TaxTMI 
TaxTMI 
2014 (9) TMI 1279
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....ile products, like, Engine Oil, Brake Fluid, Coolants and Polishes etc. under the brand name "Waxpol". The company is also engaged in the business of Tourism and Hospitality Sector and operates one resort in Jalpaiguri area of the State of West Bengal. ii) The company was originally incorporated as Public Company limited by shares by two brothers, namely, the father of petitioner No. 1, i.e., Late Paramanand Garg and father of respondent No. 2, i.e., Late Purnanand Garg. Both of them were original promoters of the said company and signatories to the Memorandum of Association. iii) The respondent company was incorporated to take over the existing business of a partnership firm, namely, Glamor Polish Industries (abbreviated as G.P.I.) which was a partnership between Shri S.C. Agarwal and Late Purnanand Garg (father of R-2). The father of petitioner No. 1 contributed to the capital of the said firm and also lent and advanced moneys to G.P.I. After the business of G.P.I. was taken over by the respondent company, the loan given by father of petitioner No. 1 was converted to equity in the said company. At all material times, both the branches of the Garg family treated ....
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....as that PAN number was not stated in the said share application form. Because of rejection of the applications filed by the petitioners and preferential allotment of shares to respondent No. 2, the shareholding of the petitioners was reduced from 33% to 22% and the shareholding of the respondent No. 2 and his group increased from 33% to 49%. On being asked about the wrongful rejection of the share application of the petitioner No. 1, the respondent No. 2 assured the petitioner No. 1 that 50:50 partnership between the two branches of the family would continue notwithstanding the present composition of shareholdings in the respondent company. The petitioners have challenged the impugned allotment of shares on the ground that the applications of the petitioners were rejected on flimsy grounds by respondent No. 2 with a malafide intention to wrongfully increase the shareholdings of the respondents and reduce the shareholding of the petitioners. It has been also submitted that the company was in no need of funds and such allotment was a device to reduce the shareholdings of the petitioners into a minority. viii) In or about 2003, petitioner No. 1 was removed from Whole Time Dir....
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.... of Section 81(1A) of the Companies Act, 1956 and hence, calls for cancellation of such irregular allotment. b) No notice of EoGM was given to the petitioners and no such meetings were ever held. c) The allotment of impugned shares to the respondent group is wrongful and illegal and has been made with the sinister object of converting the petitioners into hopeless minority and to wrongfully and illegally wrest control of the assets of the company in favour of the respondents. d) The allotments of shares have been made at a price of Rs. 15/- per share. The price of such issue of shares has been arrived at as per audited Balance Sheet for Financial Year 2007-08. The value of the company with turnover of Rs. 46.00 Crores and net profit of Rs. 42.5 Lakhs has been arrived at Rs. 46.00 Lakhs by the respondents for their own benefit. Further, the shares have been issued at Rs. 15/- per share when the profit per share is Rs. 13.77 and price to earning (PE) ratio is 1.08 times. As a result of this issue, the net worth of the company has increased by mere 6.8%, even though share capital has expanded by 130%. e) As per Board meeting dated 21st August, 2009,....
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....; by WHRL without the payment of any royalty. In the financial year 2010, WHRL earned a total income of Rs. 2.6 lakhs and this was shown as commission from services charged from WIL. The net profit of WHRL was Rs. 1,44 lakhs which yields a net profit margin of 55%. The Profit & Loss Account of WHRL shows no expense items, like, rent or salaries, because all these expenses have been charged to WIL. In the same year, Hotel & Resort Division of WIL has shown a net loss of Rs. 26.32 lakhs. xiii) Sundarban Tiger Camp (STC) is a wild safari resort situated at 24-Parganas, Dayapur, Post-Gosaba (South). Respondent No. 2 is the sole proprietor of the said resort and the equipments like vehicles, furniture and fixture, Wind Mill etc. have been diverted from WIL and the employees working in STC are in pay roll of WIL. STC operates from the registered office of WIL and the largest customer of STC is WIL also. Respondent No. 2 is diverting the business of R-1 Company to his own proprietorship firm which is prejudicial to the interest of the respondent company. xiv) The Research and Development Laboratory of the respondent company has been shown to be situated at 62, Jatin Das ....
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....-clause (4) in the Main Object of the Company: (4)(a) To enter into partnership(s) or joint venture(s) or any other arrangement(s) or union of interests, receirocal concessions or cooperation with any person or persons or company or companies carrying on or engaged in, or about to carry on or engage in, or being authorized to carry on or engaged in, any or all business or transaction which this Company is authorized to carry on or engage in or any business or transactions capable of being conducted so as directly or indirectly to benefit this Company either in this Country or in a Foreign Country and to subscribe into the capital of the said entities and otherwise invest the funds of the company in accordance with laws. (b) To take or otherwise acquire and hold shares in any other company or Companies having objects altogether or in part similar to those of this company or carrying on any business capable of being conducted so as directly or indirectly to benefit this Company either in this Country or in a Foreign Country." (2) To consider and if thought fit to pass, with or without modifications, the following resolution as a Special Resolution:-- ....
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....enter into and execute the Memorandum of Undertaking with the Sri Lankan partner or partners for formation and incorporation of the Joint Venture Company in Sri Lanka and to appoint such person or persons as Director(s) on the Board of the proposed Joint Venture Company in Sri Lanka and to do all such things as may be expedient, necessary and lawful in this regard." (4) To consider and if thought fit to pass, with or without modifications, the following resolution as a Special Resolution: "RESOLVED that approval be and is hereby accorded pursuant to Section 149(2A) of the Companies Act, 1956, to the company to commence as and when its Board of Directors may think fit the business specified in the proposed sub-clause 4 of its Main Object of the Memorandum of Association, as altered." xix) According to the petitioners, if the aforesaid resolutions are passed, a new partner would be inducted into the company which is already in the nature of a quasi partnership without taking his consent and will change the shareholding of the company for which the petitioners are not agreeable. Further, the proposed resolutions are in violation of the family understanding i....
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.... company of the face value of Rs. 10/- per share in the ratio of 1 new equity bonus share for every 5 existing equity shares of the company would be credited as fully paid up shares out of the amount of free reserves and surplus of the company. In this regard, it has been contended that the rational behind issue of such bonus share, as set out in the explanatory statement dated 4th May, 2011 in relation to EoGM dated 31st May, 2011, has been that it is by way of gift to the shareholders. However, no new funds would come to the company as a result of issuance of such bonus shares. Further, on the basis of the order of the Hon'ble High Court at Calcutta dated 6th April, 2011 (Ref: Annexure-B to C.A. No. 176 of 2011, Pages 31-33). It has been clearly stated that no rights are to be claimed on the basis of allotment of 2011. As such, the bonus issue could not have been made and accordingly such issue, if made, is liable to be cancelled, because it really has served no purpose towards the benefit of the company." 3. As against the above averments of the petitioners, the respondents have made following submissions as per various affidavits drawn as available on record:-- ....
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....stitute 50% of the total shareholding as per claim made by them. The petitioners never set up the company and father of petitioner No. 1 became a director in the company only on 14.10.1958, while the company was established in the year 1950. (v) Prior to filing of the petition, the petitioners never acted as a group. They do not have similar complaint or there is no common cause of action between the petitioners so that they can claim any right to the management or affairs of the company. The complaints of the petitioners are necessarily barred by the principle of acquiescence and delay as they sought to bring in events, which took place long back. The name of petitioner No. 3 is not in the register of members of the company. The alleged purchase of shares by petitioner No. 1 and petitioner No. 3 on 29th October, 2010 and 30th November, 2010, was only done for the purpose of filing of the instant petition. If the petitioners were aggrieved by any genuine acts of mismanagement and operation in the hands of the respondents, they would not have bought further shares in the company. (vi) The company petition has been initiated at the behest of local competitors of the....
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....1(1A) of the Companies Act, 1956. The notice of EoGM in relation to the allotment of shares was also sent to the petitioners. The proof of despatch of notice under certificate of posting along with extract of Dak Register are at pages 103-104 of reply to C.P. marked as "W-30" and pages 29-31 of reply to supplementary affidavit annexed and marked as "W-31". The other shareholders have confirmed receipt of such notice of EoGM dated 07.03.2009 (Ref: Pages 31-50 of reply to supplementary affidavit annexed and marked "W-33"). The consenting shareholders who have issued consent letters have nowhere mentioned that these shareholders have not received notice of EoGM dated 07.08.2009. The letter of Postal Department dated 16.06.2011, is per report of Dharmatala business office, indicating that no article as mentioned by the company was posted on 15th July, 2009, has been procured by petitioners will be evident from the following facts:-- "(a) The said letter was in reply to a letter dated 12.05.2011 by the Advocate of petitioners. (b) Under Right to Information Act, the Postal department has confirmed by letter dated 25.08.2011 (Ref: Pg.24 of reply to supplementary affidav....
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....en carried out by the company and therefore, there is no further legal requirement for valuation of shares for the purpose of allotment of such shares. The company obtained a certificate from the statutory auditor regarding the value of shares which was suggested at Rs. 5.46 per share and the company actually allotted shares at Rs. 15/- per share, which is more than the suggested value. The petitioners have already accepted such allotment of shares and never protested against the same. In addition, petitioner No. 1 and petitioner No. 3 have also bought shares in the company in 2010, which is an act of waiver on the part of the petitioners. (xi) As regards 2011 allotment, it has been contended that allotment was made after complying with the provisions of the Companies Act, 1956. Admittedly, notices dated 24.12.2010 for convening of EoGM dated 23.03.2011 were received by petitioner No. 1 and petitioner No. 2 and the explanatory statement was sent along with such notice. Special Resolution under Section 81(1A) of the Companies Act, 1956 was adopted in EoGM held on 23.03.2011 and the minutes have been annexed at Page 126 of reply to C.P. annexed and marked as "W-60" which wil....
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....ompany for Rs. 51 lakhs, whereas average profit of the company is Rs. 35.06 lakhs per year. It has been contended by the respondents that BMW car has been purchased by obtaining finance from HDFC Bank and it was a second hand car and purchased for a price of Rs. 34.00 lakhs on a down payment of only Rs. 7.15 lakhs. It was required for the purpose of the business of the company and the necessary explanation has been at page 22 of reply to CP annexed and marked as "W-68" and at pages 113-114 of reply to CP annexed and marked as "W-69" which shows the approval letter dated 03.05.2009 of HDFC Bank along with repayment schedule to HDFC Bank. (xv) It has been alleged by the petitioners that Waxpol Hotel and Resorts Limited (WHRL) is using the infrastructure of the company and the business of the company has been diverted to WHRL. In this regard, it has been submitted that the allegation is baseless as WHRL is marketing the company's resort located at Jalpaiguri in respect of which WHRL is earning a commission from the respondent company. In course of such marketing the property of the company, question does not arise of any diversion of business of the company to WHRL, more ....
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....armanand Garg including the petitioners and late Purnanand Garg including the respondents. However, it has been observed that petitioner No. 1 held 22,376 shares comprising of 10.14% of the total holding, father of petitioner No. 1, namely, Parmanand Garg held 30,242 shares (13.70%) prior to his death in 1999, petitioner No. 2 (mother of petitioner No. 1) held 15,356 shares (6.96%) prior to 1995 which aggregate to 30.80% of the total shareholding of the company and thus, the same did not constitute 50% of the total shareholding as per the claim of the petitioners. The respondent company was incorporated in 1950 by taking over the existing business of the partnership firm, namely, Glamor Polish Industries (GPI) which was a partnership between Shri S.C. Agarwal and Late Purnanand Garg (father of respondent No. 2). The father of petitioner No. 1 contributed partly towards the capital of the said firm and loan given by father of petitioner No. 1 was subsequently converted to equity in the said company. Thus, the original partnership for running Glamor Polish Industries (GPI) which was subsequently taken over by the respondent company was not set up by joint participation of Late father....
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....n in Section 399 is not the only criteria for determining maintainability but qualitative aspect of the shares should also be considered. Relying thereon, the respondents have submitted that the mode and manner of obtaining consent from other shareholders that predates the filing of the present petition is proof enough to show that the petitioners have not satisfied the qualitative requirement of shareholdings. On the other hand, the petitioners' case is solely based on the concept of the parties acting as a group and equal partnership. However, before rendering any opinion, it will be worthwhile to consider other aspects canvassed before the Board. 7. The petitioners have challenged the impugned allotment of shares. In 1995 on the ground that the sole purpose of such allotment was to take away the negative control of the petitioners group. However, the petitioners could not defend their case of rejection of application for allotment of shares which was defective on the ground of such application being made on joint shareholding without mentioning PAN number of the applicant which was a mandatory requirement for filing such application. As regards the loss of negative contro....
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....to a family owned company and the parties were trying to settle issues unlike in the instant case wherein there has been a delay of 16 years and on top of that the petitioners have acquiesced to the shareholding by accepting dividends and therefore, no reliance can be placed on the said case. In view of the above, the petitioners have failed to make out any case against the rights issue of shares made in 1995 and therefore, no interference is called for on this aspect. 9. The petitioners have challenged the preferential allotment of 4,00,000 equity shares ofRs. 10/- each in consequence of an EoGM dated 21.08.2009 for cash at a premium of Rs. 5/- per share. Petitioner No. 3 was not a shareholder during that period and therefore, petitioner No. 3 cannot complain of 2009 allotment. The aforesaid allotment was done in compliance of the provisions of Section 81(1A) of the Companies Act, 1956. The notice of EoGM in relation to the allotment of shares was stated to be sent to the petitioners under Certificate of Posting. The proof of despatch of notice has been annexed at pages 103-104 of reply to C.P. A number of shareholders have confirmed receipt of such notices of EoGM dated 07.08.....
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....orts & Anr. v. Apparels Export Promotion Council [(1986) 60 Comp. Cas. 353 Del]. On the other hand, the petitioners have placed reliance on Ramashanar Prosad & Anr. v. Sindri Iron Foundry Pvt. Ltd. & Ors. [AIR (1966) Cal 512] to contend that UCP cannot be relied upon for the purpose of service of notice to attend general meeting. However, the case cited by the petitioners has been distinguished by submitting that the same pertains to a winding up scenario and it has dealt with family and partnership company unlike the present case. Further, in respect of Sindri Iron case, the respondents sought to distinguish it by submitting that notices of 1995 allotment as also that of 2011 EoGM were issued through UCP and were duly received by petitioner No. 1 and thus, there is no plausible reason available to the petitioner to contend that notice was not received in 2009. Further emphasis has been placed by the respondents on the fact that majority of other shareholders have received such notices under UCP and had attended the meetings. 10. The aforesaid allotment of 2009 has also been impugned by the petitioners on the ground that allotment of shares to majority group themselves is oppres....
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....ton & Jute Mills Co. Ltd. & Ors. (34 Comp. Cas. 777) (ii) Firestone Tyre & Rubber Company v. Synthetics & Chemicals Ltd. & Ors. (41 Comp. Cas. 377) (iii) V.G. Balasundaram & Ors. v. New Theaters Carnatic Talkies Pvt. Ltd. & Ors. (77 Comp. Cas. 324) (iv) Sitaram Jaipuria & Ors. v. Banwarilal Jaipuria [AIR (1972) Cal 105] (v) CRB Capital Markets Ltd. v. RBI, [(2007) 135 Comp. Cas. 86 (Delhi)] (vi) Maharashtra Apex Corporation Limited [(2005) 124 Comp. Cas. 637 (Kar)]" 13. Ld. Counsel of the respondents has sought to distinguish the above cases cited by the petitioners and submitted that sufficient information was given about Sri Lankan partner and the petitioners after receipt of notices never sought any clarifications which tantamount to indifference towards the affairs of the company. The details of business partner are commercial secrets that need to be kept in perspective since the respondents were only trying to find the suitable partner. The respondents have already filed the details of such partners along with reply and therefore, according to the respondents, no further cause of action lies in the matter. Since the business by w....
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....plaint with regard to bonus shares as it was issued to all shareholders including petitioners. The bonus shares appear to have been issued in accordance with law and no ground has been made out by petitioners to show that issue of such bonus shares are in violation of the provisions of the Companies Act, 1956. Accordingly, no Interference is called for against such issue of bonus shares and the ground raised by the petitioners in this respect fails. 17. As regards the allegation of lack of fiduciary duty on the part of the respondents to acquire a BMW car costing Rs. 51 lakhs when the average profit of the company was Rs. 35.06 lakhs per year, the necessary explanation has been provided by the respondents as recorded in para 3 (xxiv) of this order and I find no irregularity or defect in acquiring such BMW car for official use in running the business affairs of the company and there has been no financial impropriety or lack of probity in such acquisition of car resulting in alleged mismanagement of the company. 18. It has been alleged by the petitioners recorded at para 2(xii) of this order that the tourism business of the respondent company is diverted to WHRL, a company cont....
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....ecord, these allegations are also not maintainable. 22. In order to meet the ends of justice, statutory auditor of the company is hereby directed to examine the following points from the books of accounts of the respondent company and accounts of other entities, if required:-- "(i) Whether the expenses in running the proprietorship business of respondent No. 2 in the name of 'Sundarban Tiger Camp' have been charged to the account of respondent company and if so, quantification of such total expenses is to be made. (ii) Whether the personal domestic expenses of respondent No. 2 have been charged towards maintaining R&D Laboratory of the respondent company located at the residence of respondent No. 2 and if so, quantification of such expenses to be made. (iii) Whether the educational expenses of the sons of respondent No. 2 have been sponsored and financed by respondent company and if so, the resolutions of Board Meetings to be seen in this regard and otherwise, total of such expenses to be quantified. After quantification of the aforesaid expenses, if respondent No. 2 fails to offer any reply towards justification of incurring of such expense....
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....tion. 25. The valuer will compute the fair value of shares within a period of three months from the date of receipt of this order and the value so computed shall be binding on both the parties. 26. On determination of the value, in case the respondent group is willing to purchase the shares held by the petitioner group, they should pay the consideration within four weeks thereafter. Otherwise, the respondent company will purchase the shares and reduce the share capital of the company to the extent of the face value of the shares. On receipt of consideration, the petitioners shall hand over the shares along with transfer deeds duly signed for further necessary action in accordance with law. 27. The valuer will furnish the valuation report to the petitioners and respondents including respondent company and the Bench Officer attached to this Bench and submit the bills against such valuation within 7 days of completion of valuation report to the respondent company and after verification of the same, the respondent company will release the payment to the valuer. 28. After carrying out the mutual obligations cast on the petitioners and respondents as per this order, an affida....