TaxTMI 
TaxTMI 
2018 (7) TMI 56
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....ereon from March, 2016 onwards are illegal, null and void; v. Declaration that the meetings of the Members of the Respondent No.1 company including all the resolutions passed thereon from March, 2016 onwards are illegal, null and void; vi. Injunction restraining the Respondents and their men, servants and agents from operating any of the bank accounts of the Company without the concurrence of the Petitioner No.1 & 2; vii. Injunction restraining the Respondents and their men, servants and agents from operating any of the Demat accounts of the Company without the concurrence of the Petitioner No 1 & 2; viii. Injunction restraining the Respondents from selling or dissipating any investments as held by the Respondent Company or its funds without the concurrence of the Petitioner No.1 & 2; ix. Injunction restraining the Respondents from altering or changing in any manner the shareholding of and in the Company without the concurrence of the Petitioner No.1 & 2; x. Injunction restraining the Respondent Nos.2, 3 and 4 from interfering with or intermeddling with the management and affairs of the Company in any manner whatsoever" ....
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....e Ramkrisna Goel, (since deceased), father of the petitioner No.1 and petitioner No.2 and respondent No.2 (herein after referred to as "the Goel brothers") started a business of selling of sanitary goods, hardware items and some other related goods in Sivsagar Town, Assam in 1968. The respondent No.2 at that time had been doing his studies staying in Kolkata whereas the petitioner No.1, although aged about 10 years, helped his father in carrying out their family business. However, while helping his father as aforesaid the petitioner No.1 had also successfully completed his graduation. 3. After the death of their father, the family business at Sivsagar was looked after by the petitioner No 1 However, sometime thereafter, the Goel brothers shifted their family business to Guwahati in quest of better fortune and prospect. Once the Goel brothers shifted their family business to Guwahati, they formed a private company and same was incorporated under the name and style "Goel Marketing and Distribution Company" with its registered office at Dhenuka Complex, Athgaon Guwahati, Assam, the aims and objects of such company were described in great detail in Memorandum of Association, (in sho....
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.... as under: - Sl. No. Folio No. Name of Shareholder No. of shares held Capital (In Rs.) 1 01 Mr. Rajesh Goel 170000 1700000 2 02 Mr. Mukesh Goel 170000 1700000 3 03 Mr. Ritesh Goel 170000 1700000 4 04 Mrs. Satyabhama Goel 40000 400000 5 05 Mrs. Anita Goel 80000 800000 6 06 Ms. Nisha Goel 80000 800000 7 07 Ms. Sarika Goel 80000 800000 8 08 Rajesh Goel (Karta of Ramkrishna Goel & Sons 59850 598500 9 09 Rajesh Goel (Karta of Rajesh Goel & Sons) 50000 500000 10 10 Mukesh Goel (Karta of Mukesh Goel & Others) 50000 500000 11 11 Ritesh Goel (Karta of Ritesh Goel & Others) 50000 500000 12 12 Mr. Pawan Kumar Agarwal 10 100 13 13 Mr. Sanjay Kumar Agarwal 10 100 14 17 Mrs. Prabhawati Devi Agarwalla 10 100 15 18 Mr. Sajjan Agarwal 10 100 16 19 Mrs. Sanju Devi Agarwal 10 100 17 20 Mr. Umesh Agarwalla 10 100 18 21 Mr. Tarachand Agarwalla 10 100 19 22 Mr. Suresh Kumar Agarwalla 10 100 20 23 ....
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....ufacturing and production units of the company. Most importantly, the respondent No.2 is also a short-tempered person and keeps on quarrelling with one and all- which- in fact- -caused lots of problems to the other two brothers in running the affairs of the company. But, somehow, the petitioners managed to run the business of the respondent company without facing much trouble. 11. In 2015, the respondent No.2 was diagnosed to have been suffering from brain tumour and as such, he had to be hospitalized at Fortis hospital, Gurgaon. During such difficult days, the other two brothers of the respondent No.2 extended him all possible support which included arrangement of money, necessary for his treatment. But after recovering from the illness, the respondent No.2 became more and more arrogant and also started misbehaving with one and all including his brothers. However, considering the wellbeing of all concerned including the company, his ill behaviour of enormous proportion was ignored. 12. However, in the meantime, Rochak Goel (respondent No.3), son of the respondent No.2, completed his study and came back to Guwahati. On his return, the respondent No.2 insisted that his son be ....
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.... brothers. Mother of P-l and P-12 and R-2 had also attended the meeting. Said meeting was summoned since R-2 never convened the AGM despite there being repeated requests there-for from the side of the petitioners over a long period of time and in spite of there being an assurance from the side of R-2 to convene the same on getting necessary permission from the concerned ROC. However, instead of addressing the grievances of P-l and P-2, the respondent No.2 being encouraged by respondent No.5, threatened to cause all kinds of harm to P-l and P-2. 17. In such scenarios, P-l and P-2 were left with no other way out but to leave their abode in Guwahati forever and to settle somewhere so as to make a search for new opportunity/opening so that they could take out their livelihood without wholly depending on the earning from the respondent No.1 Company. But despite leaving their abode for ever under compulsion, they tried their best to see that the affairs of the respondent company are being conducted in accordance with the requirement of law. 18. Since the company in question is a closely held family company, the petitioners did not make much enquiry about the running of the company ....
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..... Rochak Goel as the Director and Whole Time Director of the company. After brief discussion the following resolution was duly proposed by Mr. Mukesh Goel and seconded by Mr. Ritesh Goel as an Ordinary Resolution. RESOLVED THAT pursuant to provision of section 152 of the Companies Act 2013, read with Companies (Appointment and Qualification of Directors) Rules, 2014, Mr. Rochak Goel, who has consented to act as the Director of the Company, be and is hereby appointed as the Director of the Company with immediate effect. RESOLVED FURTHER THAT pursuant to provision of section 196 of the Companies Act 2013, read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Mr. Rochak Goel who has been appointed as the Director of the Company, who has consented to act as the Whole Time Director of the Company, be and is hereby appointed as Whole Time Director of the Company, w.e.f. 23rd March, 2016 for a period of 5 (five) years. RESOLVED FURTHER THAT pursuant to the provisions of Section 196, 197 and Schedule V read with relevant rules of the Companies Act 2013 and other application provisions of the Act, Mr. Rochak Goel, Whole Time Direc....
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....since the Board Meeting held on 10-03-2016 and EOGM, held on 23-03-2016 are convened and conducted illegally and since those meetings have enormous implications on the EOGM, held on 30-09-2016, on that count too, the EOGM on 30-09-2016 is required to be held illegal. 25. Once the respondents illegally usurped the management of the company, they keep on doing very many other illegalities as well. The misadventure of the respondents had gone to the extent of their illegally acquiring the properties of the R-1 Company. In course of mismanagement of the company, the respondents illegally got transferred to their names as many as 60,000 nos, of equity shares, held by three companies-namely - (1) High Rise Pvt. Ltd., (2) Namo Shivaya Agency Pvt. Ltd. and (3) Nortel Textiles Pvt. Ltd. 26. Since the petitioners have been wrongly and illegally removed from the Board of Directors and since the respondents No. 3 and 4 were illegally inducted in the company as Whole Time Director and Director respectively and since 60,000 nos. of equity shares pertaining to the aforesaid three companies were illegally transferred in favour of the respondent No.3 since thereafter, respondents had committe....
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....1. The respondents further submit that it is not true to say that the company which was established in Guwahati under the name and style of Goel Marketing & Distribution Co. Ltd. was conceptualised and made functional by the petitioner No.1. Rather, it was conceptualised and brought into existence by the respondent No.2, who took world of pains in establishment of the company concerned, in Guwahati which is well evident from the letter dated 19-12-2011. Said letter was written by the P-l as director of the R-1 Company and was addressed to Relationship Manager, State Bank of India, Fancy Bazar, Guwahati-1. 32. In the aforesaid letter, it has been stated that the respondent No.2 is the driving force of the respondent No.1 Company. However, despite doing everything possible on his part to make the respondent No.1 Company a very viable business entity, he was always asked to play a second fiddle. In that connection, it has been pointed out that while the work pertaining to the manufacturing products of the respondent company was assigned to the respondent No.2, the prize work, same being distribution and marketing etc. of the products of the company, was allotted to P-l and P-2. ....
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....t the various incentives, provided under Industrial Policy, adopted by the Govt, of Assam, were about to come to an end in May, 2017 had hasten such decision on the part of P-l and P-2. 37. According to the respondents, though the letter dated 23-03-2016 apparently demonstrates that the petitioners opted to resign only from the post of whole time director of the company-yet- there are enough materials on record to show that P-l and P-2 wholeheartedly intended to resign not only from the posts of Whole Time Director but also from the posts of director of the R-1 company. In support of such contentions, my attention has been drawn to the fact that on 10-03-2016 itself, P-l and P-2 had also given written consent to convene EOGM on 23-03-2016 with a shorter notice so that the company could take decision on the exit of the petitioners from the company sooner than later. 38. Targeting the case of the petitioners more and more, it has again been submitted that though under the letter dated 10-03-2016, all the petitioners had duly consented to the holding of the EOGM under a shorter notice, yet, all other necessary formalities, specified in section 101 of the Act of 2013, were strict....
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....ostile behaviour of R2 towards them. Such episodes further advance the claim of the respondents that having resigned from all the posts of the company on 23-03-2016, P-l and P-2 completely withdrew from the affairs of R-1 Company. 42. The R-2 did not dispute the claim that he had misfortune of having brain tumour for which he was operated upon at a hospital in Delhi. But he claims that it is not true that the petitioners had managed the funds necessary for his treatment. Rather he was given what the company owed to him in form of salaries, profits etc. More importantly, during their time of distress and hardship, the respondent No.2 had provided his brothers employment in the company and allowed them to draw their salaries on very liberal terms. They have subsequently used such monies in acquiring shares in the company. For all these reasons, the respondents urge this Bench to dismiss the present petition. 43. The so projected by the respondents can also be seen in the paragraph vii of the reply. The relevant part of such paragraph is also reproduced below: - "Be it stated herein that the petitioner nos. 1 and 2 had created such a situation that the respondent no.2 h....
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....tingly, the consent letters are original and it also contained consent letters of petitioner nos.3 and 4, which clearly prove that contrary to their stand, the petitioners were aware about the Board of Directors meeting held on 23.02.2016 as well as EOGM to be held on 23.03.2016. it is also submitted that the petitioner nos.1 and 2 have admitted that they have submitted their resignation letter on 23.03.2016, which cannot be a mere coincidence but the same was a part of the entire scheme of exit of the petitioners from the respondent No.1 company. Be it stated herein that the answering respondents also submitted their consent letters and the respondent no.2 also issued consent letter on behalf of the Goel Entrade Pvt. Ltd, Ramkrishna Goel & Sons HUF as well as Rajesh Goel & Sons HUF. The answering respondents humbly state and submit that the petitioners have suppressed all these above mentioned facts from this Hon'ble Tribunal." 44. It may be stated here that during the course of arguments, the learned counsel for the parties had repeated what have already been stated by the parties in their respective pleading. Therefore, I refrain from reproducing such arguments here ....
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.... The definition of the Whole Time Director can be found in section 2(94) of the Act of 2013. The definition of whole time director as given in Section 2(94) of the Act of 2013 is an inclusive definition. For ready reference, same is reproduced below: - "2(94) - "whole-time director" includes a director in the whole-time employment of the company;" 49. On looking at the various provisions of the Act, it is found that when a person who is already appointed as a Director of a company, is also conferred with the powers/post of Whole Time Director, in that event, it needs to be concluded that such a person found himself conferred with two different posts and in such a scenario, it is possible for him to resign from the post of Whole Time Director while retaining the post of Director of the company. In that view of the matter, the manner or method of appointment would show to great extent if aforesaid two posts are conferred on the same person or not. 50. Coming back to our case, it is found that the Article 97 of the AOA of the company says that P-l, P-2 along with R-2 would be the original Directors of the company. But then, a very careful scrutiny reveals that AOA makes....
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....on the fact that R-3 and R-4 would be appointed as above even before the resignation of P-l and P-2 from the Board so that at no point of time, the number of the Directors of the company fell below the minimum number, so prescribed in the AOA. The respondents also claim that said agreement/arrangement became a need of the hour since the Goel brothers got involved in a series of irritating and nagging but continuous disputes over a long period of time regarding running of the affairs of R-1 company. 55. According to the respondents, as per above arrangements, R-3 and R-4 were appointed to the aforesaid posts in the Board Meeting held on 10-03-2016 itself whereas P-l and P-2 had resigned from all the posts they were holding in the company till then only on 23-03-2016. The respondents further claim that the notice of the Board Meeting, convened on 10-03-2016, was properly sent to P-l and P-2 and having received such notice, P-1 and P-2 attended such meeting, actively participated therein and duly approved the resolutions, adopted by the Board in such a Meeting. 56. In the meeting, aforesaid, the Director in attendance adopted as many as three resolutions and in adopting such res....
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.... Provided that the Central Government may, by notification, specify such matters which shall not be dealt with in a meeting through video conferencing or other audio visual means. (3) A meeting of the Board shall be called by diving not less than seven days' notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means: Provided that a meeting of the Board may be called at shorter notice to transact urgent business subject to the condition that at least one independent director, if any, shall be present at the meeting: Provided further that in case of absence of independent directors from such a meeting of the Board, decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director, if any. (4) Every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty-five thousand rupees. (5) ." 59. Section 174 of the Act of 2013, amongst other things, speaks about quorum of the Mee....
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....the date of meeting, unless the Articles prescribe a longer period. 1.3.8 Each item of business requiring approval of the Meeting shall be supported by a note setting out the details of the proposal, relevant material fact that enable the Directors to understand the meaning, scope and implication of the proposal and nature of concern or interest, if any, of any Director in the proposal, which the Director had earlier discussed." 61. One may also look into the Secretarial Standards (SS-1 - Board Meeting), issued by the Institute of ICSI which prescribes the manner in which Board Meeting is to be conducted. Relevant extracts of Secretarial Standards (SS-1 - Board Meeting) are as under: "(i) Quorum should be present throughout the Meeting. No business should be transacted when the Quorum is not so present. (ii) Where the number of Directors is reduced below the minimum fixed by the Articles, no business should be transacted unless the number is first made up by the remaining Director(s) or through a general meeting. (iii) The presence of all the members of any committee constituted by the Board is necessary to form the Quorum for meetings of such....
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.....2016. They also claim that having been so informed, P-l and P-2 had personally participated the Board meeting on 10-03-2016. 66. On a very careful perusal of the materials on record, the letter dated 10-03-2016 in particular, I have found that such contention is far too away from the truth - for- the letter dated 10-03-2016, no way gives an impression that P-l and P-2 were ever informed of about the purported Board meeting held on 10-03-2016- much less- they being informed of the convening of a Board Meeting on 10-03-2016 in the way prescribed in section 173 of the Act of 2013 and so also in various guide lines, issued by the ICSI. The fact that the respondents could not produce any document to substantiate their claim on this score makes such a conclusion inevitable. 67. Further, the claim of the respondents that such a meeting was attended to by P-l and P-2 is also found to be equally away from the truth. This is because of the fact that the respondents once again could not produce any material in proof of such a meeting being attended to by PI and P-2 personally. In this connection, it may be stated that clause 4 of the Secretarial Standard -1 requires every company to ma....
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....ure to the authorities concerned so that necessary penal proceedings could be initiated against the wrong doers/offenders and also to set the record of the respondent No.1 company right. But then, there was no proof whatsoever of respondents taking recourse to the law to get wrong, done to the company, rectified. 72. Such state of affairs speaks loud and clear that the contention of the respondents that the petitioners had stealthily and illegally removed some very significant documents from the office of the respondent No. 1 which, in turn, seemingly prevented the respondents from producing some very important documents before this Bench during the trial is an afterthought story and as such, same cannot be accepted without a large grain of salt. Situation being such, I have no hesitation whatsoever in rejecting the claim of the respondents that the notice of the purported Board Meeting was duly sent to the petitioners and that having been so served with such notice, P-2 had attended the said Board Meeting in person. 73. On examining the letter dated 10-03-2016, more and more, from different angles having regard to the letter dated 23-03-2016, I have also found that said lett....
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....Board Meeting, held on 10.03.2016, was attended to only by one director- although on such a date there were as many as three directors in the Board. Article 116 of the AOA says that the quorum for Board Meeting is two. Since on 10.03.2016, only one of those directors had participated in such Board Meeting--- therefore- for want of quorum, said Board meeting could not have legally taken up any of matter, slated for discussion therein. 78. Despite above being the situation, the lone legally appointed director, present in such Board Meeting held discussion on as many as three agenda and also adopted resolutions thereon in profound violation of the prescription in Article 116 of the AOA as well as section 174 (1) of the Act of 2013. Since Board Meeting, held on 10-03-2016, did not have the requisite quorum, therefore, all the resolutions, adopted in the said Board Meeting became void, illegal and non-est in law. 79. The decision of the Board to appoint R-3 and R-4 as full-fledged directors is found to be illegal for yet another very valid reason. It is a settled law that a full-fledged Director can be appointed by the shareholders only in the AGM. However, under certain circumsta....
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....o found to be illegal for violation of the mandate of law in Section 101 of the Act of 2013. Section 101 of the Act of 2013 speaks about the procedures qua issuance of notice of meeting in respect of General Meeting. However, before I proceed further, I find it necessary to reproduce the relevant provisions of Section 101 of the Companies Act, 2013. 101. Notice of meeting. - (1) A general meeting of a company may be called by giving not less than clear twenty-one days 'notice either in writing or through electronic mode in such manner as may be prescribed: Provided that a general meeting may be called after giving a shorter notice if consent is given in writing or by electronic mode by not less than ninety-five per cent, of the members entitled to vote at such meeting. (2) Every notice of a meeting shall specify the place, date, day and the hour of the meeting and shall contain a statement of the business to be transacted at such meeting. (3) The notice of every meeting of the company shall be given to- (a) Every member of the company, legal representative of any deceased member or the assignee of an insolvent member; (b) The au....
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....rts below." 86. Coming back to our case, it is found that as on 31st March, 2016, the total number of shareholders of the R-1 company was 30. Though it appears from the record that the respondents had reportedly taken steps in matter of sending notice to large number of shareholders of the company yet it is also apparent there-from that some of the shareholders, their number not being sizeable though, were not favoured with notice of such meeting. Since notice of EOGM were not sent to all the shareholders of the company, therefore, in terms of law, laid down in section 101 of the Act of 2013 as well as in Asansol Electric Supply Co (supra), the resolutions dated 23.03.2016 cannot escape being found illegal and unsustainable in law ---even if---one assumes for the sake of argument that such meeting was otherwise free from any other infirmities. 87. It is worth noticing here that the petitioners too stoutly denied receipt of the notice in regard to EOGM, held on 23-03-2016, and although, they admitted having issued letter dated 10-03-2016 consenting the convening of EOGM on 23-03-2016. However, referring to the letter dated 10-03-2016 as well as the letter dated 23-03-2016, the....
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.... in a manner not authorised by law, the resignation of P-l and P-2 too could not have legally been accepted by the members present in such a Meeting. Consequently, it needs to be concluded that P-l and P-2 continue to be Whole Time Directors of the R-1 Company on 23-03-2016 and beyond. 92. The respondents claimed that the present proceeding is liable to be dismissed for it being filed with enormous delay and also it not being initiated against all the parties against whom the petitioners have sought for some reliefs. However, I have found that such allegation is totally devoid of substance since there are unquestionable materials on record to show that the proceeding in hand was initiated well within the time. Moreover, it is not correct to say that the proceeding under consideration suffers from defect of parties. 93. Further, both the parties assailed the case of opponent on some other grounds too. But since the Board Meeting held on 10-03-2016 and the EOGM, held on 23-03-2016 are found to be wholly illegal and unsustainable in law, which make all subsequent actions/deeds, done by unlawfully constituted Board equally illegal, I find it redundant to consider all other disput....