TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1764
X X X X Extracts X X X X
X X X X Extracts X X X X
....radesh 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 and 2004-05; (b) Direct the Respondents to pay t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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, Director, and their family members. This group hold almost 57% of the share capital. The other group comprise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 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 jurisdiction over the issue. However, mischievously, the Company rectified its register of Members of a Company by deleting her na....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etter 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 an application under section 397/398 before CLB vide proceedings dated 19.11.2012. (n) The Petitioner contents that removing her name from the Registrar of Companies and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ings 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 regard to those issues, it would have no effect. However, they admit that they have paid dividends/interest to the petitioner even though no order was passed by the Hon'ble High court. (e) While contending that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in 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 judgements rendered in Akba Ali Kavalert Vs Konkan Chemicals Pvt Ltd. (1997)88 Com cases 245(CLB.) 7. The Learned Counsel for the Respondents, while reiterating various contentions made in their common reply as mentioned above, has further filed written arguments da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 per the Rules, office copy of the notices served on or sent to the shareholder of the Company and register of dispatch, etc. are not included in the said rules or schedule given thereunder. It is further contended that the Petitioner cannot put the burden on the Company with regard to the sending of the notices....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(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 offer. So far other issue (1995-96) is concerned, it is stated that the petitioner did not register her changed address at that time and it was registered subsequently vide her letter dated.8.8.96 i.e. after rights issue. So admittedly, no offer was given to the petitioner about the second rights issue. However, it was agreed to transfer shares at mutually agreed rate. As stated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the Apex Court. The Apex Court ultimately dismissed the SLP on 31.10.2011. Subsequently, the Company restored the Petitioner's membership in the Register of Members only on 01.11.2011. Interest was also paid Rs. (Rupees One Lakh Thirty Two Thousand Only) by cheque dated 19.11.2011. 12. The next issue is whether the acts alleged in the Company petition constituted acts of oppressi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cal 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 respondents are arbitrary and vindictive, and against the principles of natural justice. 14. The contention of the Respondents that the commitment to issue bonus shares etc. as mentioned above before Hon'ble High Court as mentioned supra was valid only till the disposal of the case and High Court has not passed any order on this issue while disposing of the Appeal is not at all tenable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owards 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 Respondents are not disputing that a notice has to be issued to the Petitioner offering rights issues in question. As stated above, the first rights issue (1991-1992) was illegally denied and there was no offer for the second right issue (1995-1996) on the pretext of the non-availability of the present address at the relevant point of time. So far as the third issue (2004-2005) is concerned, admittedly, there was no offer at all issue....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 350 shares and thus she is entitled for the shares as mentioned below:- Year Initial Shares Ratio Issued Shares Total Shares Price Per Shares (Rs.) Amt. Payable (Rs.) 1991-92 350 1:1 @ par 350 700 100 35,000 1995-96 700 1:3 @ par 2100 2800 100 2, 10,000 2004-05 2800 1:1 @ premium of Rs. 300 2800 5600 400 11,20,000 Total amount payable 13,65,000/- The circumstances explained above that the Petitioner is a minority shareholder,....