TaxTMI 
TaxTMI 
2017 (5) TMI 1661
X X X X Extracts X X X X
X X X X Extracts X X X X
....is Bench, and thus posted it for final hearing on various dates viz. 20.07.2016, 22.07.2016, 03.08.2016, 19.08.2016, 16.09.2016, 19.10.2016, 21.11.2016, 22.11.2016, 07.12.2016, 21.12.2016, 06.01.2017, 10.01.2017, 24.01.2017, 06.02.2017, 17.02.2017, 23,02.2017, 07.03.2017 09.03.2017 & 13.03.2017. The case was heard on several dates and used to be adjourned on one pretext or the other at the request of parties. They have insisted the Tribunal to decide Company Applications, which are pending in this case, before deciding the main case. Accordingly, we have appointed an Advocate Commissioner vide order dated 19.10.2016 passed in C.A.No.1/2016 in C.P.No.87/2007 to take inventory of fixed assets of M/s Priyaranjani Fibers Limited (R1 Company). After hearing both the parties, orders were reserved on 9th March, 2017. 2. Since several developments takes place after filing the present Company Petition, the Petitioners have filed C.A.No.43/2009 by seeking to add some more prayers to the existing prayers already sought in the main Company petition. The CLB allowed said Company application on 09.08.2012. It would be appropriate to extract all main prayers in Company petition, after amendmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry and forgery. 3. The brief contentions /averments/assertions/allegations made in the Company petition, which are relevant to the present issue are as follows:- (a) Priyaranjani Fibers Limited (hereinafter referred to as "the Company") was incorporated on 14th February, 1991 as a public limited Company with its Registration No.01-12336 of 1990-91. The Registered Office of the Company is situated at Rayapole Village, Ibrahimpatnam, R.R. District, Telangana. The authorized share capital of the Company is Rs. 23,00,00,000/- divided into 2,30,00,000 equity shares of Rs. 10/- each and its paid-up share capital is Rs. 11,70,00,000/- divided into 1,70,00,000 equity shares of Rs. 10/- each. The object of the Company is to carry on business of spinning and weaving mills and of spinners, weavers, bleachers, dyers of cotton, silk, wool, rayan, Dotusal and Synthetic fibers and fibrous substances of all kinds. (b) All Petitioners are shareholders of the Company, and all of them have duly executed their Power of Attorney (POA) to the first petitioner to file this petition on their behalf also. (c) The Company is 100% export oriented and an entire premises of the fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d said Mr. K. Ranganathan to participate in BIFR proceedings held on 17.09.2002, i.e. before execution of the said agreement dated 09.10.2003. (g) By believing words of K. Ranganathan, the second respondent has entered into agreement dated 09.10.2003 and also got second respondent signed some blank letters in a mischievous manner. On the basis of such letters and agreement, Respondent Nos. 3 to 5 got appointed as Additional Directors of the Company and the 3rd Respondent was further appointed as Managing Director of the Company for a period of five years w.e.f. 03.09.2003. In fact, there was no meeting of the Company held, and no notice whatsoever was given to existing shareholders to such appointments. And all these documents are alleged to have been fabricated by the 3rd Respondent. (h) The 3rd Respondent, basing on the said agreement and alleged resolutions, has entered into the factory of Company and made small payments to various authorities, and started production of the Unit. And it was also understood that the Company was running continuously for a period of about four years, and made huge profits without bothering about overheads and maintaining accounts.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lia proposing to remove Respondent No. 3 to 5, apart from other actions. A notice was also sent to the 3rd Respondent and others by RPAD. (m) On receipt of the said notice dated 03.08.2007, the Company along with Respondent Nos. 3 to 5, has filed a civil suit bearing O.S.No.469/07 before the 3rd Additional Chief Judge, City Civil Court, Hyderabad by inter alia seeking a judgment and decree in their favour against the Defendant Mr. D. Srinivasa Rao (Respondent No.2 herein) by declaring that the notice dated 03.08.2007 was illegal, null and void and non est in law and to further declare that second respondent was not entitled to act as Executive Vice chairman as he was no more a Director and also sought a perpetual injunction restraining him or his agents, representatives, nominees etc. from holding any meeting of the shareholders of the 1st Plaintiff Company. Accordingly, Respondents No.3 to 5 were able to obtain an ex parte interim injunction dated 28.08.2007 in I.A.No.3166/2007 in O.S.No.469/2007, by restraining the respondent, his agents etc. from conducting the proposed EGM on 03.09.2007. Subsequently, these interim orders were vacated on 06.11.2007. Aggrieved by the Or....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....e.f. 06.02.2008 to till date. (q) The CLB has also passed a detailed interim order on 16.07.2008, in the present CP by restraining the Respondents No.3 to 5 from functioning as Managing Director/Director of the Company and further prohibited from selling any of fixed assets of the Company till disposal of Company Petition. The said order was questioned before Hon'ble High Court of Andhra Pradesh, by filing Company Appeal Nos. 14 and 16 of 2008 under Section 10 F of Companies Act, 1956. After hearing those appeals, the Hon'ble High court by an order dated 28th January, 2009 dismissed those appeals by upholding the said order of the CLB. Subsequently, amendment petition has been filed by petitioner amending the prayer and pleadings. (r) It is further alleged that the Respondent Nos.3 to 5 alleged to have conducted EGM dated 01.05.2004 for a purported issuance of 12 crores of equity shares to friends and relatives of Respondents No.3 in order to make the petitioners stake below 10% with a mala fide intention to disqualify them from invoking Section 397/398 of the Companies Act, 1956. The resolutions dated 31.04.2004 and 31.05.2004 are also cooked up and fabr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-law, cousins and some of the employees of Respondent No.2. This is proved by the fact by the address of Respondent No.2 and majority of the petitions are same. They have also raised serious objections as to the manner, content and style of the purported power of attorney executed in favour of the main petitioner namely Mr. Tej Kumar, who is none other than son of Respondent No.2. They have raised so many doubts on the POA given to the 1st Petitioner by other Petitioners of the Company Petition. (v) It is further stated that Petitioners 8 & 14 were purportedly were the directors of the company and further re-appointed as directors on 26.12.2006 and the same is not borne out by their affirmation affidavit signed in March, 2010. (vi) They have further denied that D. Srinivasa Rao, Respondent No.2, is working as Executive Chairman. It is stated that he is an outsider and does not hold any position as on date of filing of CP. The Petitioners do not satisfy the criteria of requisite value of shares as well as numbers as contemplated under section 399 of the Companies Act, 1956. It is further denied that the Petitioners hold about 10.33 % of the total paid-up share capi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bank loans of the Company and the same is borne by Bank statements and financial records. It is stated that Respondent No.3 is very senior politician hailing from a reputed family having so much goodwill among the masses. They have strongly denied adverse inferences drawn by the Petitioners against Respondent No. 3 (xiv) The purported EGM of 3.09.2007 was illegal and void per se. The petitioners have come to this Tribunal with unclean hands and thus they are not eligible to claim equitable relief from this Tribunal. 5. The Respondent No. 2 (D. Srinivas Rao) has filed a reply statement dated 22nd February followed by his written submissions dated 6th March, 2017. The following are his material submissions in those pleadings: (a) He is a M.Tech Degree holder in structural engineering from IIT Madras. Around March 1991, some friends had pursued him to invest in the Company. Accordingly, he has invested about Rs. 0.93 crores over a period of time in the Company. Even, though he holds a major stake in the Company along with family, friends and associates, he was not at helm of affairs of Company from the beginning. He has brought one Sri. V. Raman, a textile expert ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... No. 3 only, and it will not bind the Company. (h) The Respondent Nos.3 to 5 have committed various criminal acts in violation of orders of BIFR, and committed theft and disposed off two 500 KBA generators sets illegally and without any authority. The market value of the same is Rs. 50 lakhs each. (i) To appoint any person as Managing Director, a resolution in the general meeting is Mandatory requirement and no such resolution in any general meeting had been passed till date in that regard. So all the resolutions stated to have been passed by Respondent No.3 are invalid. It is further stated that Respondent No.3 cooked up records projecting further issue of shares. (j) The petitioners are eligible to file present petition. It is alleged that Respondents Nos. 3 to 5 are committing various illegal acts and misrepresenting the Company before various judicial forums. They have not produced any documentary evidence to show they were duly appointed in accordance with law except to rely on terms of agreement dated 09.10.2003. (k) The agreement dated 09.10.2003 is a private agreement between him and respondent No.2 and 3, and it was not adopted by Memora....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of assets belonging to Company, which is upheld by the Hon'ble High Court vide orders dated 28.01.2009, and Apex court declined to interfere in this issue. So this order became final. (q) The CLB, in its interim order dated 10.10.2007 has inter-alia held that the petitioners are entitled to exercise their rights as members of the Company and the Company can carry on business in accordance with Memorandum and Articles of Association. Accordingly the shareholders of Company, while exercising their rights, conducted Extraordinary General Meeting on 02.01.2008 and passed resolutions removing Respondent Nos. 3 to 5 as MD/Directors w.e.f. conclusion of this meeting. (r) It is also stated that Sections 22(2) r/w section 18 of SICA Act is not in conflict with right of shareholders herein since scheme of revival was not yet been sanctioned by BIFR. (s) It is alleged that Respondent Nos. 3 to 5 have fabricated balance sheets showing enhanced capital of Rs. 11.30 crores, K. Ranganathan was never appointed as Auditor by Shareholders of Company in any AGM and thus all proceedings with his association are invalid and illegal. It is alleged that fictitious enhanced....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nded that Respondent No. 2 himself has admitted that he was not part of management of Company for a period of two years during 2004-06 as he has resigned from the Company first as MD and then as Directors from 2004 and he has also categorically stated in his Complaint made before Criminal Court by stating that Respondent No. 3 was appointed as Chairman/MD for the Company for a period of three years from 6.02.2004. Hence, appointment of Respondent Nos. 4 and 5 was not questioned by the respondents. (g) It is further contended that three main reliefs relates to issue and allotment of 1,13,00,000 Equity shares of Rs. 10 each to various allotees cannot be questioned as none of parties are impleaded to the Company petition. Similarly, no relief can be granted with regard to statutory Auditor namely Ranganathan as he was not a party to this petition. (h) It is alleged that Company petition is a surrogate petition filed for and on behalf of Respondent No. 2 through his son, daughter, wife (deceased), brothers-in-law and other close relatives and it is nothing but pure abuse of process of law. (i) It is contended that BIFR has ordered Operative Agency (OA) to app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lopments would not have any bearing on its maintainability. It is settled position of law that requirements of necessary qualification of 10% shares as per Section 399 of Companies Act 1956 should be fulfilled at the time of filing the Petition. In this regard, he relied upon the judgment of Apex Court Rajahmundry Electric Supply Corpn. limited v. A. Nageswar Rao AIR 1956 SC 213 which is also upheld by the Hon'ble Supreme Court in Dale and Carrington Investments (P.) Ltd. v. Prapathapan [2004] 54 SCL 601 (SC). (c) The Power of Attorney given by other Petitioners in favour of first petitioner is perfectly justified as most of the Petitioners hailing from different parts of the state. In this regard, he has relied upon the judgment of Apex Court in P. Punnaiah and AMP v. Jeypore Sugar Co. Ltd. [1994] 1 SCL 180 (SC). (d) It is further contented that Company is declared as sick industry and the matter is pending with BIFR vide Case No.366/2001, which is referred to by the second Respondent in his capacity as Vice Chairman and Managing Director. (e) Though, it is mentioned in the agreement dated 09.10.2003 that Respondent No.3 and his nominees would be co-....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shares in question was not legal, and it was liable to be set aside. However, Mr. S. Ravi, learned Senior Counsel later tried to justify it without citing any cogent reason. Moreover, the issue of shares was also not brought to notice of BIFR. The Petitioners have filed C.A. No.43/2009 seeking amendment of pleadings of the Company Petition so as to bring subsequent developments in Company Petition. So the amendment Petition is allowed after giving opportunity to the Respondent Nos.3 to 5. (i) It is contented that expert opinion dated 10.01.2017 filed along with the Memo filed by Advocate Commissioner, appointed by the National Company Law Tribunal (NCLT) clearly shows that several valuable machines are missing from the factory premises and the value of same is estimated to be about Rs. 2,65,00,000/- and it would require about Rs. 4.50 crores to bring back original condition of machines that are existed in the year 2003. (j) It is alleged that acts of filing of several forms illegally with RoC not minding the Orders of CLB and Hon'ble High Court, representing the Company in place of Original Board of Directors constitute oppression under Section 397 of the Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... whether they were not properly authorized by Powers of Attorney etc ; (ii) Whether agreement in question dated 09.10.2003, which is basis for the entire dispute in question is validly executed and, if so, whether it is binding on the Company and its shareholders, what rights accrues to Respondent Nos. 3 to 5 and whether it is still valid or not etc (iii) Whether the re-appointments of Respondents No. 2, 8 & 14 as Executive Vice Chairman and Managing Director and the Directors are valid under law or not. (iv) Whether the Respondent Nos. 3 to 5 are holding any shares in the Respondent No.1 Company and hold any position especially, after their removal as such as per EGM dated 02.01.2008. (v) If so ,what is the relief, the petitioners are entitled for. 10. Before adverting to issues raised in the Company petition, it is necessary to refer brief history of Company as to its origin, and up and down. As stated supra, M/s Priyaranjani Fibres Limited (R1 Company) was incorporated on 14th day of February, 1991 as a Public Limited Company. It was promoted as 100% Export Oriented Unit (EOU) Spinning unit. The second respondent, who is an M. Tech degree h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....& other 28525 2,85,250 21 D. Lakshmi Niece 3442 & 3980 6000 60,000 22 M/s Siri Office 1901 5000 50,000 Total 1152955 1,15,29,550 The total share capital of Company is Rs. 1.17 crores and the family of second respondent together with his family and others held shares worth Rs. 1,15,29,550/- 11. When the Company could not run as expected due to various reasons, the Second respondent has entered into an Agreement dated 09.10.2003 with respondent No. 3, which contains several conditions as detailed supra. Accordingly several steps have been taken by both the parties for implementation of terms of agreement. However, the agreement was ultimately ended into failure leading to its termination and filing of several civil and criminal cases by both parties. This agreement is basis for all disputes in the Company. 12. Hence, it is necessary to analyze whether the said agreement dated 9.10.2003 is validly executed between parties, and what rights it would bestow on the parties, non-parties, and liability on the Company. The second respondent has not denied the execution of said agreement but only alleged....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ehalf of both the transferor and transferee. The Transferor shall be deemed to remain a holder of the share until the name of transferee is entered in the Register of members in respect thereof. Shares in Company shall be transferred in the form prescribed by the Companies (Central Governments) General Rules of Forms, 1956". Another bar to transfer shares of Company in the matter is reference to BIFR and no action can be taken by the Company without notice to it. Therefore, there is no question of transfer of shares of the Company in favour of Respondent Nos. 3 and the Respondent Nos. 3 to 5 cannot legally transact any business of Company, and all those decisions/transactions made on behalf of Company are not valid and binds the Company. However, law does not prohibit any person to be appointed as Additional Director and he need not hold any shares in the Company. Article 36(e) and 41 of Articles of Association deals with power of Board of the Company to appoint Additional Directors and no share qualification shall be necessary for appointment as Director. In any case, it is not in dispute that Respondent Nos. 3 to 5, either rightly or wrongly, got appointed as Directors i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t No.2) was not entitled to act as Executive Vice Chairman as he was no more a Director and further injunct him not to interfere in the affairs of Company etc. As stated supra, though there was interim stay of impugned proceedings for sometime and thus it was adjourned to 7.12.2007. As stated supra, after overcoming all legal hurdles, EGM as contemplated as per notice dated 3.8.2007 was ultimately conducted on 2nd January, 2008 (page 159 of material papers filed by Second respondent in his reply dated 22.02.10) in which it was resolved to remove Respondent Nos. 3 to 5 as Directors of Company, to recover damages etc. It is to be mentioned here that respondent Nos. 3 to 5 were not present in the meeting nor sent any explanation to the proposal of their removal even though they have filed a suit raising so many frivolous pleas in the suit. Accordingly, they were duly removed from their positions in accordance with law. Ultimately suit was also dismissed for default for non-prosecution as early as on 19th March, 2011, which became final as the order was not questioned subsequently." 16. Another suit bearing OS No. 86/2008 was filed by M/s Priyaranjani Fibres Limited (The Company) re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the Company petition. As stated supra, the Company is a closely held Company, and no issue of shares to public had ever taken place. And the Respondent Nos. 3 to 5 are neither shareholders nor directors as held supra. The petitioners are admittedly holding sufficient number of shares as per documents filed, and it was also examined by CLB at the initial stage itself. We are satisfied that powers of Attorney in question have been duly executed in accordance with law and the petition is properly instituted and it is maintainable. 19. Acts of oppression and mismanagement are not specifically defined in the Companies Act, and it should be inferred from facts of each case. In the instant case, the following acts constitute acts of oppression and mismanagement on the part of respondent Nos. 3 to 5 apart from others: a. Acts of respondent No. 3 by promising several things for beneficial interest of Company and thereby forcing the second respondent deceitfully to enter into agreement dated 9.10.2003 and then did not comply with those terms, which ultimately ended in its termination, even though second respondent has no authority to enter into such an agreement; b. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o examine the DRS and convene the joint meeting of all concerned, and submit fully tied up DRS, if emerges to the Board within next six weeks" was subsequently stayed by AAIFR vide order dated 09.02.2012/21.02.2012 and also granted stay of all further proceedings of BIFR till the main appeal was finally disposed of. It is to be mentioned herein that by virtue of promulgation of new Companies Act, 2013, all proceedings pending before BIFR/AAIFR stands abated. After suffering two decrees as stated above and also in view of interim order dated 16.7.2008, the respondent Nos. 3 to 5 do not have any locus standi to continues as MD/Directors and to interfere in the affairs of Company. And the alleged allotees out of shares of alleged increased share capital would not get any rights and when Respondent Nos. 3 to 5 themselves have no right to pass any resolution to increase the same. So the impugned increased share capital and subsequent allotment of those shares would not bestow any rights on those allottees. Hence, there is no necessity to implead those alleged allottees of shares and the Tribunal is fully empowered to interfere with this issue. It is relevant to point out general princip....