TaxTMI 
TaxTMI 
2017 (3) TMI 1764
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....the case relates to the states of Andhra Pradesh and Telangana. Hence, we have taken the case on record of this Bench. The case was initially taken up for hearing by this Bench on 29.07.2015 and subsequently posted it on 19.08.16,09.09.16,19.09.16, 07.10.2016, 25.10.2016, 15.11.2016, 29.11.2016, and finally on 15.12.2016. The case stands adjourned due the requests made by one counsel or the other. Ultimately, it was argued and subsequently filed their written arguments later on. 2. The Company Petition was filed under section 111A, 397 & 398, 402, 405 & other provisions of the Companies Act, 1956 by inter-alia seeking directions as follows : (a) Direct the Respondents to, either allot or transfer, such number of shares so as to entitle the Petitioner to maintain her percentage shareholding at 2.12% (which was percentage shareholding she held at the time of deletion of her name as a shareholder of the company illegally in the year 1999), upon the receipt of the amount of Rs. 13,65,000/- from the petitioner, being the consideration payable in respect of said shares as per the terms of the respective rights issues made by the company in the years 1991-92, 95-96....
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....y) of equity shares of Rs. 100/-. (b) The Petitioner subscribed for 350 (Three hundred fifty) equity shares of Rs. 100/- each during 1974 by paying a total amount of Rs, 35,000/- and got allotted same vide share certificate No. 2 dated 28.12.74 with distinctive numbers from 501 to 850. The total shareholding in the Company is 2.120% during 1974-91: 1992-95 1.060% from 1996 onwards 0.265%. The address noted for the above certificates is at Undrajavaram. However, the address of the Petitioner was changed from Undrajavaram to Nandamuru in Krishna District, then to Machlipatnam in Krishna District; and then to Tanuku in West Godavari District, and again to Hyderabad and finally to Peddapuram in East Godavari District where she is presently residing. The Petitioner has changed the above residences due to her husband's nature of job. All the changes of addresses were duly in intimated. (c) The Company is under the control of two groups of shareholders, and almost the entire share capital of the Company is between them. The first group comprises of Chairman Sh. B. Subba Rao and his two brothers Sh. Srimannarayana, Joint Managing Director, and Shi BVSN Prasad, Directo....
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....would inform the Petitioner as and when the Company would come up with rights issue in future. Later, the Petitioner came to know, through other source, that the Company had not withdrawn the rights issue as stated by the 2nd Respondent, and on the contrary, those shares were subscribed by the 2nd Respondent himself behind her back. In the meanwhile, the Petitioner has shifted her address to Machalipatnam from Nandamuru and the change of address was duly informed to the Company and she used to take correspondence from the Company as well. (g) The Petitioner again came to know through the Annual Report received by her with Hyderabad address by post that another rights issue was issued in the year 1995 without notice to her. When the Company did not furnish any satisfactory explanation about its illegal issue of right shares, the Petitioner then has filed a Petition in Andhra Pradesh State Consumer Dispute Redressal Commission, vide OP No.76 of 1997 with respect to her last opportunities to participate in the right issues for the years 1991-92 and 1995-96. However, the State Consumer Forum dismissed her complaint for lack of jurisdiction on 29.11.1999 and only CLB is having ....
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....ious AGM notices for the period 2000-2011 and also reminded them about the Petitioners rights/bonus issues entitlement after 2001.The Petitioner vide letter dated 20.11.2011 demanded for three rights issues by enclosing a demand draft dated 19.11.2011 for Rs. 13,65,000/-. However the same was illegally rejected on the ground that the Company's General Manager has retired from the service long time back. (k) The Petitioner claimed for all three rights issues immediately after restoring her as a shareholder in December, 2011 in accordance with the directions of CLB. (I) The Petitioner contented that she was deprived all her rights as shareholder during the period of litigation. It is also stated that Petitioner, vide letter dated 08.12.2011 has sought for transfer of shares to her name from the second Respondent to whom the rights shares were provisionally allotted during the pendency of appeal before the Hon'ble High Court. The Company has also returned a cheque for Rs. 1,40,000/- towards 1:1 rights issues of 2004-2005 at a premium of Rs. 300 per share for 350 shares. (m) The Petitioner has got the permission of the Central Government to file....
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.... of 1997 on 29.11.1999. In the meanwhile, the name of the Petitioner was removed from the Register of Members during EGM held on 30.11.1999 as she was dragging the Company into frivolous and vexatious proceedings at the instance of her husband. The Petitioner also filed a civil suit at Tanuku in which the petitioner did not raise any objections or claim or even whisper about rights issue during the year 1991-92 and 1995-96. In the subsequent CP 07/2000 also, she has not sought any prayer with regard to the rights issue and only sought a direction to rectify of Register of Shareholders of Company and damages. However, she has mentioned about reserving her right regarding rights issue in the earlier Company Petition on the presumption that it would enable her to open up the unsustainable claim. (d) It is further stated that undertaking regarding bonus or rights shares in respect of 350 shares as mentioned in paragraph 6 & 7 of the Counter Affidavit filed by the 2nd Respondent in CMP No. 10988 of 2001 in LPA No. 207/2001 was filed only subject to the final order of the Hon'ble High Court in the said appeal. Since no order was passed by the Hon'ble High court with rega....
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..... As stated supra, the petitioner has earlier filed OP NO. 26 of 1976 and also filed original application to Central Government under section 399(4) on 21.2.1997; filed CP No. 7 of 2000; reserved her rights to agitate rights issue separately; again the petitioner applied on 1.11.2011 seeking permission from Central GO'.t. to agitate the present issue and the same was granted and thus filed the present petitioner. So there is no limitation involved and it is a continuous cause of action. c) The petitioner also addressed a letter dated. 06.12.1997 to M.Ramachandra Rao, the second Respondent by explaining all the issues in detail with regard to rights issue in question and requested to furnish the documents as asked in order to know the affairs of Company but to no avail. d) During 1974-88, many of original shareholders have transferred their shares. However, those shares of outgoing shareholders of the Company were unilaterally purchased by the existing Directors of the Company excluding the petitioner, which is contrary of clause 10 of Articles of Association. And this is also oppressive act on the part of the respondents. The petitioner relied upon the judgeme....
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.... not allotted any shares. vi) It is contended that a registered notice was sent to the registered address of the petitioner available with the Company. However, the petitioner missed such notice either intentionally or otherwise. Under Section 53 of the Companies Act, 1956, a Company is under an obligation to serve a notice on any member either personally or by sending by post to him/her registered address in India. The section also provides an alternative to the member to request the Company for specific mode of dispatch of notices. However, the Petitioner did not make any such request to the Company. In any case, the Company cannot be blamed for not sending the notices to the Petitioner, at this distant point of time. vii) They further contended that the Company cannot be compelled nor is under obligation to produce any documentary evidence of its service of notice effected on petitioner in the year 1995-96, i.e., after lapse of 17 years. Moreover, under the Companies Act, 1956, the Central Government has prescribed Companies (Preservation and Disposal of Records) Rules, 1956, which prescribes procedure for preservation of records of Company and its tenure. As p....
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.... is not in dispute that the Petitioner has approached the Central Government under section 399(4) of the Companies Act, 1956 seeking permission to file a petition in Company Law Board under section 397/398 of the Companies Act, 1956 with regard to right issues made in the year 1991-1992 and 1995-1996. Accordingly, the Government of India has passed an order dated 16.11.2012 (Annexure-4, page 44-48 of material papers filed by the Petitioner) by permitting the Petitioner to file a Petition under section 397/398 of the Companies Act, 1956 against the Management of Gowthami Solvent Oils Private Limited (Respondent Company). So the present petition is maintainable. 10. It is not in dispute that the Petitioner is agitating the issue of rights shares right from the first issue, issued in 1991-1992. The Company has given a reply No. 585 dated 28th November, 1997 (Annexure I l , page 58 of material papers filed by the petitioner) to the petitioner with regard to the issue of two rights issues i.e., 1991-92 and 1995-96. It is stated therein that offer was given to the petitioner for 1991-92 issue but she did not avail it by depositing DD/amount within stipulated time mentioned in the offe....
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....ing about the termination of the membership and compulsorily purchase of her shares, and requested to surrender her share certificate, and indicate fair market value of shares within two weeks from the date of receipt of notice, failing which the Company itself will fix the rates and transfer those shares to any existing member without further notice. In the above circumstances, the Petitioner was left with no other option except to question the above decision of the Company, in the first instance by duly reserving her right to question rights issue later. Accordingly, the Petitioner has filed Company Petition No. 07/111/SRB/2000 before the then Company Law Board for restoration of her name in the Register of Members of the Company by reserving her right to agitate the right issue later on. The petitioner is fully justified to file the said case restricting the illegal removal of her name by reserving her right to question the present issue. Even the Company Law Board allowed the said Company Petition by an order dated 22.12.2000, the Company has carried the matter unsuccessfully before the Single Judge, and before Divisional Bench of Andhra Pradesh High Court, and finally to th....
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.... 01 in LPA No.207 of 01. It is also on record that the Petitioner was consistently making efforts by demanding to allot the Rights issues by enclosing necessary DD's and payments as mentioned above. However, the Company/Respondent for the reasons best known to them has refused to accept it on untenable grounds. The Respondents have opposed the Company Petition more or less on technical grounds, instead of meeting the ground realities. As stated above, the CLB has already found fault with the Company/Respondent for depriving the rights of the Petitioner and thus directed the Company to restore the shares of the Petitioner with a cost of Rs. 2,500/-. The Petitioner got implemented some of the directions with a great difficulty and persuasion. It is true that the Petitioner, at every point of time, has suffered a lot at the hands of the majority shareholders. The Company/Respondent should realise its illegality at least after it suffered in all courts right from CLB to Apex court and act justifiably in the interest of justice. The Company/Respondent can itself voluntarily offer/allot proportionate shares to the petitioner at least out of third Rights issue. The actions of the resp....
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....ctor of the Company has addressed a letter dated 20.06.2012 to the Joint Secretary, Ministry of Corporate Affairs, New Delhi. So far as rights issues are concerned, it is stated as follows: "With reference to the above and during the personal hearing held on 03.05.2012 in your chambers, New Delhi, we were directed to produce the following information; a. Payment of costs of Rs. 2500/- towards CLB costs; We have arranged the payment ofRs. 2500/- vide Axis Bank Ltd Cheque No. 3 11812 dated 09. 11.2011. b. Service of rights offer notice to the applicant during 1990-1991, 19951996 & 2004-2005:- It is humbly submitted the old records of more than 15 years i.e., for the years 1990-1991 & 1995-1996 could not be traced out as most of the records are either destroyed or disposed off as un-wanted. So far as rights offer issued during the year 2004-05, the same was not served to the applicant Smt. M. Bharati Rao as she was not a member during that period." The above contents of letter clearly shows as to how the company and the respondents acted prejudicially against the petitioner in denying her legal rights as a shareholder. 16. The Respond....
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....of a sudden filed the present case. As stated above, the Petitioner making her grievance with the Company right from the first rights issue i.e., 1991-1992. On this ground also, the contention of the respondent that no records are available is not at all tenable and thus, it is rejected. Moreover, principles of natural justice demands that appropriate notice must be given to the parties before taking any substantial decision, especially which affects their rights i.e. termination of her membership. 18. It is settled position of law that the majority has a right to control and manage the affairs of thee Company in its best interest. However, the issue to be examined in each case is whether majority power has been exercised in good faith in the interest of the Company or only to deprive minority shareholders/the Petitioner of her rights. The Company has a fiduciary relation towards the minority shareholder as much as the corporation itself or its officers or Directors. 19. The Petitioner is entitled for all the three rights issues as applicable to other shareholders of the company in proportionate to the shareholding of the respective shareholders. The Petitioner was holding 35....