TaxTMI 
TaxTMI 
2017 (11) TMI 1801
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....e of the Petitioner, a nominee of the Respondent, and an Administrator/ Independent Director/ Special Officer appointed by this Hon'ble Board to take charge over the management and affairs of the Company in terms of a scheme of management and affairs of the Company in terms of a scheme of management framed by this Hon'ble Board which would be, in supersession of the Articles of Association of the 1^st Respondent and in supersession of all Agreements which purport to vest parties with rights in affairs of the 1^st Respondent, and of all books, papers, records and documents of the Company as well as its assets and properties; All decisions, including but not limited to managerial, administrative, and legal decisions taken by the Board of Directors of the 1^st Respondent at its Board Meetings held on 16th August 2010, and 2^nd September 2010 be declared and set aside as null and void: Direct the 2^nd, 9^th, 10^th and 11^th Respondents and their affiliates/ associates not to carry on any commercial activity in India directly in their own names or indirectly in any other name/s, other than through the 1^st Respondent, which is similar to those objects of the 1^st Responden....
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.... 5) The Respondent No.7 and 8 are nominee Directors of the Petitioner on the Board of Directors of the 1^st Respondent, and have their residences at Plot No.151A, Old MLA Colony, Road No.12, Banjara Hills, Hyderabad- 500034, and Plot No.14, Road No.2, Banjara Hills, LV Prasad Marg, Hyderabad-500033. 6) The respondent No.9 is a Company registered under the laws of Republic of Mauritius, and has its registered office at Suite No: 307, St. James Court, St. Denis Street, Port Louis, Republic of Mauritius and is a wholly owned subsidiary of the 11th Respondent. 7) The Respondent No.10 is a Company registered under the laws of Republic of Mauritius and has its registered office at C/o. First Island Trust Company Ltd., Suite No: 308, St Denis Street, Port Louis, Republic of Mauritius, and holds 28% of the equity capital of the 2^nd Respondent). The Respondent No.11 is a Company listed in the Malaysian Stock Exchange and is the ultimate holding Company of the 1^st Respondent. 8) The petitioner (Starlite Spintech Limited) is a Public Limited Company, which is incorporated [Some text are missing in original PDF] &....
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....ed 22-11-2006 titled "Development Agreement" whereby it was agreed, inter-alia, that the 2^nd Respondent would be entitled to 64% of the sale price of each unit that is sold in the proposed commercial and residential project. It is stated that the 11^th Respondent has carried out a thorough due diligence about the suitability and title of the parcels of the land where the aforementioned development would take place and thus it was satisfied about the outcome of such due diligence exercise and the same was communicated to the petitioner. It is further that vide electronic mail dated 19.01.2007, the 11th Respondent had further represented that an agreement titled "Shareholders Agreement" would be executed between the 2^nd Respondent Company, and the Petitioner with regard to a project management Company, which would be in charge of the development and effective implementation of the project. 12) The petitioner states that on 09.04.2007, it [Some text are missing in original PDF] Agreement" with the 2^nd Respondent, wherein it was agreed, inter-alia that the petitioner would ....
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....2^nd Respondent is illegal and void. 15) The 11th Respondent (ultimate holding Company of 1^st and 2^nd Respondent) and its nominee directors, without the knowledge of the petitioners nominee directors on the board of the 1^st Respondent, had unilaterally and illegally caused a legal notice dated 17.05.2010 on behalf of the 1^st and 2^nd Respondent to M/s. Telangana Spinning & Weaving Mills Ltd., wherein, inter-alia, M/s. Telangana Spinning & Weaving Mills Ltd was asked to rectify certain breaches in the Agreement dated 09.04.2007. The said legal notice set out the breaches such as pending litigations; existence of a burial grave on the land; Certain encroachments by way of widening of Road from 40 Feet wide to 60 Feet wide etc. The petitioner has strongly opposed the allegations in the notice and given a rely dated 22.06.2010 to the 2^nd Respondent. The second issued a legal notice dated 26.07.2010 to the [Some text are missing in original PDF] the 1^st Respondent were discussed at the Board Meeting held on 14.04.2009 and 11.08.2009, also notice dated 17.05.20....
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....oard of Directors of the 1^st Respondent also decided inter-alia, that a huge sum of Rs. 102.70 Crores be claimed as damages even while the legal notice dated 03.08.2010 purportedly issued on behalf of the 1^st and 2^nd Respondents does not demand such a sum. Furthermore, the Registered Office of the 1^st Respondent Company has been unilaterally shifted and the same was not mentioned in the agenda stated in the notice dated 12.08.2010 calling for the Board Meeting to be convened on 02.09.2010. Thus the decision to shift the Registered Office of the 1^st Respondent was taken at the back of the Petitioner. 18) It is stated that nominee Directors received a notice dated 03.12.2010 calling for a Board meeting of the 1^st Respondent to be convened on 29.12.2010 in Malaysia. The petitioner vide its communication dated 22.12.2010 addressed to [Some text are missing in original PDF] nominee directors to be attend the said Board Meeting and had also made it comments/ submissions to each of the proposed agenda items and had also specifically objected to the adoption of the purported minutes of ....
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....board meeting held on 29.06.2011 and which has been circulated along with the notice dated 26.08.2011 calling for the AGM of the 1^st Respondent to be held on 23.09.2011 shockingly also states that the local working office of the 1^st Respondent has been shifted from Hyderabad to Malaysia without any knowledge whatsoever to the Petitioner &/ or its nominee directors. 22) The Petitioner submits that the Respondent Nos. 3 to 6 who are the nominee directors of the 2^nd Respondent on the Board of the 1^st Respondent have consistently acted against the interest of the 1^st Respondent but have only acted against the interest of the 1^st Respondent but have only acted in the interest of the 2^nd, 10^th and 11^th Respondents. 23) It is stated that it has come to its knowledge that the Respondents have caused the 1^st and 2^nd [Some text are missing in original PDF] against M/s. Telangana Spinning & Weaving Mills Ltd (Name now changed to M/s. Startlite Global Enterprises (India) Ltd h) and that M/s. Starlite Global Enterprises (India) Ltd have also initiated proceedings under section 9 of the Arb....
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....0,000 11% convertible preference shares for the Respondent No.1 is validly made after obtaining necessary permissions from the RBI. Further the above issuances of preference shares are in accordance with the clause 3 of the Articles of the Respondent No.1 Company. The petitioner, who are also shareholders of TSWML have signed the board resolution authorizing the issue of above 8,00,000 11% convertible preference shares. The petitioner being on board of the Respondent No.1 Company have also authorized the issuance of further 20,8300, 11% fixed divided preference share [Some text are missing in original PDF] No.1 Company being a private limited Company is well within the rights to issue preference shares of any kind and it has complied with all extant statutory requirements for the same. Therefore, the petitioner is stopped from making any allegations about the issue. 3). It is alleged that TSWML is entered into an agreement title 'Deed of Novation- cum-Joint Development Agreement- cum-General Power of Attorney' dated 09.04.2017, under which huge investment were made by the respondents. The petitioner, after fully aware of th....
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....g various contentions raised in the pleadings filed on behalf of the petitioner, has further contended as follows( Since the petition is filed in the year 2011, and it is necessary to mention the pleadings of learned counsel as of date): 1. M/s Dijaya-Malind Properties (India) Private Limited (R-1 Company) is a Company [Some text are missing in original PDF] having its registered office at Hyderabad. M/s Dijaya-MalindJv (Mauritius) Limited (R-2 Company) is a Public Limited Company registered under the laws of Republic of Mauritius. It holds 74% of paid up capital of the R-1 Company and thus R-1 Company is a subsidiary of R-2 Company. 2. R-3 to R-6 are nominee directors of the R-2 Company in the Board of R-1 Company. R-6 (Murugayah Kanapathy) is also having controlling interest in the R-10 Company (S.N.R.L. Investments Limited). R-7 (Sanjay Patwari) & R-8 (Ramgopal Patwari) are nominee directors of the Petitioner in the Board of Directors of R-1 Company. R-9 (Dijaya (Mauritius) Limited), R-10 (S.N.R.L. Investments Limited) & R-11 (Dijaya Corporation Berhard) are Companies registered under the laws of Republic of....
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....ties would be undertaken by 1^st Respondent Company and M/s TSWML would entitled to 40% of the "Gross Development Agreement". 8. After becoming 26% shareholder, the Petitioner Company nominated the 7th and 8th Respondents as its directors in the Board of the 1^st Respondent Company. Likewise the 2^nd Respondent which subscribed for 74% of the capital, has also nominated Respondents 3, 4,5 and 6 as its directors in the 1^st Respondent Company. Apart from equity shares, the 2^nd Respondent was also allotted 8,00,000, 11% convertible preference shares against the funds that were received as loans by the 1^st Respondent Company. The allotment of the Preference Shares to the 2^nd Respondent prima facie is illegal and void as the allotment is in contravention of FEMA Regulations. 9. The 3^rd Respondent, who is a nominee director of the 2^nd Respondent, without the authorization and approval of the Board of Directors of the 1^st Respondent Company, suo-motu, wrote a letter on 24-04-2009 to M/s TSWML and also issued a legal notice on 26-05-2009 to the legal advisors of M/s TSWML asking to rectify certain breaches in the agreement dated 09-04-2007. 10. The resolut....
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....pany is to develop the 25.416 acres of commercial and residential project. Apart from the said project there is no other project assigned to the 1^st Respondent Company. The 1^st Respondent Company was incorporated as a special purpose vehicle only to take up the Development activities in the 25.416 acres. Terminating the Development Agreement entered on 09-04-2007 would defeat the very purpose of its incorporation and the Company would virtually become a shell Company. The petitioner renounced its right in the 25.416 acres only on the agreement that development activities would be carried out by the 1^st Respondent Company and therefore the Company would earn a decent profit out of the activities so carried out. Terminating the development agreement would be prejudicial to the interest of the petitioner as both the renouncement as well as the investment to the tune of 26% would go down the drains and the petitioner would be put to heavy financial crises. The 2^nd and 11^th Respondents have adopted invalid means to terminate the agreement. 12. The learned counsel contended that Petitioner is not a party to the Arbitration proceedings pending before Arbitral Tribunal. Furth....
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....the Board is untenable. Under the Act, certain powers are to be exercised by the Board and certain powers are to be exercised only by the shareholders of the Company. The powers that can be exercised by the Board have been provided under Section 292 of the Act (Section 179 under the Companies Act, 2013). The Act specifically has delegated the power under Section 293 of the Act to the shareholders and therefore the same cannot be exercised by the Board of Directors of the Company, even where the Board members and the shareholders are one and the same. 16. Firstly the nominee directors did not attend the Board meeting allegedly held on 02-09-2010. The respondents cannot presume that the nominee directors are the only representatives of the petitioner. The petitioner can nominee any director to represent in the general meeting, other than the nominee directors. 17. He has further contended that the single act can constitute an act of oppression under section 397 & 398 of the Companies Act. The termination of the agreement has a far reaching effect on the operations of the Company and the impact of such termination is of a continuing nature even as on date. The Compan....
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....reement was validly terminated by R-1 and the same was duly ratified by the Board meeting held on 02-09-2010. 5). The learned counsel further contended that in pursuance to the extraordinary meeting called vide a notice dated 27-03-2009, meeting was held on 12-04-2008, through which Articles of Association and/ or Memorandum of Association to increase the share capital to Rs. 6,10,00,000/- and to empower the Board of Directors to issue redeemable preference shares to any person etc., unanimously. According with the respondent Company offered preference shares to the R-2 who purchased 8,00,000 at 11% convertible preference shares. And it was also ratified by the Board of Directors in accordance with Memorandum of Association (MOA). AOA on 14-04-2009. The nominee directors of the petitioner were also present and quorum was maintained and the same was also communicated to the RBI. 6). The learned Senior counsel has relied upon the [Some text are missing in original PDF] a). Incable Net(Andhra Ltd. Ap Aksh Broadband Ltd (2010)6 SCC 719 b). Sangrm Singh Gaekwad Vs. Shantadevi P.Gaekwad (2005)11 SCC 314 ....
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.... enter into a Development Agreement which has been duly examined by M/s. Starlite Spintech Limited with M/s Dijaya Malind JV (Mauritius) Limited for the Development of the said 'Plot' for eventual sale as undivided shares by developing a mixed development comprising of a clubhouse including ancillary facilities attached to the same residential development together with car park facilities and other necessary infrastructures and sale of units contained therein and declares that it has no objection, right, title and interest in the said 'Plot' owned by Telangana Spinning under the said Agreement dated 22.03.2004 or otherwise, whatsoever, hereinafter." (Page 35). 11. There is another Development Agreement dated 22.11.2006 (Page 38 to 60) was executed between TSWM (Land Owner) and Dijaya Malind JV (Mauritius) Limited (Developer) and this agreement was executed to develop. (page 39 Clause G & H) "1. The parties hereto are now desirous of developing the said Plot under this Development Agreement into a mixed development comprising of inter-alia, a clubhouse including ancillary facilities attached to the same (hereinafter referred to as "the Clubhouse"), residentia....
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.... (i.e by their corporate representative) or by proxy. The aforesaid general meetings may be held by way of teleconferencing or such other electronics means, as may be agreed by the Parties. 2. Prior written notice of all general meetings shall be sent to the Parties at least fourteen (14) days before the meeting specifying the time and place of the meeting and indicating all matters to be considered threat, and including copies of reports studies and documents relating thereto unless shorter notice has been agreed upon by the Parties. 3. All resolutions on any matter proposed at any general meeting of the Company or otherwise shall be passed by a simple majority of votes representing the shareholding of each shareholder or approval of the Parties in attendance. 4. notwithstanding Clause 4.1, 4.2 and 4.3 above, the provisions of the Companies Act 1956 of India ("the Act") shall prevail over the above mentioned clauses in the event of conflict between the above mentioned clauses and the Act." 13. So far as the Directors Meeting and Management is concerned, the same has been clarified under Clause-5 reads as under: (Page 67 Clause 5.1 to 5.8) ....
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....ce, that director's vote shall be exercised by his respective alternate director present at the meeting. 5.7 It is hereby agreed by the parties hereto that the Chairman and the Chief Executive Officer of the Board will be appointed by Party A from amongst the directors nominated by the same. 5.8 The directors shall use their best effort to [Some text are missing in original PDF] telephone, fax or other means with one another and within a reasonable time prior to any meeting of the Board in which any of the matters mentioned aforesaid are to be discussed and shall be use their best efforts to conclude the matter for the benefit of the Company and to avoid any differences in the approaching meeting." 14. The manner of Termination and Terms of the contract has been given under Clause-11 of the said Agreement. Clause 11.1 & 11.2 reads as under: (Page 75 to 77) "Clause 11.1: 1. This Agreement shall become effective on the date the Subscription Shares are duly registered under Party A and Party B in the Respective Proportions and shall continue in force and effect until the Company shall be d....
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....m GPA' was executed on 9^th April, 2007 among the TSWM (Land Owner) and Dijaya Malind JV (Mauritius) Limited (R-2) (Page 103 to 119) and Dijaya Malind Properties (India) Private Limited (R-1 Company) which is incorporated in India. And the manner of termination of this agreement is a question in this case. 17. One of the reasons for the impugned termination of the agreement is that a declaration was given by stating that the Plot in question admeasuring Ac 25.416 guntas was currently free all total encumbrances and the agreed consideration is Rs. 50,00,000 per acre as per the schedule given in the Clause-1.2: (Page 106) and this clause reads as under: "1.2.1. In further consideration of the aforesaid, the Developer has paid/ shall pay the Landowner the sum of Indian Rupees Fifty Lakhs (Rs. 50,00,000) per acre only (hereinafter referred to as "the Refundable Deposit") in the following manner and proportions:- 1.1. the sum of Indian Rupees twenty Five lakhs (Rs. 25,00,000) which sum was paid to the Landowner on the 11th of August 2006, as advance, 1.2. the sum of Indian Rupees Fifteen Lakhs (Rs. 15,00,000) per acre ( less the sum of Indian Rupe....
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...."Clause 10.2: Consequences of Default Upon the happening of the Events of Default aforesaid in Clause 10.1 and Provided that the defaulting party shall have failed to remedy such [Some text are missing in original PDF] defaulting party shall be entitled at its election by notice in writing to the defaulting party to terminate this Agreement whereupon the following consequences shall ensue: a. the Landowner and the Developer together with the architect and the quantity surveyor shall within thirty (30) days carry out a joint inspection and measurement of works done; b. the Refundable Deposit shall be refunded by the Landowner to the Developer free of interest within thirty (30) days from the completion of the joint inspection and measurement aforesaid; c. in the event the defaulting party is the Landowner, the Developer shall be entitled to recover such damages which the Developer may have suffered; d. Provided payment of the Refundable Deposit and damages assessed pursuant to Clause 10.2(c) (if any), has been made to the Developer, the Developer shall within thirty (30) days from the date of the ....
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....ction is being taken strictly in accordance with law and that too in the better interest of R-1 Company and it can be done the Board Directors Meeting and not in the General Body Meeting of the shareholders as contended. They have denied that the impugned termination would lead to destruction of substratum of the Company. 21. As proposed, the meeting of the Board Directors of R-1 Company was held on 02.09.2010 at Board Room (Page 185). The minutes of the Board Meeting are filed at (Page 185 to 193). During this meeting 4 Directors have attended with leave of Ramgopal Patwari and Sanjay Patwari, who are nominee Directors of petitioner. The issue of ratification issuance of notice for rectifying the breach dated 17.05.2010 and the notice of termination of agreement dated 03.08.2010 was taken up during the meeting. After discussing the entire issue as per the above notices and the dissent note made by the nominee Directors of the R 1 Company, the Board ratified and confirmed the notices as required under Article 38 of Article of Association of the Company and also authorized the Managing Director to take consequential action to implement the decisions. 22. The R-1 Company is inc....
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....solute powers to consider and pass appropriate resolutions during its meetings, in the best interest of Company. And the meeting in question is conducted after duly following procedure as prescribed under the Articles of Association of the R1. Company and also principles of natural justice. Therefore, the impugned actions are declared to be legally valid and taken in accordance with law, and they do not call for any interference by the Tribunal. 24. It is also not in dispute that CP No. 22 of 2007 was filed by Ishwarlal Patwari and others before the then CLB, Chennai under section 111A, 235, 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956, by inter-alia seeking to allow proportionately representation of the petitioners the Board of Directors of the Company; to declare Board meeting held on 11.02.2002 and consequently resolutions; to declare the annual returns dated 31.07. 1997 and 22.09.1997 as null and void. The CLB passed interim order dated 16.03.2007, by inter-alia stating that any allotment further shares and dealing with the petitioner. So the contention of the petitioner that the land in question is free from all [Some text are missing i....
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....ssociation of a Company and taken contrary to principles of natural justice. Share holders and their Board of Directors of a Company are best judges to take decisions and run the affairs of a company. Tribunal/Court cannot interfere in the policy matters of a Company, which are taken by duly constituted Board of Directors by following articles and memorandum of Association of a Company and principles of natural justice. In the instant case, it is not the case of petitioner that they are not associated with impugned action as their nominee Directors are still on Board and they are given due notice for the impugned meeting conducted by the Company. However, as stated supra, for the reasons best known to them, they have not availed the opportunity of it. It is and admitted fact that a proper notice is given for meeting, Board meeting in question was conducted strictly in accordance Memo and Articles of Association of R 1 Company and the decisions taken are falls within competency of [Some text are missing in original PDF] relevant to point out here that minutes of Board meeting held on 2^nd September, 2010 was duly communicated to ....
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.... 7 & 8 are nominee Directors in R-1 Company and also Directors in Starlite Global Enterprises Limited. When the issue in question in the present company and in arbitration proceedings arise out of same cause of action, principles of natural justice demands that court/Tribunal should not entertain cases, which leads multiplicity of litigation. It is also not in dispute, as discussed supra, in all the agreements in question, there is an arbitration clause available. 29. The contentions of the petitioner that the R-2 being holding Company of R-11 cannot issue any notice for allotment of Development Agreement [Some text are missing in original PDF] Company, in its Board meeting on 02.09.2010 has ratified the notices of breach dated 17.05.2010. So far as the contentions of allotment on Rs. 8 00,000 is concerned record shows that allotment was made in accordance with law, and nominee Directors of the petitioners have also participated in the decision taken for the above. The allegations including of FEMA of the petitioner with regard to above allotment is an afterthought and they are also estopped to question it now aft....