TaxTMI 
TaxTMI 
2017 (11) TMI 1801
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....nt, 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 1st Respondent and in supersession of all Agreements which purport to vest parties with rights in affairs of the 1st 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 1st Respondent at its Board Meetings held on 16th August 2010, and 2nd September 2010 be declared and set aside as null and void: Direct the 2nd, 9th, 10th and 11th 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 1st Respondent, which is similar to those objects of the 1st Respondent as stated in the Memorandum of Association of the 1st ....
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....f the 1st 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 2nd Respondent). The Respondent No.11 is a Company listed in the Malaysian Stock Exchange and is the ultimate holding Company of the 1st Respondent. 8) The petitioner (Starlite Spintech Limited) is a Public Limited Company, which is incorporated [Some text are missing in original PDF] shareholders as on date of previous AGM. The petitioner holds 26% of the total equity shareholding of the Company ....
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....each unit that is sold in the proposed commercial and residential project. It is stated that the 11th 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 2nd 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 2nd Respondent, wherein it was agreed, inter-alia that the petitioner would be entitled to be a 26% shareholder of the 1st Respondent Company, and that the 1st Respondent is not a party to this Agreement. 13) It is stated that the 1st ....
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.... on the board of the 1st Respondent, had unilaterally and illegally caused a legal notice dated 17.05.2010 on behalf of the 1st and 2nd 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 2nd Respondent. The second issued a legal notice dated 26.07.2010 to the [Some text are missing in original PDF] the 1st Respondent were discussed at the Board Meeting held on 14.04.2009 and 11.08.2009, also notice dated 17.05.2010, state these are routine matters. 16) It is stated that respondent Nos. 7 & 8, the nominee directors, were issued with a notice dated 30.07.2010 informing about a Board Meeting of the 1st Respondent to be held ....
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.... demand such a sum. Furthermore, the Registered Office of the 1st 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 1st 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 1st 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 the purported Board Meeting held on 02.09.2010. 19) The petitioner submits that vide electronic mail dated 27.01.2011 it had stated that it requires a copy of the minutes of the purported Board Meeting convened on 29.12.2010, however the same has n....
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....o 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 2nd Respondent on the Board of the 1st Respondent have consistently acted against the interest of the 1st Respondent but have only acted against the interest of the 1st Respondent but have only acted in the interest of the 2nd, 10th and 11th Respondents. 23) It is stated that it has come to its knowledge that the Respondents have caused the 1st and 2nd [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 Arbitration & Conciliation Act, 1996. The petitioner submits that the 2nd, 9th, 10th and 11th Respondents are using the 1st Respondent as a tool to further their own agenda and commercial interest by illegally and untenably causing the 1st Respondent to terminate and attempting to abandon its only commer....
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....solution 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 the interim order dated 16.03.2007 passed in CP No. 22 of 2007, has enter into the said agreement thereby causing huge loss to the respondents. It is asserted that the managing director of the Respondent No.1 Company is fully empowered to issue of notice of the Respondent No.1. Moreover the issue of notice was discussed during board meetings and s....
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....ng 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 Mauritius. R-11 is a listed Company in the Malaysian Stock Exchange, and it is holding Company of the R-2 Company, and thus, it is the ultimate holding Company of R-1 Company. The petitioner Company purchased a parcel of land admeasuring 46.18 Acres for a sum of Rs. 30.24 Crores from M/s Telangana Spinning & Weaving Mills Ltd. (TSWML) with the approval of the Asset Sale Committ....
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....espondent Company. Apart from equity shares, the 2nd Respondent was also allotted 8,00,000, 11% convertible preference shares against the funds that were received as loans by the 1st Respondent Company. The allotment of the Preference Shares to the 2nd Respondent prima facie is illegal and void as the allotment is in contravention of FEMA Regulations. 9. The 3rd Respondent, who is a nominee director of the 2nd Respondent, without the authorization and approval of the Board of Directors of the 1st 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 resolution allegedly passed by the Board at the meeting held on 02-09-2010 terminating the agreement dated 09-04-2007 is illegal and invalid as Board of the 1st Respondent Company do not have the power to deal with the property of the Company as the said power is vested with the shareholders of the Company under the provisions of erstwhile section 293 (1) (a) of the Companies Act, 1956 that was in force at that point in time i.e., September 2010. The provision....
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.... right in the 25.416 acres only on the agreement that development activities would be carried out by the 1st 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 2nd and 11th 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. Further contended that it is not open for the respondents to raise the pleadings one by one and that too at this final stage, fact remains that respondents did not file any application under section 8 of Arbitration and Conciliation Act, 1996 to refer [Some text are missing in original PDF] . 13. The issue raised in the present Company Petition has challenged the validity of the resolution passed at the Board meeting....
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.... 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 Company is unable to commence its operations because of the impugned termination and therefore the act of oppression and mismanagement has a continuing effect. 18. He has relied upon the following judgments in support of his case. 1. Booz Allen and Hamilton Inc Vs. SBI Home Limited and others - AIR 2011SC2507, (2012) 173 CC 184 (SC) - SUPREME COURT 2. George Mayer and Another Vs. Scottish Co-operative Wholesale Society- 1958 S.C. (H.L) 40 - SUPREME COURT 3. Mysore Realty Private Limited Vs. H.P. Basavaraju & Another- Company Law Board 6. S....
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....1% 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 c). M.Thimma Gowda & Anr. Vs. SPR Sugar Pvt.Ltd d). M.L.Thukral & Anr Vs. Krone Communication Ltd & Ors. 2003 113 Comp cas 63(CLB) He has also filed length written arguments by reiterating the pleadings already on record and further made several contentions. 7. After considering various pleadings made by both the parties, following main issues, apart from other issues, arise for the consideration in the CP: a). Whether the notices given dated 12.08.2010 by Respondent No.1 proposing to conduct Board Meeting on 02.09.2010 is in accordance with Memorandum and Articles of Association and the Companies Act, 1956: b). Whether the ....
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.... 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"), residential apartments and mixed commercial development together with car park facilities and other necessary infrastructures (hereinafter referred to as "the Project") subject to the approval of the relevant authorities. 2. The parties hereto have agreed that the Developer be given the exclusive rights to carry out and complete the Project on the Plot through its subsidiary Company incorporated in India, subject to the terms and conditions contained in this Agreement. 1. Agreement to Develop 1.1 In consideration of and subject to the respective agreements, undertakings, covenants and obligations of the Parties hereto as hereinafter set out, the Landowner hereby appoints and the Developer ....
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....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) "5.1 Save as otherwise unanimously agreed between the Parties, the number of directors in the Company shall be Six (6) directors constituting the Board of Directors of the Company ("the Board") who shall be nominated and appointed as follows:- i. Four (4) directors by Party A; ii. Two (2) directors by Party B for so long so each party hereto remains a shareholder of the Company. For the avoidance of any doubt, the director(s) nominated by the respective Parties shall resign as director and/ or employee of the Company once the respective Parties are no longer a shareholder of the Company. 5.2 The Parties hereto shall with respect to their respective appoints or appointees be entitled to determine the period he or they will hold office and may at any ti....
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....as 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 dissolved or otherwise cease to exist as a separate entity or unless this Agreement is sooner terminated by mutual consent of the parties hereto or pursuant to any of the provisions herein contained. Clause-11.2 2. Each of the following events shall constitute an event of default ("hereinafter referred to as an "Event of Default") if any of the parties hereto ("the Defaulting Party") shall:- 2.1. Commit a material breach of its obligations and/ or undertakings under this Agreement which is non- rectifiable; or commits a material breach of its obligations and/ or undertakings under this Agreement [Some text are missing in original PDF] but shall fail to take all necessary action to remedy such breach within thirty (30) days from the service of a written notice by the other party hereto complaining of ....
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....enty 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 Rupees Twenty Five Lakhs (Rs. 25,00,000) which sum was paid to the Landowner on the 11th August 2006), i.e. making a balance sum of Indian Rupees Thirty Five Million Six Hundred and Twenty Four Thousand (Rs. 35,624,000) was paid to the Landowner on the 17th of January 2007. 1.3. the sum of Indian Rupees Fifteen Lakhs (Rs. 15,00,000) per acre, i.e. a total sum of Indian Rupees Thirty Eight Million One Hundred and Twenty Four Thousand (Rs. 38,124,000) to be paid to the Landowner upon the execution and registration of a general power of attorney to deal with the Plot in the manner aforesaid (hereinafter referred to as "the General Power of Attorney") and annexed hereto as Annexure "A" which is to be read as part of this agreement, with the Sub-Registrar, Medchal, Ranga Reddy District, Hyderabad, Andhra Pradesh but in any event not later than the 30th of April 2007; 1.4. the balance of Indian Rupees Twenty Lakhs (Rs. 20,00,000) per acre to the Landowner on the date of initial sale ....
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.... has been made to the Developer, the Developer shall within thirty (30) days from the date of the joint inspection and measurement in the state as at the date of termination vacate, redeliver and forfeit the right to access to the Plot as provided in clauses 3.1 and 6.1.1 herein and all works and infrastructure thereon to the Landowner." 18. It also contains arbitration clause vide Clause-23. Clause 23 which reads as under: (Page 119) "Clause-23: Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally [Some text are missing in original PDF] by each party and the nominated arbitrators on mutual consent appoint on umpire/ chairman, in terms of the provisions of Arbitration and Conciliation Act, 1996. The language of the arbitration shall be English." 19. By alleging breach of conditions as per the deed of Novation cum Joint Development Agreement dated 9th April, 2007, R-1 & 2 Companies have issued a notice for rectifying breach dated 17.05.2010 to the TSWM, when the TSWM fail to rectify the breach of terms of the agreeme....
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....r to take consequential action to implement the decisions. 22. The R-1 Company is incorporated under Companies Act, 1956. The R-1 and R-9 (Dijaya (Mauritius) Limited) are subsidiaries to the Memorandum and Articles of Association by [Some text are missing in original PDF] respectfully. As per Article-19 Articles of Association of R-1 Company, Mr.Poh Pai Kong, Tong Kien Onn, G.Narasinga Rao, Dickon Tan Yong Loong are four life time Directors. Article 12 deals with borrowing powers of Directors, Articles 35 & 38 deals with the powers of the Directors. Artilces-12, 35 & 38 are extracted below for ready reference: "Article-12:-The Directors have powers to raise or borrow monies without any limit at any point of time. The Directors shall exercise the following powers without reference to General Body: a. to sell, lease or otherwise dispose of the whole of the whole of substantially the whole of the undertaking of the Company. b. to remit or give time for repayment of any debt due by a Director. c. to contribute to Charitable and other funds not directly relating to the business of the Company subject to a maximum of Rs. 50,000/- in a....
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....[Some text are missing in original PDF] the contentions raised contrary by the petitioner are not tenable. 25. Subsequently, the R-1 & R-2 Company has filed O.P No.821 of 2011 before City Civil Court of Andhra Pradesh, Hyderabad (Telangana now) against Starlite Global Enterprises (India) Limited (TSWM earlier) under Section 9 of Arbitration and Conciliation Act, 1996 R/w Order VII Rule-1, Order 39 Rule-1 and Section 151 of CPC 1908, by inter-alia seeking interim order. It is contended therein that in pursuance to arbitration Clause-23 available in the Deed of Novation dated 09.04.2007, the petitioner has already initiated arbitration proceedings by sending notice to the Respondent (petitioner herein) and thus the arbitration proceedings is appropriate forum to decide the issue in question. Therefore they sought the interim relief by inter-alia directing not to alienate the property admeasuring Ac 25.416 gts pending arbitration proceedings. 26. Subsequently, Starlite Global Enterprises (India) Limited (Earlier TSWM) has also filed O.P.No.1768 of 2011 before Hon'ble City Civil Court, Hyderabad, against the Respondent Nos. 1, 2, 10 & 11 under section 9 o....
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....ommunicated to the nominee Directors of the petitioners. And subsequent meetings, as detailed supra, were conducted duly giving proper notice to the nominee directors of the petitioner. As rightly contended by the learned senior counsel for respondent, the impugned action cannot come under the ambit of section 397/398 of the Act, 1956 as held in the case of Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd [AIR 1965 Guj 96], where, the Hon'ble Gujarat High Court has categorically and in no uncertain terms observed as follows: "A resolution may be passed by the board of directors which may in the passing contravene a provision of law, but it may be very much in the interest of the Company and of the shareholders. Such a resolution may be attacked as invalid in a suit or other appropriate proceeding, but not being oppressive to the minority shareholders or prejudicial to the interests of the Company, it cannot be challenged in a petition under section 397 or 398." The above finding was upheld by the Hon'ble Supreme Court in the case of Sangram Singh Gaekwad v. Shantadevi P. Gaekwad (supra). Thus, even assuming that the Board Resolution dated Septembe....
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....a lapse of so much time. 30. As stated supra, the Board of Directors of the Company is fully empowered to take the impugned action. It is relevant to point out here, the Directors of the Company is in the ratio of 2(petitioner); 4 (respondents) and that of shareholding is 26% (petitioner): 74 % respondent. The impugned decisions have been taken, after duly conducting the Board meeting held on 2nd September, 2009 and the nominee directors were duly intimated about. Moreover, if the petitioner is having any serious objections about the impugned action being taken by the respondent, it has to ensure its nominee Directors to present in the impugned Board meeting and oppose it. It is a different matter whether the view of nominee Directors would prevail or not in the meeting. And without availing the opportunity of participating in the impugned meeting, the petitioner cannot raise litigation before the Tribunal. As stated supra, the nominee Directors of the petitioner for the reasons best known to them were absent. As stated supra, the Board has taken the dissent note of nominee directors, during the meeting, and, thereafter, only the impugned action was taken The [So....