AI Drafter 
TaxTMI 
TaxTMI 
2020 (12) TMI 419
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....iginal holding 1,100 By inheritance 23,010 Pursuant to the Scheme of amalgamation of Kumudam Printers Private Limited with Kumudam Publications Private Limited as sanctioned by the Hon'ble High Court of Madras 3,08,530 Total 3,32,640 2. The Second Petitioner, A. Kothai (wife of Late Mr. SAP Annamalai Chettiar, founder of Kumudam magazine) holds 9,660 equity shares of Rs. 100 /- each, constituting 1.88% of the paid up capital of the R1 Company. The second petitioner is one of the subscribers to the Memorandum of Association of the R1 Company and was also named as one of the First directors of the R1 Company. The second petitioner was appointed as Managing Director of R1 Company by the board at its meeting held on 26/9/2011. As the validity of the said board meeting was dealt by the City Civil Court in the order dated 27/4/2012, the second petitioner claims to be a director as on date of the petition. As per the Annual Return in Schedule V for the year ended 31/03/2008, of the R1 Company as signed and filed by the R2 with ROC, Tamilnadu, Chennai, the petitioners, together, hold 66.61% of the equity share capital of the R1 Company. As on t....
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....r 1994. 2. The First Petitioner being a Cardiologist by profession is residing at USA and very much interested in the business of the R1 Company as it is a family business and that too is a brainchild of his late father Mr. SAP. The first petitioner has been serving the R1 Company in his capacity as "Honorary Editor" after the demise of SAP till September 2011. It is the clear intent of the petitioners to continue to retain 2/3rd interest in the R1 Company and also to manage the Company through its board by way of consistently having two directors from the family. 3. Since the First Petitioner was residing outside India, R2 was inducted into the Board of the R1 Company during the year 1990 and was given 100 equity shares in the R1 Company. The R2 was primarily in charge of the finance, administration, besides the overall business development of the R1 Company. 4. After the death of SAP in 1994, the second petitioner was appointed as Managing Director of the companies and PVP was appointed as Alternate Director to the first petitioner. As the first petitioner was residing outside India and the second petitioner was not keeping good health because of her age, the first petit....
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....he interest of the petitioners who are the majority shareholders of the Company holding almost 67% of the share capital. The Petitioners have inherited the property of the late SAP who had effectively built up the entire asset base of both the Companies. R2 conveniently ignoring the past, with an ill intention to hijack the R1 Company from the petitioners indulged in various acts of oppression and mismanagement. 8. Further, R2 amended the Articles of Association so as to keep his position in tact forever and to have an upper hand over the petitioners who are the majority shareholders. The following Articles were inserted in the Articles of association of the Company at the general meeting held on 19/03/2003. "M/s. Imprint Tech India Private Limited shall, so long as they hold shares in the Company, be entitled to nominate two Directors to the Board. Such nominees shall be entitled to function as Directors from the date their nomination is received by the Company. In the event that one of such nominees is Mr. P. Varadarajan, he shall occupy the post of Chairman of the Board. Notwithstanding anything contained Article 33, such Nominee Directors, shall not be required to h....
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....07.2011 and 07.05.2012 from the Deputy Director - General of Foreign Trade, Ministry of Commerce and Industry, Chennai. As the export obligation period had expired on 18/3/2010 and the R1 Company failed to furnish documents regarding fulfillment of the export obligation, the R.1 Company and its directors have been called upon to show cause as to why duties of Customs plus 15% interest per year should not be recovered and action under Foreign Trade (Development & Regulation) Act, 1992 not be taken against the Company and its Directors. The R2 is solely responsible for such a failure and because of his incompetency and irresponsibility the petitioners and the R1 Company had to face this show cause notice. The R2 completely suppressed the details of the export obligation and the petitioners came to know about the non-compliance only after the receipt of the Show Cause Notices. In fact, the first petitioner himself suggested that the differential excise duty can be paid by way of availing loans from Banks which in turn can be obtained by furnishing personal guarantees and securities by the petitioners. The R2 holding a responsible position in the R1 Company ought to have assessed the i....
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....entral Government but the respondent having been the Managing director had not taken any effort to comply with the Law. All these non-compliances would prove beyond doubt that the R2 did not have any regard and respect for statutory compliances. (iv) The order of the Income Tax department has clearly brought out the fact that the R1 Company, which is managed by the R2, has purchased the LED panel worth Rs. 8 Lakhs from a firm (M/s Tricom Vision) that is incidentally owned by the R2 himself, for an inflated value of Rs. 3 crores. This is yet another act of mismanagement by the R2. Over and above the inflated value of Rs. 2.92 crores which the R1 Company has to incur, the Income tax Department has slapped a demand of Rs. 1.32 crores for making a wrong claim of depreciation. Copy of the Assessment order kept as Annexure. (v) The Petitioners who all along did not revolt and maintained silence, in order to protect the interest of the R1 Company and its members, had to break their silence when board meeting that was held on 22/12/2008 for considering the annual accounts of the Company for the year ended 31/03/2008 both the petitioners voted against the resoluti....
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....owever, the R2 expressed his inability to attend the meeting due to his pre-occupation and prior engagements and had informed his willingness to be contacted during the meeting through telephone. The Board elaborately discussed the provisions of the amended Articles of Association that were amended only to benefit the R2, completely curtailing the rights of other directors on the board. In order to protect the spirit of Section 287 read with section 9 of the Act, the board decided to keep the Amended Articles of Association under suspension, but however decided to implement the resolution at a later date. The Board also expressed its anguish with respect to the allegations made by a section of employees and the press reports on the same. (ix) On 23/04/2010, a case was filed against the R2 by the Central Crime Branch, Commissioner's Office, Egmore, Chennai 600008 alleging offence under sections 420, 468, 471 of Indian Penal Code, 1860. In the said case, the R2 was arrested on 23/4/2010 and later let out on bail. In view of this, the Board met again on 24/04/2010 and decided to reserve the right to remove the R2 as Managing Director of the Company. (x) In order ....
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....ith the malafide intention of depriving the family members having majority shares of the R1 Company and in order to grab the 100% ownership to his sole advantage has raised these issues at this juncture. The R2 realizing the fact that it would be very difficult for him to create a new brand in the market decided to take illegal control over the R1 Company and accordingly has illegally cancelled 3,32,440 shares constituting 64.73% held by first petitioner. The R2 ought to have known that it is for the Enforcement Directorate or the Reserve Bank of India to give a finding that there is a non-compliance on the part of the first petitioner in holding shares and only thereafter the R1 Company shall act in accordance with the directions issued by the said regulators to correct any technical irregularity or non-compliance, if any, by way of an option which would continue to retain the basic shareholding fabric of the R1 Company being 66.61% with the petitioners family and 33.39% with the respondents family. It is not out of place to mention that the R2 is the signatory to the list of allotment filed with RoC in respect of allotment of the majority of the shares to the 1st petitioner. Thus....
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.... Both the respondents after duly acknowledging the receipt of the notices failed to attend the meeting on the said date. At the meeting held on 26 /9/2011 the board passed resolutions (i) Removing the R2 from the post of Managing Director and appointing the second petitioner as Managing Director (ii) Keeping in abeyance Articles 31(a), 32, 39(b) of Articles of Association of first respondent Company in order to implement the spirit of MoU dated 15/8/2010 Extract of the decisions taken in the said board meeting was also sent to all the respondents. Copy of the said extract is kept as Annexure. 14. The petitioners also filed Annual Returns for the years ended 31/03/2009, 31/03/2010, and 31/03/2011 reflecting the correct position of the shareholders of R1 Company. Copy of the Annual Returns filed by the petitioners is kept as Annexure. The Petitioners being 66.61% shareholders did not want to convene a general body meeting to pass a Special Resolution under the provisions of Section 31 of the Act for amending the said clauses in the Articles of Association of the Company, as the petitioners knew very well that the respondents, who are 33.39% shareholders, would not vote in favour o....
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....intain status quo with regard to share holding pattern as on 19.09.2011; (iv) To permit the 1st petitioner to continue the exercise of his corporate rights including voting rights, right to dividend, bonus rights issue and other corporate benefits under the Companies Act, 1956 and other economic loss with respect to 3,32,440 shares that were illegally cancelled at the purported board meeting alleged to have been held on 20.09.2011 till the disposal of the Company petition; (v) To appoint an independent Chairman to chair the board and general body meetings and to conduct the affairs of the R1 Company in a prudent manner; (vi) To appoint one or more competent persons as inspectors to investigate the affairs of the R1 Company; (vii) To direct the respondents to furnish financial statements of the R1 Company for the years ending 31.03.2010, 31.03.2011 and 31.03.2012 immediately and thereafter from 01.04.2012 on a fortnightly basis to the petitioners; (viii) To restrain the respondents, their men, servants, representatives and agents from alienating, transferring, disposing off or otherwise deal with any of the moveable and immoveable assets ....
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.... 14.05.86 Transfer (Purchase) For cash 50 100 Not a Resident in India 19.05.86 Transfer (Sale) For cash 50 50 Not a Resident in India 24.02.99 Transfer (Purchase) For cash 30,803 30,853 Not a Resident in India 5. It is also to be noted that the 1st Petitioner has represented to RBI that Regulation 5 of FEMA permits NRI to hold shares on non-repatriation basis in print media. This is a deliberate misrepresentation as the notification dated 16th February 2001 which would govern the allotment on 20.09.2001 in its proviso clearly holds that no FDI/NRI/OCB investment is permissible in print media Company. The Company Law Board in its order dated 26.05.2015 at para 20 had held that if acquisition is held to be in contravention of FEMA, the charge of oppression would fall. Rectification of Register by the Board of Directors: (i) Petitioners have cited judgements to urge that Board of Directors do not have the powers to rectify the register of members on their own. On this issue, the petitioners cited the case - P.V. Damodara Reddi and another -Vs- Indian National Agencies Ltd. AIR 1946 Mad 148. The Respondents....
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....or the year ending 31.03.2009 and defeated the resolution. As a result, the accounts for the year ending 31.03.2009 were not adopted by the shareholders. LED Board sale by Tricom Vision to R1 Company: (i) The Petitioners have alleged the transaction of sale of LED Panel by Tricom Vision, a partnership firm in which the R2 is a partner, to the R1 Company. The transaction of sale was placed before the meeting of Board of Directors twice i.e. on 01.02.2004 and 12.06.2004 and in the General Meeting also twice on 11.02.2004 and 19.06.2004 both the petitioners were present in both the Board Meetings and 2nd petitioner was present in both the EOGMs. 1st petitioner was present in one EOGM. R2 did not participate in any of the meetings and did not vote in the resolution approving the purchase of LED panel. In any event, it is a past transaction concluded in the year 2004 and cannot be reopened in the year 2012. (ii) The allegation of LED panel sale is premised on an Assessment Order dated 30.12.2008 passed by Assessing Officer, Income Tax Department. This order is no longer relevant as in an appeal preferred by the R1 Company, the Commissioner (Appeals) vide order dated J12.02.2019....
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....increase in remuneration part from being reflected in the accounts had also been reflected in the statement of particulars of remuneration which are part of the accounts approved in the board meeting held on 20.06.2007. (ii) Investigation conducted by the Police Authorities also showed that the signature in the board resolution of 25.04.2007 was that of the 1st petitioner. This finding in the closure report of the Police was challenged by the 1st petitioner before the Magistrate CCB Court and such challenge was rejected by an order dated 03.10.2017. A Criminal Revision was preferred from the same which was allowed by a cryptic order dated 15.03.2019. A Special Leave Petition was filed by R2 against the said Criminal Revision order. In the said Special Leave Petition, notice was issued by an order dated 13.06.2019 and the order of the High Court in the Criminal Revision was stayed by the Hon'ble Supreme Court. (iii) The 1st Petitioner till 24.12.2007 has himself authorized increase in remuneration of R2. The first time allegation with regard to managerial remuneration has been raised is at the Board Meeting held on 22.12.2008 wherein a resolution was passed to authorize fu....
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....cardiologist practising in the United States of America. It is a matter of record that 2nd petitioner is stated to be of advance age and not keeping good health; * The articles were amended with consent of all parties to vest the management rights in favour of R2; * Though assertions have been made to the effect that meetings of 22nd April 2010 and 24th April 2010 have been held to keep the articles in abeyance, no such minutes have been produced in any form by the petitioners despite passage of nearly 7 years. In any event, these alleged meetings, if held, have been held by the petitioners to take away the management rights vested in the Respondents, without a valid quorum since the articles specifically provide that no quorum would be complete in the absence of R2; * It is also not been disclosed to the Hon'ble Tribunal that not only has the R2 received remuneration and increments thereof from the R1 Company but that even 1st petitioner has been drawing a handsome salary from the R1 Company despite not being in management and admittedly not residing in India, but only visiting India. (vi) Respondents therefore seek dismissal of petition being dev....
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....e Petition and paragraph 5 of this Rejoinder above are reiterated. 9. The contents of paragraph 9 are denied, and the contents of paragraph 6.8 of the Petition are reiterated. It is submitted that the Board Meeting dated 20.09.2011 was not validly held because leave of absence sought by the Petitioners' response to the notice for this meeting was ignored by Respondent No. 2, amounting to an act of oppression. Therefore, the Petitioners could not have been removed from directorship under Section 283 (1) (g). 10. The contents of paragraph 10 are denied and the contents of paragraph 6.9 of the Petition are reiterated. The 1/3rd shares were given by the family of the Petitioners to the family of the Respondent, practically as a gift in the year 1998, after the demise of Mr. S.A.P. Annamalai Chettiar. The police complaint filed by Petitioner No. 1 was in relation to acts of cheating, forgery, financial misappropriation, breach of trust etc., and not to take away any shares held by the respondents. The allegation of the Respondents regarding their shares being grabbed by the Petitioners is false. In fact, in the period between the police complaint being filed on 23.04.2010 and ....
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.... (ii) The allegation that the Petitioner No. 2 took the decision to avail the EPCG Scheme falls on the face of the averment made by the R2 in Para II (2), Page 8 of his own Interim Counter wherein he states as follows: "Mr. S.A.P. Annamalai passed away, and subsequent to his demise the 2nd Petitioner was appointed as the Managing Director of the R1 Company however, the notwithstanding such appointment, the R2 along with the late Mr.P.V. Parthasarathy continued to single handedly manage the affairs of the R1 Company with no assistance from the Petitioners." Thus it is clear that it is the R2 who had admittedly taken this decision to go through the EPCG Scheme which ultimately had resulted in a huge loss to the Company. 13. The contents of paragraph 16-17 are denied and the contents of paragraphs 6.15-6.18 of the Petition are reiterated. 14. The contents of paragraphs 18 and 19 are denied, and the contents of paragraphs 6.19-6.20 of the Petition are reiterated. The Petitioners approved the purchase of the LED panel worth Rs. 3 crores from M/s. Tricom vision, a firm owned by R2. It was only when the Income Tax order dated 30th Dec 2008 was received that the petitioners c....
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....lue to be determined by two independent global auditors 19. The contents of paragraph 24 are denied, save as to matters of record. The contents of paragraphs 6.26-6.27 of the Petition are reiterated. The Company's letter dated 11.02.2011 (signed by Respondent No. 2) to the Regional Director states "Without prejudice to the contentions of both, the Parties has already entered into an MoU dated 15.08.2010 and pursuing the spirit and the agreement as per the MoU, both the Parties decided to appoint a Statutory Auditor each to jointly audit the accounts of the Company for the financial year ended 31.03.2010". Clearly, Respondents No. 2-4 took steps to implement the terms of the MoU, nearly 6 months after execution of the MoU, which belies their contention that the MoU has expired on expiry of 60 days. The Respondents in September 2011 for the first time seek to now go back on the terms of the MoU after more than 13 months since it was executed. 20. The contents of paragraph 25-26 are denied, and the contents of paragraph 6.28-6.29 of the Petition are reiterated. The lie of the R2 that he came to know of citizenship/residential status of Petitioner No. I only in the year 2009 ....
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.... Authority. What the Company's Board again did was to dishonestly tamper with the property being shares held by Petitioner No 1, a non-resident, and by cancelling the shares (which is not permitted even under Company's Act) it has appropriated to itself that percentage of the Company's security which belonged to Petitioner No 1. Without prejudice to the contention of the Petitioners that there has been no contravention of any legal or regulatory requirements, the harsh, burdensome and wrongful behaviour of R2 is further demonstrated by the fact that Section 15, FEMA gives the power of compounding a contravention, which role also the minority shareholders of the Company through their Board position assumed on themselves and decided that the contravention cannot be compounded. They decided not even to wait for the adjudication proceedings which had been initiated by one of the authorities to get completed. The contents of paragraph 27 are denied, and the contents of paragraph 6.30 of the Petition are reiterated. 22. The contents of paragraphs 28 are denied, and the contents of paragraph 6.3l of the Petition are reiterated. R2 admits that the issue regarding shareholdin....
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....state business". 23. The contents of paragraph 29 are denied and the contents of paragraph 6.32 of the Petition are reiterated. 24. The contents of paragraphs 30-32 are denied save as to matters of record. The contents of paragraphs 6.33-6.36 of the Petition are reiterated. 25. The contents of paragraph 33 are denied, and the contents of paragraph 6.37 of the Petition are reiterated. 26. The contents of paragraph 34 are denied, and the contents of paragraphs 6.38 of the Petition are reiterated. 27. The contents of paragraph 35 are denied, and the contents of paragraphs 6.39-6.41 of the Petition are reiterated. 28. The contents of paragraph 36 are denied, and the contents of paragraph 7 of the Petition are reiterated. 29. The contents of paragraph 37 are denied, save as to matters of record. It is specifically denied that there is any suppression of material facts by the Petitioners or that they have engaged in forum shopping. The causes of action and the reliefs sought in the Petition are distinct from any of the other matters involving the parties to this matter. In light of the foregoing, the matter must be decided in favour of the Petitioners in terms as ....
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....0 shares to 1st Petitioner and his mother. This pattern of shareholding remained as such till 1999. Therefore the Petitioners have contended that the shares were allotted to Mr. PVP during his lifetime, which contradicts the criminal complaint as well. C : The reasons for approaching Company Law Board: (i) The City Civil Court while adjudicating upon the Application for interim relief under Order 39 Rule 1 and 2 filed by the 2nd Petitioner, has vide Order dated 27.4.2012 held the resolution dated 26.9.2011 to be invalid. Only after the said order was passed, the petitioners decided to move this Bench challenging the cancellation of shares of the 1st petitioner and the illegal removal of both the petitioners. D : Falsity of the claim of the Petitioner: Further, there is a denial by the 1st Petitioner that he never executed a Proxy in favour of 2nd Petitioner for purposes of EOGM scheduled for 19th March, 2003. The R1 is placing on record a copy of the relevant Proxy form which belies the falsity of the Petitioners Claim. The pleadings filed by the Petitioners are clearly unreliable and cannot be given any credence whatsoever. REPLY ON MERITS: Para 3: It is su....
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.... consecutive Board meetings held on 20.9.2011, 10.10.2011 and 2.1.2012 is automatic and by operation of law. (ii) It is stated that the current shareholding pattern as disclosed by R1 in its Counter is true and correct. The records of the Company reflect that the Respondent No. 4 is the majority shareholder of the Company, holding 83.92% of the Issued and Paid up Capital of the Company as on date. Para 17: (i) The contents of para 17 in general are denied. The Respondent however is submitting a para-wise response to the averments made: (ii) The contents of sub para 17.1 are denied and disputed. While not admitting to the correctness of the statements made in the Company Petition, it is pertinent to note that the Petitioners have themselves admitted that Sh. P.V. Parthasarthy (father of R2 and 3) was involved in the business of printing and publishing right since the inception of the HUF business. Further, a categorical admission has been made in the said paras of the Company Petition that upon the demise of father of 1st Petitioner, 2nd Petitioner was appointed as the Managing Director and Shri P.V. Parthasarathy was appointed as the Alternate Director to the 1st Petitione....
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....no decline in TR from the 3rd quarter i.e. Q3 of 2011 to the 4th quarter i.e. Q4 of 2012. On the contrary, there is a marginal improvement. The Petitioners have deliberately withheld disclosure of complete information so as to deny an opportunity to the Hon'ble Board to make a complete and informed decision on this issue. Enclosed is the letter of MRUC dated 11.06.2013 giving the AIR and TR of "Kumudam" for the last 6 years, marked as Annexure R1/EA. (vii) It is a matter of record that during the relevant period that 1st Petitioner claims to be the "honorary editor", the home deliveries of the Kumudam magazine drastically reduced and impulse buying increased solely on account of the sleaze that the magazine had begun to publish. The Respondents place on record some editions of Kumudam publication which are indicative of the poor editorial content as Annexure R1/F. It is also pertinent to mention that the distributors, news agents etc., who were concerned with the circulation and subscription of the magazine had also raised issues regarding the sleaze content of the magazines. The copies of letters in Tamil and their English translation are being placed herewith as "Annexure ....
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....e lives of the employees working in the machine. 1st Petitioner created an unpleasant atmosphere in the shop floor by screaming and shouting at the employees exposing them to the management dispute. The Respondents place on record the relevant documents in this regard as Annexure R1/K. (xii) The Respondent highlights omissions and commissions by the Petitioners which caused damage to the reputation and image of the Company apart from financial loss. (a) Under the "Honorary Editorship" of the Petitioner No. 1, a story was published in Kumudam Magazine against an individual who was a resident of Malaysia without verification of any of the facts which were published in the news article. It so transpired that the allegations made were factually incorrect and it resulted in the said foreign national filing a suit for damages against the Company in the court at Malaysia. Copies of relevant documents are enclosed as Annexure R1/L. (b) The Company had served a suspension order on 27.9.2011 upon an employee who was suspended for acting against the interest of the magazine by instigating the reporters not to send news reports for the magazines. Interestingly, the Board of Directors ....
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....f the Counter are reiterated. Para 18: The contents of para 18 is denied and disputed. The resolution passed in the Board Meeting dated 20.9.2011 cannot be termed as having acted in a harsh, burdensome and wrongful fashion, as is being alleged by the Petitioners. The Board Meeting was validly convened after due notice to the Petitioners. It is an admitted position at law that 1st Petitioner is a foreign national / non-resident and had occupied the position of Editor in violation of Press and Registration of Books Act, 1867 and further his acquisition of shares was also illegal. Para 19 to 22: The contents of para-19 to 22 are denied and disputed. It is emphasized that the decision to amalgamate the two companies was that of the Board of Directors and was not a unilateral act of R2. Further, the averment made by the Petitioners that there has been no change in the shareholding pattern is false and incorrect and the Respondent craves liberty to refer to and rely upon the submissions made in its Counter which is not being reproduced for sake of brevity. Para 23: (i) The contents of para 23 are denied and disputed. The Respondent reiterates the submissions made in Para 22 to 2....
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....es in teeth of records maintained by the Company. Para 24: (i) The contents of para 24 are denied and disputed. It is submitted that it was the unaniMoUs decision of the Board to import the machinery under the EPCG Scheme. The R1 filed Counter setting out the facts and circumstances of the EPCG Scheme imports which are not being reproduced for sake of brevity. The Auditors have been commenting with regard to EPCG since 2005 and the Petitioners have full knowledge of the same and are raising this issue now to make false allegations against the Respondents. In fact, the 2nd Petitioner is a signatory to the audited accounts of the Company till the year 2007 and cannot be heard to the contrary. Having participated in the deliberations at the meeting and having approved and adopted the resolutions, the Petitioners are estopped from raising specious pleas questioning the decisions recorded in the said resolutions. It is however stated that the Company has already paid 50% of the custom duty benefit availed under the scheme i.e. Rs. 1.33 Crores in June 2012 and got the license validity extended upto February 2014. The custom duty liability was readjusted after considering the exports a....
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....etings and having adopted the resolution are estopped from raising any dispute in respect thereof. Para 26: (i) The contents of para 26 are factual assertions which are being stated out of context and are hence denied to the said extent. (ii) The R1 reiterates the submissions made in Para 29, 30, 31 and 33 of its Counter. The Respondent craves liberty to refer to and rely upon the various resolutions that are placed on record, approving the increase in remuneration to R2 which resolutions have been approved and signed by 1st Petitioner himself. Further, the increased remuneration was reflected in the annual accounts which have been duly approved till the year 2007 by the Petitioners themselves and they are estopped from contending to the contrary today. The only reason attributed by the Petitioners for not approving the accounts of 31st March 2008 by their own admission is the payment of remuneration to R2. As explained above, the remuneration to R2 was agreed to and approved by the Petitioners and as such the Petitioners were not justified in withholding approval of the accounts and hence, the Respondents are fully justified in approving the accounts in accordance with the p....
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.... for 5 years. The fact is that for a short period of time, the Board could not be used on account of the then prevailing policy of the local government. However, the Board at present is being utilized by the Company for promotion of the magazines published by the Company. (v) It is specifically denied that the resolutions recording the discussions of LED Board have been orchestrated after the ouster of Petitioners as is alleged. It is also pertinent to mention that R2 had duly disclosed his interest in the said transactions in all the meetings held in this regard. The business was transacted at all such meetings and resolutions passed with unanimous consent and now with malafide intent, the Petitioners are attempting to raise objections to the very same transaction. This alone reflects the ulterior motives underlying the present Company Petition and the Petitioners are estopped from raising such objections to the business decisions taken at the Board meetings. Para 29: Para 29 requires no comments. The Petitioners are however put to strict proof of all averments made in this regard. Para 30 & Para 31: (i) The contents of para 30 and 31 are again factual assertions which ar....
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....nformation being fed by the user can easily be manipulated. (iii) As regards, the courier receipt attached, it only signifies that something has been dispatched vide courier however, the dispatch is not a proof that the documents referred to in para 32.1 were dispatched by Petitioners or received by Respondents. It is stated that no such documents as have been referred to by the Petitioners were ever received either by courier or otherwise. It is verily believed that the said courier receipt may refer to some other document and is being falsely used by the Petitioners to allege that the documents referred to in Page No. 77 are sent through this courier. Due to passage of time, the Respondents cannot state with certainty as to which other documents were received from the Petitioners at the relevant point in time. (iv) It is only in the year 2009 when the 1st Petitioner forwarded his DIN form that the Respondents became aware of his foreign nationality. A copy of DIN forms have been placed on record by Respondent No. 2 and 4 and the R1 craves leave to refer to and rely upon the .same in support of its contentions stated herein. (v) It is also pertinent to mention that the Pe....
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....tails whereof are as under: Details of Assets Sale Date Sale Value in - Rs. Financial Year Building - A1 Sudharma 27.01.2003 11,50,000 2002-03 JP Nagar Property 26.12.2003 25,00,000 2003-04 Chamarajpet Property 19.06.2003 5,70,000 2003-04 123-125 Bricklin Road Property On various dates 10,30 ,00,000 2004-05 123-125 Bricklin Road Property On various dates 1,50,00,000 2006-07 The Audited Accounts of the Company for the financial year 2002-03 to 2004-05 as filed in the Company Petition duly reflect such property sale transactions. The Petitioners are indulging in selective disclosure and there is an evident attempt to mislead the Board. (iii) The Petitioners have also failed to disclose that the 1st Petitioner himself had addressed a letter dated 12.01.2007 to the Indian Bank seeking release of an immovable property (20, Hunters Road, now called as Narayana Guru Salai) belonging to the Company and charged to Indian Bank, citing reasons of his intention to develop the property for commercial purposes, a copy whereof is annexed as Annexure R1/U. It is therefore not open to t....
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....002 to Indian Bank, it is imperative to note that the letter merely states that on a given date and at relevant period of time 1st Petitioner was not available since he was in U.S.A. It does not state the nationality of 1st Petitioner as is sought to be contended. Further, the letter only refers to 1st Petitioner as an NRI not a foreign national. This by itself belies the contention of the 1st Petitioner that he had informed the company or R2 about his foreign nationality in the years 1998-99. (v) The so called laundry list of proof is fabricated documents or is documents which are being referred to out of context or relevance. (vi) With regard to the letters placed on record at Page No. 75 to 78 of the Rejoinder, a statement has been made in Para 32.1 of the rejoinder that that "As soon as the 1st Petitioner was issued the Overseas Citizen of India (OCI) card on 25.05.2006, the 1st Petitioner had sent a notarized copy of the same to the Respondents No. 1 & 2 on 29.11.2006 itself. Having received a notarized copy of the said card, the \ corresponding denial of the Respondents in this para is a blatant lie". The above quoted statement of the Petitioners is a completely fals....
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....r the instructions of the Petitioners and the fact that the nationality of 1st Petitioner was being disclosed as Foreign was never informed to the Respondent(s). (xi) Without prejudice to the foregoing, it is submitted that appending signatures to the Annual Return Form reflecting the nationality of the 1st Petitioner as "F" does not and cannot mean that the Respondent(s) approved the shareholding of 1st Petitioner with the knowledge of his foreign nationality. In any event, there can be no estoppels against statute. (xii) The Annual Returns pertaining to 2009 to 2011 were filed with complete disclosure of the foreign nationality and foreign address of the 1st Petitioner on 14.10.2011 after the shares illegally acquired by him were cancelled and accordingly, the revised capital was reflected in the said Annual Returns. (xiii) It is specifically denied that the Respondent(s) have been aware of the foreign nationality since 1976 as is being alleged. The Petitioners are indulging in making false assertions before various forums. Para 32.7:(i) The contents of para 32.7 are denied and disputed and the contents of Para 42(vi) and 42(viii) are reiterated. The Petitioners in co....
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....fic request has been made in the application to the FIPB. (iii) As the acquisition of shares (with the exception of 200 shares which has been acquired by way of inheritance) by 1st Petitioner was illegal and unlawful and hence non est at law, 1st Respondent Company and the directors of 1st Respondent Company i.e. R2 and Respondent No. 3 were duty bound to take appropriate remedial action to ensure compliance with law and to act in the interest of the Company, which is paramount than the interest of any of its shareholder. (iv) It is pertinent to mention that the offence of acquisition of the equity shares cannot be compounded by any authority. Only when the continuing offence is corrected, the offender can approach the appropriate authorities for compounding. There is no power vested under the FDI Policy, MIB Guidelines, FEMA Regulations, to empower any authority to condone a violation of law. Para 33 & 34: The contents of para 33 and 34 require no comments and the Respondent craves liberty to refer to and rely upon the submissions made in the corresponding paragraphs of the Counter. Para 35: (i) The contents of para 35 are denied and the contents of Para 45 are reitera....
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....ners is devoid of any merits and is liable to be dismissed with exemplary costs and is prayed accordingly. ORDER 1. This Tribunal has gone into the pleadings of the Petitioners and the Respondents as contained in the petition, counter, rejoinder, sur-rejoinder and the written statements and oral arguments were also heard at length during the hearings of this case. 2. At the outset, it is stated that this Petition was originally dealt with by the Hon'ble Company Law Board. Hon'ble CLB vide order pronounced on 26.05.2015, has stated that no sooner an order is passed by the Directorate of Enforcement on the validity of the acquisition of shares by the AJP pursuant to amalgamation and cancellation of 3,32,440 equity shares held by P1 in R1 company and an order has been passed by the Hon'ble High Court of Madras (seeking withdrawal of reliefs) at prayers (b), (c), (d) and (e) in para-32 of OS No. 139/2012 and a copy of such orders are placed on record, the company petition shall be placed before the Company Law Board for final adjudication. 3. In this case, the Adjudicating Authority in the Directorate of Enforcement passed an order dated 22.05.2017 and a corrige....
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....ity as the Managing Director and signed by him stating the fact that the nationality of the 1st petitioner is "foreign". The petitioners and the respondents agreed upon a Scheme of Amalgamation wherein the assets of the Kumudham Printing Private Limited was transferred to Kumudham Publications Private Limited wherein the majority of the shares in the transferor company was held by the 1st petitioner consequent to the sanction of Scheme as mentioned by the Hon'ble High Court of Madras; the petitioner was allotted 3,32,440 shares amounting to 64.73% of the share holding of the R1 company (Kumudham Publications). In the mean time, various disputes including cases before Civil and Criminal Courts were filed by the petitioners and the respondents in various Forums and the relationship between the petitioners and the respondents was not conducive to the smooth functioning of the board. The respondents vide clause 31(a), 32 and 39(b) which were incorporated in the Articles of Association (AoA) with the consent of the petitioners started using these provisions in a manner oppressive to the majority shareholders as stated by petitioners especially with regard to remuneration paid to R2 ....
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....ner 1 to explain his position and the property rights of P1 in the shares of R1 company was deprived in a manner which was clearly oppressive. 6. The petitioners have contended that the R1 and R2 were fully aware of the communication made to the various Enforcing Authorities and Regulations and without waiting for the adjudication/orders/ communication, the respondents have sought to cancel the shareholding of the 1st petitioner and also the amount payable on those shares were retained in an Escrow Account to be subsequently acted upon under the instructions of the Enforcement Directorate. 7. The petitioners, inter alia, have contended that the cancellation of shares were done without obtaining consent and without giving opportunity to the petitioners to place their arguments as against such cancellation and such a reduction of share capital did not have the approval of the Hon'ble High Court of Madras as the provisions of Section 100 of the Companies Act, 1956 were not followed. 8. The following findings of Foreign Investment Promotion Board (FIPB) and Reserve Bank of India (RBI) and the order of the adjudicating authority with regard to FDI Guidelines and FEMA Regula....
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....shares. However, I order that the above amount lying in the Bank, and interest accrued thereupon as on date be adjusted against the penalties imposed on the Noticee Company". However, in exercise of the powers conferred upon the adjudicating authority under Section 13, Sub-Section 1 of the FEMA, the following penalties were imposed upon the noticees vide Corrigendum dated 24.05.2017 is given under: (a) Kumudam Publications Pvt. Ltd. - Rs. 2,50,00,000 (Rupees Two Crores Fifty lac only) for contraventions of the provisions of Regulation 4 of FEM ( transfer or issue of security by a person resident outside India) Regulation 2000 read with Section 42(1) of FEMA, 1999 read with clause (b) of Sub-Section 3 of Section 6 & Section 47 of FEMA, 1999. (b) Kumudam Publications Pvt. Ltd. - Rs. 2,50,00,000 (Rupees Two Crores Fifty lac only) for contraventions of the provisions of Regulation 7 of FEM ( transfer or issue of security by a person resident outside India) Regulation 2000 read with Section 42(1) of FEMA, 1999 read with clause (b) of Sub-Section 3 of Section 6 & Section 47 of FEMA, 1999. (c) Sh. P. Vardarajan, Director of Kumudam Publications Pvt. Ltd. - Rs. 5....
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.... issue of security by a person resident outside India) Regulation 2000 r/w clause (b) of sub-section (3) of Section 6 & Section 47 of FEMA, 1999 against all the three noticees. All these orders of the adjudicating authority, FIPB and RBI have held that there has been no violation on the part of the 1st petitioner and the adjudicating authority has not confiscated the shares issued to the 1st petitioner. However, AA has imposed penalties under Section 13, Sub-Section 1 of the FEMA for violation of Regulations. It has been stated that the 1st petitioner has filed an appeal against the orders of the adjudicating authority with Appellate Tribunal for Foreign Exchange regarding the penalties imposed on him with respect to violation of Regulations which is still pending under consideration of the Hon'ble Appellate Tribunal for Foreign Exchange. 13. The respondents have contended that the interim orders of the Hon'ble Company Law Board lays down the manner in which relief as sought for in the company petition would be dealt with upon the adjudication on the issue of violation of FEMA. The respondents have made detailed arguments regarding the decision of the FIPB and RBI. The R....
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....the escrow account to be paid to the 1st petitioner on a non-repatriation basis. 17. In view of all the facts mentioned above and on the basis or the orders/clarifications issued by the authorities concerned, it is felt that the cancellation of shares in the board meeting held on 20.09.2011 cancelling 3,32,440 equity shares of Rs. 100/- each held by the 1st petitioner is invalid and violation of the rights of the 1st petitioner and hence it is non-est in law. Consequent to this finding in terms of the prayer sought for by the petitioners in para 8.4, the Register of Members of the R1 company has to be rectified to restore 3,32,440 shares of Rs. 100/- each in the name of the 1st petitioner. 18. Vide Para 8.5, the petitioners have sought to declare Form-32 filed by the R2 with RoC, chennai intimating the cessation of petitioners as Directors of the R1 company with effect from 02.01.2020 as illegal, invalid and non-est in law. The respondents held the meeting on 20.09.2011 in which the 1st petitioner was not present and the petitioner has stated that in the notice there was no agenda item regarding the cancellation of shares. A resolution was passed in the Board meeting stating ....
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....ing to the petitioners, contained agenda items which may be termed as policy decisions. The petitioners replied to the notice by a communication dated 30.12.2011 urging the respondents not to proceed with the meeting in violation of Court's order. However, the respondents held the meeting on 02.01.2012. The respondents have also filed Form-32 to remove the petitioners from the Directorship of the company in terms of Section 283(1)(g) of the Companies Act, 1956 for not attending three consecutive board meetings held on 20.09.2011, 10.10.2011 and 02.01.2012. 19. The petitioners have contended that the action of the respondents in passing a resolution for removing them from the directorship of the R1 Company is in violation of the provisions of law. The respondents sent a letter addressed to the RoC, Chennai listing three dates of board meetings of the company wherein the petitioners did not participate but it does not state that they were consecutive meetings. The fact of the board meeting on 26.09.2011 at which both the petitioners were present has been suppressed. In this connection, the respondents have stated that the meeting dated 26.09.2011 was declared invalid in the Ci....
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....es of the petitioners in the board meeting held on 20.09.2011 which reduced the majority shareholders to an insignificant minority shareholder, the resolution removing them from directorship has left the petitioners without any representation in the board of directors. The respondents have amended the Articles of Association to entrench their position in the company and have used these Articles of Association to consolidate their own position instead of promoting the interest of the R1 Company. The respondents are fully aware of the meetings which were convened and held by the petitioners and they had conveniently chosen not to present themselves but held parallel meetings without the presence of the petitioners, who were before the cancellation of the shares of 1st petitioner were the majority shareholders so that all the business decisions and policy issues can be decided in the absence of the petitioners and denying them an opportunity to present their case in the board meetings. 22. Since the holding of the 1st petitioner has been restored by the orders given with respect to the reliefs sought in Para 8.3 of the petition, the action of the respondents to deprive the petition....
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....other than a nominee Director as contemplated by Article 31(a)". 25. It is reported that all these amendments to the Articles of Association and the appointment of R2 as also the provisions contained in Article 32 regarding the remuneration to be paid to the R2 were all done with the full knowledge and endorsement of the petitioners which shows that the relationship between the petitioners and the respondents were one of mutual trust and confidence. Till December 2008, the difference of opinion between the petitioners and the respondents did not surface and did not affect the normal functioning of the R1 company. During the Board Meeting held on 22.12.2008, the petitioners voted against the accounts citing that the remuneration of R2 had shown an increase of 88% whereas the company had incurred a loss of 23.87 lakhs. It is seen from the details provided that had the increase in remuneration been moderate, there would have been no loss to the company. However, in the board meeting, the R2 used his casting vote to pass the accounts at the Extraordinary General Meeting held on 24.12.2008. The petitioners who had reservations with the remuneration drawn by the respondent-2 abstained....
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....anagement and oppression on the part of the respondents one such instance is that during March 2002 the R1 company gave an undertaking under the Export Promotion Capital Goods Scheme with respect to import of machineries on the condition that the company would earn Foreign Exchange equivalent to USD 45,64,880.25 on or before March 2012. (b) On 07.05.2012 a notice was issued by DGFT regarding the failure on the part of the R1 Company to furnish documents regarding fulfillment of the export obligation. The R1 company and its directors were called upon to show cause as to why duties of customs plus 15% interest per year of an amount equal to that portion of the duty leviable on the goods which bears the same proportion as the unfulfilled portion of the export obligation bears to the total export obligation under Foreign Trade Act of 1992. (c) The petitioners have alleged that R2 is solely responsible for the failure due to which R1 Company had to face show cause notices and penalties. (d) This Tribunal is of the view that the petitioners were also part of the Board of Directors when R-1 company availed the EPCG Scheme during March 2002. The Tribunal is of th....
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....these allegations. (j) The petitioners have also brought out some instances wherein the approval of the Central Government was not taken by the respondents for related party transactions. However, it is seen that disclosures have been made by the R1 Company under the notes on accounts the petitioners have not commented upon any financial loss that was caused to the R1 Company due to these transactions. Hence the procedural defaults, if any, cannot be construed as an instance of mismanagement. (k) The petitioners have also given some instances wherein the loans without interest were given to companies and no efforts have been made by the R1 Company and the R2 to recover these amounts. However, no such details of the same have been given and the fact whether any such transactions are related party transactions. Hence no findings with respect to these allegations have been made. (l) The petitioners have also brought out some instances wherein certain qualifications were made by the Auditors in their Audit Reports. Such qualification by the Auditors are given as part of their professional duty and in no way establish any act of mismanagement or oppression. ....