TaxTMI 
TaxTMI 
2017 (11) TMI 1981
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....ompanies Act,2013 on 30-07-2014 complaining that certain acts of respondent Nos.2 to 9 are oppressive and prejudicial to the interest of M/s.Biological E. Limited (1st respondent) (hereinafter referred to as the "Company"); for a direction to supersede the Board of Directors of the said Company by appointing an Administrator and/or Special Officer to take over its management and affairs, as well as its assets and properties; alternatively to constitute a Committee consisting of representatives of the appellants to function as such Administrator and/or Special Officer; to declare as illegal, null and void, the Board Meetings of the Company held on 09-04-2013, 10-04-2013 and 11-04-2013; to remove respondent Nos.2 to 5 as Directors of the said Company and set aside all Form Nos.32 filed for appointment as Directors/Managing Director/Whole Time Director as null and void; to declare the transmission of 4,00,961 equity shares held by late Dr.Vijay Kumar Datla to the 2nd respondent as illegal, null and void and consequently rectify the Register of Members by ordering transmission of those shares to appellant No.1; to declare that respondent Nos.6 and 7 are not shareholders/members of the ....
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....Private Limited" and was subsequently renamed as "Biological E Limited". 8. Admittedly G.A.Narasimha Raju, father of the appellant No.1 founded the Company. 9. Appellant No.1 married late Dr.Vijay Kumar Datla and on 01-05-1972, the management of the Company was handed over to him and he became the Chairman and Managing Director thereof. 10. On 23-12-1974, a trust deed was executed by D.Vasanth Kumar (settler), Dr.D.V.K.Raju and Vijay Kumar Datla (Trustees) settling an amount of Rs. 1000/- for the benefit of respondent Nos.3 and 4. The duration of this trust was till 1992. The trust deed was amended by Dr.Vijaykumar Datla and the 1st appellant for the benefit of respondent Nos.2 and 3 on 31-03-1992 and the duration of the Trust was extended up to 2010. This trust is 2nd appellant in this appeal. 11. Another trust deed had been executed on 08-12-1980 by G.Bharathi (settler), Dr.Vijaykumar Datla and Dr.D.V.N.Raju (Trustees) for settling an amount of Rs. 500/- for the benefit of the 2nd respondent and the children who may be born to her, and the duration of the trust was till she reached 18 years of age. The above trust deed was amended on 16-07-1995 by Dr.Vijaykumar Datla ....
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....ployees of the Company took over its control illegally by changing the Board's composition and shareholding pattern, that the said respondents did not want her to have ownership and management of the Company and adopted illegal means to hijack the Company. 22. There is no dispute that respondent No.5 resigned as Director of the Company on 06-04-2013 by addressing a letter to that effect to the Company which was acknowledged on 08-04-2013. However he addressed a letter on 09-04-2013 purporting to withdraw his resignation from the Board of Directors of the Company and held a Board Meeting on 09-04-2013 inducting respondent No.4 as a Director of the Company in the place of late Dr.Vijay Kumar Datla. 23. According to appellant No.1, the resignation of a Director of a Company is not required under law to be accepted by the Board of Directors and becomes effective from the moment it is given, and therefore respondent No.5 ceased to be a Director from 06-04-2013. She contends that the resignation cannot be unilaterally withdrawn by respondent No.5, that he cannot act as a Director after 06-04-2013, that he had to be re-elected as an Additional Director by the Board of the shareholde....
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....letters of administration or succession certificate was produced by respondent No.2, as mandated by Article 66. 27. She contends that under Art.66, though the Board may dispense with production of said documents upon such terms as to indemnity or otherwise as the Board, in its absolute discretion, may think necessary, without recording that it is exercising any such discretion and without insisting on any indemnity from respondent no.2, the Will dt.14-2-2005 produced by respondent No.2 was accepted by the Board for transmitting 4,00,961 shares (81%) of late Dr.Vijay Kumar Datla to respondent No.2. 28. The appellant No.1 contended that on 10-04-2013, when she was sitting in the chambers of her late husband, the Company Secretary of the Company rushed to her and informed that the Vice President and Assistant Vice President of the Company were illegally removing all records from her chamber, and that when she and the Company Secretary tried to come out of her chambers, they found that the main door was locked till 9-30 p.m., and that she lodged a police complaint against the said persons with the Chikkadapally Police Station, Hyderabad. She contended that these persons acted at ....
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.... sell off their stake in the Company but those deals did not go through; that respondents attempted to sell off the Company to P.E.Investors but failed; and then they decided to sell the immovable properties of the Company to M/s.ITC Limited. She contended that she wrote to M/s.ITC Limited cautioning them about the illegal share holding and Directorship of the Company and so the respondents could not sell properties to M/s.ITC Limited. She contended that they then decided to hive off undertakings of the Company to companies incorporated and managed by respondent Nos.2 to 4 so that it would be convenient for them to dispose of assets of the Company and siphon off the monies to the detriment of the Company and the shareholders; that they filed scheme of arrangement under Sections 391 to 394 of the Act before this Court for de-merger of livestock business undertaking in favour of B.E.Immunology Private Limited (Respondent No.8) and of the vaccine business undertaking of the Company to B.E.Vaxco Private Limited (Respondent No.9); and these acts are acts of mismanagement committed by respondent Nos.2 to 7. She alleged that respondent Nos.2 to 4 bought three high-end cars each worth Rs. ....
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....dealt with more in detail at the appropriate places in this order. 42. However, one important contention in regard to locus of the appellant No.1 to file this C.P. needs to be noted. 43. According to respondents, as per Section 399 of the Act, in the case of a Company having a share capital, not less than 100 members of the Company or not less than 1/10th of the total number of its members, whichever is less, are entitled to maintain a petition under Section 397 or 398 of the Act; this restriction was sought to be bypassed by appellant No.1 by incorrectly arraying appellant Nos.2 and 3 as petitioners in the Company Petition; appellant Nos.2 and 3 are Trusts which hold shares in the Company and the beneficiaries of those shares are respondent Nos.2 to 4; and so this C.P. could not have been preferred by the Trusts against their own beneficiaries. 44. It is also contended that appellant No.1 cannot represent appellant Nos.2 and 3 in view of a notice dt.04-12-2013 issued by respondent Nos.2 to 4 to the appellant No.1 and that since respondent Nos.2 to 4 have not given any consent for filing of the C.P., it has to be dismissed. 45. This contention is refuted by the appellan....
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....om the post of Executive Director, without leave of the CLB and declined to grant any other interim reliefs. 50. The appellant No.1 questioned the same before this Court in C.A.No.17 of 2014. On 15-04-2015, the said appeal was allowed and this Court directed to constitute an ad hoc Board with the appellant No.1 as Managing Director thereof and also issued detailed guidelines as to the conduct of business of the Company, pending disposal of the C.P. 51. This was questioned by the respondents in S.L.P.Nos.12831, 12835 and 20338 of 2015 before the Supreme Court. 52. On 06-04-2015, the Supreme Court allowed the S.L.Ps. and set aside the order dt.15-04-2015 observing as under: "As in the course of hearing, some grievance was expressed on behalf of Respondent No.1 that her status on the Executive Director of the company, stands undermined due to uncalled for surveillance imposed at the instance of the existing Board of Directors, we make it clear, as has been assured before us, that she ought to be allowed to function in the aforesaid capacity being provided with all facilities and privileges attached to the office as permissible in law, so much so that she does not hav....
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....No.1 as Executive Director of the Company. 56. It is important to note that the respondents had contended before the CLB that filing of C.A.No.1 of 2015 seeking amendment of the CP by the appellants is only a dilatory tactics to delay the hearing of the CP. The Company and the 2nd respondent, however, filed a memo on 28-03-2016 before the CLB, agreeing to some of the amendments sought by the appellants, without prejudice to their right to contest the amendments. They opposed the amendments sought to some of the interim applications by the appellants. 57. However on 24-03-2016 (according to para-97 of the impugned order of the CLB), the CLB recorded that the respondents orally agreed to the proposed amendments to be carried out to the main petition i.e. from para (i) to (vii) and that amendment to para (viii) can also be allowed, subject to objections of the respondents. However no order in fact allowing the said amendments or C.A.No.1 of 2016 was passed by the CLB. 58. Appellants filed an amended Company Petition on 05-04-2016 and the CLB states in the impugned order that it considered the contentions in the amended C.P. filed by the appellants. 59. It is contended by a....
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....he CRP. Another memo was filed subsequently requesting adjournment of the matter scheduled to be heard on 02-05-2016 stating that the four unnumbered applications filed by her were pending. 65. On 02-05-2016, the appellant No.1 in person requested for adjournment of the Company Petition again, but the same was refused on the ground that adequate opportunity had been given to the appellants to present their case by order dt.21-04-2016 itself. The CLB then heard Senior Counsel for respondents as well as the Counsel Sri C.Ramachandra Raju for appellants and appellant No.1 in person, who sought adjournment, and then reserved the matter for orders by closing arguments. It gave opportunity to the parties to file their written submissions within ten days before 16-05-2016. 66. This order was questioned in Company Appeal No.6 of 2016 in this Court, but the said appeal was dismissed on 22-07-2016 stating that only against the final order of the CLB, appeal would lie and that this appeal is not maintainable challenging the order 03-05-2016. This Court opined that it would be premature to go into the issue, whether in the given facts, the CLB erred in not granting adjournments, or not d....
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....hat after the said order, the appellants had filed an amended Company Petition on 05.04.2016, and the CLB, for deciding the matter took into consideration the averments made in the amendment petition including the main reliefs. It is stated that it was inclined to dispose of the main petition itself and the question of taking up interim reliefs at that stage did not arise, and so the portion of the amended Company Petition dealing with interim reliefs cannot be considered. 70. It also noted that appellants did not file any written submissions in the Registry in spite of opportunity being granted on 03.05.2016 in its order to file such written submissions. 71. Dealing with the issue No.(i) relating to the possession by the appellant No.1 of requisite qualification under Section 399 of the Act to invoke jurisdiction of the CLB under Section 397 / 398, and the issue as to whether any case had been made out under Section 111-A of the Act, the CLB observed that appellant No.1 had filed O.S.No.184 of 2014 in the Civil Court to declare that she is the absolute owner of 4,00,961 shares which belong to her late Husband (Late) Dr. Vijay Kumar Datla by virtue of a Will propounded by her....
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....t of appellant nos.2 and 3 for the purpose of maintaining the Company Petition. 73. It then held that as per documents filed by appellant no.1, the company had 13 shareholders as on 30.09.2011 even without taking into account the additional members of the company; it is evident from documents that the Company was having 14 shareholders as on the date of filing the Company Petition; and so, the first criteria of possessing support of 1/10 of shareholders to maintain a petition under Section 397, as prescribed under Section 399, has not been fulfilled. It therefore held that the Company Petition is not maintainable and was liable to be dismissed as not maintainable. 74. Having taken the said view, however, the CLB went into the other issues also claiming that it would give a quietus to the lingering litigation. 75. Then the CLB dealt with the issue "whether the Board meetings held on 09, 10 and 11th of April, 2013 were legal and valid?". 76. It noted that though 5th respondent received letter dt.06.04.2013 addressed to the Board of Directors of the Company and requested to file Form-32, the appellant no.1, being the other Director, received the resignation on 08.04.2013; ....
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....eeting held on 09.04.2013 were confirmed in this meeting; that on the basis of original Will dt.14.02.2005, allegedly executed by (Late) Dr. Vijay Kumar Datla and produced by 2nd respondent, 4,00,961 shares were transferred to her and a decision was taken to give effect to the aforesaid share transmission on the share certificates. 79. The CLB rejected the contention of appellant no.1 that she is entitled to the said shares on the basis of the Will dt.04.12.1987 stating that the said issue is subject matter of O.S.No.184 of 2014, and opining that the CLB cannot decide such disputed issues with regard to inheritance of the shares which is pending before the Civil Court. It therefore, held that the said Board meeting on 10.04.2013 was also valid and the share transfer in favour of respondent no.2 is in conformity with Section 109 of the Act. It noted that in the very same Board meeting, respondent nos.2 and 3 were appointed as Additional Directors, that appellant no.1 was aware of the Board meeting and did not challenge it till C.P.No.1 of 2013 was filed, and so the said Board meeting held on 10.04.2013 was valid. 80. Coming to the Board meeting dt.11.04.2013, the CLB held that....
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....hich the minutes of the earlier Board meeting held on 26.06.2013 were confirmed, and in that meeting the remuneration payable to appellant no.1 was revised, and by her participation in the said Board meeting, she is estopped from challenging the previous Board meetings. 86. Coming to issue no.(iii) relating to validity of transmission of shares of extent 4,00,961 equity shares in favour of the respondent no.2, it noted that the said event took place in the Board meeting held on 10.04.2013, that appellant no.1 had already filed O.S.No.184 of 2014 in that regard even prior to the filing of the present C.P.; that the Supreme Court also directed the Civil Court to dispose of the suit; and so appellant no.1 cannot ask for any declaration in respect of the above shares before the CLB since the same is subject matter of the said suit. It also relied on the judgment of the Supreme Court in Sangramsinh P. Gaekwad and others v. Shantadevi P. Gaekwad (Dead), through LRs [(2005) 11 SCC 314] to hold that issues relating to inheritance of shares being civil in nature, the CLB cannot deal with it. 87. Coming to issue no.(iv) relating to the validity of the Annual General Meeting on 18.12.20....
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.... to her interest in the capacity of shareholder and prejudicial to public interest. It noted that the Company was in the business of manufacturing vaccines and was making good profits as can be seen from the balance sheet for the financial years 2014-15 and 2015-16, and there was no evidence as to mismanagement of the affairs detrimental to the interests of the shareholders. It held that there is no situation warranting winding up of the company and unless such a situation exists, no relief can be granted under Sections 397 and 398, as held in Hanuman Prasad Bagri v. Bagress Cereals Private Limited [2001 (4) SCC 420]. 90. It held that time and again the Company stated to the appellant no.1 to visit it's registered office during business hours to inspect the documents, but she did not avail of the said offer and this shows that fair opportunity was given to her by the company and its management. 91. It also held that appellant no.1 suppressed the letter dt.15.04.2013, and therefore, did not come with clean hands for seeking equitable relief under Section 397 of the Act. 92. On issue no.(vi), as to what relief should be granted and to what extent, the CLB held that there is ....
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....rs v. Marudhar Power P. Ltd. and others [(2013) 179 Comp Cas 504 [A.P.], this Court followed the decision of the Supreme Court in V.S. Krishnan v. Westfort Hi-tech Hospital Ltd. [(2008) 3 SCC 363]) and held that unless findings on fact by the CLB are perverse, based on no evidence or are otherwise arbitrary, interference with the order of the CLB in an appeal under Section 10-F is not permissible. The jurisdiction of the appellate forum is restricted to the question whether, on the facts as noticed by the CLB and as placed before it, an inference can reasonably be arrived at that such conduct was against probity and good conduct, or was mala fide, or for a collateral purpose, or was burdensome, harsh or wrongful. This Court would interfere under Section 10-F if the conclusions of the CLB are (a) against the law or (b) arise from a consideration of irrelevant material or (c) omission to consider relevant material. It is ordinarily not open to the appellate court to substitute its own discretion for that of the CLB and if the CLB has acted unreasonably or capriciously, or has ignored relevant facts or has adopted an approach which is incorrect, the appellate court is not only empower....
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....ill consider the following question: (i) Whether the CLB erred in holding that the appellants could not take a stand that the petition is a composite petition under Section 111A, Section 58/59 and other provisions of the Companies Act, 1956/2013? 107. The CLB, in the impugned order at para 99 dealt with this issue and held that since relief under Section 111-A was in relation to the transmission of 4,00,961 shares in favour of appellant no.1 and this is subject matter of O.S.No.184 of 2014, even prior to the filing of the C.P., such relief under Section 111-A cannot be claimed by appellants in the C.P. It observed that appellants cannot take a stand that the C.P. is a composite petition filed under Section 111-A and other provisions of the Act and that it will treat the C.P. as if it is filed only under Sections 397 / 398, 402 to 404 and 406 of the Act. 108. This issue has been considered in Manoj Kumar Kanunga and others (3 supra). In that case, there was a composite petition filed under Section 111 and Section 397 / 398 of the Act. It was held therein that the composite petition is maintainable, and there is no bar for filing such a composite petition in law. This ....
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.... instant case, the principle laid down in the said decision would equally apply to a composite application under Section 111-A and 397 / 398 of the Act. 112. Therefore, this objection raised by the respondents is rejected. I also hold that the view of the CLB that appellants cannot take the stand that the C.P. is a composite petition filed under Section 111-A and Sections 397 / 398 is contrary to law since the C.P. is filed under both provisions as permitted by law. The CLB cannot, in law, take a view that such composite petition either is not maintainable, or that it will not treat it as one under sec.111-A and will treat it as one only under Sec.397/398 of the Act. 113. Question (i) is thus answered in favor of the appellants. Objection raised by respondents in this Appeal as to appellants not possessing requisite shares under Section 399 for maintaining the C.P. before the CLB 114. Under this head, I will consider the following questions: (ii) Whether the shareholding required for maintaining a petition under Section 397 to 399 of the Act has to be reckoned from the date of dispute about the legality and validity of an act amounting to an act of oppression a....
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....ion complained of, has to be taken into consideration, and not the qualifying shares thereafter. It was held that if the date of presentation of the petition is taken as the relevant date, it could defeat the very purpose of the legislative enactment of Section 397 of the Act, as the overbearing majority shareholders can simply, by high-handed action and by oppressive methods, dismember the minority shareholders and leave them with no remedy. This is because the dismembered minority shareholders would then, technically, not qualify for maintaining a petition under Section 399 of the Act, being not members at all. As the minority shareholders can complain only after the acts have occurred, and when they have been removed from the membership of the company, Section 399 should be so understood and interpreted so as to further the object of the relief to be given in a situation governed by Section 397 of the Act, and not to foreclose the options of an aggrieved person and deny the very relief sought to be extended to the complaining minority shareholders. This Court in Manoj Kumar Kanunga and others (3 supra), also relied upon the decision in Vijayan Rajes v. M.S.P. Plantations P. Ltd ....
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.... 30^th September 2011 Sl. No. Name of Shareholder No. shares Value in Rs. % of shares 1. Dr.Vijay Kumar Datla 400961 40096100 81.00 2. Dr.Vijay Kumar Datla(HUF) 4594 459400 0.93 3. Mrs. Poomima Mantena 4357 435700 0.88 4. Mrs. Indira P.Raju 4357 435700 0.88 5. Miss Mahima Datla 11205 1120500 2.26 6. Dr.Vijay Kumar Datla (Trustee Poomima & Indu Trust) 1999 199900 0.40 7. Dr.Vijay Kumar Datla (Trustee of Mahima Trust) 1685 168500 0.34 8. Poornima Indira & Mahima 187 18700 0.06 9. Dr.Vijay Kumar Datla & Dr.(Mrs) Renuka Datla 5813 581300 1.17 10. Miss Mahima Datla & Dr.(Mrs) Renuka Datla 14172 1417200 2.86 11. Dr.(Mrs) Renuka Datla Miss Mahima Datla 26995 2699500 5.45 12. M/s.V.R.Investments Pvt. Ltd 18425 1842500 3.72 13. Mr.Pumedu Gupta & Ms.Krishna Gupta 250 25000 0.05 Total 495000 49500000 100 126. The claim of appellant no.1 that these 4,00,961 shares should be transferred to her on the basis of the Wil....
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.... Company in the Articles of Association, it will bind. It was also held that in determining the extent of any restriction on transfer contained in the Articles, a strict construction is to be adopted. 132. Therefore, when respondent no.2 did not produce any probate or letter of administration or succession certificate in relation to the Will dt.14.2.2005 propounded by her, the Board in its meeting dt.10.04.2013 could not have transferred the 4,00,961 shares (81% shareholding) to respondent No.2 and such transfer is illegal. 133. No doubt the proviso to Article 66 stated that the Board may dispense with the above requirements in any case where in its absolute discretion it thinks fit to do so, and insist on an indemnity or other terms and proceed under Article 70 to register the name of any person who claims to be entitled to the shares standing in the name of a deceased member, as a member. But, admittedly in the minutes of the said Board meeting of 10.04.2013, there is no mention that the Board had dispensed with the requirement of production of probate or letters of administration or succession certificate. It is also not case of respondents that any indemnity was taken fro....
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....favor of the appellants holding that when suit relating to the validity of the Will dt.04.12.1987 is pending, it could not have expressed any opinion on the entitlement of respondent no.2 to the 4,00,916 shares on the basis of the Will dt.14.12.2005. 141. In view of the above, I hold that on the death of (Late) Dr. Vijay Kumar Datla, since inheritance cannot be kept in abeyance, and since neither the Will dt.04.12.1987 set up by appellants nor the Will dt.14.2.2005 propounded by respondent no.2 can be accepted in view of Article 66, both of them have to be ignored till either is established as valid and true in a competent court or till a succession certificate is obtained by either of them with regard to the Wills propounded by them, and the provisions of Hindu Succession Act, 1956 relating to succession to the property of a Hindu male contained in Section 8 would come into operation. 142. So, the 81% shares of late Dr.Vijaykumar Datla would have to be divided equally among appellant no.1 and respondent nos.2 to 4, pending a decision of the Civil Court in regard to validity of either of the Wills mentioned above or obtaining of succession certificates by either of them. 1....
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....red in favor of the appellants that CLB cannot rely on the interim order in the civil suit passed subsequent to filing of the C.P. 150. Likewise, how the CLB can rely on the letter dt.04.12.2014 allegedly written by respondent nos. 2 and 3 informing appellant no.1 not to act as trustee of the appellant no.2 and 3 trusts, if it were to consider the extent of shareholding as on 31.07.2014, is also not explained by the CLB. 151. In view of the above reasoning, the objection raised by the respondents as to the locus of the appellants to file the C.P., and the findings of the CLB that appellant no.1 was not competent to maintain the C.P. by herself or along with appellant no.s 2 and 3, are both rejected. The unreasonable conduct of the CLB in the proceedings in C.P : 152. I will now consider the following questions: (viii) Whether the CLB was justified in deciding the Company petition filed under Section 397 to 399 of the Act, without adjudicating (4) crucial applications dealing with (a) Amendment of Company Petition, (b) Production of crucial documents (in this case alleged Will dt.04-02-2005 propounded by respondent No.2 on the basis of which she got 81% shares o....
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....in and also to add certain prayers. 155. They also filed in April 2016, a fifth unnumbered application against the respondent Nos.2 to 4 alleging that the latter had committed breach of the order dt.06-08-2014 in C.P.No.36 of 2014 wherein respondent Nos.2 to 4 undertook not to alienate the movable and immovable properties of the Company and also to continue appellant No.1 as Executive Director of the Company. The C.P. was finally heard by it on 2nd / 3rd May, 2016 and final order was passed on 30.05.2016. 156. In para 96 of its order, the CLB only makes a reference to its order dt.03.05.2016 to justify it's actions, but the said order only explains what transpired after 16.11.2015 but not before that date. 157. The respondents contended that it was due to appellants' inaction, these applications were not numbered. I find it difficult to accept this contention. It is not the case of the respondents, that there were any defects in filing of those applications. Had there been any defects, the applications ought to have been returned to the appellants by the Office/Registry of the CLB. But this did not happen. 158. Why applications filed from February, 2015 were kept pendin....
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....e CLB to contest the C.P. by addressing arguments cannot be accepted since after 16.03.2016, appellants did not get ready for arguments, though the CLB insisted on various dates that they should make their submissions. 167. So I hold that except to the extent that it did not consider the interim applications filed by appellants in the C.P before deciding the C.P., on point (x) that no bias and prejudice can be inferred from denial of the CLB further time to appellants; on question (xi) that it cannot be said to have wrongly exercised it's discretion under regulation 26(1) of the CLB regulations, 1991; and that there is no violation of the audi alteram partem doctrine. Re: Withdrawal of resignation of respondent No.5. 168. In this part, I will consider the following questions of law: (xiii) Whether resignation of Director in writing with immediate effect does not take effect immediately and whether it requires acceptance? (xiv) Whether the concept of withdrawing arises with regard to the resignation dt.06-04-2013? 169. On 06-04-2013, respondent No.5 addressed a letter to the Board which reads as under: "Due to unavoidable and compelling reasons....
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....pprehension and that he absolutely withdraws the letter dt.16-05-1907. Both letters were received by the company on 24-05-1907 and on that day, a special meeting of the Directors was held and it was declared that he vacated his office. Neville J considered the question whether the defendants were right in treating the plaintiff as having vacated his office as Managing Director in consequence of the written notice sent by him to the Company requesting their acceptance of his resignation as Managing Director. He answered the said question in the following manner: "..That seems to me to depend entirely upon the proper construction to be put upon the articles of association of the company, and I think the most material articles are 84 and 85. I have no doubt that a director is entitled to relinquish his office at any time he pleases by proper notice to the company, and that his resignation depends upon his notice and is not dependent upon any acceptance. Consequently, it appears to me that a director, once having given in the proper quarter notice of his resignation of his office, is not entitled to withdraw that notice, but, if it is withdrawn, it must be by the consent of th....
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....would arise upon a resolution being passed by the Board within 6 calendar months. It made a subtle distinction between vacation of office by a Director by resignation and arising of vacancy in the office of the Director. 175. The Supreme Court in Moti Ram v. Param Dev [(1993) 2 SCC 725], approved the decision in Glossop (13 supra) in the following terms: "17... Similarly in Company Law, a Director of a company is entitled to relinquish his office at any time he pleases by proper notice to the company and acceptance of the resignation is not required. [See: Glossop v. Glossop and Halsbury's Laws of England, 4th Ed., Vol. 7, p. 316, para 536.]" 176. The Madras High Court in T. Murari Vs. State [(1976) 46 Comp. Cas 613 = 89 LW 693] also took a view that there is no provision for vacancy by resignation in the Act, and even if there is no provision in the Articles of Association for resignation by a Director, the resignation tendered by a Director unequivocally in writing will take effect from the time when such resignation is tendered. 177. Of course, if there is a specific provision in the Articles of Association which mandates acceptance of such resignation by the B....
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....rector. No such permission in writing prior to the Board meetings of 9-4-2013,10-4-2013 and 11-4-2013 was produced by respondents 1-7. 185. The further contention of respondents that even if his resignation became effective immediately, his action in inducting fresh Directors ensuring the continuity in management is an action taken bonafide in the interest of the Company and is valid in law on the basis of the passage in Needle Industries Limited Vs. Needle Industries Newey (India) Holdings Limited that [(1981) 3 S.C.C. 333] 'anything illegal but done in good faith and in the interest of the Company may not be oppressive while something perfectly legitimate may still be oppressive', cannot also be accepted. 186. This is because after making the above statement in para 49, the court in Needle Industries Limited (17 supra) held thereafter in the same para as under: "49. ... The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts upon one another can, in the conte....
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....tion of Article 66 of the Articles of Association even though she did not produce any Succession Certificate or probate; he did not take any indemnity from her; and then convened another Board meeting on 11-04-2013 wherein respondent No.2 was appointed as Managing Director of the Company. 189. Thus there is a series of illegal acts by respondent No.5 ( as will be explained more in detail later) , which are part of the same transaction to cause oppression on appellant No.1 and show his malafide intention. These violations by him are burdensome, harsh and wrongful to appellant No.1. So I am of the view that the statement in the above decision has been quoted out of context by respondents and it will not apply to the present case. 190. So I hold on question (xiv) that there is no valid withdrawal of resignation of respondent no.5 in law and consequently the Board meeting held on 9.4.2013 is non-est in the eye of law. 191. The view of the CLB in its order that since appellant No.1 received the letter dt.09-04-2013 and initialed it, and the same was also received by the Company Secretary who also initialed it on that day, and so respondent No.5 continued as Director of the Comp....
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.... then it would be idle to insist upon formality as a pre-condition to the validity of the act which all those competent to effect it had agreed should be effected." 197. A reading of the above decision indicates that existence of consensus-ad-idem among all the shareholders of a company for a particular course of action is a condition precedent for application of the said principle. Only then they would be precluded from later turning around and questioning the non-adherence to the Articles or to provisions of the Act. In the instant case, there is no such consent of appellant No.1 to the acts of the respondents in the Board meetings of 09.04.2013, 10.04.2013 and 11.04.2013, established by respondents. In fact such an argument was never advanced before the CLB by the respondents. 198. I therefore hold that respondent No.5 ceased to be a Director of the Company as soon as he delivered his letter of resignation dt.06-04-2013, that he cannot continue as Director thereafter and his letter dt.09-04-2013 withdrawing his resignation, is invalid in law. The validity of the Board meetings dt.09-04-2013, 10-04-2013 and 11-04-2013 199. Under this head, I will consider the followin....
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....d in the Articles of Association, he still could not have held the meeting. 209. Once there is no quorum, Article 152 of the Articles mandates that the Board meeting shall automatically stand adjourned to a future date to be fixed by the Chairman. This was not done by respondent No.5 and he thus violated this Article also. 210. In Amrit Kaur Puri Vs. Kapurthala Flour Mill [(1984) 56 Comp. Case 194 (Punjab and Haryana)], the Punjab and Haryana High Court held that even the Articles cannot provide for a quorum lower than what is prescribed in Section 287. This being the legal position, the question of there being any waiver by appellant No.1 of the requirement of having minimum statutory quorum of 2 Directors for a Board Meeting, does not arise. 211. In Re Sly, Pink and Co [(1911) 2 Ch 430] and Re. Alma Spinning Co [(1880)16 Ch D 681], it was held that provisions as to minimum number of Directors are mandatory and consequently any business transacted after the number fell below the minimum, was invalid. 212. In my opinion, Section 252 of the Act which prescribed a minimum of at least two Directors for a Company and Section 289 which prescribed for quorum for Board meeting....
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.... said Board meeting of 09-04-2013 was convened and so it is validly held, is clearly contrary to law and unsustainable. 218. As per Section 286 of the Act, notice of every meeting of the Board of Directors of a Company shall be given in writing to every Director for the time being in India, and at his usual address in India to every other Director. This provision is also, in my opinion, introduced in public interest to avoid meetings being held without proper notice to the Directors. 219. As per Article 150 of the Articles of Association, 10 days notice in writing should be given to each of the Directors of the Company unless there is prior consent accorded in writing which permits a meeting to be held at shorter notice. 220. It is not the case of the respondents that ten days clear notice was given prior to holding the meetings of 09-04-2013, 10-04-2013 and 11-04-2013 by respondent No.5. 221. The stand of the respondent No.5 is that with the consent of appellant No.1, he conducted the said Board meetings. There is no evidence of any prior consent of appellant No.1 adduced by the respondents of waiver of ten days notice for any of the above Board meetings. In fact it is....
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....ot validly appointed as Directors, and the transfer of 81% of the shares held by late Dr.Vijay Kumar Datla in favour of respondent No.2 is not valid in law and cannot be recognized, and all decision taken therein are not valid and will not bind the Company. The finding view of the CLB that all the three above Board meetings and decisions taken therein are valid, is therefore set aside. 228. Once respondent nos. 6 and 7 allotment of shares is declared illegal, their consequent appointment as Whole time Directors of the Company in the meeting of the Board held on 22.8.2013 is also not valid and is accordingly set aside. Non- Compliance of Art.70 229. Under this head I will consider the question; "(xviii) Whether it was incumbent on the respondents to produce the original share certificates as required by Article 70 of Articles of Association and was the transmission of shares ultra vires of the Articles of the Company (specifically Article 66)? 230. It is alleged by the appellants that the Company Secretary did not ensure that original share Certificates were produced by respondent No.2 as envisaged in Article 70 of the Articles of Association before registering ....
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....stated that she was in deep mental agony and took several months to come to normalcy and did not send any such letter voluntarily to the office of the respondents. It is stated that in this appeal at para 3.2.15, appellant No.1 stated that the letter dt.15-04-2013 is fabricated/manufactured and in para-35 of the rejoinder filed by appellant No.1 to the counter filed by respondent Nos.1 and 2 in C.P.No.1 of 2013, she stated that the letter dt.15-04-2013 was a great errata (suicidal) of her life, which she would wish to correct, if she were to live it over again. 236. No doubt it is also brought to the notice of the Court that in the criminal complaint lodged by appellant against respondent Nos.2 to 4, alleging coercion, the police had filed a final report that the allegation is false and that the complaint was dismissed. However the counsel for the appellants stated that appellants intend to take steps to challenge the said order. 237. Reference is also made by respondents to letters dt.22-08-2013, 07-10-2013, 19-10-2013 and 20-10-2013 of appellant No.1 and her conduct in applying along with respondent NOs.2 to 4 to Canara Bank, Bank of Baroda, HDFC Bank and PF authorities for....
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...., almost for half a century. Naturally his death would have been quite traumatic for her. On top of that, without issuing any notice of the Board meetings of 09-04-2013, 10-04-2013 and 11-042013 to her, respondent Nos.2 to 4 wrested control of the Company taking advantage of the distressed mind of the appellant No.1. By that date in fact not even one month had elapsed from the death of Dr.Vijay Kumar Datla. These facts can't be ignored by the Court. 245. The CLB overlooked the distressed state of mind of a widow who lost her husband of 50 years and came to a perverse conclusion that she acquiesced in the said Board meetings or the decisions taken therein. 246. In her letter 22-08-2013, the appellant No.1 clearly stated that the meetings of 09-04-2013 and 10-04-2013 have no legal sanctity. In her subsequent letter dt.07-10-2013 also, she pointed out that decisions taken in the above Board meetings were illegal and unauthorized as notices of such Board meetings were not served on her and accused respondent Nos.2 to 7 of conniving among themselves and taking decisions in haste to achieve their selfish ends. 247. In the Board meeting on 25-09-2013, the appellant No.1 participa....
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....ot be allowed to take undue advantage of their own default in failure to act in accordance with law and initiate fresh proceedings. 14. In this connection, our attention has been invited by the learned counsel for the appellant to a decision of this Court in Mrutunjay Pani v. Narmada Bala Sasmal [AIR 1961 SC 1353] wherein it was held by this Court that where an obligation is cast on a party and he commits a breach of such obligation, he cannot be permitted to take advantage of such situation. This is based on the Latin maxim commodum ex injuria sua nemo habere debet (no party can take undue advantage of his own wrong). 15. In Union of India v. Major General Madan Lal Yadav [(1996) 4 S.C.C. 127] the accused army personnel himself was responsible for delay as he escaped from detention. Then he raised an objection against initiation of proceedings on the ground that such proceedings ought to have been initiated within six months under the Army Act, 1950. Referring to the above maxim, this Court held that the accused could not take undue advantage of his own wrong. Considering the relevant provisions of the Act, the Court held that presence of the accused was an essen....
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....rectors and respondent No.2 was appointed as Managing Director. Consequently, there could not have been a validly convened AGM on 18.12.2013 at all by the same persons who are therefore strangers to the Company. 262. Therefore, I hold on question (xix) that the said AGM could not have been called by strangers to the Company such as respondent nos.2 to 5 and on question (xviii) that the decisions taken in the AGM on 18.12.2013 are non-est in law. 263. It is not in dispute that the appellant No.1 had filed C.P.No.1 of 2013 in this Court and sought stay of the Annual General Body Meeting to be held on 18-12-2013. The CLB on 17-12-2013 declined to grant stay but directed that resolutions passed therein will be subject to the outcome of the CP. The AGM was held on 18-12-2013 and in the minutes thereof, it is recorded that shareholders passed resolutions for declaration of dividend, reappointment of respondent No.5 as Director, reappointment of auditors and election of respondent Nos.2 to 4 as Directors pursuant to Section 257 of the Act by shareholders. 264. In that meeting respondent No.2 was appointed as Managing Director and respondent No.4 was appointed as Whole Time Direct....
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....here is total absence of appointment or a fraudulent usurpation of authority. Similar view was taken by the Delhi High Court in Eastern Linkers (P) Limited Vs. Dina Nath Sodhi [(1984) 55 COMP CAS 462 (Delhi)]. 270. In the present case, there is clearly an usurpation of authority by respondent nos.2 to 4 with the collusion of respondent no.5. Therefore, Section 290 cannot come to the aid of the respondents. 271. Therefore I hold that the AGM held on 18-12-2013 cannot in any way remove the defects in the meetings held on 09-04-2013, 10-04-2013 and 11-04-2013 and there was no acquiescence by the appellant No.1 either to the said meetings or the decisions taken therein. 272. Another contention raised by the respondents is that under Section 260, tenure of any additional Director co-opted is only till the conduct of the next Annual General Meeting, which happened on 18-12-2013; that respondent Nos.2 to 4 and 5 were appointed as Directors at the said Annual General Meeting; that these appointments had been re-affirmed in the later Annual General Meeting held in 2014 and 2015; and invalidity, if any, attachable to the said Meeting with regard to continuance of additional Director....
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....able clause ought not to be confined to proved cases of mala fides. It was held that the person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. 278. In Sangram Singh (1 supra), the Supreme Court held that oppression complained of must relate to the manner in which the affairs of the company are being conducted and the conduct complained of must be such as to oppress the minority members. By reason of such acts of oppression, it must be shown that the majority members obtained a predominant voting power in the conduct of the company's affairs. The Supreme Court held that the remedy under Section 397 is not an ordinary one, that an isolated incident may not be enough for grant of relief and continuous course of oppressive conduct on the part of the majority shareholders is necessary to be proved, that the acts complained of may either be designed to secure pecuniary advantage to the detriment of the oppressed or be a wrongful usurpation of authority and that the jurisdiction of the Cou....
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....he same failed; that thereafter, there was an attempt to sell immoveable properties to M/s. I.T.C. Ltd. by respondents, but appellant no.1 wrote to the said company and cautioned them about illegal shareholding and directorship of the Company, and so the said sale did not go through; thereafter, respondents tried to hive off undertakings of the Company to Companies incorporated and managed by respondent Nos.2 to 4 so that it would be convenient for them to dispose of assets through those Companies and siphon off the money as per their whims and fancies to the detriment of the Company and actual shareholders. 285. According to her, a Scheme of Arrangement was also filed before this Court and C.A.No.722 of 2014 was filed before this Court and on 07.08.2014 this Court directed holding of meetings of shareholders and unsecured creditors; that the livestock undertaking of the Company was proposed to be demerged and transferred to 8th respondent Company and vaccine business undertaking of the Company was proposed to be transferred to 9th respondent Company; that paid-up capital of both Companies was only Rs. 1 lakh and there was no reason why a Company with a track record of more than....
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....e; that for fiscal year ending 2016 (unaudited), its profit before tax was Rs. 384.32 crores and that appellant no.1 miserably failed to place on record any iota of evidence regarding mismanagement of the affairs of the Company, detrimental to the interest of shareholders. 291. In this Appeal, the appellants did not seriously contest these findings. Therefore, I do not propose to interfere with the said findings. What relief can be granted to appellants in this Appeal 292. For the aforesaid reasons, I therefore declare that: (i) acts of respondent Nos. 2 to 7 are oppressive; (ii) the meetings of the Board of Directors held on 09-04-2013, 10-04-2013 and 11-04-2013 are null and void and all resolutions passed therein as well as forms/returns filed therein are set aside; (iii) resolutions passed at the Annual General Meeting of the Company held on 18-12-2013 are null and void and forms filed by respondents with regard to resolutions passed at the said AGM are set aside; (iv) the Board of Directors of the Company as existing as on today shall stand superseded and respondent Nos.2 to 7 are removed from the Directorship of the Company, and all....
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....husband. She was the Executive Director of the Company even by 6.4.2015, the date of order of the Supreme Court, and thereafter also for some time. Therefore it cannot be said that she is a total novice and is incapable of managing the affairs of the Company. In contrast respondents 2-7 were never even Directors prior to 9.4.2013. 296. As per Section 149 of the Companies Act, 2013, there should be minimum of three Directors for a public company and two Directors for a private company subject to maximum of fifteen. Admittedly, the 1st respondent-Company is a public limited company. Therefore, it requires three Directors. Under Section 174 of the 2013 Act, minimum quorum for meeting of Board of Directors is also three. 297. In view of the fact that appellant no.1 is the only Director on the Board of the Company, and there are no other validly elected Directors ( since respondent nos.2 to 4, 6 and 7 cannot be treated as Directors), there cannot be any Board meetings. This will result in a deadlock in the affairs of the Company. On this ground also it would have been just and equitable to wind up the company. 298. In M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja and anoth....
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....her purpose." 305. The learned counsel for respondent No.2 had in fact relied in his written submissions on Regulation 75 in Table-A, Schedule-I by raising a plea that appellant No.1 by her letter dt.15-04-2013 announcing respondent Nos.2 to 4 as Directors, exercised power under the said Regulation and increased the strength of the Board to gain quorum. Though that contention cannot be accepted for reasons already mentioned, the said Regulation shows the way as to how this Court ought to mould relief. Therefore, another possible solution could be to permit appellant no.1 to increase the number of Directors to 3. 306. However, Article 128 of the Articles of Association of the Company states: "128. The continuing Directors may act notwithstanding any vacancy in their body, but, if, and so long as their number is reduced below the mini-number fixed by Article 117 hereof the continuing Directors not being less than two may act for the purpose of increasing the number of Directors to that number or of summoning a General Meeting, but for no other purpose." 307. Thus, this Article will not permit the appellant No.1 alone to take steps to increase the number of Directors....
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....ed that the period during which the reconstituted Board was to operate has been fixed at 7 years thereby depriving shareholders of their right to have full corporate management over its affairs and dealing for such long period of 7 years through elected Directors to the extent of 2/3rds of the total number, has been drastically curtailed. It was pointed out that in order to give effect to his order the learned Single Judge had amended the original Article 95 of the Articles of Association of the respondent No.1 Company and according to the modified Article 95, it has been provided that at each ordinary General Meeting, the Directors elected by the shareholders shall retire from office, and there is no provision made for retirement by rotation in regard to the remaining Directors. It was further contended that Section 408 permitted the Central Government to appoint not more than 2 persons to hold office as Directors of a public Company, but the Single Judge permitted it to nominate 3 nominees of their own to hold office as Directors on the reconstituted Board and that thus Section 408 is also violated. 311. The Division Bench rejected the said contentions and held that Section 25....
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....pointing an administrator or a special officer or a committee of advisers etc., who could be in charge of the affairs of the company. If the court were to have no such power, the very object of the section would be defeated. The Bench upheld the order of the learned Single Judge including the amendment made to the original Article 95 of the Articles of Association of the Company, while passing orders under Section 398 r/w Section 402 of the Act. It rejected the contention that reframing or insertion of a new Article like Article 95 as was done by the Single Judge will be hit by Section 9(b) holding that the Court's powers under Section 397, 398 and 402 are wide and are not subject to other provisions of the Act. 312. This judgment in the Bennet Coleman and Co (36 supra) was approved by the Supreme Court in para-181 of Sangramsingh P. Gaekwad (1 supra). 313. In Sangramsingh P. Gaekwad (1 supra), the Supreme Court considered the power of the High Court under Section 397 of the Act to grant relief and held : "181. The jurisdiction of the court to grant appropriate relief under Section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any cont....
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....e number of Directors in the Board of the Company to 3. 320. The appellant No.1 and the Directors nominated by her shall hold office for a period of 3 years from the date of their assuming charge notwithstanding anything contained in Section 152(6) of the Companies Act, 2013. It is open to appellant No.1 to appoint a committee of advisers to advise the Board for the future management of the Company. 321. After the expiry of 3 years period referred to above, fresh Board of Directors may be constituted as provided in the Act and the Articles of Association of the Company. THE CONCLUSION/RELIEF 322. In the result, the Company Appeal is allowed; the order dt.30.5.2016 in C.P.No.36/2014 of the CLB is set aside; and it is declared that : a. acts of respondent Nos. 2 to 7 are oppressive; b. the meetings of the Board of Directors held on 09-04-2013, 10-04-2013 and 11-04-2013 are null and void and all resolutions passed therein as well as forms/returns filed therein are set aside; c. resolutions passed at the Annual General Meeting of the Company held on 18-12-2013 are null and void and forms filed by respondents with regard to resolutions passed at th....