TaxTMI 
TaxTMI 
2026 (4) TMI 1094
X X X X Extracts X X X X
X X X X Extracts X X X X
....022 have been filed against common impugned order dated 18.07.2022 passed in C.P. No. 222 of 1991 by Ld. NCLT, Kolkata. Vide the impugned order, the petition under Section 397-398 of the Companies Act, 1956 was allowed after more than 31 years of its institution by passing various directions. 2. Before coming to the contentions raised it would be appropriate to state about the issues involved and the findings given in the impugned order qua such issues 3. The issues for consideration before the Ld. NCLT were as follows:- a) whether the issuance of 30,000 equity shares by private placement was wrongful and illegal; b) whether purchase made by Respondent Nos. 26 and other Respondents of 15,626 shares of Respondent No.1 company was bad in law and could not have been done; c) limitation. 4. Qua (c) viz. limitation the Ld. NCLT had stated the Original Petitioners had no knowledge of the purported issue/allotment of shares till October, 1990 and the notice dated 25.11.1987 of the AGM of PGFI/appellant was not received by the original petitioners and they relied upon the Director's Report dated 1988 to say they never knew the names of the allottees; and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Respondent No. 1 company, M/s Multiplex Business Ltd., Mr. R.L. Gaggar, T.K. Ghosh, etc. (emphasis supplied), had participated in the Meeting, either personally or through proxies, who all voted in favour of such Resolution(s). However, on 13th March, 1988 Mr. Parasmal Lodha resigned from the Board of the appellant company and on 16th March, 1988 Respondent no.1 company and Mr. P Lodha, both sold their shares in appellant company in favour of M/s Debashree Investment and Services (P) Ltd. (Respondent No.20 herein). In all 15626 shares were purchased by Respondent No. 20 herein and thereafter the Company Petition was filed challenging the issue of 30000 shares and sale of 15626 shares of Lodha's. On 19.04.1988 the sale of 10115 shares by Respondent No. 1 company and 800 shares by Mr P. Lodha were recorded in register of PGFI/the appellant. It was argued these shares were transferred for valuable consideration, hence Lodha's could not have challenged their voluntary sale of shares. It was argued though the sale of their shares were held to be void but there is no finding qua sale of their remaining 4711 shares to others. Further on 26.04.1988, the Share Transfer Committee resolv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to file an appeal against the order of the Ld. Single Judge dated 13.01.1992 holding if such appeals were filed, those were not to be dismissed on ground of limitation or on the grounds the appellant has no locus standi to file such appeal, however the question was kept open for Respondents to contend by virtue of withdrawal of Chattejee, the original petition under Section 397-398 was not maintainable. The right to appeal was granted by Hon'ble Supreme Court not only against the order dismissing the main petition under Section 397-398 but also against IA's which led to be dismissal/withdrawal of appeals. 11. Those appeals were thus filed within four weeks of the order of the Hon'ble Supreme Court, but were dismissed on 24.11.2003 by the Division Bench of Calcutta High Court and it held as follows:- 55. Another significant observation of the previous Division Bench was that if the company petition was found valid and legally effective at the time of presentation, notwithstanding withdrawal by the Chatterjee brothers, the question of continuance of the same by the present appellant could have been considered in a favourable way, but, that is not the case in the present....
X X X X Extracts X X X X
X X X X Extracts X X X X
....11.1993. Thus the appeals are allowed, the impugned judgment and order of the High Court dated 24.11.2003 is hereby set aside and the matters are remanded to be decided by the High Court of Calcutta afresh giving strict adherence to judgment of this court dated 26.04.1996. While deciding the case afresh, the Division Bench shall not take note of the earlier judgments of the High Court dated 16.11.1993 and 18.11.1993." 13. Once again the matter came up before the Hon'ble Division Bench of the Calcutta High Court and vide its order dated 10.06.2013 it held: - OUR VIEW LAW ON THE SUBJECT: Considering the cases cited at the bar, our understanding of the law is: i) Section 399 would make a petition maintainable even if the petitioners do not have the requisite share ratio provided they would get support from others to make good the short fall. ii) The Section would only require express consent being given to he made part of the petition in Form No. 43 and 44 of the Company (Court) Rules 1959. It would not be necessary for the supporter either to file petition and/or pleadings expressing their support or read and confirm the petition that w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant submitted if this is a situation then we have to find out whether Respondent no. 1 - M/s Bhagwati Developers Pvt. Ltd. could continue with such a petition under Section 397-398 of Act (now u/s 241-242 of the Act). It was argued Respondent No.1 need to prove the conduct of Respondents was prejudicial and oppressive to them or to any other member/members. 17. It is argued admittedly in Board Resolution dated 30th October, 1987; the AGM Meeting dated 30th December, 1987 and also the Board Meeting of dated 02.02.1988, Lodha's who were holding 46.07% shares in appellant company, had never objected to the agenda for increase in the paid up capital and it was only with their consent 30000 shares were sold/issued. As is apparent from the facts, during such period Lodha's were in exit mode and Mr. P. Lodha even sold his shares of PGFI/appellant herein. Now understandably Chatterjee's had a cause to file company petition alleging collusion between Roys-Sens and Lodha's but now since Lodha's have been substituted in place of Chatterjee's, then moot question would arise if Lodha's can take benefit of allegations made by Chatterjee's against Roys-Sen and Lodha's themselves? 18. It was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r to be the same. For example, the 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y Respondent no.14 to subscribe to Respondent no.1 Company's shares were in fact of Respondent no.1 itself. With respect to Respondent no.15, the Petitioner has relied on the shareholding statement of Respondent no.15 to show that Respondent no.2 was a Director in Respondent no.15 as well. • The Respondents have vehemently denied the aforementioned allegations. Respondent no.2 in its Counter Affidavit in paragraph 55 has stated that it had no knowledge of the funds obtained by Respondent no.15 from Respondent no. 31 and Vanshree Holdings Pvt. Ltd. Respondent no.2 has further admitted that an inter corporate loan of Rs. 1 crore was given by Respondent no.1 to Respondent no.31 on 03.03.1987, however, the said loan carried interest at the rate of 18% p.a. and the same was granted against the hypothecation 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d thus it shows malafide of the appellants here. 24. Learned counsel for the Respondent relied upon Section 81, Section 81(1)(a) and Section 81(1A) of the Companies Act,1956 and Section 62(1)(a) of Companies Act, 2013 as under: 81. FURTHER ISSUE OF CAPITAL (1) Where at any time after the expiry of two years from the formation of a company or at any time after the expiry of one year from the allotment of shares in that company made for the first time after its formation, whichever is earlier, it is proposed to increase the subscribed capital of the company by allotment of further shares, then, - (a) such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on those shares at that date; (b) the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days from the date of the offer within which the offer, if not accepted, will be deemed to have been declined; (c) unless the articles of the company otherwise provide, the off....
X X X X Extracts X X X X
X X X X Extracts X X X X
....if not accepted, shall be deemed to have been declined; (ii) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right; (iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not disadvantageous to the share holders and the company; 25. It is the submission of the learned senior counsel for Respondent No. 1 where the shares are being offered/sold to private person, the idea is to get maximum value and for this reason in Companies Act-2013, valuation is made compulsory and the valuation report is required to be obtained for shares prior to those being offered in private sale. The learned senior counsel referred to the minutes of Board Meeting of dated 30th October, 1987 to say though Mr. P. Lodha was present ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee companies used the monies of appellant company to purchase the shares in appellant and thus violated Section 77 of the Companies Act. 27. Further the Learned Senior Counsel for the Respondent No. 1 referred to the part of the reply filed by the appellants to the company petition where it noted, in the year 1991 the value of a share was about Rs. 2000/- per share and the company has been distributing dividends @ 35% for the last four proceeding years. Now, if the price was near about Rs. 2000/- per share, then why those shares were sold @ of Rs. 100/- in private sale. Reference was also made to para 60 of the reply of the appellants herein to reveal the companies were creating FDRs and had issued bonus shares. 28. Thus it was an argument of the Learned Senior Counsel for Respondent No. 1 the private sale being not an ordinary sale is an exception to the normal rule and generally the shares are sold in private where either there is an urgent need for money or when promoters are not coming forward to purchase the right issue. It was argued Section 81 and 81(1A) of the Companies Act, 1956 pertain to the right issue and also to the sale to private person by special resolution. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....up with any other motive, it was an abuse of the powers of the directors to issue further shares. 54. It is well established that directors of a company are in a fiduciary position vis-à-vis the company and must exercise their power for the benefit of the company. 30. Further in Dale & Carrington Invt (P) LTd Vs P.K. Prathapan (2005) 1 SCC 212 also upholds the same principle. Further in Sangramsinh P Gaekwad and others Vs Shantadevi P Gaekwad (Dead) through LRS and others (2005) 11 SCC 314 the Hon'ble Supreme Court held - 69. This Court therein also applied the bona fide test of the Director and for the benefit of the company as a whole. In that case, the directors assigned reasons which were tested from three angles view, viz., (i) whether the directors acted in the interest of the company; (ii), whether they acted on a wrong principle; and, (iii) whether they acted with an oblique motive or for a collateral purpose. It was observed in M/s. Harinagar Sugar Mills Ltd. Vs. Shyam Sunder Jhunjhunwala & Others [(1962) 2 SCR 339] that the action of the directors must be set aside if the same was done oppressively, capriciously, corruptly or in some other way ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... loans, within the limit laid down in sub-section (3), to persons (other than directors 1 [***] or managers) bona fide in the employment of the company with a view to enabling those persons to purchase or subscribe for fully paid shares in the company or its holding company to be held by themselves by way of beneficial ownership. 32. It is argued the company cannot give loan to any of its subsidiary company only for the purpose of purchase of shares of its holding company or vice versa. It was argued the paid-up share capital of these three companies viz. Respondents No. 8 -10 was Rs. 50,000/- each and the balance amount came from unsecured loans, either from directors or subsidiary/sister/holding companies. It was the submission Rs. 1 crore was given as loan on 03.03.1987 by appellant company to Respondent No.25 and then it was routed by Respondent No.25 to other companies and lastly to Respondent No. 8 -10 and 20 and such monies were used to purchase shares of appellant company. Thus it was argued the appellant company had indirectly financed to Respondent No. 8 -10 and Respondent No.20 to purchase it shares and thus violated Section 77 of the Act and hence such sales were voi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Company Petition wherein they never mentioned Lodha's had 46% of the shares. It is not clear from the pleadings of the appellants herein before the Ld. NCLT how they had calculated the shares percentage of Lodha group to be 46%. Though a chart was filed of the shareholding as of 30.10.1987 by the appellants herein, annexed in the reply to this appeal wherein the Roy Group was shown to be holding 31.45% and Lodha Group to be holding 46% shares and after private sale, Mr. P. Lodha group fell to 31.24% shares and whereas Roy-Sen went up 46.27% but there is no pleading to this effect as to how Lodha Group had 46% shares and what constituted Lodha's Group and in the absence of these pleadings one can only say Lodha Group had only 19% shareholding as on 30.12.1987. Reference was made to AN Reddy Vs VRR Reddygari and others 2014(5 SCC) 312 wherein the Hon'ble Supreme Court held pleadings without evidence cannot be looked into. 36. On the question of estoppel, the learned counsel for the Respondent referred to Beni Parsad Vs Durga Devi 2023(6 SCC) 708 wherein the Hon'ble Supreme Court held: - 29. In the situation and circumstances expatiated above it is only apposite to refer t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ondent No,2 schemed to obtain any shares of the respondent No, 1 held by Mr. Parasmal Lodha or any other shareholder as alleged or at all. I deny and dispute that myself or the respondent No.3 caused the company to make a fixed deposit with Rs. 1,00,00,000/- with the Standard & Chartered Bank, Nataji Subhas Road, Calcutta, for the purpose of purchasing or acquiring any shares of the respondent No. 1 as alleged or at all. I say that the respondent No.1 made Fixed Deposits' for a total sum of Rs. 50,33,003/- in May, 1988 (2,50,000 + 15,00,000 + 10,00,000 = 50,00,000/- and another fixed deposit of Rs. 50,00,000/- on 8.2.89, such fixed deposits were made in usual course of business. Copies of the relevant fixed deposit receipts are annexed herewith and collectively marked on or about 7.3.89 the' Board of Directors of the respondent No.1 decided at a meeting that an accommodation upto a maximum amount 75,00,000/- by way of overdraft against deposit of Rs. 10,00,00,000/-in the name of company be taken from the Standard Chartered Bank, Netaji Subhas Road, Calcutta and Mr. P. C. Sen, Chairman and Managing Director and Mr. A, F. Mukherjee, then Director of the company were authorise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i Developers Pvt Ltd in para 70, 73 read as under: - 70. That as regards the purchase of 15,626 shares of Appellant Company from the answering Respondent (BDPL), Mr.Parasmal Lodha and others is concerned, it may be noted that the Respondent No. 20 (Debashree) purchased 10,115 shares of answering Respondent (BDPL) on March 16, 1988 and answering Respondent BDPL, vide its letter dated 16.03.1988, forwarded to the Respondent No. 20 (Debashree), the sale bill of Rs 55,63,250/- along with the original share scripts and blank transfer forms duly signed by the Petitioner. Payment for the shares was, however, made later as follows: 08.04.1988 R-20 (Debashree) paid to Lodha Services Pvt Ltd (now Bhagwati Developers Pvt Ltd) a cheque bearing no 398376 drawn on Canara Bank, Kolkata being part payment of sale proceeds of shares Rs 3,80,000/ 15.04.1988 R-20 (Debashree) forwarded 3 cheques bearing no 398379, 398380 and 398391 all dated 15.04.1988 drawn on Canara Bank for Rs 24.01,625/- towards 50% of sale bill dated 16.03.1988. Rs 24,01,628/- 02.05.1988 R-20 (Debashree) forwarded a cheque bearing no 398382 for Rs 27,81,625/- dated 02.05.1988 drawn on Canara....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Ld. NCLT may not have jurisdiction. Further it was the submission the transfer of shares being made in violation of the Securities Act, such transfer was void and if there was a change in ownership in the company's shares because of such violation, it would constitute an oppression and mismanagement. Heard. 43. Thus the crux of the argument of the Respondent No. 1 is (a) no active participation by Mr. P. Lodha or Respondent no. 1 -M/s BDPL in the meetings for sale of 30000 shares of PGFI; (b) Misleading explanatory statement and absence of valuation; (c) incurring substantial losses of Rs. 1.35 crore in 1988; (d) round tripping allegations in issuance in allotment of 30000 shares; (e) three group companies created solely to receive 30000 issued shares; (f) BDPL Respondent no. 1 had no knowledge that Respondent No.20, a buyer of their shares was linked to S.K. Roy or the funds of appellant company were used to purchase these shares, thus violation of Section 77 is alleged; (g) the acts of appellant company being in violation of Security Contract (Regulations) Act, 1988; and lastly (h) there was no requirement of amending the pleadings by BDPL. 44. Qua (a) we need to note bot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in the percentage of shareholding (as in right issue), a person whose holding is reduced may raise an issue of probity but here both Mr. P. Lodha and Respondent No. 1 - M/s BDPL never challenged such issue and further the person who challenged this issue viz Chatterjee's already withdrew their allegations. In any event, the explanatory statement gave reasons of issuance of shares i.e. for expansion of the capital base. This reasoning has not been challenged by any of the shareholder, hence it cannot be now challenged by the Respondent no. 1 more specifically for the reason, it being instrumental in approving such allotment. Section 62(1)(c) of the Companies Act, 2013 cannot be made retrospectively applicable in the present case. Further it is the case of the appellants on 15.05.1987 RBI introduced Residuary Non-Banking Companies (Reserve Bank) Directions, 1987 i.e. RNBC Directions which required all deposits and accrued interest to be invested in prescribed investments, most of which were low interest bearing. The only area of freedom of investment was linked to net owned fund of PGFI which was again linked to share capital base and hence there was a need for the appellant compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o.20-26 herein which in turn it borrowed money from appellant company; Further Respondent No.9 has purchase 3150 shares from loan taken from Respondents No.25-26 and appellant had advanced substantial loan to Respondent No.25. Lastly it was argued that 8350 shares were purchased by Respondent No.10 on the basis of loan granted by Respondent No.25 which took unsecured loan of Rs. 1 crore on 03.03.1987 from appellant. The Respondent No.25 had granted a loan of Rs. 6 lacs to Respondent No.10. Moreso, the appellant had granted an inter corporate loan to Vanshree Holding Pvt Ltd who then granted loan of Rs. 2,50,000/- to Respondent No.10, thus it enabled Respondent No.1 to subscribe to 8350 shares of PGFI. 51. Admittedly Respondents No.8-10 were issued 9350, 3150 and 8350 shares respectively and the balance shares out of 30000 were purchased by the family members and other shareholders qua whom there was no allegation of Section 77 breach. 52. Now Section 77 of the 1956 Act on the face of it requires the loan itself has to be for the purpose of purchase of the shares but there is no finding the loan of Rs. 1 crore was given by appellant to Respondent No.25 to eventually give a loa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n connection with the purchase of its own shares. The Respondent no.1 did not prove the same with definite evidence and sought to prove these facts only through presumptions. 55. The allegation (d) i.e. the three companies i.e. Respondents No.8, 9 and 10 were incorporated on 11.4.1988 and had the same place of business at that of the appellant and such companies belong to Roy-Sen combine (i.e. Respondent No.2 and 3) and had Rs. 50000/- as share capital, hence were not having financial standing; we only need to say the question if these companies were in control or management of Roy-Sen group (R2-3) is wholly irrelevant to the validity of the allotment, as the Companies Act, 1956 did not prohibit the allotment of shares to companies having commercial, personal or even familial connections with the existing shareholders or directors so far as the allotment was duly authorised in accordance with law. Further the allotment was unanimously approved and Respondent No. 1 - M/s BDPL rather actively participated in the process and had consented to the Transfer Share Committee allotting the shares as per its discretion. The use of the private placement route inherently means the shares we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es Act, 1956. Hence, there is no definite finding. Admittedly Respondent No.2 secured a personal loan of Rs. 40 lakhs from SCB against securities, MTNL bonds and guarantee from Respondent No.20 as well as pledge of 1000 PGFI shares and on 02.05.1988 Respondent No. 2 advanced Rs. 25 lakhs to Respondent No. 20. Thus Respondent No. 20 did not receive any loan from appellant and the personal loan obtained by Respondent No. 2 from SCB did not include Fixed Deposit maintained by the appellant in Standard Chartered Bank. Thus, there seems to be no connection between the Fixed Deposit of the appellant company with Standard Chartered Bank and the loan was taken by Respondent No.2 from SCB in his personal capacity and by pledging his 1000 shares. Hence Section 77 (supra) is not attracted. 59. Even otherwise, Respondent No. 1 had itself sold 10115 shares of Respondent No.20 and received consideration in 1988. Further Mr. P. Lodha also sold 800 shares to Respondent No.20 in 1988 and received the entire consideration. If they had received the full consideration, they cannot challenge these transactions. Though the Respondent's case was the loan was pursuant to a secret understanding, but suc....