TaxTMI 
TaxTMI 
2022 (8) TMI 658
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....ich are as follows: BRIEF FACTS. 3. Respondent No. 1 is a public limited company which was incorporated on 25.10.1932. The registered office of the same is at Kolkata. The main objectives for which the Company was incorporated as it appears from the memorandum of understanding are set out hereunder: (i) To carry on financial investment business and to transact and carry on various business, that may be necessary or expedient to carry on. (ii). To accumulate capital, fund or reserves by means of periodical subscription or otherwise from members or other persons and also by borrowing money from members or other persons on such terms and on such security as may from time to time be arranged. (iii) To subscribe for, purchase or otherwise acquire and hold shares, stocks, debenture or other interest in any other company. 4. It is an undisputed fact that initially the business was owned and run by two individuals namely, Mr. Kali Kumar Chatterjee and Mr. Sunil Kanti Roy. 5. Mr. Chatterjee died in September, 1980. At the time of his death, he was holding 520 shares of the Respondent No. 1 Company and 4500 shares jointly with his wife Amiya Bala Chatterjee. Mrs. Amiya Bala also he....
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.... interest of the company....." 9. It was the original Petitioners' contention that this notice was never received by them. The Respondent has seriously objected to this contention and has contended that the notice was duly served on the said Petitioners. 10. Thereafter, on 30.12.1987 a resolution was passed to issue and allot 30,000 equity shares by private placement. 11. On 12.03.1988 one Mr. Parasmal Lodha. who was then a Director of Respondent No. 1 resigned from the Board of the Respondent Company. 12. It is the Petitioner's case that during that time (April, 1988), Respondent Nos. 2 and 3 caused Respondent No. 1 Company to make a fixed deposit of Rs. 1 crore with Standard Chartered Bank, N.S. Road, Calcutta, which fixed deposit was thereafter pledged with the said Bank to avail of advances of around Rs. 60 Lakhs, which was thereafter routed to Respondent No. 26 and other Respondents. It is contended by the Petitioner that the said loan was used by the Respondent Nos. 26 and other Respondent companies to purchase 15,626 shares held by Mr. Parasmal Lodha, the present petitioner Bhagwati Developers Private Limited and other shareholders. The Petitioner strenuously con....
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....ealing with the submissions made at the bar. 18. This petition was originally filed and registered as Company Petition No. 222/1991 before the Hon'ble High Court of Calcutta, it was filed by Ajit Kumar Chatterjee and one Arghya Kusum Chatterjee, petitioners against The Peerless General Finance & Investment Co. Ltd. a corporate entity, registered under the Companies Act, 1956 having its registered office at Kolkata and 32 others respondents. It is noticed that after it started its journey on 30thMay 1991, has seen various springs, seen various parties alight and still others board its flight and finally has landed in this bench as per order of Hon'ble Supreme Court of India passed in Transfer Petition No. (Civil) No. 1200/2021 directing this Tribunal as under:- "upon hearing the counsel the Court made the following ORDER On hearing learned counsel for parties it is a common cause of the both the senior counsels that the jurisdiction to decide the lis now rests with the National Company Law Tribunal (NCLT), Calcutta in view of the provisions of Section 434 of the Companies Act, 2013 which came into effect from 01.04.2017. For reasons best known, which are difficult to ....
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....o. 222 of 1991 was filed by Ajit Kumar Chatterjee and Arghya Kusum Chatterjee before the Hon'ble Calcutta High Court under Sections 397 and 398 of the Companies Act, 1956. This Petition was supported by Bhagwati Developers Pvt. Ltd. (the Present Petitioner) and Mr. R.L. Gaggar and therefore, it is the Petitioners contention that the combined shareholding of all the four (i.e. both the Chatterjees; Bhagwati Developers Pvt. Ltd.; Mr. R.L. Gaggar) was 17.14% of the total issued share capital of the Company. This contention has been disputed by the Respondent herein, however, the same has been dealt in detail by the Hon'ble High Court in its judgment dated 10.06.2013 passed in APO no. 346 of 1996 wherein it was, inter alia, observed that "We are of the considered view, the learned Judge did not apply His Lordship's mind on the issue. His Lordship did not assign any reason why it would be unsafe to rely on the support of Gaggar when it was in consonance with the wishes of the beneficial owners. Mr. Gaggar never raised his finger towards the transactions. He denied having read the petition. Even if we give full credence to what he had said, such positive averment on behalf of....
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.... solely on the ground of maintainability holding that the minimum requirement to file a Petition under Section 397 was not met. 23. The original Petitioners i.e. Ajit Kumar Chatterjee and Arghya Kusum Chatterjee filed two appeals, one against dismissal of the C.P. No. 222 of 1991 and another against the order allowing Respondent No. 1's application for dismissal of Petition. It appears that on 16.11.1993 and 18.11.1993 both the original petitioners withdrew their appeals and the same was allowed by the Hon'ble High Court. 24. Thereafter on 22.12.1993 the Petitioner herein i.e. Bhagwati Developers Pvt. Ltd. moved two applications before the Hon'ble Calcutta High Court inter alia seeking (i) recall of the orders dt. 16.11.1993 and 18.11.1993 and (ii) for transposition of Bhagwati Developers Pvt. Ltd. in the withdrawn appeals as the Appellant. 25. The Hon'ble Calcutta High Court vide order dt. 02.02.1995 dismissed the applications of the Petitioners herein. Against this dismissal order two Special Leave Petitions bearing No. 19193 and 19217 of 1995 were filed by the Petitioner herein. Vide order dated 26.04.1996, the Hon'ble Supreme Court disposed of the said SL....
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.... decades. It was submitted that the contentious issue of mismanagement could be looked into later on by the Tribunal after the report of the special officer was available. 32. The Respondents have contested the present Petition on the following grounds inter alia: (i) The Petition is barred by limitation. (ii) The Petition is mala fide and in fact the Petitioner is the alter ego of Mr. Parasmal Lodha, who was the ex-director of Respondent no. 1. (iii) The Petitioner is estopped from challenging the validity of issuance and allotment of 30,000 shares because the Petitioner was represented by Shri Sunil Jain (its authorised representative) at the concerned Annual General Meeting and as such the Petitioner had knowledge and was party to and approved the transactions. (iv) Respondent No. 1 has additionally contended that logically the reversal of the whole process would be cumbersome since the issue relates to transactions which had occurred around 33 years back. (v) That no case for oppression and/or mismanagement under Section 387 or 398 of the Companies Act, 1956 has been made out by the Petitioner. (vi) Respondent Nos. 15 and 16 in their Written Submissions supported t....
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....enge, the challenge to the resolution being only one of the grounds for the same. The original Petitioners stated that they had no knowledge of the purported issuance and/or allotment of shares until October, 1990. The notice dated 25.11.1987 of the Annual General Meeting of Respondent No. 1 Company was never received by the original Petitioners. Furthermore, the Petitioners also relied on the Directors report dated 17.08.1988 to show that the said report failed to disclose the fact of allotment of the said 30,000 equity shares. 36. After hearing the parties at length, we are inclined to accept the petitioner's contentions for the following reasons: (i) A petition under S. 397 & 398 of the Companies Act, 1956 may be resisted not so much as by Limitation Act as on principles of delay and latches. (See A.P. Jain v. Faridabad Metal Udyog, 123 (2005) DLT 114). (ii) Even otherwise, assuming the Limitation Act were to apply, even then it is a well settled principle of law as reiterated by the Hon'ble Supreme Court of India in Ramesh B. Desai and & Ors. Vs. Vibin Wadilal Mehta & Ors. (2006) 5 SCC 638 (Para 19) that the plea of limitation is a mixed question of law and fact. I....
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....not even in existence till a few days prior to the allotment. The substance of the allegation of the Petitioner relates to allotment to parties who had a close nexus with Respondents no. 2 & 3 and which has been claimed to be oppressive. Furthermore, there are other allegations of oppression and mismanagement also which acts took place on various dates which the Petitioner contends that it learnt of only later on. On the other hand, the Respondent has not produced proof that the Petitioners were aware of these facts at a time prior to 3 years from date of filing of the petition. It would therefore, not be proper to dismiss the petition on ground of delay or limitation. Also, the petition has been pending for very long with several rounds of litigation going right up to the Hon'ble Apex Court and it would therefore, be a travesty not to entertain the petition on the ground of delay/limitation. We are also of the view, the acts of oppression and mismanagement in question are of continuing acts even on the date of filing of this petition and therefore this petition in no way can be said to be barred by limitation. Furthermore, the Hon'ble Calcutta High Court vide judgment ....
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....ving notice to the Petitioners since the petitioners were in minority and their presence could not have made any difference. According to Respondents, Mr. Parasmal Lodha was also present in the 54th AGM through his proxy wherein the resolution for issuance of 30,000 shares was passed, and as such he had given his consent to the same. Furthermore, it is also contended that the present Petitioner was aware about the share issue since 1987-1988, but chose to remain silent till 1991. To buttress this argument, the Respondents have relied on following cases: a. G. Nagarajan vs. A.N Marketing Services P. Ltd. And Ors., (2009) 150 Comp Cas 641 (CLB); b. Raj Kumar Gupta vs. R. Gupta and Others, c. M. Palanisamy and other vs. SVT Spinning Mills P. Ltd. and Ors., d. Jiwan Mehta vs. Emmbros Metals P. Ltd. And Ors. (c) Another ground on which the Petitioner has assailed the impugned action is that at the time of issuance of these additional 30,000 equity shares the Respondent No. 1 had a very sound financial position and did not require any such small additional fund. The Petitioner contends that the Respondent No. 1 Company had reserve funds which were about 20 times its share capi....
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....ue at which shares were being sold is mentioned in the AGM resolution passed on 30.12.1987 and therefore, there is no basis for the Petitioner's arguments. (e) In order to appreciate the law, it would be beneficial to see the wordings of Section 173(2) of Companies Act, 1956. 173. Explanatory statement to be annexed to notice.- (1) For the purposes of this section- (a) in the case of an annual general meeting, all business to be transacted at the meeting shall be deemed special, with the exception of business relating to (i) the consideration of the accounts, balance-sheet and the reports of the Board of Directors and auditors, (ii) the declaration of a dividend, (iii) the appointment of directors in the place of those retiring, and (iv) the appointment of, and the fixing of the remuneration of, the auditors; and (b) in the case of any other meeting, all business shall be deemed special. (2) Where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular (the nature of t....
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....In Shanti Prasad Jain vs. Kalinga Tube Ltd. (1965) 35 Comp Cases 351 (SC), the Hon'ble Supreme Court held that where neither the notice nor the explanatory note disclosed material facts pertaining to a resolution, the resolution would be invalid and ineffective. Furthermore, it is imperative to mention a Director's concern or interest in the resolution. 43. A perusal of the explanatory statement given along with the notice of 54th Annual General Meeting would show that the only reason given by the Board for issuance of the 30,000 shares is that it considered the issuance necessary to increase the capital base of the company. There is however no mention as to why the Board recommended passing of the special resolution for the best interest of the company as to how or why the allotment was necessary for the best interest of the Company. The explanation is as such clearly lacking and does not make a full disclosure of the material facts. The names of the proposed allottees were not mentioned. We find that the allottees to whom these shares were eventually allotted had relationship with Respondents no. 2 & 3 and other shareholders. In fact, Respondents no. 14 to 16 allottees d....
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....be made in favour of entities that were non existent on the date of the resolution, or that they were in fact alter egos of respondent Nos. 2 and 3 themselves, the shareholders are likely to have reacted differently. 46. It is significant to note in this regard that no disclosure was also made in the explanatory statement to the effect that no valuation exercise had been undertaken by the Board before deciding to allot the shares by private placement at par value. There is no real denial by the respondents that the value of the shares was far in excess of the par value of the same. Not only is there admission by the respondents in the affidavit that respondent No. 1 company was prosperous as borne out from the petitioner's assertion with regard to the value of its shares at the relevant time, the fact is that the respondents themselves acquired shares from the petitioner and the said Parasmal Lodha, amongst others, and values far in excess of the par value of the shares. Furthermore, there is no explanation as to why the respondent Nos. 14, 15 and 16 were chosen as the allottees of the said 30,000 shares, particularly as each of these companies had insignificant paid up capita....
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....16. After the respondent numbers two and three, amongst others, had come to learn that the shares commanded a much higher price than their par value, there could be no justification for the respondents to continue with the allotment of the said shares at their par value. This undoubtedly has caused significant loss to the company. 49. In such circumstances, the only conclusion that can be reached is that the issuance and allotment of the said 30,000 shares in favour of the allottees thereof, including respondent Nos. 14, 15 and 16 was certainly a dishonest act of the Respondent Nos. 2 and 3 that resulted in not only in oppression insofar as the shareholders are concerned, but also an act of intentional mismanagement, if not a fraud in the Company itself on the company itself. It is now well entrenched in legal jurisprudence that fraud unravels everything. Reference is the in this regard may be made to the following decision. (ii) Ram Preeti Yadav vs U.P. Board of High School and intermediate Education & Ors. - (2003) 8 SCC 311 For the aforesaid reasons we accept the argument raised by the Petitioner that later on after the actual allotment and upon learning of the designs of Re....
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....ssuming that the Petitioner had attended the meeting and given consent for issuance of 30,000 shares, the same is bad in law in view of violation of Section 173 of the Companies Act, 1956. 53. On the issue of necessity for issuance of 30,000 additional equity shares it would be appropriate to note that the Respondents have contended that the capital was required by Respondent No. 1 and that it was merely complying with RBI's guidelines. Furthermore, the Respondents have contended that at the time these 30,000 shares were issued, Respondent no. 1's financial condition was in doldrums and that it was difficult for Respondent no. 1 even to find any investors in the Company. It was contended that the investment certificates of the investors were actually a liability rather than assets. 54. In our opinion, the aforementioned reason may or may not be a plausible reason for issuance of the 30,000 equity shares. However, it is an undisputed fact that no such reasoning has been provided for either in the notice of the annual general meeting or the explanatory note annexed along with the notice. The Respondent ought to have given these explanations to its shareholders who have righ....
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....y Rs. 200/-. In para 79 of the reply, Respondent no. 2 contends that Rs. 30 lacs was advanced by Respondent no. 1 to Respondent no. 30 on 30.04.1989 and another sum of Rs. 2.70 crores on 21.4.1989 and that both loans were for 3 years carrying interest at 20% and that the loans had been advanced without touching certificate holders monies. But the fact remains that loans were advanced by Respondent no. 1 to Respondent no. 30 for which there is no explanation. * It is the settled principle that the corporate veil of the company can be lifted for the advantage of the Company. A This is a fit case where the corporate veil of the other Respondent Companies should be lifted. 57. The Petitioner has also raised an issue with respect to applicability of provisions of 'The Monopolies and Restrictive Trade Practices Act, 1969' ("MRTP Act"). According to Petitioner, Respondent no. 1 Company and its subsidiaries exceed a sum of Rs. 100 crores. Furthermore, the Respondent no. 1 is an "undertaking" within the meaning of Section 2(v) of the MRTP Act and therefore, Respondent no. 1 Company was required to be registered under Section 26 of the MRTP Act. To counter this averment, Responden....
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....pany by Respondent nos. 2 and 3. It is Petitioner's contention, that monies of Respondent no. 1 Company have been used by the other Respondents to subscribe to the shares of Respondent no. 1 Company. We feel that it is important to look into these allegations as well as Respondent's reply to the same for proper adjudication of the present matter. * According to the Petitioner, Respondent nos. 2 to 9 used to make Respondent no. 1 Company grant loans to Respondent nos. 25 to 32 and that money was used by Respondents no. 25 to 32 in turn give loans to Respondent nos. 14, 15 and 16 for the purpose of subscribing shares of Respondent no. 1 Company. Therefore, the argument of the Petitioner is that the funds of Respondent no. 1 Company which were lent as advances and loans were actually ploughed back into the Company in form of subscription of shares by other Respondents. * To buttress the aforementioned argument, the Petitioner, in paragraph 37A of the Petition has stated that Respondent no. 16 had obtained an unsecured loan of Rs. 6 lacs from Respondent no. 31 and further sum of Rs. 2.5 lacs from one Vanshree Holdings Pvt. Ltd. (Petitioner has relied on extracts from the fi....
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....nt no. 15 from Respondent no. 31 which in turn had taken a loan from the Company. It does appear that there has been re-routing of money belonging to the company for purchase of shares by the allottees. 61. The manner in which these 30,000 shares have been allocated to the Respondent allottees is questionable, and from the materials on record it does appear that the Company's money has been used for purchase of its shares by the allottees. The Respondents have not shown by producing material on record what was their source of money for purchase of the shares and that the funds used for purchase of the same were not in any manner linked to the Company. As the law then stood, this was not a permissible transaction. We have to look at the transactions on the basis of the law as it then stood. Upon consideration of the pleadings and records before us, this Tribunal holds that the allocation was for the benefit of Respondents no. 2 & 3 rather than the Company itself and thus, such allotment has to be set aside. 62. With regard to Respondents contention that Mr. Parasmal Lodha is the key person behind this whole litigation and that he is a disgruntled ex-director of Respondent no. ....
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....on 30 (b) of the MRTP Act, 1969. It is Petitioner's case that since the provisions of MRTP Act are applicable to Respondent no. 1 Company, the aforementioned transaction is hit by Section 30B of the MRTP Act and that the 'Roy-Sen' Group ought to have obtained the previous approval of the Central Government before purchasing the shares. This argument of the Petitioner proceeds on the basis that Respondent no. 26 and 28 are part of Respondent no. 2 and Respondent no. 3 combine and that Respondent no. 26 and 28 are in fact controlled by Respondents no. 2 and 3. * The Petitioner has also taken an additional ground that the sale of shares by present Petitioner was hit by provisions of Securities Contracts (Regulation) Act, 1956. It is Petitioner's case that though, even according to the respondents themselves, the purported sale of shares was concluded on 16.03.1988, the fact is that 50% of the value of the said shares being sum of Rs. 27,81,625/- was not paid by Respondent no. 26 until 02.05.1988. This despite the fact that the delivery of share certificates was made by 16.03.1988. 66. To counter the allegations made by the Petitioner, Respondent no. 2 in its Counter....
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....ondent no. 26 and 28 are in fact controlled by Respondent no. 2. Furthermore, it is also relevant to note that even though the transaction between the Petitioner herein and Respondent no. 26 took place on 19th April 1988, however, a substantial consideration for this transaction was paid by Respondent no. 26 only on 02.05.1988, i.e., few days after the Respondent no. 2 advanced the loan of Rs. 25 lacs to Respondent no. 26. Therefore, it appears that the amounts advanced by Respondent no. 2 to Respondent no. 26 was in fact to buy shares of Respondent no. 1 Company from the present Petitioner. Again, it is admitted that Respondent no. 1 company had made a fixed deposit of Rs. 50 lacs in May 1988 with Standard Chartered bank. It is also admitted that the Respondent no. 2 had taken a loan of Rs. 40 lacs from the same bank. 69. The reason for the Company depositing money with the Bank at times when personal loans were being taken by the Respondent no. 2 from same bank, and the proximity of these transactions with the purchase of shares by Respondent no. 26 etc. from the present petitioner leads us to believe that the transactions were not independent of each other. We find that there a....
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.... of Section 30B would show that it has a wide ambit, which not only covers transactions done in an individual's name, but also includes acquisitions made in someone else's name. Since we have already held that Respondent no. 26 and 28 are in fact controlled by Respondent no. 2 and they have a strong nexus with each other, we cannot but reach the conclusion that the acquisition made by Respondent no. 26 and 28 of 15,626 shares of Respondent no. 1 Company was hit by Section 30B of the MRTP Act. The said Respondents ought to have taken prior approval of Central Government before buying the shares in the name of Respondent nos. 26 and other Respondents. The argument of the Respondent that MRTP Act is not applicable on Respondent no. 1 has already been dealt by this Tribunal in the earlier part of this judgement. Pertinently, violation of Section 30-B of the MRTP Act has penal consequences under Section 48B(1) of the MRTP Act iv. On the issue of applicability of Securities Control (Regulation) Act, 1988 ("SCRA"), we find that the share certificates for the whole transaction were given on 19.04.1988. However, it is an undisputed fact that part payment for the transaction was do....
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..... Ltd. [1964] 34 Comp Case 777; * S.P. Jain vs. Kalinga Tubes Ltd., (1965) 35 CComp Cas 351 * Needle Industries (India) Ltd. and others vs. Needle Industries Newey (India) Holdings Ltd. and Ors. (1981) 3 SCC 333. 71. The law relating to Oppression and Mismanagement in India is well settled by various judicial precedents. In this regard reference may be made to the following cases and the observations made therein- In the matter of Kshounish Chowdhury vs. Kero Rajendra Monolithics Ltd., it was observed that issue of further shares for the purposes of converting a majority into a minority is a grave act of oppression. 72. Furthermore, it is a well settled principle that increasing share capital without any need is an act of oppression and also, a director/management cannot utilize the fiduciary powers over the shares purely for the purpose of destroying an existing majority or creating a new majority. 73. In the matter of Satish Chandra Sanwalka v. Tinplate Dealers Assn. P. Ltd. (2001) 107 Comp Cases 98 (CLB-PB-New Delhi), it was held that where bonus and equity shares were issued against revaluation reserve account which was against the articles of the company and the manne....