TaxTMI 
TaxTMI 
2012 (11) TMI 1227
X X X X Extracts X X X X
X X X X Extracts X X X X
....pany in the board meeting held on September 29, 2009, till the conclusion of the 21st annual general meeting. The board of the company on September 29, 2009, passed a resolution to this effect taking into consideration and in view of the understanding with the board of the company due to the fact that the first petitioner is the largest single shareholder of the company holding 4,15,000 equity shares of Rs. 100 each which represents more than 14 per cent. of the total issued and paid-up share capital of the company. The present board of the company became an illegal board and therefore not entitled to manage the affairs of the company since there is an illegal ouster of respondents Nos. 16 to 18 and with the intrusion of respondents Nos. 7 to 15 claiming themselves as having been appointed by the board of the company as additional directors with effect from January 6, 2011. In fact, respondents Nos. 7 and 8 had already resigned as directors of the company with effect from December 22, 2010 and Form No. 32 to this effect was filed before the Registrar of Companies on December 24, 2010. The tenth respondent was appointed as an additional director of the company by the board in its me....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hout seeking permission of this hon'ble Bench and in violation of the order to maintain the shareholding pattern, the authorised share capital of the company was increased from Rs. 20,00,00,000 (rupees twenty crore) consisting of 18,00,000 equity shares of Rs. 100 each and 2,00,000 preference shares of Rs. 100 each to Rs. 30,00,00,000 (rupees thirty crore) consisting of 28,00,000 equity shares of Rs. 100 each and 2,00,000 preference shares of Rs. 100 each by amending the capital clause of the memorandum of association and articles of association of the first respondent-company at the 18th annual general meeting held on March 31, 2008. Even when the authorised equity share capital of the company was Rs. 18,00,00,000 (rupees eighteen crore), the shares were allotted in excess of the said Rs. 18,00,00,000. However, subsequently an amendment was brought in at the 20th annual general meeting of the company held on September 29, 2009, by passing two special resolutions as follows for the purpose of amending the articles of association and memorandum of association: (i) Resolved that the existing clause 3 of the articles of association of the company as to share capital be an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....public charitable trusts and private charitable trusts. To cite an example on August 28, 2009, equity shares worth Rs. 4,50,00,000 (rupees four crore and fifty lakh) was allotted to Deepthi Media Trust, Kakkanad, Kochi and equity shares worth Rs. 1,00,00,000 was allotted to Chavara Media Trust, Kakkanad, Kochi. Apart from these instances, lesser number of equity shares was also allotted to several charitable trusts, both private and public as in the case of Archeparchy Charitable Trust, Changanacherry, Kottayam. In the case of public trusts unless the instrument by which the said trust is created authorises investment in the equity shares of a public company, the first respondent-company cannot allot its shares as it goes against the terms of the constitution and objects of the trusts. In the case of the private trusts, the investment of trust money can be made only in accordance with section 20 of the Indian Trusts Act, 1882. Hence the allotment made by the company in favour of trusts is contrary to law, the shares allotted in favour of both private and public trusts are liable to be struck off and the share register of the company is liable to be rectified accordingly. Unless the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....election and not re-election as per clause 87 of the articles of association, in such cases, the procedure to be followed is in accordance with section 257 of the Act pertaining to the rights of persons other than retiring directors to stand for directorship. The said procedure has not been followed in the case of respondent No. 3 who now falsely claims to be the managing director of the company. It is submitted that the alleged appointment of additional directors on January 6, 2011, is ultra vires the powers of the board of the company and are legally incompetent to act as directors of the company. It is submitted that the shareholders of the company in the 19th annual general meeting held on March 30, 2009, passed resolution appointing the eighteenth respondent as whole-time director (marketing) for a period of three years with effect from December 8, 2008 and he will be liable to retirement by rotation. Therefore, the period of appointment of the eighteenth respondent as whole-time director (marketing) expires only on December 7, 2011 and he is liable to retire in the next annual general meeting, as a director of the company, which falls due on September 30, 2012. Clause 98(2) o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eof for the time being in force, Pengiearambin Poulose Sunny (PP Sunny), be and is hereby appointed as the managing director of the company with effect from August 28, 2010, for a period of one year and during the period of his tenure as managing director he may be paid remuneration by way of salary, allowances and perquisites. 4. The third respondent, who is an interested director within the meaning of section 287 of the Companies Act, 1956 participated in the said meeting in violation of section 300 of the Companies Act, 1956, without disclosure of his interest in the said contract of appointment as the managing director of the first respondent-company in the said meeting. The third respondent failed to comply with the said requirement and he is liable to be punishable with fine which may extend to Rs. 50,000 as provided under section 299(4) of the Companies Act, 1956. 5. The first respondent-company has also failed to disclose to its members of the third respondent's interest in the contract of his appointment as managing director within the time stipulated under section 302 of the Act, attracting penalty under section 302(5) of the Act. Therefore, on August 10, 2010, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be a director of the company. On the other hand, with only twice the shareholding of petitioners, respondents are holding all key positions and they occupy all other fourteen directorships of the company. (d) More than 21,000 public shareholders and certain trusts are holding about 40 per cent. of the capital of the company. There is not even a single director representing the public interest involved. It is a fit case where an administrator must be appointed immediately without much loss of time and appointment of directors on a proportional representation basis should be introduced to have a proper representation to all interest groups whereby the existing control of management of the company in the hands of a few will be eliminated. (e) Respondents Nos. 2, 3, 4, 6 and 8 seem to be in control of the board. Respondent No. 3 does not enjoy the mandate of shareholders to continue as managing director of the company. He lost his directorship due to failure to disclose his interest. Respondent No. 8 is one of the persons who shamelessly resigned on December 22, 2010 and comes back on January 6, 2011. The board which is in existence on December 22, 2010, is definitely....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (l) Until the completion of an investigation into the affairs of the company, there should be a stay of any general meeting whether an extraordinary general meeting or an annual general meeting. (m) In a recent board meeting held on August 16, 2011, there is another proposal for making a further issue of shares. Even while the implementation of the special resolutions allegedly passed at the impugned annual general meeting 2010 allegedly held on February 28, 2011, have been stayed, the respondents have gone about filing returns with the Registrar of Companies to notify the increase in capital and further they have called the annual general meeting of 2011 which includes yet another proposal to increase the authorised capital and to make yet another further issue of shares. (n) The affairs of the company are in a state of mess and there is anarchy. It is a fit case for immediate appointment of an administrator and issue of an order directing an investigation into the affairs of the company and investigation into the ownership of shares. This is a fit case for introducing appointment of directors on a proportional representation basis. In support of the above fact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of the petitioners in these proceedings are primarily with regard to- (i) removal of the first petitioner as the chairman of the board; (ii) appointment of additional directors (respondents Nos. 7 to 15) at the board meeting held on January 6, 2011; (iii) increase of the authorised share capital and allotment of shares, allegedly to trusts; (iv) cessation of respondents Nos. 16 to 18 as directors; (v) continuance of the third respondent as managing director; and (vi) alleged non-allotment of shares to the fifth respondent. 8. The respondents state that none of the aforesaid contentions are tenable but have been made only to mislead this hon'ble Bench. 9. Learned counsel replied the contentions in detail, point wise. On the point of removal of the first petitioner as the chairman of the board he submitted that the first petitioner was appointed as additional director of the company with effect from January 10, 2008. At the board meeting held on September 29, 2009, the first petitioner was appointed by the board as chairman, in terms of article 106 of the articles of association. The chairman is appointed by the boar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial resolution. The respondents state that when any item has been approved as a special resolution, when only an ordinary resolution is required under the Companies Act, it would not invalidate such resolution. It is submitted that the petitioner was the chairman of the board meeting which was held on August 28, 2009, when the board had resolved to amend the memorandum and articles of association relating to the authorised share capital. The petitioner was also the chairman of the 20th annual general meeting held on September 29, 2009, when the special resolutions to amend the memorandum and articles of association were passed. Neither at the board meeting nor at the annual general meeting has the petitioner objected to the alteration of the memorandum and articles of association and in fact, consented for such alterations being made. Such resolutions were passed unanimously. It is further submitted that the memorandum and articles of association having been amended in accordance with the Act at a duly convened meeting of the shareholders, it is not open for the petitioner especially when he was the chairman, at both the board meeting and the annual general meeting to challenge the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or for a period of one year with effect from August 28, 2009 and such a confirmation was required in terms of section 269 read with Schedule XIII of the Act. At the board meeting held on August 10, 2010, the third respondent was appointed by the board as managing director for a further period of one year and such an appointment was also confirmed at the 21st annual general meeting held on February 28, 2011. The third respondent did not participate in the discussions nor vote on the resolutions relating to his appointment at the board meeting held on August 10, 2010. The appointment of the third respondent as the managing director is in accordance with article 118 of the articles. The appointment is not in contravention of any of the provisions of the Act or the articles. On the point of alleged non-allotment of shares to the fifth respondent, it is submitted that the fifth respondent has filed a separate petition being C.P. No. 214 of 2010 under section 111 of the Act, in respect of his grievance and therefore any alleged grievance of the fifth respondent cannot be agitated by the petitioner in these proceedings. In the light of the above, none of the alleged acts, contended by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... In any event, the petitioner has not sought for any relief in these proceedings, with regard to the appointment of the second respondent as the chairman of the board. The second respondent has been duly appointed as the chairman of the board at the meeting held on December 22, 2010. Accordingly, the company had filed Form 32 on the second respondent being so appointed. The allegation that the third respondent on August 10, 2010, had vacated his office as director of the company as per section 283(1)(i) of the Act, when a board resolution was passed in which he as an interested director participated in for extension of his tenure as managing director up to the due date of the annual general meeting and that there is no provision in the articles of association of the company authorising the board of the company to extend the appointment of a managing director beyond the specific period is denied. It is submitted that as per article 118, the managing director is appointed by the board and such appointment is only confirmed by the shareholders in accordance with section 269 and Schedule XIII of the Act. The third respondent was appointed as managing director at the board meeting held....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect from January 1, 2011, as per section 256 of the Act. Respondents Nos. 7 to 15 had been duly appointed in accordance with article 87 read with section 260 of the Act. The allegations that the appointment of respondents Nos. 9, 10 and 12 as additional directors of the company on January 6, 2011, is a fraud on the company and its members is denied. Respondents Nos. 9, 10 and 12 have been appointed as per article 87 read with section 260 of the Act. Respondents Nos. 16 to 18 ceased to hold office as of December 31, 2010. At the annual general meeting held on February 28, 2011, respondents Nos. 7 to 15 had been elected as directors. 11. It is submitted that this petition has not been filed in the interests of the company or its shareholders but to espouse the petitioner's personal agenda, to continue in perpetuity as chairman, even when the board and the shareholders are not inclined to accept him and in fact, the board has appointed another chairman. As stated supra, the second respondent was appointed the chairman of the board, in accordance with the articles by the board at the meeting held on December 22, 2010. Accordingly, Form No. 32 was filed in the Registrar of Compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l and 1,00,000 shares to Rev. Fr. Joseph Mattom. The shares have not been allotted or registered in favour of any trust. The petitioner was the chairman at the board meetings dated February 25, 2009, May 28, 2009 and August 28, 2009, when the shares were allotted by the board to various shareholders. 14. The allegations relating to the fifth respondent are completely untenable especially when the fifth respondent has filed C.P. No. 214 of 2010 under section 111 of the Act. The respondent-company has filed its counter statement and is defending the same. The fifth respondent had invested certain amounts and has sought for return of his investment and a substantial part of his investment has been returned to him. 15. The 21st annual general meeting has been held on February 28, 2011. The petitioner did not participate in the annual general meeting. The petitioner, instead of participating in the general meetings, has been filing series of litigations against the company to harass the company and its management. The additional directors have been appointed in accordance with article 87 of the articles of association and section 260 of the Act in a duly convened board meeting hel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llegations made by the petitioners in their amended petition. In support of the above, learned counsel relied upon the following decisions: (i) [2007] 137 Comp Cas 151 (Ker) in the matter of (Westfort Hi-Tech Hospital Ltd. v. V.S. Krishnan) paragraph 47. (ii) [2005] 128 Comp Cas 710 (CLB) in the matter of (Mrs. M.R. Shah v. Vardhman Dye-Stuff Industries P. Ltd.) paragraphs 15 and 16. (iii) [1998] 93 Comp Cas 507 (Mad) in the matter of (S. Seetharaman v. Stick Fast Chemicals P. Ltd.) pages 525, 527 and 528. (iv) [2001] 105 Comp Cas 493 (SC) in the matter of (Hanuman Prasad Bagri v. Bagress Cereals P. Ltd.) page 497. (v) [1998] 4 Comp. LJ 140 : [1999] 96 Comp Cas 493 (CLB) in the matter of (Srihari Rao v. Gopal Automotive Ltd.) paragraphs 22, 23, 25 and 26. 18. In view of the facts and reasons as stated above, learned counsel for the respondents prayed this Bench to dismiss the petition as devoid of merits. 19. Respondents Nos. 4, 6 and 8 filed a memo dated February 7, 2012, duly-adopting the additional counter filed by respondents Nos. 1 and 3. Respondents Nos. 7, 8, 10 to 15 also filed a memo dated February 7, 2012, duly adopting t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etitioners, I do not see that any demand has come from other shareholders to alter the articles. It is for the company and its shareholders to decide the procedure and method to be adopted by the company either the qualification for appointment of directors or any other mode to be prescribed in that regard. Therefore, this Bench will not interfere in the internal affairs of the company. Accordingly, the issue is answered. 22. Now, I deal with issue No. (ii). The petitioners allege that the annual general meeting held on February 28, 2011, is illegal, oppressive and sought direction to set aside the resolutions passed therein. From the records it is seen that the first petitioner was appointed as additional director with effect from January 10, 2008. Further he was appointed as the chairman in terms of article 106 of the articles of association. The relevant clause 106 of the articles of association is extracted hereunder for better appreciation: "The directors may elect one from among them as a chairman or their meetings and determine the period for which he is to hold office. If there be no chairman or if the chairman is not present, the directors present shall choose one of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to section 257 of the Act, who are liable to retire by rotation. According to the notice, eight directors were to be appointed as directors who are liable to retire by rotation. By Item No. 12 of the special business, the appointment of third respondent as managing director was approved with effect from August 28, 2010, for a period of one year. In the very same meeting, Item No. 14 was to increase the authorised share capital from Rs. 30 crores to Rs. 35 crores divided into 30 lakhs equity shares to 35 lakhs equity shares of Rs. 100 each. Further, clause (v) of memorandum of association of the company was deleted and in its place, the following clause was substituted: "The authorised share capital of the company is Rs. 35 crores divided into 35 lakhs equity shares of Rs. 100 each with power to increase or reduce the same". The respondents have stated that the increase in the authorised share capital is a commercial decision taken by the board and approved by the shareholders in the interests of the company. Further, it was stated that the allotment of shares cannot be a subject-matter of a petition filed under sections 397 and 398 of the Act and hence the same is liable to be rej....
X X X X Extracts X X X X
X X X X Extracts X X X X
....notice for the annual general meeting to be held on February 28, 2011, the company in its special business at Item No. 14 proposed to pass a resolution for the increase of authorised share capital from Rs. 30 crores to Rs. 35 crores. However, in the counter affidavit it is stated that the resolution to increase the capital from Rs. 30 crores to Rs. 35 crores has not been implemented in view of the order of the hon'ble Kerala High Court. From the various minutes of the board in which the petitioners were present the allotment of shares were made to various parties including the first petitioner. The first petitioner was the chairman of the board when the board had resolved to amend the memorandum and articles relating to the authorised share capital. The memorandum and articles of association were approved and amended duly convening the meetings of the shareholders. From the records it is seen that shares were allotted within the authorised share capital of the company and filed relevant forms duly notifying the increase of the share capital and allotment of shares. I do not find any illegality in allotment of shares. The petitioners falsely attempted to raise these allegations ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on to the very same company and therefore the same need not be considered in this case again. On overall culmination of the facts which are not addressed above, the respondents contended that petitioner No. 1 is, not the single largest shareholder and this Bench has nothing to do with the percentage of shareholding or the shareholding pattern. The petitioners have not established any fraud in the case. It is an admitted fact that respondent No. 1 company is a public limited company consisting of more than 21,000 shareholders. Further, the articles do not provide for any proportional representation as stated supra. Now, I deal with the citations relied upon by the petitioners. In the matter of Sachin Bansal v. Accent Shoes P. Ltd. [2009] 150 Comp Cas 319, the Company Law Board was of the view that the requirement to issue notice under section 53(1) of the Act to every director for a meeting of the board of directors is mandatory. The company has not produced any material, whatsoever, to substantiate either dispatch or service of such notice. In the present case, there is no allegation that the petitioners were not served notices for the board meetings. Therefore, the facts of that c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Nos. 2, 3 and 4 retired by rotation in compliance with the articles and therefore this Bench cannot interfere. The above citation is squarely applicable to the facts of the present case. The other judgments relied upon by the respondents in the matter of S. Seetharaman v. Stick Fast Chemicals P. Ltd. [1998] 93 Comp Cas 507, the hon'ble High Court of Madras has held that in a petition filed under section 397 of the Act, the petition should contain all material facts, in the case of fraud, mismanagement, oppression, etc., full and complete particulars must be alleged in the petition. Subsequent affidavits are not enough. The petitioner must plead all material facts necessary for granting the relief as prayed for. Facts arising subsequent to the filing of the petition cannot be relied upon. The validity of the petition will be judged on the facts alleged therein and existing at the time of the presentation. Lack of essential allegations in a petition cannot be made up by leading evidence. From the above judgment I take it and hold that the petitioners have not come with full and complete particulars with regard to their averments made in the petition and also the reliefs. The ne....