TaxTMI 
TaxTMI 
TaxTMI 
2020 (5) TMI 292
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....the Companies Act, 2013 and Articles of Association of the Respondent No. 1 Company; (2) To set aside the allotment of 1,89,000 equity shares made to Respondent No.6 by declaring the same as null and void and resultantly direct the Respondents to make requisite filings with the office of the Registrar of Companies, Mumbai in connection thereto etc. 2. Brief facts of the case, as mentioned in the Company Petition, which are relevant to the issue in question, are as follows: (1) M/s. AKP Ferrocast Private Limited (herein after referred to as Company) is a Private Limited Company, was incorporated on 11.06.2007 under the provisions of the Companies Act, 1956. The Authorized Share Capital of the Company is Rs. 8,00,00,000/- divided into 8,00,000 Equity Shares of Rs. 100/- each. The present issued, subscribed and paid-up capital of Company is Rs. 7,99,99,700/- divided into 7,99,997 equity shares of Rs. 100/- each. It was promoted by Respondent Nos.2 and 3 namely Shri Ram Balwant Bhandare & Shri Parag Ram Bhandare divided into 8,00,000 (Eight Lakhs) Equity Shares of Rs. 100/- (Rupees One Hundred Only) each. The Company is engaged in the business of casting of metals. (2) Shri Mili....
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.... Company had availed credit facilities (working capital & term loan) from Axis Bank, Congress Road, Tilakwadi Branch to the tune of Rs. 18,45,00,000/- (hereinafter referred to as "loan"). The said loan was availed by offering security of assets of the Company, which inter alia included collateral security by way of mortgage of a land being all that piece and parcel of agricultural land measuring 14 Acres 10 gunthas as out of Survey No.663 situated at Machhe Village, Taluka and District Belgaum, Karnataka (hereinafter referred to as "Said Land") belonging to Respondent No.6 (spouse of Respondent No.2 and the mother of Respondent Nos.3 & 4) and by a personal guarantee given by Respondent Nos.2, 3 and 6. (9) It is also stated that the Respondent Nos.2 and 3 approached the Petitioner Nos.1 to 3 to invest in the Company. After extensive negotiations, the Petitioner Nos.1 to 3 invested the following amounts in the Company: Sl.No. Name of the Petitioner Amount invested Rs./Lakhs 1 Mr. Milind Dhume 60.83 2 Mr. Pankaj Dhume 75.83 3 Mr. S. Sridar 91.67 (10) Subsequently, due to project costs overrun and time overrun, the Petitioner Nos.1 to 3 and the Respondent Nos.2 and 3 de....
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....37% 2. Mr. Pankaj Dhumie (jointly with his spouse) 12.41% 3. Mr. Sridar Swamy (jointly with his spouse) 15.00% 4. Mr. Milind Dhume 9.96% 5. Mr. Ganesh Kamath (jointly with his spouse) 10.36 (Along with the family members, Mr. Ganesh Kamath hold 16.91% of the paid-up share capital of the Company. Taking into consideration the aforesaid investment made by the Petitioners in the Company, Petitioners deemed it important to be appointed as Directors on the Board of the Company to protect their economic interests and to ensure that the operations and finances of the Company are effectively managed. During the meeting of the Board of Directors of the Company, convened on 6th October 2018, a Resolution was passed unanimously for appointment of the Petitioners as the Directors of the Company (in the category of Non-executive directors). The Petitioners also provided their consent to act as Directors and also submitted Form MBP 1 and DIR 8 disclosing their nature of concern and interest in other firms and companies as well as declarations to the effect that, none of them have incurred disqualification from holding directorship in the Company. (13....
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....ovisions of section 100 of the Companies Act, 2013, Shareholders have the power to requisition to the Board to call for an Extraordinary General Meeting ("EGM") and appoint new Directors in the said meeting, if the Board of Directors refuse to do so; and if the Board of Directors of the Company fail to call for the said EGM within the stipulated time frame then, the Shareholders requisitioning the meeting may themselves convene the EGM and pass necessary resolutions which shall be binding on the Company. Two of the Petitioners, namely Mr. Milind Dhume and Mr. Anil Bakshi, in their capacity as Shareholders hence sent a Special notice dated 8th January, 2019, requisitioning the Board of Directors to call an Extraordinary General Meeting of the Members of the Company proposing (i) appointment of the Petitioners as non-executive Directors on the Board of the Company and (ii) to propose the cancellation of the related party transaction of the sale of 4 acres of the land (owned by the Company) at the instance of Respondents No.2 and 3 in favour of AKP Foundries Private Limited, which was undertaken without the approval of the Shareholders. In Pursuant to this Special Notice, the Responde....
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....the Petitioners, namely Mr. Anil Bakshi and Mr. Milind Dhume issued a Notice dated January 31st, 2019, under section 100 of the Companies Act, 2013, requisitioning the Board of Directors to call an Extraordinary General meeting of the Company to propose the cancellation of the related party transaction of the Said Sale of 4 acres of land made by the Company to AKP Foundries Private Limited, which was undertaken without the approval of Shareholders and which was prejudicial to the interests of the Shareholders. Based on the aforesaid Special Notice, the Board of Directors of the Company, namely, Respondent No.2 and Respondent No.3 convened an Extraordinary General Meeting on 22nd February, 2019. In the aforesaid Notice of EGM dated January 31st, 2019 calling for EGM of the Company to be convened on 22th February, 2019, the Board of Directors of the Company (Respondents Nos.2 & 3) on one hand deny the contention of the Petitioners that the market value of the 4 (four) acres of the Said Land as on date of the said Notice is not 4 (four) crores. On the other hand, in the same Notice itself, contradicting their own allegation admit that though the 14 acres 10 guntas of land was sold by ....
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....llotted 1,89,000 (One Lakhs Eighty-Nine Thousand) equity shares of Rs. 100/- each amounts to 23.62% of the paid-up capital of Company Subsequently, it was brought to the knowledge of the Petitioners that such allotment has been made for consideration other than cash and pursuant to an Articles of Agreement dated 23rd January, 2019, entered into between Respondent No.1 (Company) and Respondent No. 6 (Mrs. Roopa Bhandare). Under the aforesaid Articles of Agreement entered between the Respondent No.1 and Respondent No.6, it is recorded that the above said allotment of 1,89,000 equity shares to Respondent No.6 was made for consideration in lieu of guarantee commission due to Respondent No.6 by virtue of an arrangement purported to have been existing between the Company and the Respondent No. 6, whereby Respondent No. 6 had furnished her personal guarantee and surety to the Company for loan borrowed by the Company from Axis Bank for loan and credit facilities aggregating to a sum of Rs. 18,45,00,000/- (Rupees Eighteen Crore Forty-Five Thousand Only) in the year 2007-2008, and the Company had promised to compensate the Respondent No.6 for her guarantee and surety by issuance of equity sh....
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....ay of a preferential offer, to any persons whether or not those persons include the persons referred to in clause (a) or clause (b) of sub-section (1) of section 62 and such issue on preferential basis should also comply with conditions laid down in section 42 of the Act. Section 42 of Companies Act, 2013 Quote Rule 14 of Companies (Prospectus and Allotment of Securities) Rules 2014 - Rule 14 - Private Placement of Securities Quote (ii) A company shall not make a private placement of its securities unless- (a) the proposed offer of securities or invitation to subscribe securities has been previously approved by the shareholders of the company, by a Special Resolution, for each of the Offers or Invitations: Provided that in the explanatory statement annexed to the notice for the general meeting the basis or justification for the price (including premium, if any) at which the offer or invitation is being made shall be disclosed: (22) As per the abovementioned applicable legal provisions of the Companies Act, 2013, the Company was required to convene a meeting of the Shareholders prior to the allotment of shares to Respondent No.6, in orde....
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.... and 2018-19. (3) The Respondent Nos.2, 3 & 6 have all along borne the brunt of furnishing securities to secure credit facilities for the Company, which undeniably has enabled the Company to secure its now enviable market presence. Petitioners have reaped the benefits derived from Respondent Nos.2, 3 & 6 furnishing securities to avail credit facilities from various banks, over the last decade i.e. shares and dividends. Having reaped the benefits for so long, Petitioners cannot now claim that the acts of Respondent Nos.2 & 3 are prejudicial and constitute oppression and mismanagement. In any event, Petitioners being majority Shareholders in the Company cannot allege oppression against these Respondents and in fact, by the highly questionable actions of Petitioners, they have caused oppression upon these Respondents and have caused prejudice to the Company. Furthermore, at a time when Respondent No.6 was a stranger to the Company, she provided Schedule-I Property as Primary Security to the Bank. It is pertinent to note that at that time when Respondent No.1 Company did not own any land to pledge as security, till Respondent No.6 sold Schedule-I Property to the Company in the year 2....
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.... dated 10.01.2008, Respondent No.1 agreed that the aggregate guarantee commission that was payable to Respondent No.6 on all the 3 counts of furnishing primary & collateral security and her personal guarantee, for the first 10 years of Respondent No.1's operations shall be paid by issuance of equity shares at par value of Rs. 100/- per share, and thereafter in cash towards guarantee commission, if the said securities and guarantees subsist beyond 10 years. (5) It stated that at the time when Respondent No.6 furnished the aforesaid securities and guarantees on behalf of Respondent No.1, she was a complete stranger to the Company and was for intents and purposes, a third party-creditor and it was only in the year 2012 that Respondent No.6 became a Shareholder. Thus there was no need for the Company to appraise the shareholders of such an arrangement as it was their prerogative to take any such steps in the interests of the Company and it was only in 2018 that the said 10-year period came to an end, for which reason Respondent No.1 was obliged to comply with its contractual obligation to Respondent No.6, by issuance of equity shares. At this juncture, Petitioners cannot feign ig....
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....controlled by the Respondents and their family members is mere speculation, conjecture and surmises and are hypothetical. It is stated that even single employee has been transferred from Respondent No.1 to AKP Foundries Private Limited till date and it is in fact the other way around. Several employees of AKP Foundries Private Limited have been transferred to Respondent No.1 over the last decade or so. Moreover, Petitioner Nos. 1 & 3, being the Directors of AKP Foundries Private Limited until recently and Petitioner No. 1 still continues to be a Director as on date, should be aware of the aforesaid facts and they cannot be permitted to hoodwink and mislead this Hon'ble Court to suit their false and illegitimate claims by misrepresenting facts which are coated with falsehood. (8) It is stated that the Petitioners have proceeded on the wrongful assumption that Schedule-II Property was allegedly significantly undervalue, but they have failed to consider and acknowledge the fact that the Company gained incalculably by buying 14 acres 10 guntas of land at 6.33% the actual value in 2009, and the Company has sold 4 acres to M/s. AKP Foundries Pvt. Ltd. only to discharge a legal obli....
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.... shares in the instant case. The provision is categorical that in order to attract the provisions of section 42 of the Companies Act, 2013, an offer or invitation must be made to two or more persons comprising a group having certain common characteristics such as promoters, employees etc., and that there is no applicability of the section if the allotment is being to a single person, which is evident from a bare perusal of the provision. Moreover, sections 42 and 62 cannot operate in the same realm and are not exhaustive of the provisions governing allotment of shares and shares can be allotted in various other manners, provided it is not contrary to the Articles of Association of the Company. In the instant case, the shares having been allotted in lieu of the guarantee commission payable (a fact that has been categorically admitted and agreed to by the Petitioners) to Respondent No.6 by Respondent No.1, pursuant to a contract, cannot be said to be in violation of the Companies Act or the Articles of Association of the Respondent No. 1 Company. (11) They have relied upon the following judgments in support of their case: (a) Jai Mahal Hotels (P.) Ltd. v. Raj Kumar Devaraj Singh ....
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....ded by this Tribunal, that too in summary proceedings such as the present one. The proceedings before this Tribunal are summary in nature and the examination of questions of title fall in the arena of substantive power a Civil Court of competent jurisdiction, where extensive evidence in required. (14) It is stated that when there was no meeting of Board of Directors was held, the question of validity of non-existing does not arise. As stated supra, the meeting held on 06.10.2018 was an informal meeting of the shareholders, and the same cannot in any manner within the contours of the Companies Act, 2013, be termed as a meeting of Board of Directors. Though on one hand, the Petitioners have claimed that the meeting held on 06.10.2018 is a meeting of Board of Directors, on the other hand, admittedly, no notice or agenda for scheduling the said meeting was circulated. Thus the pleas put forth by the Petitioners are mutually destructive or patently inconsistent of each other and cannot be looked into. There is no valid appointment of the Petitioners as Additional Directors. The visit was merely an informal get-together of the promoter- investors and moreover, there existed a legal emb....
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....urns from the Company. (2) The Sanction Letter dated 19.12.2007 by the Axis Bank Ltd. sanctioning credit facilities to the tune of 18.45 crore to the Respondent No.1 Company has sought for Primary Security of 14 acres of land belonging to Respondent No.6 (Eastern Portion) and Collateral Security of 14 acres of land (Western Portion) belonging to Respondent No.6. Further, the Respondent No. 6 was also required to give personal guarantee for the credit facilities availed by the Respondent No.1. The Respondent No.1 Company vide resolution dated 07.01.2008 passed resolution to accept the conditions laid down by the Axis Bank Ltd. in its sanction letter dated 19.12.2007. Thus without all the three guarantees provided for by the Respondent No.6, the availment of the loan of Rs. 18.45 crore from Axis Bank in 2007-08 was unthinkable. Further, the Respondent No.1 Company has become profitable as admitted by the Petitioners and the same is due to the Primary Security, Collateral Security and Personal Guarantee provided by the Respondent No.1 at a point of time when she was not even a shareholder of the Company. (3) It is further stated that the Respondent No.6 being a cancer pati....
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....ed 23.12.2019 in the present case and other connected case (CP.No.159/BB/2019) which is also disposed simultaneously, by inter alia contending as follows: (1) It is stated that the Respondents have sought to circumvent the provisions of the law, with a view to gain majority shareholding of the First Respondent Company. In this regard, they have relied upon the decisions rendered in Capricorn Oils v. Ratan Mohan Sarda [2012] 21 taxmann.com 331/113 SCL 395 (Cal.) decision renderedin B.V Thirumalai v. Best Vestures Trading (P.) Ltd. [2005] 57 SCL 98 (CLB) (2) An increase in the shareholding of the minority by undertaking share issuance to the exclusion of the majority is an act of oppression and they have relied upon the decisions rendered in the case of Navin Patel v. Bhoomi Builders (P.) Ltd. [2005] 60 SCL 209 (CLB) (3) It is further stated that the Petitioners were never informed of the purported Articles of Agreement or the purported underlying letters dated 10.01.2008 and 14.12.2018. If such an arrangement indeed existed, being a related party transaction, it should have reflected in the financial statements of the First Respondent Company prepared commencing from the finan....
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....t India (P.) Ltd. v. Ind-Bharat Power Infra Ltd. [2019] 108 taxmann.com 580/155 SCL 578 (NCL-AT) (c) Ultrafilter Gmbh v. Ultrafilter (India) (P.) Ltd. ILR 2012 Kar. 2809 (d) Dr. V. Sebastian v City Hospital (P.) Ltd. [1985] 57 Comp. Cas. 453 (Kar.) (e) Manoj Kumar Kanunga v. Marudhar Power (P.) Ltd. [2012] 27 taxmann.com 144 (CLB) (f) Incable Net (Andhra) Ltd. v. Apaksh Broadband Ltd. [2008] 142 Comp. Cas. 892 (AP) (g) Ajaybhai Bhatia v. Vikram Silk Mills [2011] 103 CLA 233 (CLB) (h) Life Insurance Corporation of India v. Escorts Ltd. [1986] 1 SCC 264 7. The main issue arise for consideration in the case are: whether the Resolutions passed during Board of Directors meeting of Respondent No. 1, held on 23rd January 2019, authorizing and allotting the impugned allotment of 1,89,000 shares to Respondent No. 6 is in accordance with law or not; whether the impugned Sale Deed dated 26th September, 2018 is to be oppressive and seriously prejudicial to the interests of the Company, Whether the Petitioners are entitled for their appointment as Directors. If so, what is the relief the Petitioners are entitled for. 8. Before adverting the above issues, it is necessary to advert ....
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....iance with the provisions of Section 79 of the Act, at a discount and at such times as they may from time to time think fit and proper. 14. Alteration of Capital The Company may from time to time; by ordinary resolution increase the Shares Capital by such sum to be divided into shares of such amount as may be specified in the resolution. 15. Meetings An Annual general Meeting maybe called by giving not less than 21 days' notice in writing. All other General Meetings maybe called by giving not less than eight days' notice, in writing but with the consent of the members holding not less than 75% or such part of the paid-up share capital of the Company as gives a right to vote at the meeting, a meeting maybe called by such shorter notice and in such manner as members think fit. A notice of the meeting of the Company specifying the place, day and hour with a statement of the business to be transacted at the meeting shall be served on every member in the manner prescribed in the Act. The accidental omission to give notice to or non-receipt of notice by any member shall not invalidate the proceedings at such meeting. All general meetings other than annual general meet....
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....2008 has placed the above Bank letter and thus resolved to go ahead with the said loan. Another Board meeting held by the Second and Third Respondent on 26th September, 2009, wherein it was inter alia decided as follows: "Next issue in this regard related to be induction of Directors as per understanding the investors, who have put in money, the Board took on record the fact that none of investors wish to be part of Executive Directors of the Company, because, firstly, they stay far away from Belgaum and that all of them have their business to look after. Taking this fact into consideration, the overall consensus that emerged out of the deliberations was to the effect that let all agreement with Banks and Financial Institution be over and thereafter the appointment of new Directors can be decided because if the appointment are made now, the Bankers and Financial Institutions would ask for them to join as personal guarantors, which could be avoided when they do not wish to be part of core Executive Directors for the Company." 12. Subsequently, Respondent No.6 addressed a letter dated 10th January, 2008 to the Director of R-1 Company inter alia stating that her lands worth more th....
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.... out here that Sanction of Credit Facilities, Axis Bank letter No. AXISB/BLGM/AKP/2007-2008 dated 19.12.2007, inter alia contains several terms and conditions and one of the conditions pertaining to Term Loan reads as under: (D) Nature of Facility Term Loan 1. Limit Rs. 10.95 crores (Rupees Ten crores and Ninety Five lakhs Only) 2. Purpose To part finance establishment of company's Greenfield foregoing unit at Belgaum 3. Security Primary: First charge on the entire fixed assets of the Company, present and future including 14 acres of land at Sy.No.663 situated at Vagavade Industrial Estate, Machhe, Off. Belgaum Khanapur Road, Belgaum, on which the proposed unit is coming up. Collateral: (1) Extension of charge on the entire current assets of the Company, present and future. (2) Equitable mortgage of 14 acres of land of Sy.No.663 situated at Vagavade Industrial Estate, Machhe, Off. Belgaum Khanapur Road, Belgaum, presently standing in the name of Smt. Roopa Bhandare. Personal Guarantee of Shri Ram Bhandre, Shri Parag Bhandre and Smt. Roopa Bhandare. 14. The Respondent No.1 Company has addressed a letter to the Petitioner dated 17.12.2018,....
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....ettlement of her dues. 2. Share Value: The equity shares are being issued against part of guarantee commission due and quantified in monetary value of Rs. 1,89,00,000/- (Rupees One Crore Eighty Nine Lakhs Only) so, no separate valuation report is required. However based on the Net Worth i.e. Company's Paid-up share capital plus Reserves divided by the number of shares issued as on 31st March 2018, value of 1 (One) equity share of Rs. 100 each is arrived at Rs. 400/- (Rupees Four Hundred) per share but shares are allotted at par. 3. Issue and Allotment of 4,51,000 Equity Shares in Phase 2: As mentioned in the recitals, in respect of the balance sum of Rs. 4,51,00,125/-(Four Crores Fifty One Lakhs One Hundred Twenty Five Only) being the balance guarantee commission due to the guarantor, the Company shall issue and allot 4,51,000 (Four Lakhs Fifty One Thousand) equity shares of Rs. 100/- (One Hundred) each aggregating to a sum of Rs. 4,51,00,000/-(Four Crores Fifty One Lakhs) as soon as requisite compliances under the Companies Act, 2013 and the rules framed thereunder are made to enhance the authorized share capital to sufficient level to accommodate the propo....
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....Bakshi 2) Milind Dhume 3) Ganesh Kamath 4) Pankaj Dhume 5) Sridar Swamy in their personnel capacity shall bear all the related expenses and indemnify the Company fully" 17. Similarly, another Ordinary Resolution for increase in Authorised Share Capital and two special Resolutions to carry out consequential alteration to the capital clauses in Memo and Articles of Association of the Company, were defeated by the Petitioners. Therefore, the Respondents could not allocate the remaining shares to the Respondent No.6 as promised in pursuant to Guarantee Commission due to her. 18. So far as the impugned Sale Deed dated 26th September, 2018 is concerned, it is to be stated that this Deed is executed Between R-1 Company and A. K. Foundries Pvt. Ltd., by transferring 4 acres of land out of total extent 14 Acres and 10 Guntas of the Scheduled property in question. As stated supra, the original Sale Deed dated 16.01.2009, executed by Mrs. Roopa (R-6) in favour of R-l Company, in respect of scheduled property in question is in question, vide O.S.No.119 of 2019 filed by Mrs. Roopa (Respondent No.6) before Principal Senior Civil Judge & Chief Judicial Magistrate, Belagavi by inter alia seeking....