TaxTMI 
TaxTMI 
TaxTMI 
2009 (4) TMI 1003
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansferred by the second respondent and removing the name of the second respondent in relation to such shares ; (b) Direct the respondents to return the share certificates to the petitioner which are in their custody ; (c) Declare that the petitioner continues to remain a whole-time director of the company and declare her removal as a director as null and void ; (d) To appoint an independent auditor to audit the financial affairs of the company; (e) Surcharge the second and third respondents in terms of Section 406 of the Companies Act, 1956, read with Schedule XI by directing to carry out investigation in relation to the affairs of the company; (f) To appoint an interim administrator to take charge of the affairs of the company; and (g) Pass such other orders as this hon'ble court deems fit and proper in the circumstances of the case and thus render justice. 3. He submitted that the company has only three shareholders including the petitioner, thereby representing more than one-tenth of the total number of members. Accordingly, the petition is maintainable. The petitioner joined as secretary in Shivamani Industries a proprietary concern in the year 1986. Later on, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the bills were not required as per list of parts. The petitioner submitted, to adjust gross profit, the second respondent generated and procured the bills and also showed the components, processed in-house/suppliers as if processed by his business companies and billed accordingly. Thus, the second respondent made the members to believe that the total purchases and the inter unit transfers amounted to ₹ 2,32,43,837. 5. He submitted that the third respondent (herein is the wife of the second respondent), has never attended the office and was only a director in name and never took part in the affairs of the company from the date of inception except attending to some poojas. Learned Counsel submitted that the remuneration is being paid to the third respondent in addition to the sitting fees as if she was a whole-time director. Furthermore, she did not possess the necessary qualification required for managing the company. The payment of remuneration is reflected in the profit and loss account of the company for the half year ending September 30, 2006. Further, for the year 2006-07, she received only ₹ 60,000 from the company as remuneration whereas the profit and loss acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the second respondent. The second respondent without paying consideration misused the share transfer forms and transferred the shares in his favour. The share transfer was not approved at any board meeting of the company which constituted a further act of oppression by the respondents and the transfer was also in violation of the provisions of Section 111 of the Act. When the petitioner questioned the various acts of mismanagement of oppression committed by the second and third respondents as narrated above, the second respondent started abusing the petitioner. The matter came to a halt when the second respondent misbehaved with the petitioner on April 20, 2006 and from April 21, 2006, the petitioner stopped attending work. The petitioner inspected the documents filed with the Registrar of Companies, Karnataka at Bangalore. During the inspection, she was shocked and surprised to know that the annual return of the company as on December 30, 2005, filed with the Registrar of Companies disclosed that the second respondent had got transferred 2,170 equity shares from the petitioner. He submitted that the second respondent obtained her signatures in blank transfer deeds and misused ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d this illegal transfer of 2,170 shares in the name of the second respondent as an act of oppression as well as violation of Section 111 of the Act. In view of the above provision, the petitioner is entitled for rectification of the register of members by removing the name of the second respondent in respect of 2,170 shares which were illegally transferred to his name and to restore her name in respect of 2,170 shares. Learned Counsel for the petitioner submitted that the above narrated facts clearly establish the second and third respondents being the majority shareholders behaved in an oppressive manner by taking advantage of the fact that the petitioner is a lady. 8. To quote another instance of oppression, the petitioner being a director of the company received a notice on December 27, 2006, at 1.15 p.m., for a board meeting to be held on December 29, 2006, at 9.30 a.m. The board meeting was deliberately being held with only one day's clear notice, only to see that the petitioner would not be able to attend the board meeting. Learned Counsel for the petitioner further submitted that the board meeting held on December 29, 2006, scheduled to begin at 9.30 a.m., commenced onl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the above, since no resolutions were passed at the board meeting, the convening of the said meeting as well as the conduct of the meeting was illegal and contrary to the provisions of the Act. The above act is only yet another instance of the continuing acts of oppression and mismanagement of the company by the respondents. The petitioner thereafter issued a legal notice dated January 13, 2007, through a lawyer, which was received by the company and is yet to get a reply till date. He further submitted that another board meeting was fixed on February 12, 2007, at 10.30 a.m., knowing fully well that a State bandh was scheduled to protest against the Cauvery Tribunal Award and the notice to the said meeting was served on the petitioner on February 11, 2007. The petitioner sent a letter expressing her inability to attend the meeting and requested to adjourn and convene the meeting as per articles of association. The company received the said letter but failed to respond to the same. The petitioner is not aware as to whether a board meeting was held on February 12, 2007 and whether resolutions, if any, were passed. These acts only go to establish that the second respondent is riding....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of M/s. Shivamani Industries and carried business with MICO and Bharath Electronics Ltd. The unit was and is in SSI sector till date. The petitioner joined the firm as office assistant during 1986 and in the year 1987 the business was separated among the family members and Shivamani Industries became a proprietary concern with the second respondent as its proprietor and subsequently became a private limited company under the name of E. M. Shivamani Engg. P. Ltd., in the year 1991 and had its initial shares of 10 equity shares of ₹ 100 each allotted to Mr. S. Muralidharan (the second respondent), Mrs. Sushila Muralidharan (the third respondent) and Mrs. Dharini, w/o. K. Muralidharan. 14. In appreciation of her service, when E. M. Shivamani P. Ltd., was incorporated, the petitioner became a member of this company from September 24, 1993. The petitioner was allotted about 100 shares on September 24, 1993 and subsequently another 70 shares on December 16, 1994, which kept the total shares of the petitioner at 170 shares. The petitioner was inducted as director with effect from November 3, 1992. Subsequently, one Mr. V.S. Sridhar was inducted as a director and was allotted shar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mperament, negative thinking, high handed approach, unable to give guidance so on and so forth, and on the other hand, the petitioner made spate of complaints on the deputies which clearly denoted that the petitioner could not handle her subordinates who are qualified and experienced in their field. The management felt it necessary to appoint a person with thorough knowledge and professionalism into the company to handle its accounts, finance and administration including HR functions. The company inducted Mr. V. Muralidharan as its finance manager on March 16, 2006 and was given a month's time to study the company's transactions, files and records. Mr. V. Muralidharan after studying the situation suggested/implemented streamlining of finance and accounts functions from its manual record maintenance to computerised, streamlined its operations in a professional manner with easy retrievability of data and records for verification which were earlier unimaginable. It would not be out of place to point out that none of the transactions recorded in the financial accounts, such as cash transactions, bank transactions, purchase transactions, debit and credit note transactions and jo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for availability of crane facility which is available with the company. It is to be noted that the petitioner as an administrator approved the dispatch of the machine. The contention of the petitioner that the machine employed is detrimental to the shareholders and caused huge losses to the company is absolutely false. 18. In reply to paragraph 6.7 of the petition, it is submitted that the goods were not finished goods but they are all work-in-process (semi finished goods). The status of work in process and stage of completion of machine (machines to be dispatched to the customer) were as per the certificate issued by the plant in charge. On that basis, valuation was adopted to value at cost + prime overheads. It is accepted accounting principle that when stocks are valued at cost or realisable value which ever is lower and not at expected sale price. The stock valuation is to be looked at by the overall material consumption and not in absolute terms. The valuation was also audited by the company's auditor who has certified the basis of valuation and its correctness. The petitioner has presumably taken the selling price as the cost of finished goods, which is not correct. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....raduate. The business management of the company involves application of common sense, ability to study the situation and understand the overall performance of the company. The third respondent has been contributing to the company since its inception as a director and supporting the second respondent in taking decisions. The allegation with regard to remuneration being paid to the third respondent as if she was a whole-time director in addition to the sitting fees, is concerned, it is submitted that the third respondent was paid much lesser remuneration than the petitioner and the remuneration was approved by the board of directors in which the petitioner was a member and party to the said decisions. Hence, the remuneration paid to the third respondent is justified. 22. In reply to paragraph 10 of the petition, the petitioner as a whole-time director has committed dereliction of duty by not attending the office from April 21, 2006. As a director responsible for the accounts, she has full powers to go through the records of the company. By not attending the office regularly, the petitioner cannot complain that the information is not provided and moreover, the period mentioned by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an event the BDA reverses its notification. It is submitted that the petitioner was also a party to this decision/settlement. The money received from Mr. Shivaraman was deposited in the company's account on February 26, 2004, itself. 24. In reply to paragraph 6.15 of the petition, it is submitted that the share transfer was a proper share transfer form for 2,170 shares duly executed by the petitioner and approved by the board in its meeting held on March 12, 2005 (exhibits 7 and 8, pages 25-30). The petitioner executed the transfer deed in favour of the second respondent. It is not out of place to mention that the annual return as on September 30, 2005 (exhibit 9, pages 31-40) wherein the details of the transfers have been recorded and the same have been signed by the petitioner after scrutiny. The petitioner being in charge of accounts and administration has been signing the annual returns from the year 1998 onwards and after the returns were checked and verified by the petitioner, the second respondent would formally sign the annual returns. The behaviour of the petitioner represents approbation and reprobation for the same transaction to suit her flimsy purposes. The respon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....22, page 59). 27. In reply to paragraph 6.22, the respondents have submitted that the petitioner was working with the group company for the past 20 years till the date of unauthorised absence. If there is any oppression, the petitioner would not have worked for 20 years. The petitioner cannot assume and interpret her difference of opinion and frustration that it would amount to behaviour in an oppressive manner. The company took a final step to remove her from the board due to her intemperate behaviour. She was just a B.Com graduate without any professional experience in managing a business. Further, she had not invested any single paisa of her own for the capital of the company. The second respondent out of generosity and goodwill gave her number of shares from his own funds. The claim of the petitioner that because of her ability the company has prospered is not correct. The financial performance of the company is given below which justifies the correct situation: S. No. Financial year Sales (Rs. in lakhs) Profit (Rs. in lakhs) Remarks 1. 2005-06 436.06 35.20 2. 2006-07 1,100 - unaudited 28. By the above, it is crystal clear that the turnover of the company was &#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....soever, till date, except the frivolous, false allegations by the petitioner. There were no labour problems and no strike and the company is contributing to the State Exchequer to the extent of ₹ 88,25,569 by way of taxes and to the Central Exchequer to the extent of ₹ 1,95,04,942 for the year 2006-07. 31. In view of the facts and reasons as stated above, the respondents submitted that the petition is devoid of merits and liable to be dismissed and prayed that the company petition may be dismissed in the best interest of the company. 32. Shri Ramakrishnan, learned Counsel for the petitioner filed rejoinder denying the averments made in the counter statement and submitted that the petitioner is presently holding 4,350 equity shares including 2,170 equity shares since the transfer of these shares is challenged in this company petition. The contention of the respondents that 1,000 equity shares were wrongly/illegally transferred in favour of the petitioner is false to the knowledge of the respondents. The petitioner has not made any corrections or manipulations in the annual return in the year 1996. In fact, the annual return was signed by the second respondent. The annu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndian Stamp Act, 1899, Section 12." 33. Learned Counsel in support of this contention relied upon the decision reported in [1970] 1 WLR 1194; [1971] 41 Comp Cas 735 (ChD) (Jermyn Street Turkish Baths Ltd., In re) to show it is observed that (page 749): "Of these acts by far the most important which is charged against Mrs. Peskoff is the taking of excessive remuneration. It seems to me that charge is manifestly well founded" and [2008] 141 Comp Cas 17 (CLB) : [2008] 86 SCL 61 (Suresh Kumar Sanghi v. Sanghi Bros. (Indore) Ltd.), held (page 25): "As a principle, directorial complaints cannot be a ground in a petition under Section 397/398 as the complaints in such a petition should be relating to the rights qua a member. While, as a proposition, it is so in normal circumstances, yet, in cases of family companies or companies in the nature of partnership, depending on the facts of the case, directorial complaints have been adjudicated by this Board in Section 397/398 proceedings." 34. Furthermore, the share transfer form stamps have not been cancelled and are not duly stamped for this reason also. In this regard, the Calcutta High Court (supra) held that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r removal of the petitioner from the board of directors which is illegal and void ab initio. He relied upon the decisions in the following cases in support of his contention: (a) [1993] 76 Comp Cas 821 (Ker) (Queens Kuries and Loans P. Ltd. v. Sheena Jose), held (headnote) : "Failure to give special notice-Director denied right to represent-Resolution removing director-Invalid" ; and (b) [2005] 123 Comp Cas 198 (CLB) (Capt. Manmohan Singh Kohli v. Venture India Properties P. Ltd.), held (headnote): "Removal of directors- Meetings-Board of directors-Special notice-Failure to send special notice to the directors and give opportunity to director to be heard on the resolution of removal-Removal from directorship bad in law-Companies Act, 1956, Sections 283, 284(2), (3), 397, 398. 36. He relied upon the decisions in the cases (supra) in support of his contention wherein the court is of the view that the manner in which the directors may be removed is laid down in Section 284 of the Act. "A director may be removed by ordinary resolution, but special notice shall be required of any resolution to remove a director or to appoint somebody instead of a director so remov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....propriated ₹ 11 lakhs. The respondents in their counter categorically stated that it was true that the land was purchased by the company and it is also true that the land was notified for acquisition by the BDA. After coming to know of this fact, the company insisted Mr. Shivaraman, i.e., the seller for compensating the loss suffered by the company for which Mr. Shivaraman issued a cheque for ₹ 16 lakhs as guarantee due to pressure created by the company on Mr. Shivaraman to cancel the sale and thereby return the sale consideration of ₹ 5 lakhs. The seller did not cancel the registration and did not return the sale consideration. The company had no other way but to present the cheque with the company's banker and the cheque bounced, thereby the company was constrained to lodge a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881. Thereafter, the seller paid ₹ 9 lakhs to the company and insisted on re-transfer of the said land to his name. The company was legally advised that this act of re-transfer is not permissible since the land is a notified one and any transfer, sale back, by the company becomes illegal. This position was c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has been approved and the petitioner was also present in the said meeting. Admittedly, the share transfer has taken place on March 12, 2005 and the contention of the petitioner that she has not received the sale consideration is a matter which cannot be decided by this Bench. The petitioner addressed a letter to the Registrar of Companies, Karnataka, Bangalore dated October 27, 2006, complaining against the company for not paying the consideration for transfer of her shares. The Registrar of Companies took up the matter with the company. The company replied to the Registrar of Companies vide letter dated December 15, 2006, stating that the payment or non-payment of sale consideration is a matter between the transferor and the transferee and the company cannot comment upon the same. The Registrar of Companies vide their letter dated December 27, 2006, in turn replied to the petitioner enclosing a copy of the company letter and advised her to take necessary legal action, if she so desired. Unequivocally, it is not the case of the petitioner that the share transfer form is not signed by the petitioner nor is there any allegation of signature being forged. The only grievance is that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the petitioner the share certificates are in the company premises. I hold that the petitioner is entitled to receive her share certificates for 2,180 equity shares and the same has to be handed over to the petitioner within a period of 30 days from the receipt of order under proper acknowledgment. 43. I deal with the allegation No. 3-the second respondent issued notice under Section 284 of the Companies Act, 1956, to the company on February 12, 2007, expressing his intention to propose the resolution as ordinary resolution at the extraordinary general body meeting of the company to be held on March 12, 2007 at the registered office of the company at 10 a.m., for removal of S. Lakshmi, from the office of director of the company. The company in turn sent a notice dated March 8, 2007, to the petitioner enclosing a copy of the notice received from the second respondent with an explanatory statement stating "a notice under Section 284(2) read with Section 190 of the Companies Act, 1956, has been received from a member of the company proposing to remove Ms. S. Lakshmi from the office of director. In compliance with Sub-section (3) of Section 284 of the Act, a copy of the notice ha....