BEFORE THE COMPANY LAW BOARD
Dated 31st
December 2001
Present: 1. Justice A.K. Banerji, Chairman
2. Shri S. Balasubramanian,
Vice Chairman
In the matter of Companies
Act, 1956-Sections 397/398
AND
In the matter of Shri Deepak
Lohia
Versus
Kamrup Developers Private
Limited and Ors.
PETITIONER:
Shri Deepak Lohia
RESPONDENTS:
1. M/S Kamrup
Developers Private Limited
2. Shri Bhajan
Lal Aggarwal
3. Shri Ashok
Kumar Aggarwal
4. Shri Anil
Kumar Aggarwal and 26 Others
Present on behalf of
parties:
1. Shri S.N. Mookherjee,
Advocate
.. for petitioner
2. Shri U.P. Mathur, Advocate
.. for petitioner
3. Shri D.D. Pandey, Advocate
..for petitioner
4. Shri Sanjib Banerjee,
Advocate
.. for respondent 1
5. Shri A. Aggarwala, Advocate
.. for resp.1 and 3
6. Ms. Shefali Shukla, Advocate
.. for resp.5 to 9
7. Shri K.K. Lahiri, Advocate
.. for resp. 5 to 9
(Date of final hearing:
26.9.2001)
S. BALASUBRAMANIAN:
1. The main
complaints of the petitioner in regard to the affairs of M/S Kamrup Developers Private
Limited ( the company ) are that there has been a creation of a new majority by issue of
further shares, change in the
composition of the Board of Directors by which equality in the Board has been disturbed and that there has been mismanagement in the
affairs of the company.
2. Shri
Mookherjee, Advocate for the petitioner submitted: This company was incorporated in Feb.
1998 with an authorized capital of 5000 equity shares of Rs.100/- each. The paid up capital was 200 equity shares of
Rs.100/-each of which the petitioner held 100 shares and the 3rd respondent,
the balance 100 shares. Both were the only
directors of the company. The 2nd respondent is the father of the 3rd
and 4th respondents. The 2nd respondent is the owner of a piece of
land in Guwahati. He and his two sons desired
to develop the said land by demolishing the then existing structure and to construct a new
building comprising of shops, flats and offices on ownership basis. Therefore, with a view to develop this project,
the 2nd and 3rd respondents arrived at an understanding with the
petitioner to establish two companies – one for promoting the project and another for
dealing in supply of cement and agency for elevators.
The understanding further provided both the groups will have equal shareholding and
also equal representation on the Board of these two companies. Accordingly, the respondent company was
incorporated in 1998. In terms of the
understanding, agreement was executed between
the company and the 2nd respondent. As
per this agreement, the company was authorized to develop the land owned by the 2nd
respondent and he was to execute an irrevocable power of attorney empowering the company
to convey the said land in full or part with further power to construct shops, flats etc. The company was to pay a sum of Rs.16 lacs as
consideration to the 2nd respondent. It also provided for termination of the
agreement in case of breach of any of the terms of agreement. In terms of this agreement, the 2nd
respondent executed an irrevocable general power of attorney in favour of the company
providing that the petitioner and the 3rd respondent as nominees of the company
were to act on the power of attorney. In
addition to the share capital for 100 shares each, the petitioner group and Aggarwal Group
each contributed Rs.2.5 lacs as share application money.
In addition, the petitioner by himself and through his own companies provided a sum of Rs.2.25 crores either as
unsecured loan bearing interest or as advance against booking of space.
3. He further
submitted: Since the petitioner was residing in Calcutta, the entire day to day management
of the company was entrusted to the 3rd respondent. He and the petitioner were joint signatories to
the banking operations. Sometime in November,
1999, the petitioner came to know that the cash balance with the company did not tally
with the books of account and the 3rd
respondent was not in a position to explain the discrepancy due to which disputes and
differences between the parties arose. To
amicably settle the disputes, the same were referred to arbitration of one Shri Purshottam
Khaitan, a well known Advocate of Tinsukia. Before the arbitrator, the petitioner and the
2nd respondent agreed to settle the disputes on the basis of a Memorandum of
Understanding dated 2nd May, 2000. As per this MOU (Annexure-PA), the
petitioner was to get the entire ground floor, entire second floor and a portion of the
first floor. The 3rd respondent
was to get the balance of the first floor with the
right to construct the 3rd to 8th
floors. The 2nd respondent was to hand over all the assets receivables etc of the company to the petitioner.
As far as the 2nd company Kamrup Traders Services Private Ltd. was
concerned, the entire management and control of the company
was to be vested with the 2nd respondent. However,
both the 2nd and 3rd respondents dispute this arbitration award and the MOU notwithstanding the fact that there
had been further correspondence between the parties in regard to this arbitration award
and the resultant MOU without any challenge. Further
this MOU has been witnessed by the relatives of
the respondents. The company itself, in its
letter dated 2.5.2000(Annexure P9) had agreed
to abide by the terms of the MOU. Even as late as on 11.9.2000, the petitioner caused a notice to be issued ( Annexure P-23) to the 2nd
and 3rd respondents referring to the MOU.
In reply to this notice, by a reply dated 19.9.2000, the advocate for the 2nd
respondent, without denying the fact of the MOU had
only stated that the 2nd respondent, not being a shareholder of the company,
had no concern with the company and as such could not have entered into the MOU. This stand of the 2nd respondent
cannot be sustained in as much as there is absolutely no difference in the identity
between the 2nd and 3rd respondents as they have been acting
together all along. It is the 2nd respondent who handed over the land for
development by the petitioner and the 3rd respondent and as such this is a fit
case as held by the Supreme Court in New Horizons Limited V UOI (1995 SCC 478)
to pierce the corporate veil to establish
that the 2nd respondent and the 3rd respondent cannot claim any
separate identity. The petitioner had
written a number of letters to the 2nd and 3rd respondents through
speed post/registered AD/courier etc. but all of them were returned undelivered either as
refused or as not known. In other words, the respondents have evaded the receipt of any
letter in connection with the MOU. Now,
after repudiating the MOU, the 2nd
respondent has also revoked the power of
attorney given in favour of the petitioner by
which the entire company has been taken over by the respondents in exclusion of the
petitioner who was also a promoter of the company.
4. He further
submitted: After having revoked the power of attorney, to gain absolute control over the
company, the respondents have manipulated the records of the company to show that further
shares have been issued by which the petitioner has been converted from an equal shareholder to a minority
shareholder and two more directors have also been appointed by which the majority in the
Board also has been taken over by the respondents. The
Board has allegedly allotted shares worth Rs.2.3 lacs to the petitioner and shares worth
Rs.2.5 lacs to the respondents’ group. After the purported allotment the respondent
group holds 2600 shares against the petitioner group holding 2400 shares. Thus, this
allotment has straightway converted the
petitioner from an equal shareholder to a
minority and a new majority has been created. This allotment is nothing but a fabrication
as is evident from the fact that Form No.2 in respect of the allotment was filed with the
ROC only on 13.7.2000, that is, after the date of MOU even though the allotment
was allegedly made on 1.9.1999. These
allotments are purported to have been against the share application money of Rs.2.5 lacs
each in the name of the petitioner and the 3rd respondent. The petitioner never attended the Board Meeting on
1.9.1999 when the allotment was purportedly made and the respondents have not produced any
evidence to show that either any notice for this meeting was issued or
this meeting was attended by the petitioner. Even
though the respondents contend that on 2.9.1999 ( Annexure R-1), the company had written
to the petitioner and others about the
allotment of shares, none from the petitioner side had received the same and as such,
these letters as well as the copy of the
certificate of posting in connection therewith are fabricated. The respondents, with a
view to gain majority, as explicitly admitted at Page 12 of the reply of the 3rd
respondent that he was to have majority, have
fabricated this allotment. This fabrication
is also evident from the fact that in all the letters of the petitioner to the respondents
written after the date of alleged allotment, he had pointed out the equality in the
shareholding which was never denied by the respondents.
Even in the letter of the 2nd respondent dated 17.9.2000, he had not
mentioned about the minority status of the petitioner.
The minutes of the Board Meeting dated 1.9.1999 in which the presence of the
petitioner is shown is nothing but a fabrication in as much as the petitioner would have
never agreed for reducing himself voluntarily to that of a minority after having invested
over a sum of Rs.2 crores. Even assuming that the allotment was made on 1.9.99 as claimed
by the respondents, the sole purpose of the allotment was only with the view to gain
control of the company by disturbing the equality in the shareholding as evident from the
fact that the minutes of the meeting do not indicate the need for the allotment. In Piercy Vs. S. Wilson & Co. Ltd. (1920 Ch.D.
77 ) it has been held that the directors of a company are not entitled to use
their power of issuing the shares merely for the purpose of maintaining the control.
Therefore either the allotment should be cancelled or the
allotment be equalized.
5. As far as the
change in the composition of the Board is concerned, he pointed out that right from
incorporation, the company had only two directors, namely, the petitioner and the 3rd
respondent. However, in violation of the
provisions of Article 54, according to which other directors would be appointed by the 1st
directors. The respondents had reportedly inducted two more directors on 3.2.1999. However, Form No.32 in respect of these appointed
was filed only on 13.7.2000 i.e. after the signing of the MOU. The respondents have shown the attendance of the
petitioner in the Board Meeting on 3.2.1999 which is nothing but a fabrication since the
petitioner did not attend this meeting for want of notice.
The respondents have relied on Page 82 of the documents filed by the respondents to
contend that the petitioner attended the Board Meeting on 3.2.1999. Page 82 is a certified copy of the resolution
dated 3.2.1999 authorising the 4th respondent to operate the bank accounts. Since the petitioner was not residing in
Guwahati, with the view that the banking operation of the company was not affected, a
resolution was printed on the letter head of
the company and signed by the petitioner and the 3rd respondent. There was no
reference to date of any resolution. Now the respondents have fabricated the said letter
head to show as if there was a board meeting on 3.2.99 just to attribute knowledge to the
petitioner of the alleged meeting. If in the same meeting, two more directors had been
appointed, there was no need to have authorized a non director to operate the bank
account. This contradiction would indicate that the entire minutes of that meeting are
fabricated. Further if the petitioner had attended the meeting, he would have never agreed
to reduce himself to a minority in the Board. No
doubt the petitioner signed the balance sheet as on 31st March 1999, but the
directors report was never shown to him to allege that he had the knowledge of the
allotment of shares and appointment of directors. Therefore, the appointment of the two
directors being not only a fabricated one but also had been done only with a view to gain
absolute control over the management of the company. In a company where there had been equal participation in the
management, any disturbance in the equality of the participation is a grave act of
oppression.
6. He further
submitted: The 3rd respondent is
mismanaging the affairs of the company. No
Board Meetings or General Body Meetings of the company have been held and all the minutes
reflecting the holding of the meetings are fabricated.
The company has not been taking any effective steps to get necessary approvals to
complete the project. Further, having accounted substantial amount of money given by the
associates of the petitioner as “booking advance” in the accounts, now the
respondents contend that these amounts were given as unsecured loans only with the view to
deny allotment of space in the project. The facts would clearly establish that the
respondents are guilty of both oppression and mismanagement. It is not correct that the
petitioner is only a financier. The petitioner has another construction company through
which he has gained experience in promoting building projects and that is the reason that
the respondents associated the petitioner with the project as an equal partner. This
company being a closely held company with only two promoters, the acts of oppression and
mismanagement clearly establish that there is complete lack of confidence justifying the winding up of the company on just and
equitable grounds as held in Loch V John Blackwood Ltd ( 1924 AC 124). The maximum contribution of funds for the project has come from the petitioner and his group who have not only given
loans but also have advanced money towards purchase of space in that building. The respondents having approached the petitioner
for implementing the project because of his expertise and
having made him to invest nearly Rs.2
crores, they have now completely sidelined
the petitioner and have taken over the company both in terms of the shareholding as well
as the management. Since the relief in a
petition under Sections 397/398 of the Act should be in the interest of the company,
restoration of the status quo in regard to the shareholding and management would only
result in a deadlock and as such would be against the interest of the company. It has been held in Mahabir Prasad Jalan V
Debonair Agencies Ltd ( 1999 2 CLJ 71 Cal) that in case of a deadlock, one group
of shareholder can be directed to sell its shares to the other group. Since the petitioner
has contributed substantial funds, it would be in the interest of the company that the management and control of the company is
handed over to the petitioner who is willing to assume all the liabilities of the company
also. As held in Naini Oxyzen & Acetylene Gas Limited Vs. Bisheswar Nath (60 CC
990 ) in a Sections 397/398 proceedings for removing the oppression and
mismanagement, the court can take recourse to any action which may be in the interest of
the company. Even assuming that the respondents group control majority shares, they could
be directed to sell their shares to the petitioner as held in Brenfiend Squash
Racquets Club Limited ( 1996 2 BCLC 184). Further it has also been held in Re A
Company (00789 of 1987) (1990 BCLC 384) that
the control of a company should be given only to those in whom the shareholders have
confidence. In Naini Oxygen and
Acetylene Gas Limited V Bisheshwar (60 CC 990 All) the Court has held that the
ultimate relief granted should be in the interest of the company. Therefore, considering
the fact the without the expertise of the petitioner and funds provided by him, the
company cannot complete the project and as such the respondents should be directed to sell
their shares to the petitioner. However,
for any reason the Bench were to decide otherwise, the respondents/company should be
directed to clear all the investments made by the petitioner’s group both by way of
unsecured loans and booking advance together with 21% interest immediately.
7. Shri Lahiri
Advocate appearing for the respondents 5 to 7 submitted: These respondents are part of the
petitioner’s group. Since the
petitioner has contributed maximum funds to the company, as held in Suresh Kumar
Sanghi V Supreme Motors Ltd ( 54 CC 235) both in the interest of the company and
equitable considerations the company should be handed over to the petitioner. The 8th
and 9th respondents have invested Rs.25 lacs and Rs.30 lacs respectively for
booking space in the project but the respondents claim that the same was paid as interest
free loan. Either the company should allot the space booked by these respondents or the
amount should be refunded with 21% interest.
8. Shri Banerjee,
appearing for the respondents submitted:: This
petition is not maintainable, in as much as, through this petition, the petitioner seeks
to enforce the alleged MOU as is evident from the fact that by a letter dated 7.8.2000,
the petitioner desired implementation of the MOU and simultaneously filed this petition
also. The alleged MOU is nothing but a sham document fabricated by the petitioner. Further, the company was not a party to the MOU
nor the 2nd respondent being neither a shareholder nor a director could have entered into the MOU concerning the affairs
of the company. The alleged letter at page 94 of the petition, indicating that the company
would abide by the terms of the MOU is a fabricated document. Since the petitioner was
stationed in Calcutta, for his use as a director in emergency, the 3rd
respondent had given some sheets of papers in blank with his signatures and the petitioner
has fabricated the alleged letter on one such sheets. The claim of the petitioner that the
2nd respondent controls 3rd respondent has no basis. Accordingly, on
the basis of the MOU, the petitioner cannot seek any relief. Even though the 2nd respondent
entered into an agreement with the company regarding the
land for a consideration of Rs.16 lacs, yet as per oral understanding he was to get
a much higher amount in as much as the
company is likely to make a handsome profit
of over Rs.5 crores on sale of the 8 floors proposed to be constructed on the land. The
disputes between the parties arose due to the quantum of the consideration to be paid to
the 2nd respondent.
9. As far as issue
of further shares is concerned, the learned counsel pointed out that in the Board Meeting
held on 1.9.1999, it was decided to allot 4800 shares against the application money
already available with the company. Since the
understanding between the parties was that the respondents would hold majority shares, 2500 shares were allotted to the
respondents’ group and 2300 shares were allotted to the petitioner’s group. This meeting was attended by the petitioner. The petitioner’s claim that he had no
knowledge of the allotment cannot be sustained in as much as the directors’ report dated 2.9.1999 specifically records the allotment
of these shares and this report was adopted in the AGM held on 29th September,
1999. The petitioner has signed the balance sheet as on 31st March, 1999
appended to this directors’ report and therefore cannot disclaim knowledge of the
directors’ report. Further, in the same meeting on 1.9.1999, the date of the AGM was
also fixed. Therefore when the petitioner was party to the allotment of shares, he cannot
now claim that by this allotment, he has been oppressed.
Further in terms of Article 5, the shares are under the control of directors with
the powers to allot the shares to such persons as the Board thinks fit.
10. As far as the appointment of
two additional directors is concerned, the learned counsel submitted that two additional
directors were appointed in a Board Meeting held on 3rd Feb. 1999. This meeting
was attended by the petitioners. Further it is in this meeting that the 4th
respondent was also authorized as a signatory to the bank operation. The very fact that
the petitioner forwarded a certified copy of the resolution relating to the 4th
respondent to the bank would indicate that the petitioner did attend this meeting wherein
two additional directors were appointed. Further these two directors were appointed as
regular directors in the AGM held on 29.9.1999. This
AGM was attended by the petitioner also. In
addition, their appointment as additional director was also indicated in the
directors’ report dated 2.9.1999. Thus,
it is evident that the petitioner had consented to the appointment of two other directors
on the Board and as such cannot have any complaint in this regard.
11. He further submitted that
the allegation of the petitioner that there had been no Board Meetings or General Body
Meetings is not borne on facts. No doubt
being a company with only two shareholders and two directors, formal notices were not
being issued, yet, Board Meetings were being held
periodically by mutual consultation. Even in the petition, at Page 22, the petitioner has
only complained that the AGM for the year ended March 31st, 2000 had not been
held and that no Board Meeting had been held since April, 2000. Having averred as such in the petition, the
counsel for the petitioner now cannot allege that
no Board Meeting or General Body Meeting was ever held by the company. As far as the late filing of the returns
relating to the allotment of shares and appointment of directors as also the annual
reports, the learned counsel submitted that the company had not filed any return right
from its incorporation and all due returns were filed in terms of the amnesty scheme
introduced by the Government. Therefore, the
late filing of the returns does not mean or indicate that all these documents have been
fabricated.
12. Summing up his arguments,
Shri Banerjee submitted that the prime mover behind the project is the 3rd
respondent and the petitioner was associated only in his capacity as a financier. While
his clients admit the amounts of investments by the petitioner and his group at Annexures
P-4 and P-5, the contention of the petitioners that the loans were with interest and that
his group had invested in booking space is not correct. All the loans at Annexure P-4 are
free of interest and the Booking amount shown is also is also only unsecured loans without
interest. If the amount shown in Annexure P-5 is fo booking space, then the petitioner has
played a fraud on the company by selling the space at Rs 600 p.s.f to his own group
against the prevailing rate of Rs 1500 psf. The cost of construction itself is about Rs
1250 psf. The 3rd
respondent is managing the day to day affairs of the company and therefore is complete
charge of the affairs of the company. The
petitioner being a resident of Calcutta did not bother about the functioning of the
company. Further, his claim that he is an expert builder is also not correct. The petitioner has acted against the interest of
the company in many ways. By complaining to
the Guwahati Municipal Corporation regarding the project, the petitioner had stalled the
receipt of necessary approvals. He also stopped the bank operations and had sabotaged
negotiations with the Government departments for sale of space in the project. Finally by
obtaining an ex-parte injunction from this Board against proceeding with the construction,
the petitioner has brought the project to a stand still.
Thus, it is the petitioner who has oppressed the other shareholders by his
prejudicial acts against the interest of the company. Since in a petition under Section
397, the conduct of the parties has to be taken into account, by his conduct, the
petitioner has disentitled himself from being granted any equitable relief. He
distinguished the facts in the cases cited by the learned advocate for the petitioner and
contended that none of the decisions cited has any application to the facts of this case.
Relying on Maharani Lalita Rajya Lakshimi V Indian Motor Co Ltd ( 32 CC 207 Cal) and
Bagree Cereals V Hanuman Prasad (2000 41 CLA 337 Cal) he submitted that the petitioner should establish
that the circumstances of the case warrant winding up of the company on just and equitable
grounds and that such winding up would be prejudicial to him. Since he has not been able
to do so, this petition should be dismissed.
13. In regard to the suggestion
of the learned counsel for the petitioner that the management and control of the company should be handed over to the petitioner, the
learned counsel submitted that it is only the respondents who could complete the project
especially when the 2nd
respondent, being the owner of the land has
the right to revoke the licence granted to the company. In case the company is handed over
to the petitioner, then there is every likely hood that the 2nd respondent
would revoke the licence in which case the entire project would be jeopardized. Further,
as this Board has itself decided in a number of cases, the petitioner being in minority
should be directed to sell their shares to the respondents and in that case, to enable the
company to pay all the investments made by the petitioner and his associates, sufficient
time of atleast 2 years should be given to
the company. Otherwise, he submitted that this petition should be dismissed.
14. We have considered the
pleadings and arguments of the counsel. When this petition was mentioned on 20.9.2000, we
passed an ex-parte
order restraining the respondents 2 to 4 from carrying out any further construction
and also from dealing with any of the space already constructed. Thereafter, we passed
another order on 28.9.2000 directing that no further shares should be issued and that
there shall be no change in the composition of the Board of Directors. By an order dated 30.10.2000, taking into account
the interest of the company, we permitted the 3rd respondent and the petitioner
to negotiate for sale of space in the proposed building on behalf of the company without
entering into any formal agreement. Thereafter,
by an order dated 31.10.2000, we allowed the oral prayer of the petitioner to implead all
those to whom shares had been allotted and also those who were appointed as directors. Again, by
an order dated 17.1.2001, we permitted the petitioner to take inspection of records of the
company. Thereafter, the matter was heard
from time to time and concluded on 26.9.2001.
15. Even though the learned
counsel for the petitioner, at the outset submitted, that he was not seeking enforcement
of the alleged MOU dated 2.5.2000 other than to prove that the company was to come to the
petitioner, yet, elaborate arguments were advanced on the same. Since it is an issue
beyond the scope of Section 397/98, we do not propose to examine this issue, not
withstanding the claim of the petitioner, on the basis of the letter by the company dated
2.5.2000 ( Annexure P-9),
the authenticity of which has also been questioned by the respondents, that the company
had agreed to abide by the terms of the MOU.
16. The main grievance of the
petitioner is that his group has been converted from equality in the shareholding and in
the Board to a minority notwithstanding the fact that as per the agreement between the parties there was to be
equality. According to the respondents, the understanding was that the respondents would
have majority. Neither of them has been able
to substantiate his stand on the basis of any written document and the Articles of the
company is also silent on this issue. Normally, no agreement, the terms of which are not
reflected in the Articles, could bind a company nor could be taken note of by a court.
However, in exercise of its equitable jurisdiction, to do justice between the parties,
this Board has been taking into consideration, the facts and circumstances of a case in
moulding appropriate relief. In the present case, not only the petitioner and the 3rd
respondent are the signatories to the Memorandum with 100 shares each, in terms of Article
54, they were the first directors. The fact that each group had contributed Rs 2.5 lakhs
as share application money would indicate that shares had to be allotted equally atleast
upto this amount. If, as contended by the respondents, that they were to have majority
shares in the company, contribution of equal amount of share application money by the
petitioner does not arise. According to the company, out of the share application money,
2500 shares for Rs 2.5 lakhs were allotted to the respondent’s group and 2300 shares
for Rs 2.3 lakhs were allotted to the petitioner’s group. The minutes of the Board
meeting on 1.9.99 do not indicate the reasons which prompted the directors to allot
shares. Since the share application money was already
available with the company, need for funds could not have been the reason for the allotment of shares. Therefore, we find
substance in the complaint of the petitioner that the allotment was made only to gain
majority in the shareholding by the respondent group. The petitioner has not only
challenged this allotment as oppressive, he has also questioned the factum of allotment
alleging that the entire record relating to this allotment is fabricated as, according to
him, if he had attended this meeting he would have never agreed to get reduced to a
minority. Considering the fact that he had also contributed equal amount of application
money, this stand of the petitioner appears well founded. There is no independent evidence
either in the form of his signature evidencing his attendance
in that meeting or otherwise. The only
evidence relied on by the respondents is the signature of the petitioner in the balance
sheet as on 31.3.1999 to which the directors’ report is annexed in which there is a
mention about increase in the share capital. Further,
according to them, the petitioner attended the AGM on 29.9.1999 when the directors’
report was adopted. The petitioner has denied
his attendance in this meeting for want of
notice. As per the minutes of the AGM, 4 shareholders from the respondents’ group
along with the petitioner attended this
meeting. We find from the Board Minutes of
1.9.1999 that 6th and 7th respondents from the petitioner’s
group had also been allotted shares. If so,
in the normal circumstances, they should have also attended this AGM. Further, even
though, the company has taken a stand that no formal notices were being issued, yet, in
regard to the allotment of shares, it had reportedly sent communication by way of
certificate of posting on 2.9.1999 i.e. immediately after the alleged allotment on
1.9.1999 asking the allotees to collect the share certificates. If the petitioner had
attended this meeting, there was no need to issue letters, that too, through a certificate of posting. One basic document which
could have established the factum of allotment viz Form 2 was also filed after a delay of
nearly a year, thus creating a doubt about the factum of allotment. Recently this Board
has observed in Deepak Shriram V General Sales Ltd
(2001 45 CLA 310) that to substantiate a case of a shareholder voluntarily getting his shareholding percentage
reduced, the respondents should produced irrefutable evidence. Anyway, the issue as to
whether there was actual allotment or not
loses its relevance, since disproportionate allotment, when both the sides had paid equal
amount towards share application money, is an act of oppression against the petitioner as
the same has upset the equality in the shareholding.
17. As far as the appointment of
two additional directors in the Board meeting on 3.2.99 is concerned, the petitioner has
raised the same objections as related to the meeting on 1.9.99 that he had not attended
that meeting and that the minutes indicating his attendance is fabricated. The respondents have relied on Annexure R-2
wherein the petitioner has signed a copy of the Board Resolution dated 3.2.1999
authorising the 4th respondent to operate bank account. This also, according to
the petitioner, is a fabricated one as explained as a part of the arguments. The same observation that we have made in regard
to the allotment of shares, that if the petitioner had attended this meeting, he would
have agreed to the appointment of 2 more directors, thus upsetting his equality in
the Board. Further as rightly pointed out by the learned counsel for the petitioner, if
two directors had been appointed, there was no need, on the same day, to pass a resolution
to authorize the 4th respondent to operate the bank accounts. Since the
appointment of the 2 directors has marginalized the position of the petitioner, who is one
of the two promoters of the company, the petitioner is justified in taking exception to
these appointments.
18. As far as the allegations of
the petitioner that the company has not held any Board meeting or general body meetings,
we note the contradictions between the pleadings and the arguments as pointed out by the
learned counsel for the respondents. Further, if no Board meetings or general meetings had been held, the petitioner claiming equality in
the shareholding and management is equally responsible for the same.
19. Having held that by issue of
disproportionate shares against the share application money and by appointment of two
directors the respondents have acted in a manner oppressive to the petitioner the question
of relief arises. The learned counsel for the respondents urged that unless and until it
is established that the company is liable to be wound up on just and equitable grounds, no
relief can be granted. On this proposition he relied on Bagree Cereals and Indian Motor cases.
The admitted position in this case is that the company was incorporated by the petitioner
and the 3rd respondent with 100 shares each and both of them have contributed
Rs.2.5 lacs each as share application money and both of them were the first directors.
This indicates that the company was envisaged to be a company controlled and managed by
two groups of shareholders. Within a short
span of 6 months of incorporation, the composition of the Board had been changed and there
after by issue of further shares, the parity in the shareholding has been affected. The proceedings have brought out complete lack of
confidence between the two groups each alleging fabrication of documents by the other
side. Both are found to be acting in a manner
prejudicial to each other resulting in the company’s welfare being affected. The project in which substantial amount had been
spent has come to a standstill. Under these
circumstances, there is every justification to wind up the company on just and equitable
grounds which obviously would not be in the interest of any of the shareholders. As far as the relief is concerned, restoration of parity in the shareholding and the
Board would only result in a deadlock as is
evident from the fact that even when we had permitted both the sides to negotiate for sale
of space, no progress was reported. Therefore, this is a fit case wherein, in the interest
of the company, one of the groups should go
out of the company. The learned counsel for the petitioner strongly urged that in view of
the expertise of the petitioner and also in view of his group having invested substantial
funds in the company, the control and management of the company should be handed over to
the petitioner. The learned counsel even
urged on the basis of certain decided cases that even the majority could be asked to sell
the shares to the minority. Even though the
usual course of order passed by courts has been to direct the minority to sell the shares
to the majority, it is not uncommon, in facts of a case to order the majority to sell the
shares to the minority as has been done by this Board itself in M/S Praful M. Patel
Vs. Wonderweld Electrode Private Limited (CP No.28 of 1999). In that case, the minority shareholders were
majority on the Board and were carrying on the day to day affairs of the company, while
the majority shareholders were either in abroad or living
in a far off place. Since the company was being managed by the minority shareholders, this
Board directed the majority to sell the shares to the minority. In the present case also,
the admitted position is that the petitioner is not a resident of Guwahati and it is the 3rd respondent who has been
carrying on the day to day affairs of the
company. Further, the company does not own
the land on which the project of the company is coming up.
As per the lease agreement entered into with the 2nd respondent, he has
the right to terminate the lease which the learned counsel for the respondents very
clearly pointed out that the 2nd respondent would do so if the company were to
go to the petitioner. Therefore, we consider
that it would in the interest of the company that the control and the management of the
company is vested with the 3rd respondent. In other words, it is the
petitioner’s group which has to go out of the company. In addition to their
investment in 2400 shares, the
petitioner’s group admittedly invested substantial amount either as loans or as
booking advance as indicated in Annexures P-4
and P-5 and the amount so invested is not disputed by the respondents. Since this money has been utilized for the project
and since the petitioner and his group would go out of the company once for all, these amounts would also have to be
repaid to the petitioner/his group with appropriate rate of interest. During the hearing,
the learned counsel for the respondents also indicated that it could be done
provided sufficient time is given to the company.
20. Accordingly, we direct as
follows: The company should repay all the amount of unsecured loans and booking advance
taken from the petitioner, his associates,
relatives etc. as indicated in Annexure P-4 and P-5 together with an interest as specified
hereinafter. As far as the period of time to
make the payment is concerned, the demand of the petitioner is for immediate payment while
the respondent has sought for a period of two years. Since the project is in the
implementation stage which has also been delayed due to our restraint order, we recognize that the company would not be able to make
immediate payment. At the same time, we consider that the period of two years is too long. Therefore, to be equitable to both the side and
also considering the practicality, we consider that a period of about eight months
should be given to company to repay all the amount due to the petitioner’s group. As
far as the rate of interest is concerned, the stand of the 3rd respondent, in
his reply, is that all the investment by the petitioner and his associates was interest
free loans, while according to the petitioner the unsecured loans of about Rs 75 lakhs were with interest at the rate of 21% while the
other investment was for booking space. Since the petitioner has not got any benefit out
of his investment in view of his going out of the company and that the company has utilize
this amount on the project for which it would have otherwise raised funds on interest, we
consider it appropriate that the company should pay an interest at the rate of 20%
(simple) from the date of receipt of the funds by the company till the date of payment.
While fixing the rate of interest, we have noted the submission of the learned counsel for
the respondents that the project is likely to yield a profit of about Rs 5 crores. The
entire principal and interest should be paid,
in one or more instalments on or before 31st August 2002. In addition, the company will also purchase
the shares held by the petitioner and his group at par value and pay the consideration by
the same date. Till such time the entire
amount is paid, the petitioner will continue
to be a director on the Board of the company and the share holders from his group will
exercise all the rights as shareholders. They should be given notices for general meetings
by registered post. Proper notices with agenda for all Board meetings should be given to
the petitioner by registered with at least 7
days notice. The 3rd respondent will have the full right to continue the
construction and also book and sell the space without any interference by the petitioner.
The company will furnish a monthly statement of receipts and payments to the petitioner by
the 5th of each month for the previous month, till payment of all the dues to
his group.
21. With the above directions
the petition is disposed of with out any order as to cost. All the interim orders are
vacated and liberty given to the parties in case of any difficulty in implementing this
order and for any consequential directions.
(S.Balasubramanian)
(A.K.Banerji)