TaxTMI 
TaxTMI 
2021 (3) TMI 305
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....f shares are as under: Date of allotment No of Shares allotted 24th March, 2017 (1st allotment on same date) 320200 24th March, 2017(2nd allotment on same date) 10300000 15th March, 2018 600000 30th May, 2018 200000 Total shares to be cancelled 11420200 B. Remove the name of persons whose names are entered in the Register of Members of the 1st Respondent Company through the aforementioned allotment of shares. C. To set aside all the decisions taken by the 2nd and 3rd Respondent without complying with the provisions of Section 173 and Secretarial Standards. D. Issue appropriate order for the revisions of the Audited Financial Statements for the Financial Years 2015-16, 2016-17 and 2017-18 in view of the violation of the provisions of Section 129 and Section 134 of the Act. E. Rectify the accounting entry wrongly posted as "Unsecured Loan" in the books of accounts of the 1st Respondent Company for accounting Rs. 29,99,999/-(Rupees Twenty-Nine Lakhs Ninety-Nine Thousand Nine Hundred and Ninety-Nine Only) as "Professional Fees payable" to the 1st Petitioner. F. Rectify the accounting entry wrongly posted a....
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....ding position of the Company as on the date of its incorporation is as follows. Sl No Name of shareholder No of Equity shares Per share value Position in Company Petition 1 Cheriya Kachery Byju 180000 Rs. 1/- 02nd Respondent 2 Karuvante Kelappan Valappil 20000 Rs. 1/- 03rd Respondent Total no of shares 200000 Submissions by the petitioners: 7. The Petitioners submitted that they are not holding any position in the Board of the Company from, 30.09.2014. The petitioners were appointed as Additional Directors of the 1st Respondent Company vide Board resolution dated 04.11. 2013. Both the Petitioners were appointed as Non-Executive Directors and were not involved in the day to day affairs of the 1st Respondent Company. The Respondents had made them believed that they are holding Directorship in the Company and had included their names in various returns filed with statutory authorities from time to time. However, the Respondents never shared any documents related to the Board Meetings such as Board Meeting notices, minutes etc. 8. They have further submitted that the Respondents had not even permi....
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....concealment of the fact of vacation of their office. These acts by the Respondents against the Petitioners are a mere misrepresentation that amounts to fraud in law. To bring the case within the scope of estoppel as defined in Section 115 of the Evidence Act, the learned PCS for the petitioners referred to the relevant portion from the decision in Sunderabai and Anr. v. Devaji Shankara Deshpande (AIR 1954 SC 82). The learned PCS for the petitioners argued that the 2nd and 3rd Respondents under the signature and certification of the 4th Respondent had filed e-Form MGT 7, e-Form AOC 4, MGT 9 and Directors Report for the Financial Years 2014-15, 2015-16, 2016-17, 2017-18 and 2018-19 containing false information pertaining to the Board meetings of the 1st Respondent Company. In the said documents 34 numbers of Board meetings were shown as held and of which the Petitioners were shown as attended and participated in 28 numbers of meetings. Whereas, many of such board meetings were not called or convened, no notice of board meetings was issued and circulated, no attendance register was maintained and no minutes were circulated in relation to the said meetings. The Petitioners are share....
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....had attended. The petitioners argued that no such meetings were held during that period except the board meetings on 27.07.2017, 05.09.2017 and 19.10.2017 and the Petitioners had not attended any other meetings. No notices of the said board meetings were issued except the notice of the board meetings held on 27.07.2017, 05.09.2017 and 19.10.2017 and no such board meetings were convened. No minutes of the meetings were circulated as per the provisions of the Companies Act, 2013. 2018-19: The 2nd Respondent and 3rd Respondent had filed e-Form MGT 7, Directors' Report and Form MGT 9 of the Company for the Financial Year 2018-2019, wherein it is mentioned that the 1st Respondent Company had conducted and convened 6 (Six) Board meetings on 18.05.2018, 30.05.2018, 29.08.2018, 30.08.2018, 16.11.2018, 28.03.2019 during that Financial Year. It is also explicitly mentioned in the said documents that the Annual General Meeting of the Company was held on 29.09.2018 in which all the shareholders had attended. No such board meetings were held during that period and the Petitioners had not attended any such board meetings. No notices of the said board meetings except the notice of the bo....
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....s held and no special resolution was passed for shifting of the registered office of the Company outside the local limits of the City. It is stated that the action of the Respondents are a continuous act of oppression and had prejudicially affected the interests of the Petitioners, other shareholders and the Company. So even though there are no specific prayers with respect to the shifting of the registered office, the same is to be construed as an oppressive act which is continuous and as an act in conjunction with other offences committed by the Respondents. The petitioners stated that the 2nd and 3rd Respondents had not followed any of the procedures established by law with respect to allotment of shares. The Company had grossly violated the provisions for allotment of shares and allotted a total of 15550200 (One Crore Fifty-Five Lakh Fifty Thousand Two Hundred) Equity shares, through a series of allotments, in violation of the provisions of Section 62(1)(a) of the Act and deprived the opportunity to existing shareholders to subscribe for the shares of the 1st Respondent Company. Between 19th October, 2015 and 30th May, 2018 had made 7(Seven) illegal allotment of shares which....
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....titioners and Other Shareholders. 17. The petitioners further stated that the 3rd Respondent, who is the Statutory Auditor, had not carried out the duties and responsibilities attached to the Office of Statutory Auditor as envisaged under Section 143 of the Companies Act, 2013. The Auditor failed to exercise the duty with care while auditing the financial statements, though the Act had given him the explicit power to call for information and explanations and right to access to books of Accounts of the Company. The 4th Respondent, who is a Company Secretary in Practice, had signed various e-forms containing false statements and particulars, knowing it to be false. 18. While concluding his arguments, the learned PCS for the petitioners submitted that there is a clear case of oppression and mismanagement. The contentions of the petitioners are of very serious nature and can be termed as 'Just and Equitable' ground for winding up. The act of Respondents, which lacks fairness, probity, and good faith, are prejudicial to the interests of the Petitioners, Other shareholders and the Company. Counter filed by Respondents 1 to 3: 19. The respondents 1 to 3 in their counter stated....
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....the development and growth of the Company. b) Demanding money from the Company in the name of "Professional Fees" and filing false and vexatious applications. The Company and Respondent Nos 2 and 3 have never stated that they will not pay the said amount. They are ready to pay the amount, if they are ready to return to the Company and quit the competitor hospital group. c) When the Respondent Nos. 2 and 3 try to bring in money by raising capital through issue of shares, they challenge the said allotment of shares too. 21. The learned PCS representing the Respondents argued that the issue of allotment of share capital was made in order to bring in more capital to the Company which the Petitioners did not bring in or refused to bring in. It is further stated that except one allotment of 1,00,00,000 shares to Respondent No. 2, all other allotments were made to outside persons. There is no restriction in the Articles of Association of the Company to allot shares to outsiders. The allotments were only made to those people who brought in investment to the Company. Each time such an issue was made, the rights offer was given to the Petitioners, but it was the Petit....
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....to project a better Current Ratio. An ideal current ratio is 2:1, i.e. Current Assets are double the Current Liabilities. As professional fees are a current liability, if the same were to be reflected in the balance sheet as Current Liability, it would disturb the balance of the current ratio and would indicate that the Company has more current liabilities than current assets. Therefore, in order to present a better financial position, the same was converted to "Unsecured Loans", as a long-term liability. The learned PCS submitted that the Company would pay off all dues of the Petitioners when the financial position of the Company is improved. 25. Regarding the allegation of shifting of Registered Office, the Respondents stated that initially the Registered Office of the Company was the residential address of Respondent No.3. Subsequently, as the hospital was at Malappuram, it was decided to shift the registered office to the address of the hospital itself. Moreover, that several meetings were conducted in the said office which was attended by the Petitioners and now they cannot challenge the same. The Respondents further stated that the Petitioners were present at the AGM he....
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....ices are very limited in nature and are governed by the provisions of the Companies Act, 2013 read with Rules and Regulations thereon as well as Regulations issued by the Institute of Company Secretaries of India (ICSI) and Institute of Chartered Accountants of India (ICAI). The learned PCS further submitted that there are no allegations against this Respondents nor have the Petitioners sought any relief against these Respondents. Therefore, the Respondent Nos. 4 & 5 are neither a necessary party nor a proper party. 27. The Respondent no. 4 stated that they have nothing to do with the internal issues between the parties and he verified records produced before him strictly in accordance with the provisions of the Companies Act, 2013, forms, returns and statements filed in the portal of the Ministry of Corporate Affairs which were certified wherever required and filed to ensure compliances. His duty is confined to verifying records furnished to him by the management of the Company and to check the compliances as per the applicable provisions, to certify the necessary forms and to file the same with Registrar of Companies. 28. It is also stated that except the allegation with re....
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....Respondent no. 5 rebutted that the Respondent Company has never accepted deposits from public and hence the Section 73 of the Companies Act, 2013 will not be applicable. He clarified that the disclosure of amount payable by the Company under the head "unsecured loans" instead of current liabilities does not absolve them from being recognising them as liability. The grouping of a particular head of liability under a specific head in the financial statements is purely a business decision of the Company. This can be questioned only when the same is in violation of Accounting Standards or generally accepted accounting principles. The Respondent submitted that the grouping of the head as unsecured loan has been approved by the Board of Directors and, therefore, as a statutory auditor, this respondent has only limited right to change the groupings of the head of account. 32. The Respondent no. 5 clarified that the duty of the statutory auditor is to report on the true and fair view of the state of affairs of the Company. The respondent is associated with the Company as the statutory auditor and not as advisor or assistant. The relationship of Respondent No.5 with the Company meets the....
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....e the local limits in contravention of the provisions of the Act with an intention to deprive the right of the petitioners as shareholders and Directors of the 1st Respondent Company. 36. Point no. (i): Before this Tribunal examine this issue, it will be advisable to look into the legal provisions regarding issue of shares. Section 62 of the Companies Act, 2013 is applicable to all companies. It does not make any distinction whether it is a public or private Company. Section 62(1)(c) of the Companies Act, 2013 reads as under: - "62. Further issue of share Capital. -- (1) Where at any time, a Company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered- (a) to persons who, at the date of the offer, are holders of equity shares of the Company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely: - (i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date....
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....o both the Petitioners and allotment of shares has been offered at the face value of Re.1/-38. This Tribunal is of the opinion that the compliance of Section 62(1)(a) ensures that the allotment is done to existing shareholders at a price which is not prejudicial to the interests of other shareholders or to the interests of the Company. Certain conditions are put in the offer letter for offering shares to existing shareholders of the Company, they are as under : a. Unless the articles of the Company otherwise provide, the notice of offer shall contain a statement of right to renounce. b. the offer should specify the number of shares offered and confirms that the issue is open for at least 15 days and is not kept open for more than 30 days. c. the clause pertaining to non-acceptance of offer within a specified time, would be deemed to be denial of offer is put in the offer letter d. the offer includes a right to renounce the shares in favour of any other person. 39. In the present case, the Respondent No.1 Company issued the Letter of Offer to both the Petitioners on 05.01.2017, 24.11.2017 and 29.03.2018 respectively with regard to the allotment....
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....(1) of the Companies Act, 2013 speaks about the appointment of the Additional Director. The Board of Directors may appoint an Additional Director to the Board only if they have given power in Articles of Association. The Additional Director shall hold office from the date of appointment till the date of the ensuing Annual General Meeting or the last date on which Annual General Meeting should have been held, whichever is earlier. The person appointed as Additional Director shall hold office from the date of his appointment to the date of the ensuing Annual General Meeting or date on which Annual General Meeting to be held, whichever is later. The Additional Director so appointed has to vacate the office if the general meeting was not held on the due date. If the Company wishes to regularize the Additional Director in the Annual General Meeting, it can do so by passing a resolution to the extent. If the shareholders approve the resolution in the Annual General Meeting, then the Additional Director will be appointed as normal Director. 43. In the present case, the Petitioners were appointed as Additional Directors at the Board Meeting held on 04.11.2013 till the date of the ensuin....
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....GM on 05.09.2017 the new Registered Office and has been attended by the petitioners. Petitioners, who were the part of the same are not entitled to agitate about the acts and allege oppression and mismanagement in the Company. 47. This Tribunal is of the view that shifting of the Registered Office by itself may not be a reason or a ground to be raised in a petition under Sections 241 & 242 of the Act as long as the Company not suffered much loss on account of the shifting to the new address and that the petitioners could not made out a case that such exercise was undertaken to put an oppressive pressure and pain upon the Petitioners and due to this the respondents have incurred wasteful expenditure, which amounts to mismanagement warranting interference by this Tribunal. Hence, that contention is rejected. 48. The present petition has been filed on behalf of the Petitioners under section 241 & 242 of the Companies Act 2013 read with Rule 81 of the National Company Law Tribunal rules, 2016, the Petitioners as an immediate triggering cause of action has impugned the issuance of Right issue of 11420200 shares from the year 2017 which according to the petitioner was done as per t....
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....interest of the Petitioners. If case of this nature is not made out, then directions under Section 241 cannot be issued. Normally, the petitions are filed invoking provisions of the Section 241/242 of the Act and in such petitions the court may see the distinction between the two provisions and examine the position, i.e., to see as to whether a particular allegation is oppression or of the mismanagement under Section 241. 50. A perusal of Section 241(1) of the Act would show that a petition field thereunder may be based on a complaint that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member of members including any one or more of themselves. Thus it will be clear that the foundation of a petition under Section 241 (1) will be the allegation or complaint that the affairs of the Company were being conducted in a manner prejudicial to public interest which will necessarily and naturally involve giving particulars as to how it was prejudicial to public interest. Similarly, an averment or allegation as to the affairs of the Company being conducted in a manner oppressive to any member must necessarily involv....
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....nsome, harsh and wrongful. It was also pointed out that a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are part of the same transaction, of which, the object is to cause or commit the oppression of persons against whom those acts are directed." From a reading of the judgement of Needle Industries (India) Ltd vs. Needle Industries Newey (India) Holding Ltd (Supra) and Shanti Prasad Jain vs. Kalinga Tubes Ltd (Supra) it is clear 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 that oppression should be a continuous act continuing till the date of filing the petition.' 53. Even if a case of oppression is not made out, in exercise of its equitable jurisdiction, the court can grant relief and pass the necessary orders. This would normally be in those cases where two sets of shareholders cannot do business together and have been fighting litigation for years and there is lack ....