TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1465
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....5th March, 1947 under the provisions of the Companies Act, 1913 (hereinafter referred as 'the company'). The Authorised Share Capital of the company presently is equity share capital of Rs. 1,98,00,000 comprising of 6,60,000 shares at Rs. 30 each. The subscribed and fully paid up share capital as on 31.03.2013 was Rs. 62,30,520 comprising of 2,07,684 equity shares of Rs. 30 each. Thereafter, the respondents allotted 1,70,060 shares of Rs. 30 each at a premium of Rs. 95 at a Board Meeting on 23.11.2013. The 1st petitioner had filed this petition along with the 2nd petitioner Mrs. Jaya. P on account of serious manipulation and mismanagement in the companies relating to the share allotments mentioned above which are the main contentions in TCP/23/KOB/2019 (CP/57/2014 and TCP/146/2016 of Chennai Bench). 3. The Registered Office of the Company is in the State of Kerala and is presently situated at C-234/32, CAICO Road, Thrissur- 680 006. 4. The petitioners had filed the above said petition under Sections 111, 111A, 397, 398, 402, 403 and 406 of the Companies Act, 1956 and Section 59 of the Companies Act, 2013 for oppression and mismanagement in the affairs of M/s. The Canning ....
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....l quoted that at the Annual General Meeting of the Company held on 24.09.2009, the shareholders had superseded a previous resolution and permitted the directors to borrow amounts; Permitted the issue of Fully Convertible Debentures and amended Articles to include :- "The shares shall be under the control of the Directors who may allot or otherwise dispose of the same to such persons and on such terms and conditions either at par or at premium or at a discount and as such times as the Board shall think fit including by way of issue of shares on preferential basis and/or through Private Placement mode or through conversion of debt or debt instruments into equity or in any other permissible manner." 7. Thereafter, 80,000 debentures were issued at face value of Rs. 250 per debenture. The same were to be converted after 48 months or at the option of the company. The issue was not fully subscribed and the time was extended. Then the Board allotted the debentures to subscribers at their discretion. Accordingly, 1st and 2nd respondents were allotted 6,000 and 5,000 debentures respectively. Due to the non-payment of accumulated interest on such debentures, the company had allotted shares....
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....rol over the shareholding of the company, the group comes into having control of the valuable landed properties of 1st respondent company at Mangalore, Cochin and Thrissur. It was further submitted that the directors who had failed to subscribe properly during the debenture issue in 2009, have now sought to allot shares to themselves on preferential basis to the tune of 1,60,000 shares after illegally increasing their shareholding in the company. 12. The senior counsel for the petitioners' stated that such an attempt by the respondent is oppressive and arbitrary. If the respondents are not stopped from carrying out this new act of oppression, it would make the company a closely held company when in fact the object of its incorporation itself was to serve the public at large through its business. The noble object of having a widely spread Public Limited Company has now been shattered by the respondents. The above detail of facts would warrant the winding up of the company on just and equitable grounds, however since the same would unfairly prejudice the interest of the petitioners, they have filed this company petition. 13. To substantiate their above averments, the Petitioner....
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.... The submissions made by the PCS for the respondents are as follows: 15. It was submitted that as per Register of Members of the company, the 1st petitioner became shareholder for the first time in July 2008 by holding 15 shares and not since 2006-07. But thereafter the 1st and 2nd petitioners were allotted 12,000 and 10,000 equity shares respectively in April 2011 by converting cumulative FCDs. 16. It was further submitted that Respondent 2 to 10 along with their related persons holds 39.78% of the paid-up capital of the company and not 8% of issued capital. It was also denied that the Board of Directors did not widely subscribe to the cumulative unsecured fully convertible debentures of the company. In fact, the Directors along with their related persons and persons acting in concert had subscribed to 36324 Fully Convertible Debentures out of 63842 debentures issued by the company, i.e., 56.90% of the issued FCDs of the company. 17. The counsel submitted that as per the despatch register of the company, the notice for the Annual General Meeting was despatched to all the shareholders by duly complying with Section 101 of the companies Act, 2013. 18. The counsel further submitt....
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....ucing funds into the company at a time when the company eroded its entire net worth which would have led it to bankruptcy and by utilizing the fund the Company is making a concerted effort to regain part of its lost market share. 21. The counsel for the respondents stated that as per Article 8 of the Articles of Association (AoA) of the Company, the shares are under the control of the Board of Directors. The petitioners cannot question the discretion of the respondent challenging the allotment, moreover the company duly complied with the requirements of the AoA and relevant provisions of the Companies Act. 22. The PCS appeared for the respondent submitted that the provisions of section 397 can be invoked only when the affairs of the company are being conducted in a manner oppressive to the members and a single act of allotment of shares, an isolated act, cannot be considered as an act of oppression. He further stated that there is no mismanagement of the affairs of the company or no material change in the management or the composition of the Board of Directors as contemplated in Section 398 which would prejudice the interests of the company. 23. He further submitted that, in its....
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.... in doing so are seeking to justify the acts of oppression committed by them. 29. The petitioner counsel submitted that a complaint has been filed against CAICO in respect of its subsequent issue of Fully convertible Debentures before the Securities and Exchange Board of India (SEBI). The SEBI undertook an enquiry to ascertain whether CAICO had made any public issue of securities without complying with the provisions of the Companies Act, 2013. The Board on 18.03.2019 decided that those Directors, who were directors at the time of issuance of FCDs are obliged to ensure refund of the money collected by the Company through the offer and would stand debarred till the repayment by the company. 30. The petitioners counsel mentioned that the allotment of shares to themselves on the premium decided by themselves for a rate of interest agreed by themselves and for loan taken by themselves is not only outrageous but shoot down all known canon of law and corporate democracy. 31. The petitioners counsel further submitted that in a company as old as 1st respondent company, it is only fair and just to treat them as a public company and fairness is hallmark of any transparent corporate house.....
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....esolution on issue of unsecured FCDs, in any manner, listed under the head of special business in the notice dated 31.07.2015 for the 68th Annual General Meeting, which is to be held on 28.09.2015. The Hon'ble NCLT, Chennai Bench did not find any urgency for the same and applicant did not press for the same also. b. CA/30/2016 in CP/57/2014: This application was to implead the Legal Representative of the deceased 2nd Respondent. The above prayer was allowed on 26.10.2016 by the Hon'ble NCLT, Chennai Bench. Thereby, impleaded the Legal Representative as 17th Respondent. c. CA/19/2015 in CP/57/2014: This application was for restraining the respondents from alienating/disposing off the fixed assets of the company, including the property of the Company at Mangalore and to appoint an independent auditor to carry out investigative audit into the books of the 1st respondent company. The Hon'ble NCLT, Chennai Bench on 24.03.2017 disposed of this application by passing inter alia, the following Order: " ..... However, for the purpose of maintaining transparency and fetching the market value of the property proposed to be sold, we appoint three Member Committee, the 1st ....
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....he other and if the former availing of that relationship makes a pecuniary gain for himself; Section 88 would be attracted. What is sought to be prevented by a person holding such fiduciary benefit is unjust enrichment or unjust benefit derived from another which is against conscience that he should keep. When a person makes a pecuniary gain by reason of a transaction, the cestui qui trust created thereunder must be restored back. 39. The issue to be considered in the instant petition is the purported breach of trust on the part of Respondents 2 to 10, who are the Directors of the 1st Respondent Company, pertaining to conversion of loan to 1,70,060 equity shares. 40. To arrive at a conclusion on the first point of consideration, we have relied on the following case laws/judgements: Sangram Singh Gaekwad vs. Santadevi Gaewad (2005) 11 SCC 374, "....A Director of a Company indisputably stands in a fiduciary capacity vis-avis the Company. He must act for the paramount interest of the company. He does not have any statutory duty to perform so far as individual shareholders are concerned subject of course to any special arrangement which may be entered into or a special circumstan....
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....of the 1st respondent company during that period, the acts of the directors can be justified as taken in the best interest of the respondent company. The above conclusion is also substantiated in the judgement of M/s. Harinagar Sugar Mills Ltd. Vs. Shyam Sunder Jhunjhunwala & Others [ (1962) 2 SCR 339]. 44. The counsel for the petitioner had mentioned the judgement in Dale and Carrington (Supra) in support of his averments as observed by the Hon'ble Supreme Court in Sangramsinh P. Gaekwad (Supra), that the rationale in Dale and Carrington (supra), thus, must be understood to have been rendered in the fact situation obtaining in that case. It does not lay down a law that fiduciary duty of a director to the company extends to a shareholder so as to entitle him to be informed of all the important decisions taken by the Board of Directors. Such a broad proposition of law, if understood to have been laid down in Dale and Carrington, would be inconsistent with the duty of a director vis-Rs.-vis the Company and the settled law that the statutory duty of a director is primarily to look after the interests of the company. 45. We therefore find no merit in the argument that Board of D....
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.... four directors is an isolated act by the Board of Directors and not a continuous one. The judgement of Needle Industries (India) Ltd vs. Needle Industries Newey (India) Holding Ltd (Supra) and Shanti Prasad Jain vs. Kalinga Tubes Ltd (Supra) inter alia reads 'that it has been held that the person complaining of oppression must show that they have been constrained to submit a conduct which lacks probity, conduct which is unfair to them and which cause prejudice to them in exercise of their legal and proprietary rights as shareholders. It was further held oppression should be a continuous act continuing till the date of filing the petition.' 50. In the instant case, the petitioner failed to prove the continuing oppressive acts conclusively and we cannot rely upon a single act of the directors as an oppressive act, as per the aforementioned judgements of Hon'ble Supreme Court. Point (iii) & (iv): 51. As regards the third point, the resolution passed on Agenda item No.6 in Annual General Meeting held on 26.09.2014, i.e., regarding the preferential issue of shares, on which the Hon'ble Company Law Tribunal, Chennai has passed an interim Order is also for furtherance ....