pointed out that the contents of the petition do not call for invocation of the jurisdiction of this hon'ble Board as no case of either oppression or mismanagement has been set out by the petitioners against the respondents. Moreover, it has been alleged that the petitioners were never serious about running the business of respondent No. 1 company and the petitioners had raised their hands and expressed their inability to make any investment. Not only this, in the meeting of the board of directors of respondent No. 1 company held on June 24, 2008, the petitioners came up with absolutely illegal demand of dividing the land of respondent No. 1 company between the two groups in total disreg....
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.... by the standards of a common prudent man. 5. The respondents' advocate has vehemently denied that the respondents were not holding any board meeting or general meeting and no notice of any meeting has been given to the petitioners who were the directors and members of respondent No. 1-company. Rather, it has been submitted that all board meetings and general meetings have been held with due and proper notice to all the directors and members of respondent No. 1-company as per the provision of the Companies Act, 1956 and articles of association of respondent No. 1-company. The respondents' advocate has alleged that the petitioners' only motive and agenda at the moment is to gain out of the appreciation of the land value of respondent No. 1-company. In addition, it has been vehemently denied that the respondents are not accounting for all the bookings of the "party lawn/resort" in the books of account of respondent No. 1-company. In fact, the potential business of party lawn/resort was about 5 lakh from the start of first year of operations of respondent No. 1-company which by the year 2011, could have easily grown to Rs. 20 lakh but because of lack of interest and negle....
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....le proceeds are being used by them for their personal use. Apart from this, it has also been denied that the market value of the "party lawn/resort" is Rs. 5 crore and the respondents' are now planning to sell the "party lawn/resort" at throwaway price at the back of the petitioners. On the contrary, the respondents' advocate submitted that it is the petitioners who have not been in a position to contribute their share towards the modernisation and upgradation of "party lawn/resort" whereas the respondents were and are always ready to contribute to their share as the purpose of incorporating respondent No. 1-company was to start a business which would have huge potential in the times to come. Lastly, it has been strongly denied that the respondents hatched the conspiracy to remove the petitioners as directors so that they may sell the assets of respondent No. 1 without any interference of the petitioners. Rather, it has been clarified that respondent No. 3 sent a special notice dated October 25, 2010, to respondent No. 1-company for recommendation of removal of the petitioners from respondent No. 1-company and for convening an extraordinary general meeting of the shareholde....
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....-05 which is still in operation. Further, it has been clarified that the petitioners joined hands with the respondents in promoting the respondent-company with 40 per cent. and 60 per cent. shareholding respectively in the company and allotment of 100 shares were made in 2002 and 100 shares were allotted to Mr. Manveer Singh without the knowledge and consent of the petitioners and without the approval of the board of directors. The petitioners' advocate has denied that the respondents had arranged funds for purchase of land for the respondent-company. On the contrary, it has been averred that the land was purchased jointly and price of the land was paid to the vendor from the personal account of all directors of the company including the petitioners. Further, only petty jobs like attending to construction of farm house and to stand duty at the time of functions were assigned to petitioners Nos. 1 and 3 and, hence, the petitioners were never allowed to deal with the clients and its day-to-day affairs and they were not allowed to operate bank account. As a matter of fact, all managerial functions and the day-to-day affairs of the company were looked after exclusively by responden....
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....e the petitioners into confidence relating to its affairs from time to time. Respondents Nos. 2 to 5 are also engaged in competitive business and own a banquet hall "Sakhi Guest House" at their personal residence at M-47-48, Green Avenue, Amritsar. Besides, they also have a Eating House "Sakhi's Wats Cookin". The petitioners' advocate has pleaded that the petitioners deposited Rs. 10 lakh with the company towards share application money while the respondents also deposited such money. However, neither the shares were allotted nor the refund was made. It has also been alleged that no dividend has been declared by the respondent-company despite its working for more than 16 years. In addition, the respondents hatched a conspiracy to remove the petitioners as directors. In this regard, it has been argued that the alleged notice for removal of the petitioners as directors is bad in law as requirements of section 284(2) of the Act have not been complied with. In fact, no special notice was given to the petitioners and their right of representation was denied. Moreover, in a closely held family company like respondent No. 1, removal of directors is a serious act of oppression even....
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.... meetings but without agenda notes, without draft annual accounts and without minutes of last board meeting, etc. Apart from this, it has also been pleaded that parties agreed to sell the resort, in terms of order dated September 2, 2011, of the hon'ble Board but no offer was made, firstly, because reserve price of Rs. 6 crore was given in the advertisement, and secondly there was rumour in the local market that this property is in dispute. Subsequently, the valuer was appointed by hon'ble Board vide order dated May 15, 2013 and the resort was valued at Rs. 5.73 crore. Besides, attempt was made by the hon'ble Board to sell the resort vide order dated March 31, 2014, by appointing a property dealer suggested by respondents, but again without any success. Once again, the petitioners' advocate has submitted that division of the resort is the only solution amongst the petitioners and respondents in proportion of their existing shareholding of 40 per cent. and 60 per cent. respectively. For this purpose, the petitioners' advocate in C. A. No. 416 of 2011 has given four proposals by way of maps with first option to the respondents to choose any 60 per cent. portion of....
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....ompany. Further, it has been averred that all the rights and position as directors of respondent No. 1-company are being enjoyed by all the petitioners till date without any interruption. Moreover, the sale of "Sakhi Resort" would not fetch Rs. 5 crore to Rs. 6 crore despite putting the same for auction. 12. The respondents' advocate pleaded that the present petition is not legally maintainable and is thus, liable to be dismissed in limine since the petitioners have miserably failed to satisfy this hon'ble court into proving any of their alleged imaginary acts of oppression against them being perpetuated by any of the respondents or that the affairs of respondent No. 1-company are being conducted in manner prejudicial to public or any of its member/shareholder or any material change has been brought about or is likely to be brought about in either the shareholding or directorship of any individual in respondent No. 1-company. Thus, mere lack of trust between the shareholders cannot also be made a ground for filing and maintaining petition under section 397/398 of the Companies Act, 1956. In support of his contention, the respondents' advocate cited the case of Shanti P....
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....h is to be gone into in these proceedings. What has to be seen is whether there has been any action taken, legal or illegal, which has resulted in the oppression of the minority shareholders. It will be seen that respondent No. 2 has been the managing director of the company since its very inception. If there was any illegality or irregularity in the convening of the meeting in March, 1980, wherein respondent No. 2 was reappointed as a managing director, that cannot amount to an act of oppression. By the said resolution the existing state of management of the company was permitted to continue. No change was brought about by any resolution which was purported to be passed in that annual general meeting. If the meeting was illegally held it may be that the petitioner may have a cause of action for challenging the same in other appropriate proceedings, but such an allegedly illegal meeting did not, to my mind, result in any oppressive act being committed on the petitioner. The decisions which have been referred to by Mr. Ved Vyas, namely, Loch v. John Blackwood Ltd. [1924] AC 783 (PC), Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 (HL), Hind Overseas P. Ltd. v. Raghunath P....
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....not and should not be permitted to misuse the extraordinary jurisdiction vested with this hon'ble court under section 397/398 of the Companies Act, 1956, to fulfil his mischievous plan of bringing an end to the business of respondent No. 1-company. 15. The respondents' advocate has pointed out that the present petition has been filed by the petitioners in respect of allegedly non-holding of board and general meeting from the date of incorporation of respondent No. 1-company in 1998 except on two occasions in 2008, after a lapse of more than 12 years is legally not maintainable. In fact, frivolous allegations and the contentions raised by the petitioners in respect of non-sending of notices for calling the board and general meetings and the allegedly not holding of the board and general meeting pertains to the year 1998 onwards and the present petition having been filed in this respect only in 2010 is time, barred. As a matter of fact, the calling of and sending of the notice of convening the extraordinary general meeting of respondent No. 1-company by the respondents subsequent to the continuous non-cooperative, unprofessional and rather destructive attitude of the petitio....
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....ts' advocate has vehemently denied that the respondents were not holding any board meeting or general meeting and no notice of any meeting has been given to the petitioners who were the members and directors of respondent No. 1-company. On the contrary, the respondents' advocate has submitted that all board meetings and general meetings have been held with due and proper notice to all the directors and members of respondent No. 1-company as per provisions of the Companies Act, 1956 and articles of association of the respondent-company. In addition, it has also been denied that the respondents are not accounting for all the bookings of the "party/lawn resort" in the books of account of respondent No. 1-company. However, the respondents' advocate has admitted the receipt of Rs. 10,00,000 from the petitioners as share application money and further stated that the amount along with the contributions made by the respondents was utilised for the purchase and development of immovable property admeasuring 11,000 sq. yards over which the "party/lawn resort" has come up. The respondents' advocate has also pointed out that it is absolutely frivolous allegation levelled by the ....
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....ard meeting was either held. Besides, the respondents' advocate has alleged that despite receipt of adequate notice, the petitioners did not turn up for the board meeting and the directors present in the meeting had deliberated and discussed the agenda of the board meeting and taken certain decisions. In this connection, the respondents' advocate has elaborated that the shareholders of respondent No. 1-company decided to remove the petitioners because they have indulged in high prejudicial, injurious and deleterious activities besides engaging themselves in the business of "outdoor catering" and neglecting the business of respondent No. 1-company. In addition, it has also been submitted that special notice dated November 19, 2010, was sent to the petitioners under speed post on November 20, 2010, for holding extraordinary general meeting on December 14, 2010. However, despite receipt of the notice of extraordinary general meeting, the petitioners had neither sent any written representation to be read at the extraordinary general meeting nor had attended the extraordinary general meeting of the respondent-company and, hence, the agenda as contained in the special notice was ....
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.... the principle of legitimate expectancy and, hence, the petitioners are entitled to get their representation on the board of directors and, hence, their removal in the extraordinary general meeting was oppressive act on the part of the respondents. For this reliance has been laid on the case of Gautam Kapur (supra ) wherein this hon'ble Board has observed as under : "Normally, in a petition under section 397/398, directorial complaints cannot be agitated. However, in the case of closely held companies, the Company Law Board has been taking a consistent view that directorial complaints can also be entertained as disturbance in the directorship in a closely held company can be considered as an act of oppression." 19. However, on the other side, the contention of the petitioners' advocate that it is not possible to continue the business with the respondents, does not appear convincing. Moreover, the valuation of the property of the company in the form of resort was done by the valuer appointed as per the direction of this hon'ble Board and sufficient efforts were made by appointing property dealer to sell the property at a price higher than the aforesaid valuation by th....