TaxTMI 
TaxTMI 
2007 (11) TMI 716
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....tha (Baddi) Tehsil - Nalagargh, Distt- Solan (Himachal Pradesh). The present authorized share capital of the Respondent company is Rs. 35,00,000/- divided into 3,50,000/- equity shares of Rs. 10/- each and its present issued, subscribed and paid up capital is Rs. 35,00,000 divided into 3,50,000 fully paid up equity shares of Rs. 10/- each. The main objects of the company are (a) to manufacture, buy, sell exchange, import, export and deal in electric and electronic components goods, equipments, accessories, systems, spares & appliance for household, industrial, educational, agricultural," medical, defence and other appliances, metals and metallic sheets, wires, cables, ferrous and non ferrous sheets, brass sheets, hardware, auto parts, chemicals tools and instruments and to work as engineers. 3. The family of Mr. T.D. Mehta consisted inter alia, six sons, namely Mr. Jiwan Mehta, Mr. Mohinder Mehta, Mr. Ramesh Mehta, Mr. Raj Mehta, Mr. Harish Mehta and Mr. Ashok Mehta. Mr. T.D. Mehta had set up three companies where all the brothers had cross holdings, besides the holdings of their father, Sh. T.D. Mehta. Each company was managed by two set of brothers as follows: Name of Company ....
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....as fixed for the shares. 4. Sh. U.K. Chaudhary, Counsel for the respondents raising preliminary objection on maintainability of the petition pointed out that the petitioner has not come to the Court with clean hands and has concealed material information, the family settlement (MOU) was not disclosed to the Company Law Board. Having agreed to swap the shares without consideration as per the MOU, the Petitioner who has not swapped the shares is holding the shares in trust for the Respondents and hence, is not qualified under Section 399 of the Companies Act, 1956. He cannot take benefit of his own wrong. The allotments, swapping, vacation of office was with full knowledge, consent/acquiescence of the Petitioner and hence past and concluded transactions cannot be challenged. Hence, there is waiver and he is estopped in law from challenging his vacation and/or allotment of shares. My attention was drawn to the misstatements at para 8(i), (xiii), (xxi) which have stated by way of an affidavit but are unsubstantiated. 5. Sh. U.K. Chaudhary, Counsel for the respondents pointed out that on 29.2.2000 and 24.4.2000, the Company made allotment of shares in favour of Mr. Harish Mehta, Mr. A....
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.... Partnership Principles are applicable between all the brothers in all the companies the counsel for the respondents argued that this is factually incorrect and is a mis-statement. It has been admitted by the Petitioner in paragraph 8(i) of the Petition that EWSL was "owned" by him. Thus, there was an agreement that the companies will be managed independently by two set of brothers. There is no such agreement of equal shareholdings as alleged. No agreement was produced on record. The partnership principles if any, were broken after the demise of the father on 25.6.96 when, during early August 1997, all the brothers transmitted the shares held by their father in the three companies in such a manner that each set of two brothers managing the particular company got fractionally higher shares. On the contrary, the Petitioner himself had made disproportionate allotment in the Company managed by him, i.e., Emmbros Wires & Strips Ltd. in the year 1997 whereby the shareholdings of all the other brothers was reduced which was not objected to by any of the brothers as it was well understood that each company will be managed and owned by each set of brothers. Consequent to the oral understand....
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....ion of AOA and Companies Act, 1956, it was pointed out that it is incorrect. The partnership principles already ended in 1997. Further, my attention was drawn to Clause 5 of AOA which reads as under: The Shares shall be under the control of the Directors who may allot or otherwise dispose of the same to such persons at such terms as the Directors may think fit and to give any person any shares whether at par or at a premium and for such consideration as the Directors may think fit. It was pointed out that Section 81(1A) of the Companies Act is not applicable to a private limited company. Thus there was no impediment- legal or contractual to the said allotment. 9. Further, as regards the allegation that the Petitioner was wrongly removed as a director and no notice of the Board Meetings was given, it was pointed out that the company was incorporated in 1991 and the Petitioner joined the Board as director on 22.6.1995. The partnership principles way back in 1997 and it was agreed that the each set of brothers will manage one company as mentioned in para 3 above. This oral understanding was reduced to writing on 7.10.2001, i.e. about 18 months after the Petitioner vacated his offi....
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.... Mehta who was exclusively managing EWSL with Petitioner has also swapped, except the Petitioner. Further, no valuation of the shares which were to be swapped was done and it was agreed to release the cross holdings without any consideration. The Petitioner is now only trying to extract money from the Respondents by challenging past and concluded transactions done with his consent, knowledge and acquiescence. 12. Further, it was argued that as regards the allegation that the company was not in need of funds when allotments were made on 29.2.2000 & 24.4.2000, this has not been alleged in the pleadings. R-l is a growing company has been consistently rated SB-1 by SBI for the last more than 7 years as the sales and profits have grown. Even in 2003, the sales were Rs. 6.00 crores as compared to Rs. 4.83 crores in 2002. Before the challenged allotments, the need for funds for expansion was duly considered at the Board Meeting held on 20.1.2000. The minute book was produced before the Hon'ble Board. 13. Further, responding to the allegation that the respondents are trying to enforce MOU before the Hon'ble CLB by referring to the same and this cannot be legally enforced before t....
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....ecame a sick company and the financial institutions recalled the loans and initiated recovery proceedings before DRT. The Petitioner continued with the diversion of funds belonging to EWSL. Being a guarantor, the Respondent No. 2 had to protect his interests and stop the Petitioner from diversion of funds and had to even issue a public notice in this regard. 16. The counsel for the Respondents pointed out that allegation regarding mismanagement/diversion of funds are only bald allegations. R-1 rated as SB-1 by SBI, which is the highest rating- to a borrower. ISO 9000 company, is into profits since second year of operation, i.e. 1994-95. On the other hand, Petitioner himself diverted the funds and made his company, i.e. EWSL sick, whereas the respondent company has grown under the management of respondents. 17. As regard the allotment made on 1.10.2005 not disclosed at the hearing on 29.11.2005 and petitioner's prayer that proposed IPO be stayed, it was pointed out that the Petitioner's counsel was provided with the copy of minutes and Form No. 2 of allotment by UPC on 9.3.2006, Speed post dated 19.4.2006 and by hand on 12.6.2006 of all the allotments including the allotme....
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..... The said fresh shares were issued by the Respondents to themselves or their wives, without any cash. Admittedly the consideration of said shares is stated to be transfer of: 1. Rs. 475 lacs by way of goodwill of a partnership firm named "Emmbros Exports; and, 2. Balance by merging the said partnership firm name "Emmbros Exports" with the respondent company. The fact regarding by issuance of the additional 51,50,000 fully paid up equity shares came into light only on the petitioner finding that the Respondent company has filed a 'draft prospectus' for public issue of equity shares with the SEBI. 21. The counsel for the petitioner while responding to the Respondents' allegation that there was an oral agreement between the brothers in May, 2000 and thereafter the same was reduced to writing by way of MOU dated 7.10.2001, argued that the said submission made by the Respondents is a false submission and without any basis for the reasons, firstly, had there been any oral understanding by way of which the Respondent company was to be only belonging to the Respondent Nos. 2 & 3 and the petitioner was to run the other company, namely, Emmbros Wires and Strips Limited (EW....
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....hers of the petitioner clearly demonstrates that the said MOU was never acted upon by them and as such there arise no question of the Respondents 2 & 3 coming into control of the respondent company. Fourthly, it was argued that the Respondent No. 2 himself filed a suit before the Court of Ld. Civil Judge, Panchkula seeking partition of house No. 939 sector 8, Panchkula. As per the terms of the MOU, the said house was to solely belong to the petitioner. Additionally, in a statement made on 13.10.2006 by one of the respondents, it is admitted that he is unaware of the MOU and its terms and conditions which surprisingly form the prime defense of the respondents against the petition. That being so, it does not lie in the mouth of the respondents to contend that the MOU was acted upon or anything pursuant to MOU has happened and the said MOU is of no consequences whatsoever. Besides, there are other terms of the MOU which have not been executed and remain unfulfilled to the extent that the same have been executed. Fifthly, it was contended that it is settled legal position and as upheld by this Hon'ble Board in catena of cases that such MOU cannot restrict the rights of a shareholde....
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....es Books of the company of the year before 2000, which is the same year in which the first illegal issuance of shares was made to themselves and their wives. It is pertinent to point out that pursuant to the orders of this Hon'ble Board dated 7.4.2005, the Respondents produced the books of the company on 29.11.2005. While the Respondents contended that the company had made allotment of 51,00,000 shares on 1.10.2005, however records produced before this Hon'ble Board did not show any such allotment ever been made. In fact a categorical statement was made by the counsel for the Respondent that the company has not made any further allotment after the allotments made on 29.2.2000 and 24.4.2000. Further the said statement was made on the basis of original records made available to this Hon'ble Board. Clearly, the records produced by the Respondents were false and fabricated. 24. My attention was drawn to the Director's meeting dated 24.4.2000, wherein it is mentioned that the petitioner absented from three meeting dated 20.1.2000, 24.2.2000 and 1.4.2000 and is thus removed from directorship. It was pointed of that there was no meeting of Board of Directors held on 24.2.....
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....partnership at Rs. 475 lacs. This clearly shows that the Respondent company's affairs are managed in an unfair manner and the Respondents ought to be removed from conducting the affairs of the Respondent company and the day-to-day management of the Respondent Company be directed to be conducted by an independent person, in the interest of the company and its shareholders. Besides this the Respondents siphoned off the business of the Respondent company by transferring the business to the said partnership firm and such act of the Respondent company is detrimental to the interest of the Respondent company and its other shareholders including the petitioner. 26. Considering the pleadings and the documents filed therewith as well as the arguments in this case, I find that the petitioners have not been able to refute the preliminary objections raised by the respondents on the maintainability of the petition. The preliminary objections raised are tenable in the background of the facts and circumstances of this case. Similar preliminary objections in another petition of the same petitioner in C.P. No. 60 of 2004 against respondent company (being one of the companies covered by the all....
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.... the debts. The respondent contributed equally to discharge the debts. 27. It has been repeatedly emphasized in several decisions that family settlements are governed by a special equity and are to be enforced if honestly made. The terms may have been agreed to on the basis of an error of the parties or originate in a mistake or ignorance of fact as to what the rights of the parties actually are, or of the points on which their rights actually depend. This is because the object of an arrangement is to protect the family from long drawn out litigation, and to bring about harmony and goodwill in the family. The Court leans heavily in favour of family arrangements. Further, I agree that it is a settled proposition of law that the conduct of the parties is a very relevant factor to be considered in the equitable proceedings under Sections 397/398. In Sri Kanta Datta Narasimharaja Wadiyar v. Venkateshwar Real Estates Private Ltd. (1991) 3 Co. LJ 336 (Karn) : (1991) 72 Comp Cas. 211 (Karn), it was held that the petitioner seeking equitable relief must come with clean hands and good conduct, failing which the petitioner would constitute a gross abuse of the process of Court, and the peti....