AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 624
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.... said company was Rs. 4,25,00,000 which was allegedly later illegally increased to Rs. 10 Crores. The Petitioner has further alleged that the issued and subscribed share capital had also illegally been increased from Rs. 4,25,00,000 to Rs. 6,35,00,000. The Company is involved in the business of hotels, restaurant, flight kitchen, spirit merchants and so on. The Petitioner is a company incorporated under the Companies Act, 1956 which held 2,08,250 equity shares in the Company, amounting to 49% of the paid up share capital. Despite the Petitioner being the beneficial owner for all the shares, 12500 equity shares out of these shares had allegedly not been transferred in the name of the Petitioner, inspite of submission of signed transfer deeds signed by Sanjay Sahu and Sunil Kumar, with whom the shares are still lying. The Respondent Nos. 2 and 3 were the two other shareholders of the Company at the inception and constitute a group who jointly hold 51% shares in the Company and constitute the majority. Respondent No. 4 had been issued shares at a later point of time, which has also been contested. Respondent Nos. 5 and 6 had been allegedly illegally inducted into the Board of Director....
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....resh shares pursuant to the increase in the authorized share capital was done on an urgent basis as the Company was in dire need of funds and required the same for its smooth running. The Petitioners have therefore, in the present petition sought for relief against oppression and mismanagement. The Petitioners have prayed for the appointment of an Administrator for overseeing the functioning of the Company until its assets are valued and the Company is eventually wound up as there exists a deadlock according to the Petitioners. The Petitioner has further alleged that R1, M/s. Hotel Birsa is a Private Limited Company, had been registered under the Companies Act, 1956 and is limited by shares. The authorized share capital of the said company was Rs. 4,25,00,000. The Petitioner contends that the company has illegally increased its authorized share capital to Rs. 10 Crores. The issued and subscribed share capital has also illegally been increased to Rs. 6,35,00,000, according to the Petitioner. The Petitioner has additionally contended that there were no resolutions passed as is the mandate under the Companies Act, 1956. These acts of the Respondents have allegedly reduced the share....
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.... Petitioner contends that Libra produced certain documents in favour of their aforementioned information, such as; Form 32 which reflected the cessation of the Directorship of Sunil Kumar Sahu on 3rd April, 2009, and the appointment of Sunil Toshniwal on 16th January, 2010 as director of the Company; Form 23 recording the resolution passed on 18th February, 2010 in respect of increase in the authorized share capital of the Company, and for registering the resolution of the EOGM held on 18th February, 2010 relating to alteration of the memorandum and articles of association of the company with regard to the authorized share capital and by introducing prohibition on invitation or acceptance of deposit from persons other than directors, members and relatives. The Petitioners further contend that apart from the aforementioned documents as produced by Libra, Form 5, for increase of authorized share capital of the company from Rs. 4.25 Crores to Rs. 10 Crores pursuant to an ordinary resolution passed in the EOGM of 18th February, 2010; Form 20B in respect of the Annual Return submitted by the Company after a purported AGM held on 30th September, 2009 which records the existing authorized....
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....re capital of the Company and the subsequent issue of fresh shares to Respondents pursuant to the 18th February, 2010 meeting held by the Respondents. The Petitioner also prays that the appointment of Mr. Sarda and Mr Toshniwal be reversed and declared as illegal as the purpose of their appointments was to oppress the Petitioner. The Petitioner with reference to the contention of having being denied the books of the Company has asked for the access to the same. The Petitioner has prayed for declaring all the meetings held by the Respondents as illegal and void as the Petitioner was not notified regarding any of them. The Petitioner prays for an injunction against the Respondents for giving effect to the 2,10,000 shares that have been issued to R4 and R7, and also for dealing with the assets of the Company as they apprehend that the Respondents will usurp control of the Company and lead it to its liquidation. The Petitioners have also prayed for undoing the removal of the Petitioners from the Board of Directors. The Petitioners have finally prayed for the winding up of the Company pursuant to the appointment of an Administrator for administering the assets and the properties of the ....
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....n the duly convened Board Meeting held on 14th April, 2010 and the other shareholders of the Company including the Petitioner had not subscribed to the additional shares as such the company was in dire need of fund to repay the dues of the creditors and it was left with no other viable option. The Respondent No. 1 contends that the Petitioner had declined to accept the offer for allotment of additional shares and that the Petitioner was at all times aware of all the meetings and its ongoings and the affairs of the Company in general, and in particular the induction of Sushil Kumar Sahu as the director and the appointment of Respondent No. 5, the steps taken to increase the share capital, fresh allotment of shares along with the subsequent alteration of the Memorandum of Association (to be hereinafter referred as MoA) and Articles of Association (to be hereinafter referred as AoA) of the Company, convening of AGM and filing of returns with the RoC. The Respondent No. 1 further contends that Form-2 was available on the public website which was accessible by the public in general, which clearly reflected the induction of Respondent No. 7 as a director of the Company. The Respondents f....
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.... who had desisted from subscribing to further issue of shares and despite receiving the notice the Petitioner chose to not attend the same. On the basis of the pleadings of the parties following question arises for the decision of the case: 1. Whether the acts of the Respondents, such as, convening meetings for increasing the share capital of the Company, allotment of fresh shares, alteration of Memorandum of Association and Articles of Association of the Company and the appointment of the two directors to the Board of Directors as whole-time Directors of the Company, amount to oppression against the Petitioners? 2. Whether the Petitioners were served with any notice relating to any meetings that were convened by the Board of Directors? The Petitioner has filed this petition under Sections 397, 398, 399, 111A, 402 and 406 of the Companies Act, 1956 against the Respondents in respect of wrongful acts and conducts of suppression and mismanagement by the Respondent Nos. 2 to 7. The Petitioner claims to have had 49% shareholding in the paid up issued and subscribed share capital of the Company as on 29th September, 2009. The Petitioner alleges that the Responden....
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....nt in support of such special resolution. Furthermore, the Petitioners contended that in the explanatory statement at Page 86 it was evident that the amendment to the Articles of Association was being attempted to be passed through an ordinary resolution, which is opposed to the mandate specified under the Companies Act, 1956. The Petitioner further contended that Form No. 5 filed by the Company showed that the increase in share capital had been made by the Company by way of an ordinary resolution on 18th February, 2010, and such increase could not have been made by way of an ordinary resolution. The same has been annexed in Annexure J to the amended Petition. The amended Memorandum of Association with respect to the increased authorised share capital which was increased to Rs. 10 Crores, is reflected from the amended Memorandum of Association at clause V at page 38 of the amended petition. The petitioners contend that an EOGM was held on 18th February, 2010 for which no notice of such a meeting was issued or sent to the petitioner as has been contended by them. Another Form 2 has also been annexed to the amended petition with the letter L which reflects the alleged allotment of....
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....Memorandum of Association of the Company, the Respondents produced documents and statutory records which indicated the amendments to the Memorandum of Association were carried out. Moreover, the Petitioner alleged that the resolution for the increase of authorised capital and for alteration of the Respondents was not in conformity with the alleged explanatory statement stated to have been sent with the alleged notice for the meeting to have been held on 18th February, 2010. The Petitioners further alleged that after the meeting of 18th February 2010 held in Ranchi at the registered office of the Company, another board meeting on 19th February, 2010 was held at Kolkata where the address of the Company and its affairs had no connection in between, as referred on page 67 of the Affidavit in Opposition of Respondent No. 5. The Petitioners further alleged that the board meeting of 19th February, 2010, a decision was taken by the members of the board to invite the existing shareholders of the company to infuse further capital and had offered rights shares to the existing shareholders, wherein the Petitioner was not present because of absence of any notice to the Petitioner relating to....
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....nd 398. When the directors with the majority backing, oppress the minority and misconduct the affairs of a company, occasion arises for interference by the courts. But, when the directors, with only minority support, seek to stifle the majority by taking advantage of some defect or error, I think such a situation can also be remedied in a like manner. The Calcutta High Court has held in Sindhri Iron Foundry (P.) Ltd., In re [1964] 34 Comp. Cas 510, that such a remedy is available to the majority when it is rendered ineffective by the wrongful acts of a minority. (The decision was confirmed in appeal-See Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd. AIR 1966 Cal. 512). Even the worst form of majority rule has built-in-mechanism for correction, the absence of which is the basic flaw of every other form of rule, be it the most benign and enlightened. The court may not be justified in reading into the articles of a company its own philosophy; but it is bound to police their boundaries. Section 16 and Section 17 read along with Schedule I Regulation 47 of the Companies Act, 1956 talks about the alteration in memorandum of association of a company, especially alteration in share....
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.... will grant relief by interfering if it can be shown that the issue of further shares was made only for the benefit of the directors of the company. The Company Law Board in the case of A. Arumugam v. Pioneer Bakeries (P.) Ltd. [2007] 80 SCL 190 has held that among other things the transfer of shares disturbing parity of shareholding between contesting parties, respondent garnering controlling interest through transfer of shares by disturbing parity of shareholding between parties; and appointment of respondent's group members as directors with a view to control the board, constitute oppression. In the following case, the issue of further shares benefiting a section of the shareholders was held to be an act of oppression. In the case of Piercy v. Mills & Co. [1920] 1 Ch. 77; Mrs. Rashmi Seth v. Chemon (India) (P.) Ltd. [1995] 82 Comp. Cas 563 (CLB), it was held that the issue of further shares may form the subject-matter of a petition under Section 397/398, if it can be proved that the idea of issuing further shares was to benefit one group to the detriment of the other. One of the ways a group of shareholders oppress other groups is to issue and allot shares to themselve....
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....ings despite being in receipt of the notices. The Respondents have substantiated their claim by producing Certificate of Posting. Certificate of Posting is not admissible as a piece of evidence that can be relied upon to check the authenticity of the posts that have been made. In absence of any other piece of evidence to substantiate the claim of notices being served, it is concluded that the Respondents were in default and have not served notices upon the Petitioner. Due to various reasons the practice of Certificate of Posting has been discontinued under the provisions of Rule 195 of the Indian Post Office Rules, 1933. In the case of Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan [2004] 54 SCL 601, it was discussed that. . . "no copy of the notice intimating Suresh Babu about the meeting of the Board of Directors and asking him to attend the same, has been placed on record to show that Suresh Babu was informed about holding of the meeting in question. Thus neither a copy of a notice convening the Board meeting nor the log book mean to record signatures of Directors attending the meeting of the Board of Directors were produced. In the absence of these documents and....
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....etings that were held to pass the aforementioned resolutions and therefore the meetings were convened in violation of the Companies Act, 1956. Section 97 of the Companies Act, 1956 contemplates notice of increase of share capital or of members. Serving of notice to members for general meetings is mandatory under all circumstances. Even though the Petitioner had apparently been notified of all the meetings and the ongoings of the Company, which are evident only through "Certificates of Posting", the Petitioner failed to attend any of the meetings. Moreover, since the Petitioner, until the share capital was increased, was the holder of 49% shareholding in the Company, no special resolutions could have been passed without his participation and vote on the same. Therefore, in the light of the contentions, it is concluded that there is a clear case of oppression against the Petitioner. The meetings that were convened by the Board of Directors have not been properly notified to the Petitioner and resolutions therein were passed in absence of the vote of the Petitioner thereby constituting statutory violation. Also notices that were allegedly served by the Respondents onto the Petition....