AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 781
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.... 2. To declare Form No-5 filed by the Respondent increasing the authorized share capital of R1 company from 1 crore to 2.5 crores and null and void. 3. To declare Form No-32 regarding vacation of office by P2 and appointment of R5 as additional director with effect from 06.02.2014 and the alleged Board Resolutions dated 12.12.2013 and 14.12.2013 as null and void and reinstate P2 as director on the Board of Directors of R1 Company. 4. To remove R2-R4 from the Board of Directors of R1 company. 5. To initiate proceeding against R2-R4 u/s 625 of the Companies Act, 1956. 6. To direct that any resolution passed by R1 company either in the Board meeting or the General meeting be subject to the approval of the Petitioners. 7. To restrain the Respondents from conducting the meetings of the directors of R1 Company in the absence of P2 and from passing any board resolution thereafter. 8. To direct that no resolution be passed without affirmative vote of the Petitioners. 9. To rectify the register of members of R1 Company on the basis of annual returns of the company filed with RoC for the financial year 2012-13 and ....
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....l into final product which is used for exploration of oil and gas. After such manufacturing, R1 Company would export them to P1, then P1 would invest time and resources to trade the final products in the market by which R1 is entitled to the processing charges for the above manufacturing. While doing so, P1 has incurred huge expenditure to meet day to day expenses of R1 Company and also salaries of the employees of R1 Company as reflected in the audited balance sheet filed for the year 2012-13. But it is noteworthy that payments come from P1 have not been properly accounted for by R2-4. In the meanwhile, P1 received a demand notice dated 28.2.2015 from the Respondents claiming an alleged sum of USD 593,605 towards certain alleged invoices raised by them. Since the business arrangement between R1 and the Petitioner being R1 required exporting final product to the Petitioners, the Petitioners would trade the same as final product in market. To meet the formalities in the customs, the Custom invoices are issued whenever product has been sent to P1 so as to comply with the export norms. This kind of arrangements could not be treated as liability against the Petitioner, because P1 is....
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....o the interest of P1 diluting its shareholding from 84.98% to 22%, making allotment in a private company to an outsider at par without any notice to the Petitioners herein, altering the Memorandum of Association and Articles of Association of R1, removing P-2 as director and appointing an outsider as director of R1 Company behind the back of the Petitioners whereby, these petitioners have sought the reliefs as mentioned above. 6. To which R2-4 and R5 filed replies independently, all this story came out when R1 Company on 28.02.2015 issued legal notice to P-1 for the recovery USD 5,93,605 from P1, these Respondents submit that the petitioners, instead of clearing the liabilities, set up this case as counter blast to the legal notice issued on 28.02.2015. The respondents submit that the Petitioners ignored R1 and its operations by refusing to fulfil its obligations in respect to bringing sufficient business, by which, R1 accumulated huge losses year to year, in a situation like this, R2-4, in order to bail out R1 from this financial difficulty, has gone for rights issue for bringing in capital, thereby the respondents submit, this necessity of funding to R1 Company could not be cl....
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....s, and other statutory boards. These petitioners always kept on promising that new orders would come but no business happened as promised by the Petitioners. The Petitioners used to delay payment of dues towards R1, which in fact, resulted in dragging the company into losses. Since R1 Company was not doing well, it was several times discussed that a new investor was required to revive the business, therefore, today, the Respondents submit, it could not be said that the Respondents brought in a new investor without putting it to the Petitioners. For the Petitioners were reluctant to pump in more capital, R2-4 were unable to fund the losses for they being only 15% shareholders of the company, as there was no go, R1 Company went for the rights issue and made allotment of shares to R5, for R5 agreed not only to invest into the capital of the company but also to provide loan to the company. Since losses were as on 31.03.2013 accumulated to Rs. 5.2 crores, R2-4 allotted shares to R5 by themselves getting their shareholding diluted from 15.2% to 4.39%, therefore, the Petitioners should not and ought not to have made this allegation that P1 shareholding alone was diluted. As P-2 remained a....
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....e of the EOGM on 26.07.2013 to the Petitioners thereby since two shareholders i.e. Respondents 2 & 3 participated and cast their votes in favour of the resolutions, such resolutions are valid. The Respondents further deny the allegations of not sending notice for the board meeting held on 12.12.2013, because R1 sent the calendar of board meetings and general meetings to be held in financial year 2013-14 to P2 through courier on 18.03.2013, thereby no occasion arose for again sending another notice to the board meeting held on 14.12.2013. 10. In view of the same, the Counsel for the Respondents submit that Respondents have not conducted affairs of the company prejudicial to the interest of the petitioners, whereby this petition is liable to be dismissed. On hearing the submissions, the Petitioners' counsel and the respondents counsel, the points drawn out for consideration are as follows: 1. Whether or not increase of authorized share capital is prejudicial to the interest of the Petitioners. 2. Whether or not bringing an outsider as a shareholder is in violation of the Articles of Association and constitution of Private Limited Company. 3. Whether o....
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....er minority. Per contra, here in this case the R2-4 went ahead in diluting P1 shareholding from 84.98 (brute majority) to abysmal low of 15.02% and removed P2 as director of the majority. Will there be any thing more oppressive than this? 12. According to the Respondents, a Board Meeting was held on 04.10.2013 to resolve to hold EOGM on 28.11.2013 for alteration of Memorandum of Association and Articles of Association and for increase of authorized share capital from one crore to two crore fifty lakhs by sending a notice to the Petitioners, on the contrary, the Petitioners submit no notice was sent to the Petitioners and no courier receipt was filed by the Respondents to prove that holding a board meeting was intimated to the Petitioners. Since the Respondents have not filed any proof showing a notice was sent intimating the Petitioners to hold a Board Meeting on 04.10.2013 to propose an EOGM to be held on 28.11.2013 for increase of authorized share capital, it can be safely inferred that Board Meeting was held on 4.10.2013 without any notice to the petitioners. 13. To justify their argument, the respondents relied upon section 53 of Companies Act 1956 to say that since the p....
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....holding above 15% shareholding could not have held the meeting with an excuse that they already intimated calendar of events to the petitioners. It is on equitable and legal considerations abominable. When Section of law categorically mentioned how a notice of agenda has to be given and how much time before notice to be issued is made clear, and then meeting held on 04.10.2013 without notice to P1 will not get any validity. This mandate, especially when unfairness is writ large, cannot be compromised to saying since the petitioners do not have registered address in India, they need not serve notice u/s 53 of Companies Act, 1956. By looking at the correspondence between the respondents and P1, it appears that P1 has e-mail address as well as a website in its name. These Respondents have not made any effort to send notice to the petitioners through this mode. Laws and compliance thereof, has to be understood contemporarily, can these Respondents explain away not serving notice upon the petitioners on the ground since the petitioners have no registered office in India, they are under no obligation to serve notice upon the petitioners. In any event, holding a meeting without giving not....
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....of the meeting and shall contain a statement of the business to be transacted there at by sending it 21 days before the date of meeting, sending of calendar of events not giving particulars, place and the day and hour of the meeting and the statement of the business to be transacted as mentioned u/s 172 would never become a notice u/s 172 of the Companies Act, 1956. Point # 2: Whether or not bringing an outsider as a shareholder is in violation of the Articles of Association and constitution of Private Limited Company. 16. R1 is a private limited company incorporated long before R-2 came in contact with the Petitioners. It need not be said separately what is meant by a private company, four elements that make a private company different from public limited company, that is - restriction of right to transfer of shares, limiting the number of its members to 50, prohibiting any invitation to the public to subscribe for any shares in, or debentures of, the company, prohibiting any invitation or acceptance of deposits from persons other than its members, directors or their relatives. These being the elementary principles that are followed in a private limited company; it is ....
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....ued, if at all any such issue has happened for Articles permitting such allotment of rights issue subject to section 81(1A), the company ought to have passed a special resolution for allotment of shares to R5. For no such special meeting was held and no such special resolution was passed, allotment of shares to R5 is not only bad in law for it has reduced the shareholding of majority to abysmally low, it is prejudicial to the interest of the Petitioners. Thereby allotment to outsider is hereby held as invalid. Point # 3: Whether or not allotment of shares to Respondent Nos. 2, 3 and Respondent No. 5 is prejudicial to the interest of the Petitioners. 19. After increase of authorized share capital, a board meeting was held on 12.12.2013 for allotment of 10,000 shares each to R2 and R3 and subsequently filed Form-2 reflecting allotment of shares to R2 and R3 on 26.12.2013, the Petitioners say, for which also no notice was given to the Petitioners. Since shares are being issued at par, without notice to the remaining existing shareholder, it would be not only invalid but also prejudicial to the interest of the Petitioners. Hence this allotment is also declared as bad for th....
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....ffice on the basis that P2 has not attended a single board meeting since April 2013 till January 2014, but to say that thing, the Respondents filed Form-32 showing as if P2 vacated office u/s 283 basing on a resolution allegedly held on 23.01.2014 saying that P2 was not associated with the company w.e.f. 14.12.2013. By looking the notice, extract of resolution and Form 32, this Bench has noticed the following anomalies: a. R2-R4 themselves filed a letter dated 23.01.2014 stating that Board had proposed the rights issue of shares for the required amount of financial assistance to the company for want of working capital and day to day activities of the company operation and also since P2 had not been attending to a single meeting (Board and General) since April 2013 till date, considering the provisions of section 283(l)(g) of Companies Act, 1956, the board has taken woeful decision to vacate P2 from the Board of Rl Company on the basis of not attending the board meeting by P2 in continuation of three consecutive meetings and within 3 months of period by enclosing Board Meeting notice dated 30.01.2014. In the notice enclosed to this letter, it shows that meeting would be hel....
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....ining leave of absence from Board. 23. In the notice sent by R2, it has not been mentioned to how many meetings this director was absent and what dates meetings were held, whether notice has been sent to the Petitioners for all those meetings or not. It has not also been mentioned, whether those meetings period is more than 3 months or not and it has also not been mentioned whether leave has been sought or not? Unless and until all these details are given, proof is placed, the Board of Directors are not supposed to invoke Section 283 to arbitrarily terminate the office of the Director under the cover of section 283(l)(g). By seeing this exercise made by these Respondents, it appears fraud is writ at large in removing the Petitioner as director of R1 company henceforth we hereby hold that such removal is bad in law. Accordingly, this Bench hereby declares holding of such meeting is bogus because the date of meeting in the notice purportedly sent to P2 is different from the date shown in Form-32, therefore Form 32 filed showing P2 vacated office as invalid. 24. There is an argument saying that removal of director will not become a complaint in the case of oppression and mismana....
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....ion 465 of new Act, sub-section 1 deals with repeal of the Companies Act, 1956 and the Registration of Companies (Sikkim) Act, 1961 (please take note that it is a state Act), sub-section 2 of the Act deals with savings given to the old Act in respect to the acts done and litigation pending from the acts emanated from the old Act with a rider of subject to the provisions of the new Act, so it can't be said that savings given in sub-section 2 are fully free from the new Act, but the silver lining is sub-section 3 of the section says that the matters mentioned in sub-section (2) of 465 of the new Act shall not be held to prejudice the general application of Section 6 of the General Clauses Act, with regard to the effect of the repealed enactments. 30. Since Section 6 of the General Clauses says that the repeal shall not affect any legal proceeding pending immediately before passing new enactment, the acts or offences ante to the new Act will be governed by the repealed enactment. For it has been said whatever said in sub-section 2 shall not be held to prejudice the general application of Section 6 of the General Clauses Act with regard to the effect of repeal of the repealed enactm....
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....sely affects the person, then, old Act will remain in force, when it is for the benevolence of the community, then new Act could be applied to the past events. Here the Test of fairness is to apply to see as to whether such an enactment adversely affects the rights of the parties or not. 36. In Mohd. Abdul Sufan Lascar v. State of Assam [2008] 9 SCC 33, the Supreme Court applied this principle saying that there cannot be any retrospective operation in the given case. In this case, the point is that before 23.5.2006, section 324 of IPC was compoundable with the permission of the court, but by the advent of Criminal Procedure (Amendment) Act, 2005, it was made non-compoundable. This predicament was resolved by the Supreme Court saying there can't be any retrospective operation over the offences occurred before 23-5-2006, therefore it is hereby held that it could be dealt with under old dispensation. 37. Accordingly, this point is decided that these proceedings are bound by 397-398 of Companies Act, 1956 but not by Companies Act, 2013. The Counsel for R1-R4 relies upon two citations in between Punj Jarnail Singh v. Bakshi Singh AIR 1960 Punj. 455 (Paras 15 and 21), Narandas M....
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....re is no illegality in issuing further shares when company needs money for payments. We have already answered this point if meeting is held for fund requirement, it is not that Respondents are entitled to hold meeting without notifying it to the petitioners. Even for raising funds by allotment, first notice is to be given to every shareholder, thereafter it must be proved that the company has need to raise funds for the functioning of the company. None of this is followed by the Respondents; hence this ratio is not applicable to this case. The Counsel for R1-R4 relied upon Rahul Shah v. Avi Sales (P.) Ltd. (2008) 141 Comp. Cas 505 CLB, to say that when sufficient reason has not been given for filing a Petition after a delay of three years, it has to be considered that Petitioner has not come with clean hands, in case any director has been removed after due notice then it has to be taken as tacit consent of such director about his removal from the Board. The factual situation is not akin to the facts of the above case, and this petitioner did not keep quite after knowing these facts, P2 complained various authorities, therefore it can't be equated to a case three years' delay hap....