TaxTMI 
TaxTMI 
2017 (10) TMI 89
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....e capital if the 1st Respondent Company as on 31/03/2010 is 10,000 equity shares of face value at Rs. 10/- each. The issued, subscribed and paid up capital is 10,000 equity shares amounting to Rs. 1, 00, 000/- at Rs. 10/-each. The petitioner is a qualified shareholder of the 1st Respondent Company and that, he was authorized to initiate proceedings. The 1st Respondent is a company engaged in the business of providing non-destructive testing products entailing assembling and testing of engineering components. The petitioner being shareholder and Director was attending to technical operations of the company. The 2nd Respondent was dealing with management, day to day affairs, banking and finance of the company. 4th Respondent is an auditor. 2nd Respondent was appointed as Director with effect from 01/04/2009. The 3rd Respondent who is none other than the father of 2nd Respondent was 1st appointed Director under original articles of Association of the Company. He was also subscriber to the Memorandum of Association along with the petitioner. After 2nd Respondent was inducted as Director, the 3rd Respondent demit the office of Director voluntarily with effect from 1st April 2009. Sur....
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....h, he was Director holding 50% shares. The petitioner further alleged that, it would be proper in the interest to split the company and settle in dues, even though he was the promoter of the company. Petitioner received SMS from 4th Respondent that, he was asked to be at the office premises on 16th January 2011. When petitioner went there R2 and R4 questioned him, abusing him and he was informed at that time that, 3rd Respondent was appointed as Director and that there was increase in share capital and that, he was removed as Director of the company. The petitioner has questioned the induction of 3rd Respondent as Director. On enquiry, he came to know that EGM was allegedly convened on 24.08.2010 without service of any notice to him. Further in the alleged EGM, Respondent No.3 was inducted as Director in the Company with effect from 24.08.2010 without there being a proper quorum. The petitioner further alleged that he was not aware whether any shares transferred to Respondent No.3 so as to make him eligible to be appointed as Director. The Petitioner came to know in January, 2011, about the alleged induction of Respondent No.3 as one of the Directors of the company when he....
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....he petitioner. Again it is stage managed that in the EGM a resolution was allegedly passed to increase the share capital from 10,000 shares to one lakh shares of Rs. 10/- each in which 22,500 shares were allegedly allotted to Respondent No.3 and 67,500 shares to Respondent No.2. This, he came to know from Form No.2 filed with the ROC. No first option notice was served on him in-spite of the fact that he was 50% shareholder and also the promoter of first respondent Company. He never informed to the Company that he was not ready to purchase the shares in the rights issue. There was absolutely no need for increase of share capital. On 29.12.2010, he was in Coimbatore in connection with the Company business. Thus, the petitioner has seriously questioned the alleged increase of share capital which is a stage managed one and without any intimation or prior offer of option given to him. The Petitioner further questioned about his alleged removal as Director of first respondent Company. The petitioner has seriously questioned Respondents No.2 and 4 about their propaganda that he was no longer the Director. The petitioner has also alleged that Respondents No.2 and 4 have man-handled him ....
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....as regularised in the Annual General Meeting held on 30.09.2010 and that the petitioner himself has signed in the said resolution. It is also averred that there is no truth in the contention of the petitioner that he was unaware of the appointment of Respondent No.3 as Director and that it was done behind his back. It is averred that Respondent No.4 is the statutory Auditor of the Company. The Company appointed him as Chartered Accountant and the Petitioner also approved his appointment. However, the petitioner has made false allegations against Respondent No.4. It is further alleged that the petitioner has indulged in malpractice as he was looking after the purchases and accounts of the Company. It is alleged that the petitioner used to give priority to M/s. Sai Ram Enterprises, Secunderabad. He purchased the transformers at a higher price than the prevailing market price. It is alleged that the petitioner placed order at an escalated price. But, subsequently, those transformers failed. Thus, some irregularities are alleged against the petitioner by Respondents No.2 and 3 while purchasing the materials for the Company. The respondents No.2 and 3 have further alleged irregularit....
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....rdance with law. The appointment of Respondent No.3 was also in accordance with law. The respondents denied the misuse of digital signature of the petitioner. Thus, the respondents No.1 to 3 denied the contentions of the petitioner and prayed for dismissal of the petition. The Respondent No.4 filed a detailed counter. The averments made in the counter on behalf of Respondent No.4 are briefly stated hereunder. It is averred that the dispute is purely between the shareholders of the Company and that Respondent No.4 is only an Auditor of the Company and that he has no role to play in the internal affairs of the Company. This respondent was given the duty of getting the company incorporated, to apply for DIN and digital signatures. Respondent No.4 further stated in the counter that the E-mail address of professionals who are looking after the affairs of the Company are being furnished. Accordingly, this respondent gave his E-mail address to the Registrar of Companies for further correspondence, if any. Similarly, his E-mail ID was also given for securing digital signature and it was also with the prior approval of the petitioner. The E-filings of the company with the Registrar of....
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....rises and M/s. Sai Kanakadurga Enterprises. In the Rejoinder, the petitioner has given the details with regard to the transactions with M/s. Sai Ram Enterprises, as well as M/s. Sai Kanakadurga Enterprises. The petitioner has given his reply to the various contentions raised by Respondents No. 1 to 3 in their counter in the rejoinder. All these points will be considered at the time of passing order wherever necessary. The respondents No.1 to 3 filed sur-rejoinder. The avements in the sir-rejoinder will be dealt with in the order. The learned counsel for petitioner has cited the following decisions. The counsel has also filed written arguments. 1. Ms. Farhat Sheikh v. Esemen Metalo Chemicals (P.) Ltd. [1996] 87 Comp. cas. 290 (CLB) 2. M.S. Madhusoodhanan v. Kerala Kaumadi (P.) Ltd. [2003] 46 SCL 695 (SC) 3. Zora Singh v. Amar Singh Heyar & Ors. 4. Marble City Hospital & Research Centre (P.) Ltd. v. Sarabjeet Singh Mokha [2010] 99 SCL 303 (MP) 5. Dale & Carrington Investments (P.) Ltd. v. P.K. Prathapan [2004] 54 SCL 601 (SC) 6. LIC of India v. Escort Ltd. [1986] 59 Comp. Cas. 548 (SC) 7. Sunil Kumar v. Punjab....
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....s that he was surprised to know that Respondent No.3 was appointed as Director of the Company and it was behind his back. He was totally unaware of the appointment of Respondent No.3 as Director. The contention of the petitioner that Respondent No.3 demitted office on 01.04.2009 paving way to include his son - Respondent No.2 as shareholder-cum-Director and there is no point that he being appointed as the Director once again. The contention of the petitioner that he would never give consent for the appointment of Respondent No.3 as Director. The petitioner alleged that it is an act of not only oppression but also mismanagement. The contention of the learned counsel for petitioner that there is absolutely no need for the Company to go for a third Director. It is a Private Limited Company and there were only two shareholders in the Company. The Counsel would contend that there was no Board meeting on 24.08.2010, the date on which Respondent No.3 was alleged to have been appointed as Director. Counsel would further contend that the proceedings were fabricated taking advantage of his signature on blank letter-head as if a resolution was passed by the Board for appointment of Respond....
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....then the E-mail sent by Respondent No.2 should have contained the decision taken in the Board of Directors meeting about the appointment of Respondent No.3 as Director. The Counsel would contend that Annexure-1 filed by the Respondents No.1 to 3 which is an E-mail copy dated 24.08.2010 sent to the Petitioner and other employees, there is no reference with regard to the alleged Board meeting in which a decision was taken for appointment of Respondent No.3 as Director. The petitioner has also relied on the E-mails. He has relied on Ex.P-22 at page 124 to show that Respondent No.3 demitted office and Respondent No.2 was made Director. The Respondent No.3 demitted office on 01.04.209. Form No.20-B was filed before the ROC and Respondent No.2 became the shareholder cum Director. The contention of the petitioner that Form-32 filed with the ROC, Bangalore, is a concocted and fraudulent document. It is the case of the petitioner that there was no discussion of inclusion of Respondent No.3 as Director in the meeting held on 24.08.2010. He has relied on Ex. P-8 at page 59-60 of his petition. Ex.P-11 is the same E-mail which is also relied upon by Respondents No.1 to 3 shown as Annexure-1 ....
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....epted. There was no E-mail or any document prior to Annexure-1 showing any intention to appoint one more Director for the Company. If really one more Director was to be appointed, then there should have been some correspondence/discussion between the petitioner and Respondent No.2 prior to 24.08.2010. No such paper is filed to show that there was any intention to appoint one more Director for the Company. No information to the petitioner at any time prior to 24.08.2010 about the desire to appoint one more Director to the Company. It is a surprise to the petitioner that one more Director was appointed on 24.08.2010 and that there was a Board meeting. No notice was served to convene the Board meeting on 24.08.2010 to discuss an important issue concerning the Company for the appointment of one more Director. In the absence of material on record, it is difficult to accept the contention of Respondents No.1 to 3 that a Board meeting was held on 24.08.2010 in which a decision was taken for appointment of Respondent No.3 as Director. We have gone through the E-mail, which is the crux of the case which shows that it is MOM (Meaning Minutes of Meeting). Even otherwise, there are so many ....
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....onal Director on 24.08.2010. Thus, a serious doubt arose with regard to the alleged appointment of Respondent No.3 as Director with the consent of the petitioner. It is the case of the petitioner that at no point of time prior to 24.08.2010 any discussion took place between him and Respondent No.2 to appoint one more Director to the Company. It is true that in the E-mails filed by Respondent No.2 there was no mention that the Company needs one more Director. Appointment of one more Director to the Company is a very important decision of the Board. There must have been some indication from the Board Members about the need to appoint one more Director. Surprisingly, there was no whisper or indication that one more Director was to be appointed to the Company. We have already discussed that the respondents have utterly failed to prove that the petitioner had participated in the alleged Board meeting on 24.08.2010 and the E-mail correspondences do not disclose that Respondent No.3 was appointed as Additional Director. Then, the only conclusion that could be arrived at that the signature of the petitioner obtained on a blank letterhead was utilised to show as if there was Board mee....
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.... and that there was no Board meeting on 24.08.2010 and further there is no proof that the AGM was held on 30.09.2010. Then, the conclusion could be that there was possibility of misuse of the digital signature of the petitioner in filing Form-32. Therefore, it cannot be said that the petitioner gave his consent to the appointment of Respondent No.3 as the Director. Consequently, the appointment of Respondent No.3 as Director was done behind the back of the petitioner who was 50% shareholder of the Company at that time. Therefore, the appointment of Respondent No.3 is to be set aside as null and void. The petitioner has questioned the increase in the share capital. The contention of the petitioner is that it was done behind his back. He was not informed about the increase of share capital. He was not served with any notice of offer for rights issue. Everything was done behind his back. Further, the contention of the petitioner is that there is no justification for increasing the share capital. The contention of the petitioner that Respondents No.2 to 4 decided to marginalise him by diluting his shareholding behind his back. Respondents No.2 and 3 have decided to dilute his shareh....
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....ment. Similarly, another E-mail dated 19.02.2010, was sent to Respondent No.4 wherein the petitioner also directed for securing overdraft facility. The Respondents have further relied on the E-mail dated 10.04.2010 of the Petitioner sent to the Respondent No.2, informing that the Company is in short of funds and the entire money was exhausted and some action is required. The Respondents No.1 to 3 have further relied on the E-mail sent by Respondent No.4 to Respondent No.2 that the Bank has promised to extend loan facility after 15th February. So, the Respondents contended that the Company was in need of money. Therefore, to raise finances from the Bank, the share capital was bound to be increased. The petitioner firstly contended that he was not at all served with any notice of offer or notice of EGM to be held on 29.12.2010 as everything was done behind his back. Undisputedly, the petitioner was 50% shareholder when the alleged increase of share capital of the Company was taken up. He was also the promoter of the Company. It is not the case of the Respondents that the petitioner refused to purchase the shares. On the other hand, the Respondents contended that the petitioner did....
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.... notice by Certificate of posting must be viewed with suspicion". The learned counsel has further relied on the observation made by the Hon'ble Apex Court in the case of Shiv kumar v. State of Haryana, [1994] 4 SCC 445 we have not felt safe to decide the controversy at hand on the basis of certificate produced before us which is not difficult to get such postal seals at any point of time". The learned counsel for petitioner has also relied on the decision reported in CP No.44/2006. The learned counsel has also relied on the decision of Apex Court reported in LIC of India. cited supra. The Hon'ble apex Court has held as follows: "Thus, we see that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting in accordance with the provisions of the Companies Act. He cannot be restrained from calling a meeting and he is not bound to disclose the reasons for the resolution proposed to be moved at the meeting. For are the reasons for the resolutions subject to judicial review. It is true that under Section 173(2) of the Companies Act, there shall be annexed to the no....
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....e petitioner just informing about the appointment of one staff member. This E-mail does not disclose about convening of the Board meeting on 07.12.2017. Here, it is important to look into Article 5 of Articles of Association of the Company which is marked as Annexure. This Article deals with further issue of Share Capital. It reads: i. "Whenever the Board desires to issue further capital, it shall first offer shares to the existing shareholders in such proportions it may determine; ii. The offer of the shares shall be kept open for not less than 15 days; iii. The offer, which shall be mailed to the members individually, shall contain; a. Number of shares available to him; b. Price at which shares are offered; c. The last date for delivery of the acceptance of offer; d. Mode of payment. iv. If the acceptance of the offer is not received by the Company within the stipulated time, it shall be deemed that offer is declined and thereafter the Board shall proceed to issue and allot shares on the same terms to one it may deem fit. (2) The issue of further capital shall rank pari passu with the equity capit....
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....e alleged acts causing loss to the Company. Nowhere, the Respondents No.1 to 3 have stated that the petitioner was given opportunity to offer his explanation after serving the grounds on which he was proposed to be removed as Director. A special notice was said to have been given by Respondent No.2 to the Company dated 06.12.2017 for convening the EGM for passing a resolution to remove the petitioner as Director. A copy of the said notice is referred as Annexure-8 to the written arguments. It is the contention of the petitioner that no such notice was served on him at all. Whereas, the contention of the Respondents that the notice was sent by Certificate of posting. They have relied on Annexure-6 to the counter which is the Certificate of posting along with copy of notice, as if to show that the EGM would be held on 07.12.2010. It is the specific case of Respondents No.1 to 3 that the petitioner has caused loss to the Company by showing undue favour to M/s. Sri Sai Ram Enterprises, Secunderabad. In this connection, Respondents No.1 to 3 have filed certain documents along with written arguments pertaining to the bills raised in the name of Sri Sai Ram Enterprises. There is nothin....
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....ble. It is clear that the said allegation was invented with a view to take control of the Company by Respondents No.2 and 3 by removing the petitioner. Thus, all these actions were initiated behind the back of the petitioner. The counsel for petitioner has cited several decisions to show that there is no concrete proof of service through Certificate of posting except for filing of postal receipt. There is nothing on record that the cover containing the notice, etc., were despatched. There is no affidavit of any person who sent the notice through Certificate of posting. The Respondents No.1 to 3 have utterly failed to substantiate their contention that the petitioner has caused loss to the company and it was a ground for his removal as Director. The case of the Respondents that the Board meeting was held on 02.12.2010 for increasing the share capital and that a notice for calling AGM for increasing the share capital was issued on the same day and that EGM was held on 06.12.2010 and that the shareholding was increased. The petitioner was not informed about the Board meeting dated 02.12.2010 or EGM on 06.12.2010 and there were no E-mail communications to the petitioner. It is ve....
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.... as Director. Therefore, it is a fit case where the appointment of Respondent No.3 is to be set aside as null and void and further to cancel the increase of shares by 90,000 and allotting the same between Respondents No.2 and 3 as null and void and more so, it is illegal and further setting aside the removal of petitioner as Director and consequently declaring any forms filed before the Registrar of Companies in pursuance of the alleged Board resolution dated 24.08.2010, AGM resolution on 29.10.2010 and the alleged EGM resolution dated 06.12.2010 and AGM dated 29.12.2010 as null and void. It is the case of the petitioner that Respondent No.4 has colluded with Respondent No.2 and he has misused his digital signature. Whereas, Respondent No.4 has denied the allegations made against him by the petitioner contending that he has nothing to do with the appointment of Respondent No.3 as Director, increasing the shareholding of Respondents No.2 and 3 and removal of the petitioner as Director. It is the contention of Respondent No.4 that they are all connected to the internal management of the Company and that he acted on the consent given by the petitioner in filing the proper form with....
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....f additional shares. The responsibility of the Directors towards the members becomes all the more onerous in a Private Company." The learned counsel has relied on the decision Punjab & Haryana High Court in the case of Zora Singh wherein the Hon'ble High Court has held that the removal of petitioner and his son from the Directorship and induction of other Directors were found as having been done in violation of the provisions of Secs. 191 and 284 of the Companies Act and the purported removal itself constitutes gross oppression. The learned counsel has also relied on the decision of the Hon'ble High Court of Madhya Pradesh. In para 29, the Hon'ble High Court held that "for service of notice by UPC (under postal certificate), the only evidence adduced is the postal certificate. Other supporting documents/evidence like despatch register, the proof with regard to the postage stamps affixed or the affidavit of the person concerned who had actually gone to the post office and despatched the notices are not available on record. The Hon'ble High Court held that presumption cannot be drawn on mere postal certificate about service. The learned counsel has further re....