1. Being aggrieved by the alleged acts of oppression and mismanagement complained in the Petition, the Petitioners have filed the present petition invoking the jurisdiction of this Bench conferred upon it by virtue of Sections 397 and 398 of the Indian Companies Act, 1956 (hereinafter referred to as “the Act” in short). The Petitioners have sought various reliefs as contained in the petition.
2. The brief facts leading to file the present petition as set out in the petition are as follows:—
2.1 That the Respondent No. 1 Company (hereinafter referred to as “the Company” in short), which carries on business more particularly described in the Memorandum of Association of the Company, was incorporated on 19/2/1996 under the provisions of the Companies Act, 1956 and registered with the Registrar of Companies, Mumbai.
2.2 It is the case of the Petitioners that the Company was promoted as a closely held family company by late Shri Brij Kishore Sharma, who passed away on 28/4/2009 leaving behind his widow, the Petitioner No. 1, and two sons, i.e. the Petitioner No. 2 and Respondent No. 2, and his married daughter Mrs. Namrata Balkrishna Sharma, as his only legal heirs and legal representatives. The Petitioner No. 1 is the mother of the Petitioner No. 2 and Respondent No. 2.
2.3 It is further case of the Petitioners that the Petitioner No. 1 is a Director and holding 50,100 fully paid up equity shares, which constitute 537% of the shareholding of the Company. The Petitioner No. 2 is also a Director and holding 38,000 fully paid up equity shares, which constitute 4.07% of the shareholding of the Company. The Petitioner No. 3 is also a Director and holding 55,000 fully paid up equity shares, which constitutes 5.89% of the shareholding of the Company. The Petitioner Nos. 4 and 5, who are minors, are also shareholders through their guardian, the Petitioner No. 2 and are holding 2000 fully paid up equity shares, which constitute 0.21% each of the shareholding of the Company. The Respondent Nos. 2 to A are the Directors as well as shareholders of the Company.
2.4 It is stated that the shares of the Company, as per the Subscribers List in the Memorandum of Association, were held by the members of the one family only as under:—
Sr. No. Names No. of Shares 1 Brij Kishore Sharma (deceased) 100 2 Sheela Brij Kishore Sharma (P-1) 100 3 Arvind Brij Kishore Sharma (R-2) 100 4 Ashwini Arvind Sharma (R-4) 100 5 Naval Kishore Sharma 100 6 Giriraj Prasad Sharma 100 7 Radha Rani Sharma 100 Total 700
2.5 It is further stated that entire shares of the Company have been held by the family of Late Brij Krishore Sharma. As per Annual Return for the year 2008, the List of shareholders as on 29/8/2008 was as under:—
Sr. No. Name No. of Shares 1 Brij Kishore Sharma (Deceased) 6,37,800 2 Sheela Bril Kishore Sharma (P-1) 50,100 3 Arvind Brij Kishore Jangid (R-2) 44,900 4 Aswini Arvind Janqid (R-4) 50,100 5 Bishambar Nath Bahadur Sharma 2,500 6 Shashi Bishambar Nath Sharma 2,500 7 Ajay Brij Kishore Sharma (P-2) 38,000 8 Aditi Ajay Sharma (P-4) 2,000 9 Radhika Ajay Sharma (P-5) 2,000 10 Aarushi Arvino Jangid Sharma 2,000 11 Brij Kishore B. Sharma (HUF) 46,000 12 Pooja Ajay Sharma (P-3) 55,000 Total 9,32,900
2.6 It is stated by the Petitioners that the Company is a family company incorporated with mutual trust and confidence among shareholders with a view to run it in the form of a quasi-partnership and the composition of the Board of Directors during the past years has always ensured joint management represented by the persons from the Petitioner No. 1 from the Petitioners Group and Respondent No. 2 from the Respondents Group, apart from Late Brij Kishore Sharma. At the time of incorporation of the Company in the year 1996, the first Directors of the Company were late Brij Kishore Sharma, Mrs. Sheela B. Sharma, and Mr. Arvind B, Sharma, the Petitioner No. 1 and Respondent No. 2 herein, respectively. It is averred by the Petitioners that late Brij Kishore Sharma, was founder of the company and was later appointed as Managing Director of the Company w.e.f. 01/04/2006 until his death on 28/4/2009.
2.7 It seems that after the death of Mr. Brij Kishore Sharma, certain serious disputes and differences cropped up between the Petitioners Group and the Respondents Group. It is a grievance of the Petitioners that the Respondent No. 2 gradually took over the entire control of the affairs of Company in his own hands and excluded the Petitioner No. 1 from participating in the management of the Company although she was acting as Director of the Company. It is further alleged that in order to have complete control over the Board of Directors of the Company, the Respondent No. 2 illegally, without following the provisions of the Companies Act and Articles of Association, appointed the Respondent No. 3 as a Director of the Company with effect from 1/02/2009, Feeling aggrieved by the said act and further acts of oppression and mismanagement purportedly committed by the Respondents Group, the Petitioners were compelled to file the present petition. The alleged acts of oppression and mismanagement, according to the Petitioners, may be summarized here as under:—
i) The Respondents have illegally appointed the Respondent No. 3 as Director of the Company on 1/02/2009.
ii) The Respondents have illegally appointed the Respondent No. 4 as Director w.e.f. 26/9/2009 in place of the Petitioner No. 1 without giving her notice of the AGM allegedly held on 26/9/2009.
iii) The Respondents have illegally removed the Petitioner No. 1 as Director by retiring her at the AGM allegedly held on 26/9/2009 in violation of the provisions of the Companies Act, 1956.
iv) The Respondents have illegally removed the Petitioner Nos. 2 & 3 as Directors by treating them as Additional Directors and showing them to have ceased to hold office pursuant to Section 260 of the Act at the AGM allegedly held on 26/9/2009.
v) As per Annual Return enclosed with F. No. 20B for the year 2009, it has been shown that 6,37,800 shares held by late Brij Kishore Sharma have been illegally transferred to the Respondent No. 2. The Respondent No. 2 has illegally transferred some of his shares to the persons belonging to his Group.
vi) The Respondent No. 2 had fraudulently filed with Punjab National Bank a copy of Resolution allegedly passed at the Board Meeting held on 5/5/2009 authorizing exclusively him to operate the Bank Account with the PNB. The Respondent No. 2 had taken undue advantage of the forged board resolution dated 5/5/2009 and taken absolute control over the account with the Punjab National Bank, wherefrom he siphoned off handsome amounts and misappropriated the same.
3. Based on the above pleadings, the Petitioners have sought following reliefs:—
a) To declare the alleged resolution passed at the ACM held on 26/9/2009 for retiring the Petitioner No. 1 by rotation as non est, null and void and patently illegal and has no effect whatsoever.
b) To declare the transfer of 637800 shares of late Brij Kishore Sharma to the Respondent No. 2, as shown in the Annual Return for the year 2009, as null and void and not binding on the Company and the Petitioners.
c) To cancel the transfer of 637800 shares in favour of the Respondent No. 2 and rectify the Register of Members by restoring the name of late Brij Kishore Sharma as member.
d) To declare that the cessation of the Petitioner Nos. 2 & 3 as Additional Directors on the date of AGM i.e. 26/9/2009, as shown in the notice for AGM on 26/9/2009 and the Directors Report for 2009 as null and void and reinstating them as Directors of the Company.
e) To declare the Resolutions passed for removal of the Respondent Nos. 2 & 3 as Directors, as passed by majority at the EGM held on 16/11/2009 in view of violations of the Companies Act committed by the Respondent No. 2.
f) To declare the appointment of the Respondent No. 3 as additional Director w.e.f. 1/2/2009 and as Director w.e.f. 26/9/2009 as null and void.
g) To pass an order thereby appointing a fit and proper person as Administrator and/or Special Officer and/or an independent committee of management to carry on the business of and to manage the affairs of the Company for such period and on such terms and conditions as the CLB may deem fit.
h) To declare the appointment of the Respondent No. 3 as Director w.e.f. from 26/9/2009 i.e. the date of the AGM is in violation of the provisions of the Companies Act, 1956 and is null and void.
i) To declare the Resolution passed at the Board Meeting held on 5/5/2009 authorizing the Respondent No. 2 to operate the Bank accounts exclusively, being in violation of the provisions of the Companies Act, 1956, as null and void and further to declare the Resolution passed are Board Meeting on 7/10/2009 authorizing the Petitioner Nos. 1 to 3 to operate the Bank Account 35 valid and binding on the Company and other members.
j) To direct the Central Government to appoint Directors in respect of the Company to manage the affairs of the Company for such period and on such terms and conditions as the CLB may deem fit.
k) To direct the Respondents to rectify the Register of Members by restoring the Shareholding pattern of the Company as it existed prior to the impugned transfer of shares made as per the Annual Return for the year 2009.
l) To permit the Petitioners to add assertions and grounds for petition and make additional prayers based on their findings during the course of inspection of the records of the Company and also to produce supporting evidence since the facts and figures mentioned in the petition are based on limited information available with the Petitioners.
4. The Respondents appeared and filed their Reply to the Petition, thereby denying all the allegations made by the Petitioners and justifying their aforesaid acts stating that the Respondents acted in the interest of the company and have complied with all the necessary provisions of the Companies Act, as well as the Articles of Association of the Company.
5. To the said reply of the Respondents, a Rejoinder has been filed by the Petitioners wherein they have reiterated their complaints made in the Petition, to which a sur-rejoinder has been filed by the Respondent Mas, 1 to A.
6. I have heard the Ld. Practising Company Secretary (hereinafter referred to as “the Authorized Representative”) appearing for the Petitioners and the Ld. Counsel appearing for the Respondents. Perused the record and examined the decisions cited by the Ld. Authorised Representative for the Petitioners and the Ld. Counsel for the Respondents in support of their respective contentions.
7. Before I proceed to deal with the issues raised by the Petitioners in the Petition, I would like to mention here that this Petition was heard on merits and it was dismissed vide Judgment and Order dated 18/06/2013 by the then Ld. Member, Mr. Kanthi Narhari, Being aggrieved by the said judgment and order, the Petitioners preferred an appeal before the Hon'ble High Court of Bombay. The Hon'ble High Court set aside the impugned judgment and order dated 18/6/2013 and remanded back the matter to the CLB for fresh hearing. In this backdrop, now, I proceed to consider the rival claims of the parties.
8. On behalf of the Respondents, a preliminary objection has been raised as to the maintainability of the petition. It has been contended on behalf of the Respondents that the Petitioners had filed a Civil Suit in the Civil Court on the identical grounds seeking Identical reliefs. The said suit was dismissed by the Civil Court. Therefore, the present petition is barred and therefore the petition is not maintainable and deserves to be dismissed being untenable in law.
9. On the other side, it was argued that the said Civil Suit was withdrawn by the Petitioners and therefore, the petition is maintainable. The Ld. Counsel further submitted that the Hon. High Court of Bombay had also observed in the Appeal that the Petitioners have alternative remedies for redressal of their grievances of oppression and mismanagement in the affairs of the Company. The Ld. Authorised Representative for the Petitioners, therefore, argued that the petition is maintainable.
10. As regards the effect of the Civil Suit filed by the Petitioners as Plaintiffs therein, it is undisputed that the Civil Court had granted permission to withdraw the suit vide its order dated 20/01/2010. In addition to the above, the order passed by the Hon'ble Bombay High Court on 31/10/2009 is also noteworthy, which states as follows:—
“The Plaintiffs have already approached the Registrar of Companies considering the dispute between the parties it is doubtful whether civil court has jurisdiction to entertain such suits.”
The petitioner No. 1 & 2 filed an appeal against the said ad-interim order of the civil court at Dindoshi in the Bombay High Court. The said appeal was dismissed by the High court with the following observations:
“Prima facie it appears from the frame of the suit that the grievance of the Appellant - Applicants is oppression & mismanagement of the affairs of the company by Respondents No. 2 & 3 who are the directors of the Company.
In these circumstances, in my opinion the order of the Trial Court need not be interfered with as the appellants who claim to the Respondent No. 1 have other remedies available to them Under the Companies Act”.
11. I am, therefore, of the view that the filing of a Civil Suit by the Petition has no adverse bearing on the instant petition for two fold reasons. Firstly, because, the decision in the said case was not pronounced after consideration on merits and the said suit was withdrawn and secondly, because the Hon'ble High Court has itself observed that the other remedies are available to the Petitioners. In my opinion, the filing of the petition under Section 397/398 of the Act for redressal of grievances is the only legal recourse available for the Petitioners. This plea of the Respondents is rejected accordingly.
12. Now, I proceed to examine the petition on merits. It has boon argued by the Ld. Authorized Representative of the Company being run the guise of a quasi-partnership, and therefore, the principles relating to a quasi-partnership apply to the facts of the case in hand. Referring the decision rendered by the CLB, Principal Bench, New Delhi, in the case of Gurmit Singh v. Polymer Papers Ltd. [2004] 59 CLA 251 (CLB), the Ld. Authorized Representative of the Petitioners argued that the Respondent Company is a family company incorporated with mutual trust and confidence amongst the shareholders, who are from the same family, with a view to run it in the form of quasi-partnership. The Ld. Authorized Representative further submitted that the Company was incorporated on 19/02/1995, and as per the subscribers list in the Memorandum of Association, late Mr. Brij Kishore Sharma, Smt. Sheela Brij Kishore Sharma, Petitioner No. 1 herein, Arvind Brij Kishore Sharma, Respondent No. 2 herein, Ashwini Arvind Sharma, Respondent No. 4 herein, Naval Brij Kishore Sharma, Giriraj Prasad Sharma and Radharani Sharma, were the shareholders, each holding 100 shares. The Petitioners' Ld. Authorized Representative Mr. Ajay Kumar invited my attention to the Annual Return for the year 2008, at Annexure A-3 annexed to the Petition, showing the names of the shareholders, and submitted that although the Company is a public limited company, however, the entire shares of the Company were held by the family members of late Brij Kishore Sharma. He further contended that the first directors of the company at the time of its incorporation in 1996 were late Mr. Brij Kishore Sharma, Petitioner No. 1 Smt. Sheela Brij Kishore Sharma and Respondent No. 2 Arvind Brfj Kishore Sharma. According to him, thereafter, certain changes in the composition of the Board of Directors although had taken place, yet the composition of the Board of Directors during the past years was always kept ensuring the joint management of the Company representing the Petitioners and the Respondents Group, besides Late Brij Kishore Sharma. He, therefore, submitted that having regard to the aforesaid facts, it can be inferred that the Company was a glorified partnership.
13. The Ld. Authorized Representative of the Petitioners, next submitted that in a company running on the principles of quasi-partnership, the legitimate expectation of its shareholders, having almost equal shareholding, is that they should be on the Board of Directors to have their say and express there views with respect to the management and conduct of affairs of the Company. He, therefore, submitted that the Respondents' illegal action to remove the Petitioner No. 1, to appoint the other Petitioners as the Directors of the Company and to preclude them from participating in the joint management of the Company, amounts to an act of oppression.
14. On the other side, the Ld. Counsel appearing for the Respondents refuted the contention of the Petitioners that the principles of quasi-partnership can be applied to the Company. He submitted that although the Company was being managed by members of the family, yet the principles of quasi-partnership could be applied or not, would be dependent on other facts of the case. The Ld. Counsel tried to demonstrate that the principles of quasi-partnership do not apply to the present case, having regard to the facts and circumstances of the case in hand. According to the Ld. Counsel, in this case, the pre-existing partnership, equal pattern of shareholding, basic understanding written or unwritten between the parties, the complete dead lock situation in the affairs of the Company, which are normally treated as pre-requisite to deem a Company running in the guise of quasi-partnership are absent, and hence, the contention of the Petitioners that the principles of quasi-partnership are applicable to the facts of the present case, deserves to be rejected, being not tenable.
15. I have considered the rival submissions and perused the record, I have also gone through the decisions cited by the Petitioners. At the outset, I would like to reproduce the relevant observations in paragraph No. 21 of the Judgment in the case of Gurmit Singh (supra) cited by the Petitioners' Authorized Representative, as follows:—
“…… In this connection it is worthwhile referring to the case of Vijay Krishna Jaidka v. Jaldka Motor Co. Ltd. [1996] 23 CLA 289 (CLB) wherein, after discussing various decided cases, practically sit the objections as in this case were examined by this Board and it concluded that to treat a company as a partnership, it was not necessary to have equal shareholdings, no need for deadlock, no need for preexisting partnership etc. If also observed that an analysis of various decisions showed that courts have been looking for some basic understanding written of unwritten between parties. Therefore, if the facts reveal some basic understanding between parties that the company would be managed on partnership principles, then the same could be applied in a petition under section 397/98. Even in Kilpast case (supra), the Apex Court has not totally barred the application of partnership principles in a company, but has only cautioned that the claim to do so cannot be easily accepted. Therefore, once the facts and circumstances of a case Indicate that, on piercing the corporate veil, the real structure is found to be not that of a company, equitable consideration applicable to a partnership could be applied to that company.
The respondents have raised an issue that the principles of quasi-partnership cannot be applied to a listed company. Whether it can be done or not would depend upon the facts of a case. In Trackparts case (supra), even though the company has listed company, yet the facts of that case revealed that it was practically managed by members of a family and their understandings and agreements governed the management of affairs of the company and, therefore, this Bench applied the principles applicable to a family company in moulding the reliefs. In the same way, in Tirath Ram Ahuja's case (supra), even though there were more than 40 shareholders, partnership principles were applied. Therefore, the number of shareholders in a company is not the only yardstick to determine whether principles of Quasi-partnership could be applied or not but would depend on other facts of the case. In the present case, even at the time of incorporation of the company, as revealed by the first MOU, public participation in over 60 per cent shares was envisaged, yet, the MOU provided for lifetime directorship for Sunil Puri and Shri Gurmit Singh. Further both of them had been continuing a MDs for over 25 years. Thair sons have got gainful employment in the company. All these facts would show that notwithstanding the fact that the company is a listed company, yet, has been managed in the guise of a closely held company and therefore, I do not find any impediment in applying the principles of partnership to this company.
16. The Petitioners' Authorised Representative referred to another decision in the case of Badrinath Gathota v. Aanaam (P.) Ltd. (2007) 76 CLA 10 (CLB) - wherein it is held as under:—
7. Thus, it is evident whether the quasi-partnership, principles can be applied or not would depend on the facts of each case. It is an admitted position that in the present case, there are only three groups in company holding equal percentage of shares. Whether the Petitioners' group transferred a part of its shares to the other two groups voluntarily so as to maintain equality in the shareholding or, as contended by the respondents, the shares were transferred against the financial assistance given by them to the 1st petitioner to acquire the shares from his other family members is, difficult to decide in the absence of mure particulars, but the admitted fact is that the transfer resulted in all the three groups having equal percentage of shares in the company. It is also an admitted fact that after the three groups became equal shareholders in 2001, all the three groups were associated in the management either as MD or joint MD. If a company has equal shareholders and if all of them participate in the management, the concept of quasi-partnership can always be presumed. It is not necessary that to treat a company as a quasi-partnership, there should be a deadlock, prior partnership, etc., as contended by the learned counsel for the respondents and the existence of these facts would only strengthen the claim of quasi-partnership. Such a partnership need not be restricted only to promoters and even if somebody joins the company with the clear understanding of equal shareholding and equal participation in the management, the said principles can be applied. Therefore, the petitioners have rightly invoked the principles of quasi-partnership in the present petition. Even if the said principle is not applicable, yet, in given circumstances, allegations relating to denial of participation in the management/removal from directorship can be enquired into in a petition under section 397/393. The learned counsel for the respondents also submitted relying on Bagree Cereals case (supra) that directorial complaints cannot be agitated in a petition under section 397/396 and can be agitated only in a suit. In a recent judgment of the Supreme Court in Kamal Kumar Datta v. Ruby General Hospital [2005] 67 CLA 1 (CLB) the court has held the removal of a director could be both oppressive in terms of section 397 and since it would also result in material change in the management, it could attract the provisions of section 398 also.
17. On perusal of the above stated proposition of law, it becomes clear that to treat a company as a partnership, it is not necessary to have equal shareholdings, no need for deadlock and no need for pre-existing partnership etc. It is further undisputed proposition that principle of quasi-partnership can also be applied to a public limited company including that of a listed Company depending upon the facts of the case. The number of shareholders, therefore, in a company is not a yardstick to determine whether the principles of quasi-partnership would be applicable or not. An analysis of the decisions referred to above further shows that basically the courts have been looking for some basic understanding, written or unwritten between parties for the purpose of application of principles of quasi-partnership. Therefore, if the facts reveal some basic understanding between parties that the Company would be managed on partnership principles, then the same could be applied in a Petition under Section 397/398 of the Act. In other words, if the facts show that the Company has been managed in the guise of a closely held company, there is no impediment in applying the principles of partnership to the Company.
18. Keeping in mind the aforestated position, I need to examine the facts of the case in hand. It is not denied in this case that all the shareholders of the Company are the members of one family. It is also seen from perusal of the record that the Petitioner No. 1, the Respondent No. 2 and late Brij Kishore Sharma were the only Directors of the Company before late Brij Kishore Sharma passed away. Further, the facts of the case reveal that the Company's affairs were being managed by the members of the family as per their understanding and arrangement. The Respondents have also admitted that the Company is a closely related family run public limited Company. The disputes arose, according to the Petitioners, when the Respondent No. 2 Inducted the Respondent Nos. 3 and 4 as Directors on the Board of Directors of the Company with a malafide intention to gain entire control over the affairs of the Company and removed the Petitioner No. 1 as a Director of the Company. Therefore, looking to the fact that prior to the disputes arose, the Company was being run under the joint management by the Petitioner No. 1 and Respondent No. 2 and their respective Group who holds almost equal number of shares in the Company, I do not find any impediment in applying the principles of quasi-partnership.
19. Having held that the principles of quasi-partnership and plea of legitimate expectation could be applied to the present case, now I proceed to consider the alleged acts of oppression and mismanagement; purportedly committed by the Respondents in the conduct of the affairs of the Company.
20. The first complaint made by the Petitioners is that the Respondent No. 3 has been appointed as a Director without following due course of law and without consent of the Petitioner No. 1 and therefore, this amounts to an act of oppression. Elaborating this submission, the Ld. Authorized Representative of the Petitioners argued that the Respondent No. 3 has been shown as a Director with effect from 1/02/2009 and not as Additional Director, whereas in the Compliance Certificate, she is shown as an Additional Director.
21. It is contended on behalf of the Petitioners that no notice of the board meeting held on 1/02/2009 was sent to any of the Directors. In the course of arguments, the Ld. Authorized Representative appearing on behalf of the Petitioners, has also denied that the Petitioner No. 1 was ever served with any notice with respect to the Board Meeting allegedly held on 1/02/2009, and therefore, such board meeting, whereat the Respondent No. 3 was appointed as an Additional Director, is invalid, void and ab initio. In addition to the above, it was argued on behalf of the Petitioners that appointment of the Respondent No. 3 as a regular Director has been allegedly made on 29/09/2009 in the AGM purportedly held on the said date. According to the Ld. Authorized Representative of the Petitioners, no notice for the said AGM under challenge was also served within 21 days of holding the said meeting. In fact, the Petitioner No. 1 received the notice on 30/09/2009 i.e. after the AGM was held on 26/09/2009. Therefore, the said AGM allegedly held on 26/09/2009 is also invalid being in violation of the provisions of Section 71 of the Act. The Ld. Authorized Representative submitted that the Petitioners have been denied the right to attend and vote at the said AGM as the shareholder/member of the Company and denial of the rights as member is clearly an act of oppression. Furthermore, the Respondents did not disclose the names of the persons proposing the name of the Respondent No. 3 as a Director in accordance with the provisions of Section 257 read with Section 173 of the Act in the Notice dated 3/09/2009 issued for the said AGM. The Ld. Authorized Representative further contended that the said provisions are mandatory and non compliance thereof renders the said meeting invalid and void.
22. Inviting my attention to the Form No. 32 filed with the Registrar of Companies relating to the appointment of the Respondent No. 3 as a Director, it was submitted by the Ld. Authorized Representative of the Petitioners that in the said form, there is no mention of Board Resolution dated 1/02/2009. He, therefore, contended that the appointment of the Respondent No. 3 is not only illegal and ineffective, but it amounts to a serious act of oppression as the Respondents have increased their control over the Board of Directors by appointing her as Additional Director belonging to their Group, and thereby reducing the control of the Petitioners Group in the Company. To support his contentions, the Ld. Authorized Representative has referred to and relied upon the decisions in the cases of (i) Dipak G. Mehta v. Shree Anupar Chemicals (India) Pvt. Ltd. [1999] 33 CLA 393 (CLB), (ii) Ms. Pushpa Prabhudas Vora v. Voras Exclusive Tools (P.) Ltd. [2000] 111 (Vol. 24) (CLB, New Delhi) (iii) Ansar Khan v. Ftnecore Cables (P) Ltd. [2007] 79 CLA 412 (CLB), (iv) T.V. Raju Naidu & Co. v. Tiruppur Karur Transports (P) Ltd. [2010] 95 (CLB), (v) S. James Frederick v. Mrs. Minnie R. Fredrick & Co. [2000] 36 CLA (CLB).
23. Responding to the above contentions, it was submitted by the Ld. Counsel for the Respondents that the Respondent No. 3 was appointed as a Director with the consent of the Petitioner No. 1 during lifetime of Late Brij Kishore Sharma on 27/01/2009 and subsequently, on 1/02/2009 her appointment was confirmed, as per Article 114 of the Articles of Association of the Company. It was next argued that under Article 114 of the Articles of Association of the Company, no Board Meeting or EOGM was required to be held for appointment of the Respondent No. 3 as an Additional Director and hence, her appointment is valid and lawful.
24. I have considered the submissions. As regards the contention of the Respondents that the Respondent No. 3 was appointed during the lifetime of Late Mr. Brij Kishore Sharma at the Board Meeting held on 27/01/2009 and subsequently, her appointment as a Director was made w.e.f. 01/02/2009, I am of the view that the said statement is not true and not tenable. In form No. 32 filed with the Registrar of Companies at (Annexure A - 4 of the Petition) there is mention of Board Resolution dated 01/02/2009 whereas as per the dates of Board Meetings given in compliance certificate enclosed as (Annexure A - 15 of the Petition) given by Mr. Bharat V. Pathak, Practicing Company Secretary, there is no mention of Board Meeting held on 01/02/2009. Even in Director's Report for 2009 under the heading ‘Directors’ it is written that the Board had appointed the Respondent No. 7 as Director of the Company at their meeting held on 1/02/2009. I may mention here that there can be a mistake at one place but the same mistake cannot occur at several places. In the Explanatory Statement alongwith notice for AGM for 2009 also, it is written that Respondent No. 3 was appointed as Director at Board Meeting held on 1/02/2009. The Respondent No. 2 in his Reply dated 04/11/2009 to Registrar of Companies it is stated that the Respondent No. 3 was appointed as additional director at the Board Meeting held on 01/02/2009.
25. Furthermore, in the said copy of the Board Resolution, Respondent No. 2 has been shown as Chairman of the meeting. It is an undisputed fact that Late Mr. Brij Kishore Sharma was the chairman of the Board of Directors. If Late Mr. Brij Kishore Sharma, the Chairman was allegedly present at the said meeting held on 27/01/2009, then the Respondent No. 2 could not have acted as Chairman of the meeting. Furthermore, the Respondents have not given any proof that Late Brij Kishore Sharma was present at the alleged Board meeting held on 27/01/2009, Further, no notice and agenda of the Board meeting allegedly held on 27/01/2009 was given to Petitioner No. 1. In this situation, I am of the opinion, that the said Board Resolution dated 27/01/2009 is a fabricated document. I, therefore, hold that the Respondents Group have manufactured the Board Resolution dated 27/01/2009 (Annexure - 2) as an afterthought, wherein it is stated that the Respondent No. 3 is appointed as additional director w.e.f. 01/02/2009. Apart from the above, it may be noted that, in law, any Board Meeting held without giving notice to all the Directors, is illegal and void, for the aforesaid reasons, I hold that the appointment of the Respondent No. 3 as additional director w.e.f. 01/02/2009, is illegal and void ab initio.
26. Now proceed to consider the next charge levelled by the Petitioners upon the Respondents saying that the Respondents Group has illegally appointed the Respondent No. 4 as a director w.e.f. 26/09/2009 at the Board Meeting held after AGM on the same date. Challenging the validity of appointment of the Respondent No. 4 as a Director, it was submitted on behalf of the Petitioners, that the Board of Directors of the Company has no power to appoint a Director. According to the Authorised Representative for the Petitioners, the Board of Directors of a Company, at the most can appoint an Additional Director in terms of the provisions contained in Section 260 of the Act. He further contended that a Director can be appointed only at a General Meeting as provided in Section 255(2) read with Section 257 of the Act. In addition, the Ld. Authorised Representative representing the Petitioners, contended that notice was received on 30/09/2009 by the Petitioners for the EOGM purportedly held on 26/09/2009, According to him, the Respondents had deliberately sent the notice very late, with a view to avoid participation of the Petitioners in the said EOGM. Mr. Ajay Kumar, Ld. Authorised Representative, further stated that the purported Board Meeting held on the same day is also bad in law for want of service of notice upon the Petitioner No. 1.
27. Having considered the rival submissions, I find enough force in the contention of the Petitioners' Authorised Representative that the Respondents have created a story of a Board Meeting purportedly held on 26/09/2009 to show the appointment of the Respondent No. 4 as a director in the said meeting. By doing so, the Respondents have increased their control over the Board of Directors by appointment of Respondent No. 4 and thereby reducing the control of Petitioners Group. It is, therefore, amply clear that the appointment of Respondent No. 4 was made without consent of the Petitioners, with an ulterior objective to gain control over the affairs of the Company, in which the principles of quasi-partnership are applicable, as held herein above, and thus, the Respondents have committed an act of oppression against Petitioners which is of continuing nature.
28. In addition to the above, there is no reason to disbelieve the statement of the Petitioners that they received the notice of the AGM on 30/09/2009 which, according to them, were deliberately and willfully dispatched very late by the Respondents Group to prevent them from participating the meeting and casting their votes as the shareholders of the Company. The Ld. Counsel representing the Respondents have failed to show any good reason as to why the notices were not served on the Petitioners with respect to the AGM purportedly held on 26/09/2009 within the time stipulated in the Companies Act. I, therefore, hold that the appointment of Respondent No. 4 as a director, is illegal and the same is liable to be set aside.
29. The next complaint made by the Petitioners is that the Respondents have illegally removed the Petitioner No. 1 as Director by retiring her at the AGM purportedly held on 26/09/2009. According to the Ld. Authorized Representative for the Petitioners, the removal of the Petitioner No. 1 as Director is in violation of the provisions of the Companies Act and Articles of the Association of the Company. Elaborating the said ground, it was argued on behalf of the Petitioners that the purported AGM held on 26/09/2009 is itself Illegal and void since no notice was given to her in accordance with the provisions contained in Section 171 of the Act. According to the Ld. Authorized Representative, the Petitioner No. 1 received the notice for the said AGM on 30/09/2009 i.e. after holding of the AGM on 26/09/2009.
30. To substantiate the allegations of the Petitioners, the Ld. Authorized Representative for the Petitioners, drew my attention to the envelop available on record showing the date of receipt as 30/09/2009. It was further contended on behalf of the Petitioners that all resolutions passed at the AGM purportedly held on 26/09/2009, are invalid and void. In continuation of the arguments, the Ld. Authorized Representative further submitted that the malafide objective of the Respondents to remove the Petitioner No. 1 as Director from the board of directors of the Company was to grab the entire control over the affairs of the Company. The Ld. Authorized Representative also refuted the contention of the Respondents that the Petitioner No. 1 had retired by rotation. According to him, at the said AGM it was turn of Mr. Arvind Jangid (Respondent No. 2) who had to retire by rotation as the Petitioner No. 1 had retired by rotation in the year 2008 and was re-appointed as Director in the year 2009. The Ld. Authorized Representative submits that the Respondents' said action has reduced the control of the Petitioners Group by illegally retiring the Petitioner No. 1 at the said AGM and this further constitutes an act of oppression as defined in Section 397 of the Act. In support of his arguments, the Ld. Authorized Representative for the Petitioners again referred and relied upon the decisions in the cases of (i) Dipak G. Mehta (Supra), (ii) Ansar Khan (Supra), (iii) Naginder Singh Shiena (Supra), (iv) Badrinath Gathotra (Supra).
31. It is further submitted that the Respondent No. 2 was a whole time Director under a contractual agreement made with the Company with effect from 1/04/2006 to 31/03/2011 i.e. for 5 years. As per the provisions of the Act, he was not liable to retire by rotation. However, the Respondent No. 3 was appointed as Additional Director and was holding the Office until conclusion of the next AGM.
32. In so far as the removal of the Petitioner No. 1 as Director is concerned, she was the Director to be retired by rotation as per the provisions of the Companies Act. Further, the Board, after consideration of all legal aspects, decided to include her name as Director. Therefore, at the AGM held on 26/09/2009, the shareholders authorized the Board of Directors of the Company to appoint another person as Director to fill the casual vacancy caused due to retirement of the Petitioner No. 1 and consequently, the Petitioner No. 1 was retired as a Director in accordance with the provisions of the Act and in her place the Respondent No. 4 was inducted as a Director.
33. I have considered the rival submissions. To my mind, the Petitioner No. 1 was illegally retired at AGM held on 26/09/2009. There is no provision under the Companies Act, 1956 under which a Whole Time Director is not liable to retire by rotation. A whole time Director is also liable to retire by rotation and can be re-appointed as such. Respondent No. 2 was a Whole Time Director w.e.f. 01/04/2006, yet he retired at the AGM held for the year 2006 vide Directors Report for 2006 dated 04/09/2006. (Annexure A-16(i)). It was the turn of Respondent No. 2 to retire by rotation at the AGM held on 26/09/2009 as Late Brij Kishore Sharma had already retired by rotation at AGM for 2007 and Petitioner No. 1 had retired by rotation at AGM for the year 2008. Further, as per Article 129 of Articles of Association, a retiring director is eligible for re-appointment. There is no requirement for obtaining eligibility letter from the retiring director. Therefore, the retirement of the Petitioner No. 1 as director was in violation of the provision of the Articles and Companies Act, 1956.
34. In addition to above, I have already held hereinabove that the AGM purportedly held on 26/09/2009 is Invalid for want of service of notice in accordance with the provisions of the Act. For the said reason also, the removal of the Petitioner No. 1 as a director is held as illegal and she deserves to be reinstated as a director on the Board of the Company. To support my view, I would like to refer to the relevant extracts of the case of Deepak G. Mehta (Supra) and Ansar Khan (Supra) here as under:’
a. In the case of Deepak G. Mehta v. Shree Anupar Chemicals (India) Pvt. Ltd. (1999) 33 CLA 393 (CLB) it is held as under:—
“20. Article 7 provides for at least 7 days notice to members for convening a general body meeting. White the petitioner No. 1, who was admittedly a member at that time denies to have received any notice, the respondents are not in a position to place any evidence that notice was given, except that we find from the copier, of Form No. 23 filed with the ROC on 17th April, 1997 that notices were issued on 13th April, 1997, that is, the meeting had been held within 2 days of notice which to against the provisions of article 7. Further, no general body meeting can be held without Board's approval. The respondents have not been able to show as to in which Board meeting the decision to hold the general body meeting was taken. In the absence of evidence for these essential issues, we have to perforce come to the conclusion that the EGM was held without following the provisions of the Act and articles and such has to be held as null and void. It is the right of every shareholder to receive and attend general body meetings and if he is denied this right, he can rightly claim such denial as an act of oppression.”
“Para 23: Section 284 specifically requires special notice in case of removal of directors. Thus, we find that the removal of the petitioners has taken place in a meeting without proper notice, without following the provisions of sections 234 and 190 and in violation of the provisions of Table A (regulation 48). While violation of statutory provisions perse may not be art act of oppression, but if the same results in certain representations given in the Board by virtue of shareholding being defeated, then it is an act of oppression. Therefore, we are in full agreement with the learned counsel for the petitioners that the illegal removal of the Group A directors from the Board was an act of oppression”.
b. In the case of Ansar Khan v. Finecore cables (P) Ltd. (2007) 79 CLA 412 (CLB) - it is held as under:
“6. It is, therefore, beyond doubt that mere production of the courier consignment notes cannot amount to conclusive proof of service of copies the requisitions and notice of the meeting on the petitioners, satisfying the requirements of section 172. Section provides that notice of every meeting shall be given, among others, to every member of the company whose name appears on its register of members. The provisions of section 172 are mandatory and must strictly be complied with, non-compliance of which invalidates the resolutions passed at such meeting, Any meeting held without proper notice is not validly held and proceedings of such a meeting is illegal, as held in Micromeritics Engineers (P.) Ltd. (supra). The respondents failed to prove service of notice of the EGM on the petitioners and therefore, they are entitled to seek relief from oppression, as held in Cine & Supply Corporation (P.) Ltd., In re. Palak Kumar Mondal (supra). Mere knowledge of the meeting would not tantamount to service of notice in terms of section 172 of the Act. It is, therefore, immaterial whether the convening of the AGM was approved in the presence of the petitioners or not at the Board meeting purportedly held on 20th December, 2004, which is supported only the disputed minutes and not by any other primary evidence. It is rather unsafe to place any reliance on mere courier consignment notes without any collaborative evidence such as despatch register and books of account, showing the expenses incurred in connection with the sending of notices to the shareholders including the petitioners, in which case, no presumption on the basis of section 53(2) can be made use of, as held in Micromeritics Engineers (P.) Ltd. (supra).”
35. As regard the next complaint made by the Petitioners i.e. illegal removal of the Petitioner Nos. 2 and 3 as the Directors, I have considered the arguments advanced on behalf of both the sides. It seems that the Respondents had requisitioned an EOGM under Section 169 of the Act, whereat, the Petitioner Nos. 2 and 3 were appointed as Directors of the Company. However, these Petitioners were removed by the Respondents which have been assailed by the Petitioners claiming to be as an act of oppression.
36. In this connection, the Ld. Authorized Representative appearing for the Petitioners, submitted that Shri Ajay Sharma and Smt. Pooja Sharma, the Petitioner Nos. 2 and 3, respectively, were validly appointed as regular directors at the requisitioned EOGM held on 2/09/2009, and Form No. 32 was filed with the ROC in this regard, as is evident from perusal of Annexure A-8 filed along with the Petition. The Ld. Authorized Representative pointed out that the Respondents, in Form 20-B filed for the year 2009, have shown them as Additional Directors and shown them to have ceased to be the Directors with effect from the date of the AGM purportedly held on 26/09/2009, According to the Ld. Authorized Representative for the Petitioners, the Petitioner Nos. 2 and 3 were regular Directors in terms of the provisions contained in Section 255/256 of the Act and were never appointed as Additional Directors pursuant to Section 260 of the Act, and therefore, they were not liable to cease to be Directors on the date of the said AGM purportedly held on 26/09/2009. It was further submitted on behalf of the Petitioners that the Respondents, with an ulterior object to reduce the control of the Petitioners Group over the Board of Directors, have removed the Petitioner Nos. 2 and 3 illegally, in violation of the provisions contained in Section 255/256 of the Act, and thereby they increased their control over the Board of Directors. The Ld. Authorized Representative submitted that this act of oppression is of a continuing nature, and therefore, the Petitioner Nos. 2 and 3 ought to be reinstated as Directors of the Company.
37. Taking me through the reply filed on behalf of the Respondents, the Ld. Authorized Representative for the Petitioners submitted that the allegation of the Respondents that the Petitioner Nos. 2 and 3 were not validly appointed as Directors at the EOGM held on 2/09/2009, is baseless, frivolous and contradictory to their own stand. The Ld. Authorized Representative further contended that, at one hand, the Respondents are not recognizing that the Petitioner Nos. 1 and 2 are validly appointed as the Directors at the EOGM held on 2/09/2009, on the other hand, in the Annual Returns filed by the Company for the year 2009, they are recognizing the Petitioner Nos. 2 and 3 as Additional Directors w.e.f. 2/09/2009. According to the Ld. Authorized Representative, when the Respondents are aware that the Petitioner Nos. 2 and 3 were appointed as Directors at the EOGM held on 2/09/2009 they cannot treat them as Additional Directors appointed in the AGM held or 26/09/2009. Inviting my attention to the Directors' Report for the year 2009 under Head “Directors”, the Ld. Authorized Representative submitted that the Respondents have not disclosed material fact in the said Report that the Petitioner Nos. 2 and 3 shall cease to hold office as Additional Directors as required under Section 217(1) & (3) of the Act, which is mandatory. Thus, according to the Ld., Authorized Representative, even if the Respondents treat the Petitioner Nos. 2 and 3 as Additional Directors and not as Directors, they have violated the provisions of Section 217(1) & (3) of the Act by not disclosing the fact of cessation of the Petitioner Nos. 1 and 2 as Additional Directors.
38. With regards to the appointment of the Petitioner Nos. 2 and 3 as Directors, it was argued on behalf of the Respondents that their appointment is per se illegal for the simple reason that out of the three Directors of the Company, the Petitioner No. 1 as a single Director was not entitled to call the Board Meeting, Furthermore, the alleged requisition notice, by which the so called EGM was convened, was never served on the Company and the Respondent No. 2, being its shareholder, no such EGM was ever held as sought to be contended by the Petitioners for appointment of the Petitioner Nos. 2 and 3 as Directors of the Company. It was further submitted that the said allegation has been designedly made with a view to take over the entire control of the management of the Company. Apart from the above, it was also pointed out that as per Article 82 of the Articles of Association of the Company, the presence of 5 members in person is necessary to form a quorum for a general meeting, and it is further provided therein that no business shall be transacted at any general meeting unless the requisite quorum is present. The Ld. Counsel for the Respondents stated that in the said alleged EGM, admittedly, only 3 members were present, and two other members were minor at that point of time, and therefore, the said EGM, on the face of it, is illegal, and therefore the appointment of the Petitioner Nos. 2 and 3 as Directors of the Company is illegal.
39. Having considered the submissions made on behalf of the Respondent, I am of the view that the purported EOGM held by the Requisitionists purportedly held on 2/09/2009 whereat the Petitioners Nos. 2 and 3 were appointed as the Directors cannot be said a valid and lawful EOGM in the absence of service of notice upon the Respondents as required by taw. Furthermore, I am inclined to accept the contention of the Respondents that the alleged meeting purportedly held on 2/09/2009 is also bad in law due to non-compliance of Article 82 of the Articles of Association of the Company which, interalia, provides the necessity of requisite quorum for the meeting. Therefore, if the EOGM itself is bad-in-law, the appointment of the Petitioner Nos. 2 and 3 is questionable. I, therefore, do not find it appropriate to consider their reinstatement as Directors on the Board of the Company.
40. The next grievance ventilated by the Petitioners is that late Brij Kishore Sharma was holding 6,37,800 shares in the Company, which have been illegally transferred by the Respondent No. 2 in his exclusive name without following due course of law, as prescribed in the Act and Articles of Association of the Company, According to Ld. Counsel, from perusal of Form No. 208 died by the Company for the year 2009, it may be seen that the said shares have been transferred by the Respondents exclusively in favour of the Respondent No. 2. Elaborating this charge, the Ld. Authorized Representative, appearing for the Petitioners, submitted that late Brij Kishore Sharma, during his lifetime, never transferred his shares to the Respondent No. 2 at all. Further, there is nothing on record to show that late Brij Kishore Sharma has ever executed any Transfer Forms as required under the provisions contained in Sections 108 and 113 of the Act and the provisions, relating to transfer and transmission of shares, contained in the Articles of Association of the Company. Furthermore, according to the Ld. Authorized Representative, there is no proof of payment of consideration by the Respondent No. 2 to late Brij Kishore Sharma in respect of the alleged transfer of the aforesaid shares. The Ld. Authorized Representative further submitted that late Brij Kishore Sharma did not leave any Will in favour of the Respondent No. 2. He further contended that the entire shares of late Brij Kishore Sharma were to devolve upon his legal heirs equally as per the Hindu Succession Act. Taking me through the record, the Ld. Authorized Representative, appearing for the Petitioners, pointed out that the Petitioners Group wrote several letters to the company for transmission of shares held by late Brij Kishore Sharma in their respective names as per the Hindu Succession Act, however, the Respondents did not pay any heed to such requests of the Petitioners and the Respondent No. 2 exclusively transferred the said shares in his own name. Therefore, according to the Ld. Authorized Representative, such transfer of shares, being contrary to the law, is bogus and invalid and has been made to highjack the Company. Further, according to him, this act of the Respondents amounts to an act of oppression and mismanagement as defined in Section 397/398 of the Act.
41. Refuting the contentions of the Respondents that the said shares were transferred during the lifetime of late Brij Kishore Sharma as per his desire indicated in his letter dated 5/02/2009, the Ld. Authorized Representative, appearing for the Petitioners, submitted that in order to transfer the shares from an exclusive ownership to a joint ownership, execution of a Transfer Deed is mandatory, in term of Section 108 of the Act. In addition to the above, the Petitioners have challenged the transfer of the said shares as illegal and void, interalia, on the grounds stated below.
a. Because, the shares of Late Brij Kishore Sharma cannot be transferred by way of a letter only unless there is a proper instrument of transfer in accordance with Section 108 of Companies Act, 1956 and Articles 54 and 55 of Articles of Association of the Company. The Respondents have not enclosed any copy of the relevant transfer deed in respect of the impugned transfer of shares.
b. Because, there is no proof of payment of any consideration by the Respondents No. 2 to Late Brij Kishore Sharma for transfer of shares to him as joint holder with him. It is well settled that any transfer of shares without payment of any consideration is void.
c. Because, the letter dated 05/02/2009 has not been enclosed with the Reply. It raises a doubt about the genuineness of the letter itself as it may be a forged or fabricated letter. The Respondents must produce the original letter dated 05/02/2009 and give certified copy of the said letter to the Bench and the Petitioners. For application of Article 59, first of all, the Respondent No. 2 has to prove that he is the 2nd holder of Late Brij Kishore Sharma's shares, in accordance with law, which he has failed to prove in his reply.
d. Because, as per certified copy of Register of Members provided by Respondents, in accordance with interim order dated 10/03/2010 passed by Bench, it is mentioned on Ledger Folio No. 416 that the impugned 6,37,800 shares of Late Brij Kishore Sharma were allegedly transferred in the joint names of Late Brij Kishore Sharma and Respondent No. 2 w.e.f. 18/02/2009.
e. Because, any transfer of shares has to be approved by the Board as per Article 57 of the Articles of Association and Section 113 of the Companies Act, 1956. In this case, the Respondents have neither disclosed the date of transfer of impugned shares nor they have enclosed copy of the minutes of Board Meeting allegedly held on 18/02/2009 to approve the impugned transfer. Further, the Petitioner No. 1 had not received any notice and agenda for the alleged Board Meeting on 18/02/2009 and she has not attended any Board Meeting on the said day.
42. Based on the above, it was contended on behalf of the Petitioners that the transfer of 6,37,800 shares of Late Brij Kishore Sharma in favour of Respondent No. 2 is therefore, illegal and void. It is further submitted that the name of Late Brij Kishore Sharma should be restored as exclusive owner of the impugned shares by rectification of the Register of Members so that thereafter the said shares can be transferred to his legal heirs as per Hindu Succession Act. To support his aforesaid submissions, the Ld. Authorised Representative for the Petitioners has placed strong reliance on the following decisions:—
a. Martin Castelino v. Alpha Omega Ship Management Pvt. Ltd. (2001) 41 CLA 271 (CLB).
b. M.L. Arora v. Green Valley Forzen Food Ltd. (2008) 83 CLA 333 (CLB).
c. Dayaram Agrawal v. Ashok Industries (P.) Ltd. (2005) 67 CLA 283 (CLB).
43. As regards the transfer of the shares of Late Brij Kishore Sharma in favour of the Respondent No. 2 exclusively, in reply, it was argued on behalf of the Respondents that the shares held by Late Brij Kishore Sharma were transferred during his lifetime as per his letter dated 5/02/2009. The Ld. Counsel submitted that, as per the letter dated 5/02/2009, the name of the Respondent No. 2 was included in the share-certificates belonging to Late Brij Kishore Sharma as a joint shareholder. The Ld. Counsel for the Respondents then invited my attention to Article 59 of the Articles of Association and submitted that the said Article states that in case of death of any one or more persons named in the Register of Members as joint holders of the shares, the survivor or survivors shall be the only person(s) recognized by the Company as having soy title to or interest in such shares. He further submitted that after the death of Late Brij Kishore Sharma, the name of the Respondent No. 2 was rightly entered in the Register of Members, being the exclusive owner of the said shares. In addition to the above, the Ld. Counsel submitted that the Respondent No. 2 has already applied in the Hon'ble High Court of Bombay for probate of all the assets left by late Brij Kishore Sharma, and therefore the Respondents have not contravened any provisions of the Companies Act or any Article of the Articles of Association of the Company in respect of the transfer of the shares held by late Brij Kishore Sharma in favour of the Respondent No. 2.
44. I have considered the rival submissions. The Respondents Group has failed to produce the alleged letter dated 5/02/2009 by which they claimed that the Late Brij Kishore Sharma had desired to transfer his entire shareholding consisting of 6,37,800 shares exclusively in favour of Respondent No. 2. In the absence of the said document, the stand taken by the Respondents cannot be relied upon.
45. I have also examined the Article Nos. 57 and 59 with respect to transfer of shares. For the sake of convenience, the said Articles art being reproduced as under:—
Article 57: Subject to the provisions of Section 111 of the Act, the Board may, at its discretion decline to register or acknowledge any transfer of share whether fully paid or not (notwithstanding that the proposed transferee be already a member), but in such case it shall within two months from the date on which the Instrument of transfer was lodged with the Company, send to the transferee and the transferor notice of the refusal to register such transfer, giving reasons for such refusal.
Article 59: In the case of the death of any one or more of the persons named in the Register of Members as the joint holders of any share, the survivor or survivors shall be the only persons recognized by the Company as having any title to or interest in such share, but nothing herein contained shall he taken to release the estate of a deceased joint-holder from any liability on shares held by him jointly with any other person.
46. In my opinion, the aforesaid Articles have not been followed by the Respondents in giving effect to the transfer of shares held by Late Brij Kishore Sharma in favour of the Respondent No. 2. The Respondents have failed to produce original letter dated 5/02/2009 on the basis of which they have transferred the shares-in-question held by Late Brij Kishore Sharma in favour of the Respondent No. 2, Moreover, there is no transfer deed executed by Late Brij Kishore Sharma in favour of the Respondent No. 2 as per Section 108 read with Section 113 of the Act. Furthermore, the Respondents have not disclosed the date of transfer of Impugned shares nor have they enclosed the copy of minutes of the Board Meeting purportedly held on 16/02/2009 to show that the transfer of shares was approved. In addition, there is no reason to disbelieve the statement of the Petitioner No. 1 that she never received any notice and agenda of the Board Meeting purportedly held on 18/02/2009 and she never attended such meeting on the said date. I am, therefore, of the view that the case of the Respondent No. 2, who claims to be second joint holder of the impugned shares, is false and untenable. In my opinion, Article 59 is not applicable with respect to transfer of shares under challenge and therefore, the transfer of 6,37,800 of Late Brij Kishore Sharma in favour of the Respondent No. 2, is illegal and void. The Respondent No. 2 is not entitled to exercise the voting right in respect of these shares until the title of the shares is decided by a competent court of law. This issue is decided accordingly.
47. The next allegation made by the Petitioners against the Respondents is that the Respondent No. 2 has fraudulently filed, with the Punjab National Bank, a copy of the Resolution alleged to have been passed at the Board Meeting held on 5/05/2009, which exclusively authorised him to operate the Account with the Punjab National Bank, Malad (E), Mumbai, and thus the Respondent No. 2 illegally took over the control of the said bank account and by doing so, he withdrew the entire amount of the Bank for his personal benefit as well as the benefit of his group members. Challenging the validity of the said Board Meeting, the Ld. Authorized Representative, appearing for the Petitioners, submitted that the alleged Board Meeting, which is purportedly held on 5/05/2009, itself illegal, invalid, ineffective and void. It is further submitted by the Ld. Authorized Representative that having come to know that the Respondent No. 2 took over the entire control of the said bank account, the Petitioner Nos. 1 and 2 approached the said bank, whereupon the said bank, vide its letter dated 4/11/2009, informed that to stop the Respondent No. 2 from operating account, prohibitory order from any court/tribunal/competent authorities will have to be obtained. It is further submitted that in this regard, the Petitioner No. 1 had also requested the said Bank vide letter dated 30/11/2009 not to act on the basis of the said Board Resolution dated 5/05/2009, to which the said Bank did not given any reply. It is further submitted that the Respondent No. 2, in furtherance of his illegal actions, continued to operate the said bank account despite repeated objections raised by the Petitioners Group and informed the said Bank that the Respondent No. 2 has forged the signature of the Petitioner No. 1 on the copy of the Board Resolution dated 5/05/2009 in order to give authenticity to the said board resolution. It is further submitted that finally the Petitioner No. 1 had to file an F.I.R. against the Respondent No. 2 with Senior Inspector of Police, Malad, Mumbai on 12/12/2009 for committing fraud, forgery and misappropriation of funds of the Company, and she also obtained Expert's Opinion from the Handwriting and Fingerprints Expert to the effect that her signature does not exist on the Consent Letter addressed to the said Bank. Yet, according to the Authorized Representative, the Respondent No. 2, by taking undue advantage of the said forged signature of the Petitioner No. 1, has withdrawn handsome amounts from the bank and misappropriated the same for his own use. It is, therefore, prayed on behalf of the Petitioners that the impugned Resolution passed in the Board Meeting purportedly held on 5/05/2009 should be cancelled and declared null and void.
48. As regard the alleged forgery committed by the Respondent No. 2 by fabricating the Board Resolution passed in the Board Meeting held on 5/05/2009 for operation of the bank account with PNB, it was argued by the Ld. Counsel appearing for the Respondents that the Respondent No. 2 called the Board Meeting on 5/05/2009 for passing resolution for operation of the bank account after demise of Late Brij Kishore Sharma. According to the Respondents, the Petitioner No. 1 attended the said Board Meeting and signed the Resolution in presence of the Respondent Nos. 2 and 3 and now she is backing out from the same. It is further submitted that the Petitioner No. 1 in the said Board Meeting did not ask any question about working of the Company since its incorporation as she herself was aware of all the facts. The Ld. Counsel alleged that now the Petitioner No. 1 has become hostile due to undue influence exercised by the Petitioner No. 2 with ulterior motive to destabilize the Company.
49. Responding to the aforesaid submissions, Mr. Parekh, Ld. Counsel representing the Respondents, submitted that the Respondent Nos. 2 and 5 are the two of the original subscribers to Memorandum of Association of the Company, and that Late Brij Kishore Sharma, Mrs. Sheela Brij Kishore Sharma (Petitioner No. 1) and Shri Arvind Brij Kumar Sharma (Respondent No. 2) were the first Directors of the Company. The Ld. Counsel further submitted that, on 28/03/1998, the Respondent No. 2 was inducted as Director of the Company, who, however, resigned on 27/03/2004, and he was therefore, not associated with the management of the Company with effect from the date of his resignation as Director of the Company. The Ld. Counsel further submitted that the Respondent No. 2 was appointed as a whole time Director by Late Brij Kishore Sharma on 1/04/2006; that a Special Resolution was passed for his appointment; and that Form No. 32 was filed by Late Brij Kishore Sharma, According to the Ld. Counsel, the appointment of the Respondent No. 2 was made in presence and within the knowledge of the Petitioner No. 1 and she was a party to the decision of his appointment. He further submitted that the Respondent No. 2 and the Petitioner No. 2 also attended several meetings of the Company as shareholders and never objected to the decisions taken by late Brij Kishore Sharma jointly with the Respondent No. 2, as whole time Director, and consented to all his decisions. It is further submitted that, on account of old age, late Brij Kishore Sharma parted the responsibility to the Respondent No. 2 and the day to day working of the company was looked after by the Respondent No. 2 as a whole time Director. The Ld. Counsel further pointed out that on account of matrimonial disputes between the Petitioner No. 3 and her husband, late Brij Kishore Sharma, the Petitioner No. 1 started confrontations with the Respondent No. 2 under the influence and guidance of the Petitioner No. 2 since 2009.
50. Having considered the rival submissions and on perusal of record, I find that the Respondent No. 2, with the association of the other Respondents with the purpose to siphon off the fund of the company, has created the said Board Resolution dated 5/05/2009 to operate the Company's Bank Account. The explanation offered by the Respondents' Counsel referred to above, does not appear sound and convincing. I, therefore, hold that the Petitioners have succeeded to prove the said charge levelled by them on the Respondents Group claiming to be an act mismanagement in the conduct of affairs of the Company as defined in Section 398 of the Act.
51. In conclusion, the Petitioners have successfully established that the conduct of the Respondents towards them has been oppressive. Their decisions were harsh, burdensome, malafide and lack in probity. There are series of incidents as narrated above, which clearly amount to acts of oppression and mismanagement in the conduct of the affairs of the Respondent Group.
52. It is a settled proposition of law that where any shareholder is denied his most valuable rights in utter disregard of the statutory provisions, the making an order of winding up of the Company, on the ground that it is just and equitable, would be justified. Therefore, having regard to the facts of the case in hand, the necessary ingredients of the provision contained in Section 397, which provides that; “to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just a equitable that the company should be wound up”; also stands proved.
53. In the result, the petition succeeds. I, therefore, in order to bring an end to the acts of oppression and mismanagement in the affairs of the Company, and in order to do substantial justice to the parties, pass the following order:—
a. The appointment of the Respondents Nos. 3 and 4 as Directors made by the Respondents Group is hereby set aside. The Company shall take immediate steps to file appropriate Forms with the Registrar of Companies showing their cessation as Directors of the Company.
b. The Removal of the Petitioner No. 1 as a director of the Company is hereby set aside and she is hereby re-instated as a Director of the Company. The Company shall take immediate step to file appropriate Form in this regard.
c. 6,37,800 shares of the Company belonging to Late Brij Kishore Sharma shall be kept as his estate and in the Register of Members of the Company the same shall be marked as “estate of Late Brij Kishore Sharma”. The parties may apply for Succession Certificate before the competent court and thereafter, upon production of copy of the order passed by the competent court, the company shall transmit the shares in compliance thereof. The Company shall file requisite form showing the shareholding pattern of the Company in compliance of this order with the ROC, concerned.
d. Ms. Neha Baid is appointed as an additional Director of the Company. The Company shall take immediate steps for filing Form No. 32 with the Registrar of Companies showing her appointment as a Director of the Company.
e. All the three Directors shall hold the Board Meeting as per provisions of the Companies Act immediately upon receiving the copy of this order. Two directors present in the meeting may form quorum for the Meeting. The Company shall call, convene and hold an EQGM for appointment of the new Directors in accordance with the provisions of the Companies Act, Ms. Bald will ensure that the shareholders of the company are served with a notice, agenda and the explanatory statement etc., with respect to appointment of new Directors of the Company. Ms. Baid shall be entitled to get Rs. 15,000/- per meeting from the Petitioners and her term will expire on re-constitution of the Board of Directors.
f. The Company shall also re-appoint/appoint Statutory Auditors who shall conduct audit of the Company from 2009 onwards. In the audit, if it is found that the Respondent No. 2 and or his associate has siphoned off the amount of the Company, the same shall be brought back by him to the Company within 30 days thereof.
g. The other prayers as sought in the petition are declined.
h. C.P. stands disposed off in the above terms.
i. The ad-interim order, if any, stands vacated. Pending C.A., if any, stand disposed off.
j. No order as to costs.
k. Let copy of order be issued to the Parties.
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