CP
65 OF 2001
AND
In the matter of
M/s Aar Gee Board Mills Pvt. Ltd.
AND
In the matter of:
Vs.
Shri D.D. Pande, Advocate ..for
petitioner
Shri R.K. Jain, Advocate ..for
respondent
Shri G.C. Garg, Advocate ..for
respondent
O
R D E R
1. Shri Giridhar
Gopal Gupta and Ors. (petitioners) have filed this petition under Section
397/398 against M/s Aar Gee Board Mills Pvt. Ltd. and Ors.(Respondents). The respondent company was incorporated on
4.10.1985 with main object inter-alia to manufacture Mill Board out of waste
paper and pulp. The petitioner No.1 Shri Giridhar Gopal Gupta and Respondent
NO.2 Shri Gurcharan Das Garg had jointly purchased a sick unit from UPFC 1985
consisting of a plot of land at GT Road
Industrial Area Ghaziabad and measuring 7215 sq. yards alongwith the plant and
machinery. The shareholding of
petitioners group was 1722 equity shares of Rs.100 each consisting (50.9%) and
that of respondent group was 1662 equity shares of Rs.100 each constituting on
the said paid up capital of (49.1%) total equity shares numbering 3384. To begin with the petitioner group and
respondent group had two directors each in the respondent company.
2. The units was
closed down in Oct.1994 due to alleged non cooperation and mismanagement
including persistent losses and non installation of water treatment plant for
pollution control. At the time of
closing down the unit in 1994, there was no outside liability as dues of UP
Financial Corporation except some amount of Government dues. When the dispute arose between the both the
parties, they appointed arbitrator with mutual consent who gave three
awards. Both the parties have alleged
that the awards given by arbitrator were not complied by each other.
3. The learned
counsel for petitioner submitted that the respondents have acted in a planned
and systematic manner after the final award of the arbitrator dated 18.4.1998
and indulged into the acts of oppression and mismanagement. The first issue taken up by the learned
counsel for petitioner is of illegal allotment of 9507 equity shares of Rs.100
each. It is alleged that respondents
have allotted 9507 shares on different dates in 1994 and 1995. No notice of any Board meeting was received
by the petitioner who is also director in the company. The return of allotment (Form No.2 has been
filed in one lot for all the shares on 20.8.1998 with the Registrar of
Companies after a delay of about 4 years.
The petitioners have alleged that these shares were never allotted in 1984
and 1995 as the fact had not been brought out to the notice of arbitrator as
the arbitrator had stated that in their award that investment by both the
groups is equal. The respondents have
increased capital from Rs.3.38 lakhs to 12.89 lakhs by allotment of 9507 new
shares of Rs.100 each when the operation of the company has come to stand still
and there was no need to generate more funds.
It is further alleged that allotment of new shares of 9507, which is
three times of the existing 3384 shares, not a single shares had been allotted
to the petitioners group and all the said shares were allotted to persons
belonging to respondent group, thereby the shareholding of the petitioner group
was reduced from 50.9% to 13.4% which is a serious act of oppression. The petitioners have also submitted that the
entire records of the company is with petitioners. The learned counsel for petitioner further alleged that shares
have been allotted to minors (students) and a firm M/s Ram Kishan and sons. It is alleged that unsecured loans of minors
aggregating to Rs.3,64,320 was shown as application money besides existing
Rs.30,000 appearing as share application money. Assuring that the shares were to be allotted against share
application money of Rs.3,94,320 but respondents have further allotted share
for Rs.5,56,380 for which no explanation is given and it is not known whether
cash amounting to Rs.5,56,380.00 was ever received by the company against
allotment of these shares and how this money has been used after the closure of
the unit.
4. The learned
counsel for petitioner also submitted that respondent No.4 Shri Paramanand who
is brother of respondent –2 and respondent no.3 has been appointed as
additional director wef 20.10.1994 and the return in form 32 has been filed
with the ROC on 20.8.1998 after delay of four years. No notice or minutes of the Board meeting allegedly held on
20.10.1994 has been filed. The minutes
of any AGM in this behalf has also not been filed by the respondents.
5. The third
oppression alleged by the petitioner is removal of petitioner No.1 Shri
Giridhar Gopal Gupta and Shri Ram Narain Gupta as directors on 16.9.1998
without notice of any board meeting allegedly held on 16.9.1998. The respondents have also not followed the
procedure of removal of directors as laid down in Section 284 of Companies Act,
1956. A director can be removed only in
a general meeting and not in Board Meeting.
Form No.32 was also filed with the ROC after a delay of two years on
3.11.2000. The petitioners have alleged
that only three Board Meetings were held on 14.7.1998, 10.8.1998 and 16.9.1998
for which notice has been issued under UPC.
The learned counsel for petitioner submitted that UPC has been procured
and cannot be relied upon in the absence of dispatch register and books of
accounts showing expenses incurred. The
petitioners relied their argument on case law (1955) CLA page 170
Bhankerpur Simbhoali Beverages Pvt.
Ltd.and Anr. Vs. P.R. Pandya and Ors V.K. Jhanji, J It is held that “there is a presumption of valid service but it
is rebuttable – Where dispatch register showing dispatch of the relevant
notices, and books of account showing the expenses incurred in the posting of
the letters are not produced, and service is denied by members concerned,
presumption cannot be drawn in terms of section 114 of the Evidence Act, 1872.”
6. The counsel for
petitioner has further submitted that the respondent company has not complied
with the provisions of Section 283 (1)(g) of the Companies Act 1956 as the gap
between three consecutive board meetings held by them is less than three
months. Accordingly the petitioners
have prayed that allotment of 9507 shares, appointment of respondent NO.4 as
additional director and removal of petitioner no.1 and his brother as directors
be set aside.
7. The learned
counsel for respondent in reply submitted that the present petition is time
barred . The petitioners have filed the
present petition in 2001 and the company has been closed on 1994 and more than
three years have passed . The
petitioners therefore cannot question the acts and deeds of respondent No.1
after a period of three years under Article 137 of the Limitation Act as the
same applies to Application under Section 397 and 398 of the Companies
Act. The respondents are submitted that
the company was closed in 1995 because of acts and deeds of the petitioners and
not in 1994
8. It is further
submitted by the learned counsel for respondents that respondent No.1 had
allotted 9507 equity shares of Rs.100 each on three dates i.e. 25.6.1994,
20.10.1994 and 9.1.95 legally and under
due process of law and the petitioner was fully aware of the allotments of share and even notice of General Body
Meeting of 1.9.1994 was signed by the petitioner Shri Giridhar Gopal Gupta. The balance sheet on 31.3.94 was signed on
Shri Giridhar Gopal Gupta in which share application money was received of Rs.3,94,320 has been shown. As such the petitioner was fully aware of
the allotment of 9507 equity shares and he has signed the balance sheet of
31.3.94 showing the share application money received for the allotment of
shares. The respondents have alleged
that the petitioner has intentionally not filed the copy of the balance sheet
for the period ending 31.3.94 and 31.3.95 wherein he has signed the balance
sheet showing the receipt advance of share money.
9. The learned
counsel for respondents have further stated that except for the appointment of
respondent NO.4 as the director of the company which cannot be treated as a
serious act of oppression of the petitioner group, it is wrong to say that
there were two nominee each on the Board of Company at all relevant time
belonging to petitioners group. Shri
Ram Narain Gupta had left the company from 1.9.1989. Shri Ram Narain Gupta is not even a petitioner in the present
petition which shows that they do not have two nominee of each group at all
relevant time. Shri Ram Narain Gupta
had not attended any meeting of the Board inspite of service of notice after
1.9.89 The respondents have further stated that it is wrong to say that no
Board Meeting was held but the entire record of the company is with the
petitioner NO.1 and he is deliberate withholding the records to abuse the
process of Hon’ble Court. The last AGM
held on 4.9.1996 and the appointment of respondent NO.4 as director of the
company is in order.
10. I have carefully
gone through the records of the case as well as the averments made by learned
counsel of both the sides. It is
observed that the parties have gone for arbitration three times after mutual
understanding. There is nothing on
record in the Articles and Memorandum of
Association of the company to indicate any provision for
arbitration. The three awards given by
the arbitrator have not been implemented by either parties. I am, therefore, not inclined to go into the
awards of the arbitrator as they do not find any course of law.
11. On the merit of
the case the first question is that of removal of directors from the company of
Shri Giridhar Gopal Gupta and Ram Narain Gupta. The memorandum and articles of association of the company
indicate that there were four directors at the time of incorporation of the
company namely, Shri Girdhar Gopal Gupta, Ram Narain Gupta , Gurcharan Das Garg
and Smt. Krishna Garg. I am therefore,
not inclined to accept the plea of learned counsel for respondent that there
were never equal directors from both the sides. The minutes of the board
meeting placed on record held on 15.6.1998 indicate that this board
meeting had been called as per telephonic notice and the petitioners have
denied that they have received any notice.
There is nothing on record to indicate that any proper notice had been
given to the petitioners. Both the
sides have alleged the holding of documents by each other in their affidavits
filed with the written statements. In the absence of full documents, I have to
rely on the documents placed during the arguments by both the parties. The
respondents have merely denied and stressed that both the directors had been
removed by due process of law but they have failed to produce any records. It is also contrary to their statement that
there were never equal directors from both sides. I have therefore no hesitation in accepting the plea of learned
counsel for the petitioner that both the Shri Giridhar Gopal Gupta and Ram
Narain Gupta have been removed from the directorship without following proper
procedure as per the provisions of Companies Act, 1956. Similarly the appointment of respondent NO.4
Shri Parmanand purported to have been appointed as additional director on
20.10.1994 for whom the return in form 32 has been filed with the ROC only on
20.8.1998, after four years the respondents have also failed to give any
evidence of notice or minutes of the board meetings held on 20.10.1994.
12. The last point
for consideration is the allotment of 9507 equity shares which have been
allotted on 25.6.1994, 20.10.94 9.1.95.
The respondents have failed to produce
notice/minutes of the board meeting in which 9507 shares were allotted .
The return of allotment of shares in Form No.2 has been filed in one lot on
20.8.98 with the ROC after a delay of 4 years.
The respondents have submitted that in the balance sheet signed of
1993-94 by the petitioner indicated
application money of Rs.3,94,320 and accordingly the petitioner were aware of
allotment of 9507 shares . It is true
that a sum of Rs.3,94,320 has been shown in the balance sheet of 1994-94 which
has been signed by the petitioner
indicating share application money. But
the respondents have allotted further shares of Rs.5,56,380 for which no
explanation has been given. It is also
not known whether any money amount to Rs.5,56,380 was ever received by the
company and how the same has been utilized in a company which was closed down
in 1995.
13. In the light of
the above discussion, I am of the view that the board meetings purported to
have been held to remove the two directors and to appoint the additional
director are bad in law and not inconformity with the procedures laid down in
Companies Act, 1956. I accordingly,
set-aside the removal of Shri Giridhar Gopal Gupta and Shri Ram Narain Gupta
from the Board of Director. Consequently, they are restored to their original
position of 1994. Regarding allotment of 9507 equity shares, I am inclined to
give benefit of doubt for allotment of 3943 shares as share application had
been received which were in the knowledge of the petitioners as application
money for allotment of these shares.
However, the allotment of remaining 5564 shares have been allotted for
which no explanation had been given by the respondent parties. Accordingly, I declare allotment remaining
5564 share as illegal and accordingly
same is set-aside.
14. Either party
being equal partners is given liberty to buy or sell the shares of each
other. Either party can approach this
bench for fixing valuation of the shares on the base line of 1995 when company
was closed after getting evaluation from the independent valuer and sell the
shares.
15. The petition is disposed of with the above
directions and there are no orders as to cost.
(K.C.
GANJWAL)