TaxTMI 
TaxTMI 
2018 (9) TMI 462
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....gned Order dated 19.12.2017. Thus this Appeal. (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....
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....he Appellant that because of such illegal acts, the Respondent Nos.2 and 3 couple illegally took over the control of the Company to oust the Appellant by reducing her shareholding which was initially 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 ....
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.... Appellant who was full-time Director for so many years even after 2005 did not question the transfer till 2017. Respondent No.5 himself did not file any proceedings or complain to claim that he had not transferred the shares 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 ....
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....s the number of shares held by the Appellant and Respondents 2 and 3 as on 30th September, 2015 before and after the allotment done on that date. Respondents 1 and 2 have, with the counter affidavit, filed Annexure R-4 (Page 71 - Diary No.3258) chart of share application money 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% Par....
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.... on or before the 31st March, 2014 against which the allotment is pending on the 31st March, 2015, the company shall, by the 1st June 2015, either return such amounts to the persons from whom these were received or allot shares, stock, bonds or debentures or comply with these rules." 12. The argument is that in view of this Proviso added, the Respondent 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....
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....r, 2016. The Appellant was present even in this EOGM as per the Attendance Sheet. The minutes of the said meeting are at Page 301 which shows that the authorized share capital was increased from 15 lakhs to 40 lakhs. Regarding allotment of the equity shares, the Resolution was as under:- "3. ALLOTMENT OF EQUITY SHARES RESOLVED THAT pursuant to 62(1)(c) and other 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 SHARE....
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....ed Notice in particular format (which we will refer [infra]). We need to mention here itself that Notice complying with procedural requirements for increasing subscribed capital and further issue under Section 62(1)(c) of the new Act have neither been brought to our Notice by the learned PCS for the Respondents nor proof of service of such Notice on the Appellant has been shown. 22. In this regard, the learned counsel for the Appellant has 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 c....
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....rtion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:- (i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined; (ii) unless the articles of 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 ....
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....pany to any select person or group of persons on a preferential basis and does not include shares or other securities offered through a public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign securities; (ii) the expression, "shares or other securities" means equity shares, fully convertible debentures, partly convertible debentures or any other securities, which would be 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) th....
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.... of New Act - making object of Legislature more clear). Section 42 deals with offer or invitation for subscription of securities on private placement. There are various compliances required to be done. As per Sub- Section (1) of Section 42 without prejudice to provisions of Section 26, a Company may, subject to the provisions of Section 42, make private placement through issue of private placement offer letter. Explanation II below Sub-Section (2) of Section 42 in Clause (ii) explains "private placement" as under:- "(ii) "private placement" means any offer of securities or invitation to subscribe securities to a select group of persons by a 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 nam....
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....ssue of such Notice along with disclosures nor service of such Notice on the Appellant. 33. Nothing is shown as to how Respondent No.4, an outsider, was selected for making private placement of shares to him and that too at par. Looking to Section 42 as well as Section 62(1)(c) of the new Act read with the Rules mentioned above, it appears necessary that before decision is taken for allotment by way of private placement, it would be necessary to follow the procedure of selecting the person/s to whom issue of private placement offer letter is to be made and then further comply with provisions of Section 42. If this is done, it would reflect in decision of General Body. In present 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 ....