TaxTMI 
TaxTMI 
2018 (9) TMI 462
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....peal. (2) In short, the grievances raised by the Appellant can be stated to be as follows:- a) The Appellant and Respondent No.2 as well as Respondent No.5 incorporated the Respondent No.1 Company in 2003. At that time, their shareholding was:- 1. Appellant - 49.95% (5000 shares) 2. Respondent No.2 - 49.95% (5000 shares) 3. Respondent No.5 - 0.10% (10 shares) b) In 2005 - 2006, 39,990 equity shares of Rs. 10/- each were issued to existing shareholders namely, the Appellant and Respondent No.2. Respondent No.3 - wife of Respondent No.2 came to be substituted as shareholder of the 10 shares held by Respondent No.5. The Annual Returns of the Company for the year 2006 showed the shareholding as :- 1. Respondent No.2 - 49.99% (24,995 shares) 2. Appellant - 49.99% (24,995 shares) 3. Respondent No.3 - 0.02% (10 shares) (impugned transfer) The Appellant claims that she came to know about such substitution subsequently and thus impugned the induction of Respondent No.3 - the wife of Respondent No.2 as holder of 10 shares in place of Respondent No.5. According to her, because of the induction of Respondent No.3 (the wife of Respondent No.2), the collective shareholding o....
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....ly 49.95% to just 14.29%. e) In the Company Petition, there were pleadings of the Appellant to say that she did not receive Notices for the various Board Meetings and EOGMs. She pleaded that she had little knowledge regarding affairs of the Company as the Respondent No.2 was Managing Director and taking care of the affairs. According to her, she had no invitation for Board Meetings and General Meetings. It was closely held company and in good faith, Petitioner signed some papers given by the Respondent No.2. She claimed that it was understanding between the parties not to deviate from shareholding without knowledge of the other party but Respondent No.2 violated the terms and conditions. The Company Petition claimed that the Petitioner received Notice dated 04.03.2017 with regard to Board Meeting dated 15.03.2017. She objected to the same vide letter dated 11.03.2017 questioning how Respondent No.4 could be regularized as Director and how it was being proposed to remove her from the position of Director. The Petitioner claimed that after she sent letter, Respondent No.2 talked to her on phone and lured her with certain promises, which she has detailed in the petition and accordin....
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.... to Respondent No.3. In this matter by Appellant, however, Respondent No.5 is supporting the Appellant in the arguments. The grievances raised in this regard are hopelessly delayed and do not merit consideration. Increase of Share Capital from 5 Lakhs to 15 Lakhs and allotments 6. The next issue refers to the increasing share capital from Rs. 5 lakhs to Rs. 15 lakhs. The Statement No.2 below the Notice of Meeting (Appeal - Annexure A-9 Page - 158) reads as under: "2. Statement pursuant to section 102 of the Companies Act, 2013 relating to resolutions 1 to 3 under Special Business: It has been decided by the Board of Directors to enhance the paid up capital of the Company by allotting shares to the existing shareholders to the extent of share application money contributed by them. This requires enhancement of authorised capital. Keeping this in view and also future requirements in mind the Board proposes resolutions at 1 to 3 under Special Business of the notice above. The Directors are interested to the extent their shareholding in the company and to the extent they may participate in the further issue of them." 7. Thus the Notice issued by Respondent No.2 under Order....
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....oney lying as till then and shares allotted and balance to be allotted as on 30th September, 2015. 9. The Appellant has questioned such allotment of shares after the meeting on the basis that in the Annual Return of 2015 - 2016 which was filed (copy of which is at Page - 120 of the Appeal), the entries relating to Board Meetings held during the year (at Page - 130) did not mention holding of Board Meeting dated 30th September, 2015. We find that this may be error as on the same page the document does refer to the AGM dated 30th September, 2015. Apart from this, the Balance Sheet for the year ending 31st March, 2016 (see Page - 184 to 187) does show the allocation of the shares. This document bears signatures of the Appellant along with Respondent No.2 authenticating the entries. At Page - 187 with reference to the holdings which were more than 5%, the entries read as under: "Holding more than 5% Particular 31-03-2016 No. of Shares 31-03-2015 No. of Shares 31-03-2014 No. of Shares 1. P. Shekar 58615 24995.00 24995 2. P. Malathi 42875 24995.00 24995 3. P.Salalitha 48510 0.00 0 " 10. Appellant is more aggrieved by shares allotted to Respondent N....
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....espondent No.1 Company was required to allot the shares by 1st June, 2015 or else it was required to return the amounts received from the persons for allotment of the shares. It is argued that as shares were allotted on 30th September, 2015, which was beyond 1st June, 2015 prescribed by the above Proviso, the acts committed by the Respondents were not maintainable. 13. We recall that the Appellant herself has been party to such Resolutions being passed and also the allotment of shares in which she was herself a beneficiary. Her grievance is only regarding the division. Apart from this, the Rules of 2014 in Rule 21 prescribe for punishment for contravention and if there has been a contravention the learned Registrar of Companies would be duty bound to look into the same. There is no dispute that the share application money was lying with the Company and in view of Section 74 of the New Companies Act, 2013, read with window opened by the above Notification, Company was required to act - either return the money - or allot shares. The Company took decisions (may be, late) as mentioned above and against the share application monies received the shares were allotted. The Appellant who w....
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....ther applicable provisions, if any, of the Companies Act, 2013, the Board of Directors be and is hereby authorized to issue 2,50,000 (Two Lakhs Fifty Thousands) equity shares of Rs. 10/- (Rupees Ten) each the company by way of private placement or preferential allotment, whether at par or at premium and such shares be offered to any person whether members of the company or not, as the Board of Directors may deem fit." 18. Then there is Attendance Sheet of the Board of Directors meeting dated 26th November, 2016 which is at Page - 264 of the Appeal. This document also shows presence of the Appellant and she is signatory. The Minutes of the Board of Directors meeting dated 26th November, 2016 are at Page 265. Regarding allotment of equity shares, the Resolution was as under: "ALLOTMENT OF EQUITY SHARES OF THE COMPANY The Chairman informed the Board that the Company has received share application money from applicants of the Company towards the Share Capital. The Board discussed further and passed the following resolutions unanimously. "RESOLVED THAT the consent of the Board be and is hereby accorded for the allotment of 1,50,100 (One Lakh Fifty Thousand One Hundred) Equity Sha....
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....submitted that for making preferential allotment under Section 62(1)(c) of the new Act, it is necessary that Valuation Report of registered Valuer is obtained before any such issue can be there. According to the counsel, Section 62(1)(c) permits passing of such Resolution and issue of shares on preferential basis if the price of the shares has been determined by the Valuation Report of the registered Valuer and it is further subject to such conditions as may be prescribed. According to the counsel in this regard, the legislature has passed "Companies (Share Capital and Debentures) Rules, 2014" ("Rules of 2014" in short) and procedure has been prescribed under Rule 13. It is also submitted by the learned counsel that the Rules further require compliance with provisions of Section 42 of the Act. According to him, neither these Rules nor provisions of Section 42 of the new Act were complied to increase this subscribed capital by issue of further shares nor preferential allotment was made to Respondent No.2 complying the provisions and the procedures were not followed for private placement when at par shares were issued to Respondent No.4, an outsider by picking him up and allotting sh....
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.... the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right; (iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not disadvantageous to the shareholders and the company; (b) to employees under a scheme of employees' stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed; or (c) to any persons, if it is authorised by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed." 24. Thus, as per Sub-Clause (c) of Sub-Section (1) of Section 62....
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....e convertible into or exchanged with equity shares at a later date. (2) Where the preferential offer of shares or other securities is made by a company whose share or other securities are listed on a recognized stock exchange, such preferential offer shall be made in accordance with the provisions of the Act and regulations made by the Securities and Exchange Board, and if they are not listed, the preferential offer shall be made in accordance, with the provisions of the Act and rules made hereunder and subject to compliance with the following requirements, namely:- (a) the issue is authorized by its articles of association; (b) the issue has been authorized by a special resolution of the members; [(c) ***] (d) The company shall make the following disclosures in the explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 of the Act. (i) the objects of the issue; (ii) the total number of shares or other securities to be issued; (iii) the price or price band at/within which the allotment is proposed; (iv) basis on which the price has been arrived at along with report of the registered valuer; (v) relevant date wit....
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....company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section." 28. Sub-Section (5) of Section 42 reads as under:- "(5) All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash." 29. Sub-Section (7) of Section 42 is as follows:- "(7) All offers covered under this section shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe, and that such persons shall receive the offer by name, and that a complete record of such offers shall be kept by the company in such manner as may be prescribed and complete information about such offer shall be filed with the Registrar within a period of thirty days of circulation of relevant private placement offer letter." 30. "Companies (Prospectus and Allotment of Securities) Rules, 2014" requires under Rule 14 dealing with private placement that for the purposes of Sub-Section (1) of Section 42, a company may make an offer or invitation to subscribe the securities through issue of a private pl....
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....esent matter, this does not appear to be there. Again the Board of Directors Resolution dated 26.11.2016 (Page - 265) does not show how money had been received and if Section 42(5) had been complied. Records do not show that for Respondent No.4, compliances as per Section 42(7) had been made. 34. For the view, we are taking, need to discuss further arguments of parties regarding Board Meetings dated 31.10.2016 and 26.11.2016 and EOGM dated 25.11.2016 is not there. 35. We find Respondents 2 and 3 to have acted in an oppressive manner with the Appellant, when such Board Meetings dated 31.10.2016 and 26.11.2016 and EOGM dated 25.11.2016 were conducted. Acting on the basis of their majority shareholding, Respondents 2 and 3 went ahead with the EOGM against the provisions of law and made preferential allotment of shares to Respondent No.2 and private placement of shares was made to Respondent No.4, an outsider. Having gained in numbers in such manner and having brought in Respondent No.4 with token shares, Respondents 2 and 3 appear to have then proceeded to get rid of directorship of Appellant. Thus, calculatively, Appellant was oppressed. In the process, Company was mismanaged by il....