TaxTMI 
TaxTMI 
2001 (9) TMI 1154
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....rs. The proportion of profit-sharing was - petitioner's group 60 per cent, respondent's group 30 per cent and one Mr. Mahendra Manilal Patel 10 per cent. When the business of the partnership was taken over by the company, as provided in the memorandum of association of the company, shares were allotted to the three groups in the same proportion as that of profit-sharing in the partnership firm and, accordingly, the petitioner's group was allotted 60 per cent shares while the respondent's group 30 per cent shares and Mr. Mahendra Manilal Patel 10 per cent shares. Even though initially the petitioner's group had three directors on the Board of the company yet due to a demise of one from the petitioner's group and vacation of office by another, only one from the petitioner's group continued on the Board. However, the respondent's group continued to have majority directors. Even though there was no dispute between the partners for a long time, yet the company had, in the notice issued for the AGM scheduled on 5-9-1998 which was received from the auditor of the company by a fax on 1-9-1998, included an item for issue of right shares on the ground that for development of a business of th....
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....o justification in respondent's allotting further shares to themselves only. He further pointed out that neither the explanatory statement nor in the pleadings, any justification has been given for issue of further shares. Therefore, the issue was made only for the sole purpose of creating a new majority. He further pointed out that even though the company contended that the notice for all the meetings had been sent to the Surat address of the shareholders from the petitioner's group, the company was fully aware that the petitioner was stationed at Coimbatore while two members from the petitioner's group were residing abroad. Even otherwise, the company has not produced any evidence of having sent notices for either the Board Meetings or the General Body Meeting. He contended that the respondents have taken a stand that the petitioners had vacated the office on 20-6-1998 only with a view to ensure that he was not kept in the knowledge of the company's proposal to issue further shares. Even though according to the company, the petitioner vacated his office on 20-6-1998, yet the petitioner was never informed of the same and Form No. 32 was filed with ROC only on 4-9-1998, i.e., after....
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....uciary powers over the shares purely for the purpose of destroying an existing majority or creating a new majority and that is an act of oppression. (3)Binod Kumar Agarwal v. Ringtong Tea Co. (P.) Ltd. [1996] 85 Comp. Cas. 289 (CLB). (4)Mrs. Farhat Sheikh v. Esemen Metalo Chemicals (P.) Ltd. [1996] 87 Comp. Cas. 290 (CLB). Creating of a new majority by issue of further shares is an act of oppression. (5)Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1951] Comp. Cas. 740. The directors of a company are in a fiduciary position vis-a-vis the company and must exercise their power to issue further shares for the benefit of the company. If they issue the shares for the purpose of acquisition of control over the affairs of the company, then it will be held that they have acted in violation of their fiduciary duties. 4. Mr. Mihir J. Thakore, the senior advocate, appearing for the respondent-company submitted as follows : This petition is not maintainable in terms of section 397/398, since the conditions prescribed in these sections are not satisfied. There is no evidence in the petition that it is just and equitable that the company sho....
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....rtnership is concerned, he submitted that the same cannot be applied in the instant case inasmuch as there is no identifiable group of partners in the erstwhile partnership nor there exists now identifiable groups of shareholders in the company. Therefore, the claim of the petitioner that quasi-partnership principles should be applied, cannot be considered. Even though the petitioner claims that his group controls 60 per cent shares in the company, yet it is an admitted position that originally there were only two directors from the petitioner's group as against six directors from the respondent's group. In other words, the alleged majority group had voluntarily handed over the majority on the Board to the Respondents. Further, there is nothing either in the articles or otherwise to provide for percentage shareholding in the company and as a matter of fact article 7 permits the Board to allot shares at their discretion. It has been held in Ebrahim v. Westbourne Galleries Ltd. [1972] 2 All. ER 492 (HL) that the relief under section 397 should be granted only when shareholding is more or less equal and that there is a complete deadlock in the affairs of the company on account of lack....
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....Since the entire case of the petitioner rests on the notice allegedly received from the auditors at Exhibit P-7 which has been conclusively said to be a faked one, the petitioner has no cause of action. As far as issue of notices for the AGM is concerned, the learned counsel pointed out that the addresses of the shareholders as per the records of the company are at Surat and, therefore, the notices were sent to Surat. The articles of the company require only three days' notice for convening the General Body Meeting and, accordingly, notices for the meeting on 5-9-1998 were sent on 31-8-1998. Since the company has acted in accordance with the articles of association of the company and also in terms of section 53, the petitioner cannot complain of non-receipt of notice. As for the grievance of the petitioner in regard to his removal as a director, the learned counsel pointed out that the petitioner was not removed but he vacated his office in terms of section 283(1)(g), since he did not attend the three consecutive meetings of the Board held on 3-11-1997, 16-2-1998 and 26-6-1998 in spite of the fact that the notices of the said meetings were sent to him. As per the practice of the....
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....this petition has been filed in a capacity as a member. Even otherwise, as this Board has held in Dipak G. Mehta v. Anupar Chemicals (India) (P.) Ltd. [1999] 98 Comp. Cas. 575 (CLB) filing of a winding up petition cannot be a bar to filing a petition under section 397. As for applicability of a quasi-partnership principle, it is not that there should always be a deadlock in the management of the company. No doubt, that could be one of the grounds and not the exclusive ground. The application of quasi-partnership principle would depend on the facts of a case. Therefore, merely because there is no deadlock in the management of the company, it does not mean that a petition on the ground of quasi-partnership principle cannot be filed. In regard to the stand that directorial complaints cannot be agitated in a section 397 petition, it would also depend on the facts of a case. This Board has been taking a view that in closely-held family companies and companies in the nature of quasi-partnership or in companies wherein the articles provide for permanent directorship, removal of a director could be challenged in a proceeding under section 397. Therefore, we cannot dismiss this petition on ....
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....y holding 3,000 shares and constituting 60% per cent shares in the company did not attend the AGM in which the proposal to allot shares on a preferential basis was approved. Even assuming that the general body has authorised the company to make preferential allotment, which, according to us, was possible only because none from the petitioner's group holding majority shares, attended that meeting. In exercising their fiduciary duties, in facts of this case that the company is a quasi-partnership of 3 groups of shareholders, the Board of Directors should have at least ascertained the willingness of the petitioner's group to subscribe to the shares of the company before allotting shares exclusively to the respondents' group. Further, we also note that the petitioner had written to the company signifying his interest in acquiring further shares in the company. The manner and the haste in which the general body meeting was held and shares were allotted immediately thereafter to the respondent's group alone, clearly demonstrates that the purpose of allotment was only with a view to gain majority shareholding in the company. Therefore, the petitioner is justified in complaining of oppress....