TaxTMI 
TaxTMI 
2022 (8) TMI 658
X X X X Extracts X X X X
X X X X Extracts X X X X
....is important to set out the relevant facts which 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 s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urpose. The board recommends passing of the special resolution as proposed for the best 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 petiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tracts (Regulations) Act, 1956 and Companies Act, 1956. 17. In this backdrop, it is also important to summarize the multiple rounds of litigation by the parties before dealing 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 Nationa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y:- i. The issue and allotment 30,000 shares by private placement; ii. The illegal acquisition of 15,626 shares by Respondent No. 2 and his Group; LITIGATION BETWEEN THE PARTIES: 20. On 30.05.1991 an Application bearing C.P. No. 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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso filed its own substantive application challenging the maintainability of CP. No. 222 of 1991. Both the parties filed Affidavits and Counter Affidavits in both the Applications. Vide Order dated 30.01.1992, Ld. Single Judge of the Hon'ble Calcutta High Court dismissed C.P. No. 222 of 1991 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 H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reliefs have been claimed as mentioned earlier. (c) As regard financial mismanagement by Respondents the Petitioners have sought, a detailed scrutiny and investigation by a special officer of the accounts and the Company's records to unravel the truth. The records of the case are voluminous and the transactions go back to a few 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 conte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omp Cas 690 (CLB) para 15 at Page 702 (3) Raj Kumar Bhatia and Ors. Vs. M/s. AV Light Automotives Ltd. & Ors. (2016) 197 Comp Cas 144. 35. The Petitioner on the other hand contended that although the resolution for allotment of 30,000 equity shares was passed on 30.12.1987, the actual allotment of such shares took place only on 28.04.1988. According to the petitioner, it is the allotment that is under challenge, 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 Limitatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en the Petitioner acquired knowledge of the same. According to the Petitioner it was much later on. As per the respondents the AGM meeting took place in late 1987 and was attended by the Petitioner. But this much is evident that the Petitioner could have come to know of the actual allotment only later on i.e. sometime after 28.04.1988. Admittedly, till this time the names of the allottees were not known. In fact some of the Respondents such as No. 14 to 16 were 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 lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (b) Another ground raised by the Petitioner to challenge the issuance of these 30,000 shares is that the original Petitioners had no notice of the meeting and as such had no opportunity to object to the resolution for increase of capital. The Respondents have rebutted the arguments by contending that the notice was duly sent to the original petitioner at the recorded address and was also published in the newspaper. The Respondents have further stated that there was no motive for not giving 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ondent No. 1 Company. These shares were issued for the benefit of the company and any benefit which has been accrued to any of the Directors in the process is immaterial and cannot be ground for allowing the oppression and mismanagement of the Petitioner. Furthermore, the Respondent has opposed the valuation of shares suggested by the Petitioner. They have mentioned that the funds available with the Company belonged to certificate holders which had to be repaid to them on contractually stipulated dates. They also contended that the value 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eting to enable the shareholders to form a judgment on the business before them". 41. Furthermore, it is essential to see that the explanatory statement set out by the Board is fair, and as far as possible gives all the information reasonably necessary to enable the recipients to decide how they should vote. A Division Bench of the Hon'ble Calcutta High Court in the matter of Shalagram Jhajharia Vs. National Co. Ltd. And Ors. (1965) 35 Com Cases 706 (DB) Calcutta has held that the notice which discloses nothing is a tricky notice. Whether the notices is tricky or not depends on the facts of each case. 42. 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate placement, no allotment was made for almost four months. This in itself brings the notice and the explanatory statement under the shadow of doubt. The suggestion in the explanatory statement, by necessary implication, was to the effect that respondent No. 1 urgently needed to increase its capital base. Had it been made known to the shareholders that the company was not in immediate requirement of funds, it would have been difficult for the Board of the respondent to justify the need for allotment of shares by private placement. Had it also been made known to the shareholders that the private placement was intended to 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 pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h respondent Nos. 14 and 16. No attempt was made by them to explain as to why respondent Nos. 14, 15 and 16 were all incorporated on the same date with consecutive serial numbers and as to why all of them maintained their records in the same premises. 48. It is not the case of the respondents that the petitioner was aware of the incorporation of respondent Nos. 14, 15 and 16, all of the decision of the respondents to allot a significant part of the said 30,000 shares to them. It is also not the case of the respondents that the petitioner was aware of the association of respondent Nos. 2 and 3 with respondent Nos. 14, 15 and 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In this context we proceed to reiterate that it is trite law that requirements provided under Section 173 of the Companies Act, 1956 are mandatory and not directory in nature, and any disobedience to its requirements must lead to nullification to the actions taken. This has been held in Mohanlal Ganpatram vs. Shri Sayaji Jubilee C. & J. Mills Co., (1964) 34 Comp Cases 777 (Guj) and the view has been affirmed in various subsequent judgements. 52. Therefore, the issue whether Petitioner attended the Board Meeting and/or had given consent for issuance of 30,000 shares of Respondent no. 1 Company loses significance in view of the fact that even assuming 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, Resp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... auditors of Respondents no. 14-16 are same. * The Petitioner's contend that Respondent no. 2 and his wife are the directors in Respondent no. 14 to which there is mere denial by the Respondents without adducing any proof. * Respondents no. 17 and 18 allottees are the children of Respondent no. 2. * In/around September 1988, Respondent no. 1 company sanctioned a clean unsecured advance of Rs. 3 crores to Respondent no. 30 company, which is owned by Respondent no. 31 company. The relationship between Respondent no. 31 and Respondent no. 2 dates back to several years. Pertinently, at the time of sanctioning the loan, the paid up capital of Respondent no. 30 was merely 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 prin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....notice on 11.08.1988 by the MRTP Authorities to get itself registered. Despite the same, Respondent no. 1 failed to do so. Though, the Respondent contends that it had replied to the said notice and did not hear from the Authority thereafter, it does not mean that there was a closure of the issue. The nature of services undertaken by Respondent no. 1 and the assets of Respondent no. 1 as they existed at the relevant period would clearly show that Respondent no. 1 was liable to be registered under the MRTP Act and the provisions of the Act were applicable on Respondent no. 1. 59. The Petitioner has also raised several serious allegations to support its plea of financial mismanagement of Respondent no. 1 Company 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thecation of computer micro filing equipment. Furthermore, Respondent no. 2 has also stated that out of Rs. 1 crore, a sum of Rs. 22,855/- was refunded on 04.05.1989. On the allegation of giving loan to Vanshree Holdings Pvt. Ltd., the Respondents have denied that any such loan was advanced to the said Company. With respect to allegations qua other use of Respondent no. 1's monies by Respondent nos. 14 and 16, Respondent no. 2 has merely denied the same, without any elaboration. 60. From the above, it does appear that there has been routing of Respondent no. 1's money by some allottees to purchase shares. This Tribunal is unable to accept the contention that Respondent no. 2 had no knowledge of receipt of money by the Respondent 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. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uch loans and also inter corporate loans, Respondents Nos. 2 and 3 purchased 10,915 shares from Mr. Paramal. Lodha and from the present petitioner and 4,711 shares from other shareholders of the Company. In all 15,626 shares were purchased and/or acquired in this way. According to the petitioners, such acquisition of shares was wholly in violation of the provisions contained in Section 77 of the Companies Act, 1956. * Furthermore, the Petitioner has also pointed out that the registered office of Respondent no. 26 is at residence of Respondent no. 2 and the administrative office of Respondent no. 28 is same as address as that of Respondent no. 1 Company. * The next ground taken by Petitioner to challenge this transaction is that the same is hit by Section 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d a personal loan of Rs. 40 lacs against the securities which he had mentioned in the Counter Affidavit. It is Petitioner's contention that the personal loan of Rs. 40 lacs could have only been granted to Respondent no. 2 on the strength of the fixed deposit of Rs. 1 crore made by the Company. 68. After hearing both the parties, we think that the preliminary question, in order to adjudicate the present issue is whether Respondent nos. 26 and 28 are in fact controlled and managed by Respondent no. 2 and 3. The residence of the Respondent no. 2 and the Administrative office of Respondent no. 28 is at the same address as of Respondent no. 1 Company. Both of these cannot be coincidences. If a Company's registered address is also the residence of Respondent no. 2, then, it is amply clear that Respondent 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 l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....management, shall jointly or severally acquire or agree to acquire, whether in his or its own name or in the name of any other person, any equity shares in a public company, or a private company which is a subsidiary of a public company, if the total nominal value of the equity shares intended to be so acquired exceeds, or would, together with the total nominal value of any equity shares already held in the company by such individual firm, group, constituent of a group, body corporate, or bodies corporate under the same management, exceed twenty-five per cent, of the paid-up equity share capital of such company." iii. Although Section 30B of the MRTP Act stands omitted by virtue of The MRTP (Amendment) Act, 1991, however, at relevant point in time when the transaction took place Section 30B was very much in force. A reading 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d away and his legal heirs have been brought on record and who are represented by Mr. Jishnu Choudhury, Advocate. The ld. Counsel appearing for LRs of the deceased supported/adopted the arguments on behalf of Respondent number 1. In addition, ld. Counsel argued that by efflux of time the petition and the reliefs asked for have become infructuous for all intents and purposes. The reliefs prayed for even if granted shall be of no purpose as such. 71. Respondents have finally tried to persuade this Tribunal by raising an argument that even assuming the allegations levied by the Petitioner in the present case are true and are taken on its face value, even then no case for oppression and/or mismanagement is made out. For this, the Respondents have relied on the following judgements: * S.M. Ganpatram vs. Shri Sayaji Jubilee Cotton and Jute Mills Co. 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 pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etitioner. 77. Therefore, we are of the considered opinion that it is a fit case to exercise powers conferred on this Tribunal under sections 397, 398 and 402 of the Companies Act, 1956, or for that matter, under section 241-242 of the Companies Act, 2013. 78. For the reasons stated above, the Transfer Petition bearing TP/38(KB)/2021 deserves to be allowed. Accordingly, the Company Petition is allowed with following directions: a. The issuance and allotment of 30,000 no. of shares made to the Respondents pursuant to the 54th Annual General Meeting dated 30.12.1987 are declared to be void. The dividend received by the allottee shareholders and/or their nominee or assigns be cancelled and be directed to be returned back to the respondent company No. 1 within 30 days. b. Issuance and allotment of 15,626 shares to Respondents no. 26 & 28 of Respondent no. 1 Company is declared as null and void. The holders of these shares are directed to return the shares, bonus shares and accrued dividend thereon to previous shareholders i.e. the transferors within 30 days. c. Any subsequent actions taken pursuant to the aforementioned allotments are declared as void a....