AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2014 (11) TMI 1201
X X X X Extracts X X X X
X X X X Extracts X X X X
....cts of the Company are set out in its Memorandum of Association. The authorized share capital of the Company, at the time of its incorporation, was Rs. 5,00,000/- divided into 5000 Equity Shares of Rs. 100/- each, which was subsequently increased to Rs. 10,00,000/- divided into 10,000 Equity Shares of Rs. 100/- each, as per Annual Return filed on 30/4/2005. According to the Petitioners, until the said date the paid-up share capital of the Company was 8,000 equity shares. As on 30/4/2005, the Petitioners were collectively holding 2000 Equity Shares thereby constituting 25% of the total shareholding of the Company. Whereas the shareholding of the Respondent Group was 17.50% of the total paid up share capital of the Company. 2.2 It appears that in the Annual General Meeting, purportedly held on 30/4/2005, some disputes arose between the Petitioners on one side and the Respondent Nos. 2 to 8 on the other side. In the said AGM, according to the Petitioners, being dissatisfied with the working of the Company, the Petitioner Nos. 1 and 2 expressed their desire to disassociate from the activities of the Company, and they, who are stated to be personally present in the meeting, out of fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uation of their efforts to oppress the Petitioners and dilute their share holding, the Respondents without offering the shares to the Petitioners and in gross violation of provisions of Clause 40 of Articles of Association of Company transferred shares in their own name. The details of transfers made is given in the table under 2.7 It is alleged that the Petitioners transferred the share without calling any Board meeting; that the Petitioners did not file the compliance report from practicing company secretary for year ending 31st (Thirty First) March 2006 (Two Thousand Six) to suppress the facts of board meetings and general meetings held during the year ending 31st (Thirty First) March 2006 (Two Thousand Six); that the Respondents Nos. 2 and 3 further deceptively uploaded form for filing the said compliance certificate but did not pay filing fees for same and allowed the challan to expire. Similarly, no Board meeting for considering transfer of shares on 30th (Thirtieth) March 2010 (Two Thousand Ten) was held as per compliance certificate form Company Secretary for the year ended 31st (Thirty First) March 2010 (Two Thousand Ten). Moreover, the Annual Return for years 2007 to a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of the Respondent No. 1 Company inviting the offers, pursuant to a resolution purportedly passed in the meeting held on 30/06/2012 inspite of illegal notice. Consequently, on 16/07/2012 the Petitioners withdrew their suit at Ankleshwar and filed the instant petition under Section 397/398 of the Act. 3. Based on the above complaints, the Petitioners have sought the following reliefs:- a) To annul and set aside increase in authorized share capital from Rs. 10 Lakhs to Rs. 15 Lakhs dated 30/5/2005 and to declare all the statutory forms filed in that respect as illegal, unlawful and void. b) To annul and set aside the allotment of 2000 and 5000 equity shares to the Respondent No. 4 dated 4/6/2005 and 23/6/2005, respectively. c) To annul and set aside illegal transfer of equity shares of the Company and shares covered by the said transfer (more particularly described in the Chart in paragraph No. 8, 7 of the Petition), and consequently to reduce the paid up share capital of the Company to that extent and to direct the Company to pay consideration for the same to the extent of the price at which the shares have been originally transferred. d) To ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Petitioners have never co-operated in the affairs of the Company, and therefore, in the AGM held on 30/4/2005, in the course of deliberations, when the Petitioners were asked to contribute funds to run the Company, they surrendered their shares and this fact was duly recorded in the Minutes of the Meeting. It is further stated by the Respondent Nos. 1 to 8 that after surrender of the shares by the Petitioners, they have been paid consideration in kind, and therefore, the Petitioners have no right to claim that they are the shareholders of the Company, after a period of 6 years. Further, the Respondent Nos. 1 to 8, in their reply, have justified the increase in the share capital of the Company stating that the same was increased to bring in the funds as per the decision taken in the Board Meeting on 9/5/2005. They have further justified the allotment of additional shares as well as the transfer of shares saying that the Respondents have complied with all the necessary requirements in law and they have not violated the Articles of Association of the Company as alleged by the Petitioners. The Respondent Nos. 1 to 8 have also refuted the allegation of the Petitioners that the Responden....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r contended that the Petitioners since 2005, until November 2011, did not raise any issue nor claimed the shares. According to the Ld. Counsel for the Respondents, they raised this issue in November 2011 when they filed a Civil Suit challenging the resolution passed in the EOGM regarding the proposed sale of the assets of the Company. It is, therefore, contended that having once surrendered their shares and having received the consideration in kind, the Petitioners now have no right to claim the title of those shares after a period of 7 years. 11. Refuting the said contentions, it was argued by the Petitioners' Counsel that the Petitioners never transferred their shares, nor received any consideration there for. They have also denied having surrendered their shares and/or having received any consideration in kind, as contended by the Respondent Nos. 1 to 8. The Ld. Counsel submitted that the Respondent No. 1 Company in its annual filing in the year 2011 has itself shown the Petitioners as shareholders of the Company, having 13.33% in the total shareholding of the Company. According to the Petitioners' Counsel, the said Annual Statement filed by the Company is the admissi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to whether the Petition is barred by law of limitation? 14. As regards limitation, it has been contended by the Ld. Counsel appearing on behalf of the Respondents that since 2005 until 2011 the Petitioners did not claim their title with respect to the impugned shares. In addition, despite knowledge they did not challenge the alleged increase in the authorized share capital of the shareholding of the Company or alleged illegal allotment of the shares, etc., therefore, the Petition, being not filed within the stipulated period of 3 years, is barred by law of limitation. In the alternative, it was argued that the Petition suffers from inordinate delay and laches and, therefore, it deserves to be dismissed on this ground too. 15. Replying the above submissions, it was argued by the Ld. Counsel, appearing on behalf of the Petitioners, that the provisions of Limitation Act do not apply to the petition filed under Section 397/398 of the Companies Act. It was also submitted that the Petitioners were kept in dark regarding the alleged increase in the authorised Share Capital and allotment of further shares. According to the Ld. Counsel, to the Respondents did not file the Annual Stat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....titioners had approached the Civil Court by way of filing Regular Civil Suit seeking reliefs on the similar allegations. He, however, did not succeed and the ad-interim prayers made by the Petitioners were rejected by the Civil Court at Ankieshwar vide an order dated 24/02/2012. Being aggrieved by the said order, an Appeal was preferred before the District Judge Bharuch, which was also dismissed vide order dated 14/05/2012 and the Petitioners therefore, are not entitled to re-agitate the Issues again by way of forum shopping. 19. Replying to the above contentions, it was submitted by the Petitioners' Counsel that a civil suit was filed for a limited relief challenging the validity of the EOGM held on 15/11/2011 whereat the decision for taking steps for sale of the Company's assets were taken. However, the said suit was not decided finally and it was withdrawn by the Petitioners on the legal advice that the matters relating to a Company can be agitated before the CLB by way of filing appropriate proceedings under Section 397/398 of the Act and hence. In the absence of any final findings by the Civil Court as to the validity of the impugned meeting, the question of applica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s contained in Section 108(1) of the Act is a mandatory requirement, and if, for any reason, such requirement has not been complied with, the transfer of shares cannot be given into effect. In support of the above, I would like to cite the relevant extract of the decision in the case of Mannalal Khetan (supra), hereunder:- "The words 'shall not register' are mandatory in character. The mandatory Character is strengthened by the negative form of the language. The prohibition against transfer without complying with the provisions of the Act is emphasized by the negative language. Negative language is worded to emphasis the insistence or compliance with the provisions of the Act. The provisions contained in Section 108 of the Act are for the reasons indicated earlier mandatory. The High Court erred in holding that the provisions are directory. The provision contained in section 108 of the Act states that, "a company shall not register a transfer of shares .... Unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf-of-the transferee ..... has been delivered to the company along with the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Respondent No. 1 Company. 26. The Petitioners have categorically denied having received any notice of the said EOGM held on 30/5/2005. I have carefully examined the aforesaid documents filed by the Respondent No. 1 to prove the service of the Notice dated 9/5/2005 on the Petitioners. It appears that the said notices were sent to the Petitioners through Under Postal Certificate. Time and again the Hon'ble Supreme Court has laid down in a number of cases that service of notice through Under Postal Certificate is a very doubtful evidence and in case any party denies having received the notice, the other party, who alleges to have served the notice through Under Postal Certificate, is required to prove the same through other corroborative evidence, such as a Register showing purchase of Postal Receipts during the relevant period, an Outward Register showing dispatch of the Notice maintained by the Company and Attendance-sheet maintained by the Company for the purpose of holding meetings. The Respondent No. 1 Company has produced the Minutes of the EOGM dated 30/5/2005 duly signed by the Members who were present at the said EOGM. It is significant to note that the said Minutes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allotment of additional 7000 shares. He added that in fact no funds were brought in the Company and it was a mere book entry by transfer of unsecured loan of the Respondent No. 2, who happens to be the Director of the Company, showing a payment of consideration in respect the allotment of the said shares. 30. It was further argued that the Respondent Nos. 1 to 8 in continuation of their efforts to oppress the Petitioners and dilute their shareholding further made transfer of shares to other shareholders in their own name as set out in paragraph 8.7 of the Petition. The said transactions were effected without calling any Board Meeting and the statutory filing in this regard was not made by the Company. 31. I have examined the pleadings and the material available on record. Undisputedly, all these additional 7000 shares were allotted to the Respondent No. 2 on two different days i.e. 2000 shares were allotted on 4/6/2005 and 5000 shares were allotted on 23/6/2005. This unilateral allotment of additional 7000 shares led to reduction in the shareholding of the Petitioners from 25% to 13.33%. Further, the unilateral allotment of aforesaid shares and illegal transfer of shares, in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to comply with manner prescribed in Articles of Association for allotment of additional shares and also did not hold Board Meeting to authorise such allotment - no material produced to show need of company for further investment-action of directors was mala fide to gain control of company-proper and legal procedure for making allotment was not followed.................................... Right to issue additional shares has to be exercised bona fidely and in interest of company sole allotment made in favour of M.D. was neither bona fide nor in the interest of the company". 34. In the said judgment, the following observations of Justice A.N. Sen have also been reproduced as under; "It is well settled that the directors may exercise their powers bona fide and in the interest of the Company. If the directors exercise their powers of allotment of shares bona fide and in the interest of the company, the said exercise of powers must be held to be proper and valid and the said exercise of powers may not be questioned and will not be invalidated merely because they have any subsidiary additional motive, even though this be to promote their advantage. An exercise of power by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Company, though it is a fit case for winding up of the Company, the winding up order would clearly prejudice the interest of the Petitioners and the other shareholders. 38. In conclusion, it is the right of the shareholders to receive notices of General Body Meetings and if a Company deliberately does not sent notices the shareholders have right to complain of oppression and mismanagement. In this case, the complaint of non receipt of notices by the Petitioners, being the shareholder-members of the Company, is a valid complaint, and therefore the Meeting held without notices to the Petitioners has to be declared as invalid, as also the Resolutions passed thereat. In my opinion, the Petitioners are right in contending that the allotment of additional shares was made only with an oblique motive of ensuring the entire control over the affairs of the Company to the exclusion of the Petitioners. From the discussion held hereinabove, the main allegations of the Petitioners are found to have been established that the EOGM held on 30/5/2005 is invalid on account of non-receipt of the Notices thereof by the Petitioners and consequently the decision to increase the authorized share ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 15 lakhs of the Company is hereby set aside. ii. The allotments of 2000 and 5000 equity shares to the Respondent No. 4 made on 4/06/2005 and 23/06/2005 respectively are declared illegal, ultravires and void. Consequently, the said allotment of shares are set aide and the status quo ante prior to the date of allotment is restored. iii. The transfer of equity shares more particularly set out in para Nos. 2 to 6 of this judgment are hereby declared as illegal, ultravires and the shares covered by the said transfers are cancelled. Consequently, paid up capital of the Company be reduced to that extent. Further, the Company is directed to pay consideration for the same to the extent of the price at which the shares have been original transferred. iv. The EOGM of the members held on 15/11/2011 is declared as illegal, null and void and consequently, the resolutions passed thereat are set aside. v. The EOGM held on 30/06/2012 is declared as null and void and consequently the resolutions passed thereat are set aside vi. The Petitioners are declared as lawful owner of 2000 equity shares held by them in the Company constituting 29% of the total p....