TaxTMI 
TaxTMI 
2019 (6) TMI 1031
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....t appellant filed the company petition under Section 111/397/398/402/403 of the Companies Act, 1956 originally before the Company Law Board and later on the matter was transferred to NCLT, Hyderabad Bench. 3. The brief facts of the case are that 1st respondent company was incorporated on 8.9.2009. The capital structure of 1st respondent as at 31st March, 2011 is as under: Authorised Capital Rs. 5,00,000/- equity shares of Rs. 10/- each. Issued, subscribed and paid up Rs. 1,00,000/- equity shares of Capital. Rs. 10/- each. The shareholding pattern of the 1st respondent company was as under: S. No. Name No.of shares Value of the shares in Rs. Status in the Appeal 1 Mr. Venkat Sudhakar Sattur 9,900 99000 1st appellant 2 Mr Rakakrishna Reddy Raya 100 1,000 2nd Respondent Total 10,000 1,00,000 4. 1st appellant is the founder, chief promoter and majority shareholder (99%) of 1st respondent which is handling the back office services like Finance & Accounts, HR, Legal transcription, Call handling and Scanning and Archiving works of the UK based company viz Duncan Lewis, London, UK. 1st appellant ....
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.... 9. The Respondent called and held the AGM for 2011 on 25th November, 2011. 1st appellant received notice for AGM on 2nd November, 2011 and he immediately issued letter dated 11th November, 2011 and stated that the AGM 2011 is unauthorised, invalid and illegal due to several reasons. Notice for AGM was not a proper notice. Further there was no valid Board of Directors existing at the relevant time for calling of the AGM not to speak about approving and authenticating the financial statements for the year 2010-11. 10. Subsequently the authorized capital of the Company has been increased from Rs. 5,00,000/- to Rs. 50,00,000/- (500000 shares) in the EGM held on 7th December, 2011. 11. 1st appellant levelled allegations of threatening him by respondents and one of his relatives Mr. Sridhar to transfer his shareholding to others. 1st appellant attended the AGM 2011 and marked his attendance by showing his protest and asked for copy of the audited accounts which was not provided to him. On 21st December, 2011 Board Meeting was held and 269634 shares has been allotted to 5th Respondent. Again on 16.1.2012 Respondent No.5 was allotted 180166 shares on 16.1.2012. The said allotment wa....
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....otment of shares to Respondent No.5 and transfer of shares from 2nd, 3rd, 4th to 5th respondent, resignation of 3rd respondent and appointment of 6th and 7th respondent as directors was done. Respondents filed their reply. After hearing the parties, the Tribunal passed the impugned order dated 29.8.2017. Relevant portion of the impugned order is as under:- "So far as the enhancement of the Authorised share capital of the Company is concerned, the petitioner was given due notice of the all meetings during EGMs. After giving due notice only, the impugned allotment of shares consecutively was done and the same cannot be found fault with. The petitioner utterly failed to substantiate various material allegations made in the Company Petition. The Petitioner still has not shown any interest in running the affairs of the Company, except making wild allegations against the Company, which is giving employment to more than 100 employees and their families. The petitioner as stated supra, had employment in UK and still he had not shown any interest in running the affairs of the Company though he is invited for the same as stated supra. 19. As stated supra, the respondents ha....
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.... was taken note of but the Form 32 was filed only on 17.10.2011(Page 374), which was 10 days prior to the impugned allotment of shares made on 27.10.2011. 1st appellant stated that the only purpose is to allot shares out of unissued shares and create sufficient number of members and stake to do away with the power of appellant even in general meetings. 19. 1st appellant admitted that a Board Resolution on 20.5.2010 was signed by him and was used by the 1st respondent before the Department of Telecommunications (Page 529). 20. 1st appellant submitted that he has not acted in any manner prejudicial to the interest of the 1st respondent. 1st appellant stated that the appellant, respondents and statutory auditor of 1st respondent have been corresponding through email almost on a daily basis (Page 387-406) 21. 1st appellant stated that when he was the promoter with 99% stake, respondents who have no stake could not have done anything worse than this to achieve a collateral purpose. 22. 1st appellant stated that after his unceremonious and malicious removal, 10000 shares were allotted to 2nd respondent, 20000 shares to 3rd respondent and 10000 shares to 4th respondent (Page 3....
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....ve been valid if as required under Section 255 of the Act. In the absence of such provision in the Articles and in view of specific language of Article 32 the appointment of 3rd respondent is only by way of additional director. 25. 1st appellant stated that Section 260 of the Act very clearly establishes that a person appointed as an Additional Director will continue office only until the date of AGM. The notice of AGM for 2010 (Page 296) obviously does not contain any agenda for appointing 3rd respondent as a regular director. 1st appellant submitted that continuation of 3rd respondent after 26.9.2010 is invalid and he could not legally be forming part of any Board Meeting thereafter, more particularly the meetings allegedly held on 10.11.2010, 20.01.2011 and 27.10.2011. 26. 1st appellant stated that the validity of the acts of directors as stated in Section 190 of the Act will not apply to actions purported by 3rd respondent was not in good faith and in violation of his fiduciary duties. Therefore, any resolution passed with 3rd respondent forming quorum will have to be set aside. 27. 1st appellant stated that the AGM 2010 was held without valid notice to the appellant a....
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....ght to be given to Appellant (Page 674). Therefore, the appointment of directors made on 3.8.2012 is invalid. 32. 1st appellant stated that the transfer of 40,100 shares made on 3.10.2013 from 2nd, 3rd, 4th respondent to 6th respondent is oppressive, in contravention of articles and oppressive. 1st appellant stated that without complying with the Articles of Association of the company, no share transfer could have been made without offering them to the appellant who has preemptive right of first refusal. There was no board meeting at all on 3.10.2013 in which share transfers were recorded. 1st appellant stated that in the revised annual return made upto 30.9.2014, it is shown that 6th Respondent has 50000 shares, though he has not been allotted any shares. It is stated that the shares held in the name of appellant-petitioner too added in the said shares and the same is reflected in Page No.846. 33. 1st appellant stated that by altering the composition of Board of Directors, shareholding pattern, by removing the directorship of appellant w.e.f. 20.1.2011 and allotting shares on 27.10.2011 and constituting the Board of Directors and allotting shares to 5th Respondent on 21.12.2....
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....ther stated that the Articles of Association, Clause 35 provides the onus on the Managing Director to hold the Meeting of the Board. It also provides that the place of the meeting of the Board should be the Registered Office of the Company and the Board shall meet at least once in every 3 months (Page 270). Therefore, he cannot take up employment outside India. Clause 58 of Articles of Association provides that such Director should provide a declaration pledging himself to observe strict secrecy with respect of all transactions and affairs of the company, with the customers (Page 274). The act of joining the client company is in complete violation of the Articles of Association of the company. 38. Respondents stated that the allotment of shares to 2nd, 3rd and 4th respondent on 27th October, 2011 is absolutely valid and legal. Form 2 with respect to the said allotment was also duly filed with the ROC, Hyderabad. The company, in the course of its business had to raise additional capital and it is the prerogative of the Board to decide as to in what form funds would be raised. Clause 4 of Articles of Association (Page 265) provides that the shares shall be under the control of the....
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....e of the Meeting held on 20.5.2010. Respondent stated that the appellant has received the notice. Respondent further stated that if he has not received the notice for the meeting then why did the appellant sign the extract of the minutes of the Meeting dated 20.5.2010. Respondent further stated that as per Clause 35 of the Articles of Association, the onus is on the Managing Director to hold the Meeting of the Board and the venue of the meeting of the Board should be the Registered Office of the company and the Board shall meet at least once in every 3 months (Page 270). Respondent stated that appellant did not take initiative to call and hold the meetings of the Board of Directors from time to time and even after signing the extract of the Resolution on 20th May, 2010, he did not take any interest in convening the next board meetings which proves that he had handed over the management and operations before leaving for the UK. 41. Respondents stated that Clause 4 of the Articles of Association provides that the shares shall be under the control of the directors, who may allot or otherwise dispose of the same to other persons. (Page 265). Respondent further stated that the provis....
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....al and factual issues and passed the order accordingly. NCLT has clearly understood the intentions of the appellant and has made a judgement in accordance with law. NCLT has also seen the motive and conduct of the appellant which was visible explicitly through his fabricated documents and falsified claims. Respondent further stated that the NCLT is convinced that the appellant moved to the UK for permanent residency and could not attend the meeting and the appellant himself has agreed to sign the extract of the resolution. Respondent stated that the appellant should understood that the literal meaning of the word 'promoter' is not the one who just establishes a company but the one who has control over the affairs of the company whether directly or indirectly. Respondent lastly submitted that the NCLT has done natural justice by dismissing the company petition. 45. We have heard the learned counsel for the parties and perused the record. 46. Appellant has argued that 3rd respondent is invalidly continuing as an additional director or alternate director. We have noted that 3rd respondent was appointed as an additional director on 20.2.2010 under an arrangement as per Article 30....
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....not received the Agenda of the Meeting. Therefore, the appellant's acts clarify that he is not a Managing Director any more as claimed by him. Counsel for the Respondent further argued that as the appellant did not attend three consecutive meetings without claiming any leave of absence, he vacated the office as per the provisions of Section 283(1)(g) of the Act and therefore, the 1st respondent filed Form 32 intimating his vacation to the ROC and the vacation of office as Director of the appellant is legal and valid. 49. After hearing both the parties we have noted that Form No.32 was filed with ROC (Page 374) intimating that 1st appellant has vacated the office under Section 283 of the Companies Act,1956 with effect from 20.01.2011 for not attending three consecutive meetings i.e. 20.5.2010, 27.8.2010 and 10.11.2010. We have also observed from para 9 of the counter filed by Respondents No.1 to 7 (Page 9) in which the Respondents have stated that the extract of the meeting dated 20th May, 2010 were signed by the appellant. The respondents have further stated that "it is proved that he was aware of the meetings and its agenda." We have seen the said extract, Annexure P-30 at Page....
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.... have been annexed in the appeal. Therefore, the propriety demands that the appellant should have been intimated notices of meetings also via emails and the appellant being the first founder/promoter of the company should have been asked his availability in India so that the meetings can be conducted while he was in India. The good practice requires that the appellant being founder Director and majority shareholder should have been given notice at his foreign address. Further the meeting now a days can be held via video conferencing. Nothing of the sort have been done by the company especially when on day to day matters, it is having its business with the foreign countries. 51. The other issue raised by the appellant is that the allotment of 40000 shares to 2nd, 3rd and 4th respondent is illegal and invalid. Appellant argued that 10000 shares were allotted to 2nd respondent, 20000 shares to 3rd respondent 10000 shares to 4th respondent on 27.10.2011. Appellant argued that this date i.e. 27.10.2011 is crucial as the Respondent has cleverly, after creating records and filing of form 32 on 17.10.2011 for the cessation of directorship of appellant, allotted the shares to Respondents....
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....ides that the shares shall be under the control of Directors, who may allot or otherwise dispose of the same to such persons on such conditions (Page 365). Counsel for the Respondent further argued that Section 81 of the Companies Act, 1956 is not applicable to the Private Limited Companies, and the Articles of Association provide the power to the Board to allot shares. We have already observed that 3rd respondent was appointed as additional director on 20.2.2010 under an arrangement. After the appointment of 3rd respondent on 20.2.2010, the AGM of the 1st Respondent was held on 26.9.2010 and his appointment as additional director was not regularised. Therefore, we have already held that his continuation as additional director after 26.9.2010 is not as per law. Further, as per Section 287 of the Companies Act, 1956 the quorum for a meeting of the Board of Directors of a company shall be one-third of its total strength or two directors whichever is higher. As we have already held that the continuation of 3rd director is not as per law after 26.9.2010, therefore, the Board Meeting held on 27th October, 2011 in which the decision was taken to allot 40000 shares to 2nd, 3rd and 4th Res....