w w w . L a w y e r S e r v i c e s . i n

B.V. Frigolanda v/s Chaitanya Cold Storage Pvt. Ltd & Others

    CP. No. 11 of 2004
    Decided On, 25 September 2015
    At, Company Law Board Southern Region Bench Chennai
    For the Petitioner: ------ For the Respondents: Anil Doshi, (PCS), Advocate.

Judgment Text
1. The present company petition is filed under section 397 and 398 of the Companies Act, 1956 alleging certain acts of oppression and mismanagement in the affairs of the company and sought various main and interim reliefs as prayed in the petition. It is stated that the company was incorporated on 05.09.1997 with the object of establishing a cold storage unit and for local distribution of farm and other products required to be stored under cold conditions. The company was promoted was promoted by the 2nd to 4th respondents. It is submitted that in the year 1998 during the annual conference of International Association of Refrigerated Ware Houses at Palm Springs, California. Dr Henry Cornelis Van Leeuwen (Dr Hans), Managing Director of the petitioner met the 2nd respondent. During the course of conversation the 2nd respondent gave Dr Hans to believe that he was in the process of establishing a cold storage unit at Bangalore, India and that he was looking for investment in the form of loan and equity from abroad and that he was also looking for technical expertise. At that point of time the 2nd respondent was only about 24 years old, barely out of college and was undergoing training with Rosenberg Cold Storage, USA. The petitioner was by then a well-established and reputed business organization with focus of owning and operating cold storage units and providing logistics. Besides, Dr Hans himself had 12 years of experience in the industry. In view of the promise and assurance held out by the 2nd respondent and particularly that Dr Hans through his company could come to hold 50% equity in the 1st respondent company and will have participation in the day to day management of the company, the petitioner considered financial participation in the company. Thereafter the petitioner remitted funds in the form of foreign exchange to the extent of about Rs. 60 lakhs against which 6,06,079 equity shares were issued and allotted to the petitioner. The infusion of funds and allotment of shares took place between May 1999 and July 1999. In the year 1999 alone Dr Hans made about eight trips to India to assist the company in project implementation. The petitioner by itself and through another associated company known as Berghoff Exploitative BV also arranged for term loan to the extent of 300,000 Euros which were utilized to purchase refrigerated trucks for the business of the company. The petitioner also provided technical services to the 1st respondent company and the 1st respondent company is liable to pay EURO 54,445,88 to the petitioner company. It is further submitted that in order to devote more time and attention Dr Hans moved to Bangalore in July 2000 and was attending to the day to day working of the company, particularly advising the 2nd respondent on all technical aspects and administrative matters relating to the company. Dr Hans representing the petitioner was also co-opted as a director on the Board of directors of the company. Dr Hans was discharging duties and functions as a wholetime director mainly advising on the project implementation and other technical aspects. However as Managing Director, the 2nd respondent was handling the financing including availing of loans from state level financial institutions, venture capital funds etc, Dr Hans was also devoting time for the expansion plan in respect of the cold storage unit of the company. At the same board meeting held on 11.08.2000 the 3rd and 4th respondents resigned from the Board of directors of the company leaving the 2nd respondent and Dr Hans as the only two directors. Certain transfer of shares also took place to structure the shareholding pattern in such a manner that the petitioner would hold 50%, the 2nd respondent would hold 24% and the balance 26% by the 3rd and 4th respondents. That the business of the companies would be carried on under the principles and spirit of partnership was thus established. The petitioner and the respondents entered into an agreement dated 21.09.2000. The fact that the petitioner was very much part of the company having financial and management stake is evident from the Memorandum dated 14.04.2001 submitted to KSIIDC.

Having ensured that the business of the company had been established and settled Dr Hans left India to attend to his business commitments in Germany and Holland. The 2nd respondent was in Holland and Germany in October 2001 to undergo further training. However, Dr Hans was keeping himself appraised the working of the company and was in constant touch with the 2nd respondent who was the Managing Director of the company. Before his departure Dr Hans had also completed and submitted a plan for the expansion of the cold storage unit and had also put in place the financing plans for the same. The petitioner and Dr Hans honestly believed that the 2nd respondent as the Managing Director will prudently manage the affairs of the company and implement the expansion plan. It is further submitted that Dr Hans and the 2nd respondent, besides working together as directors of the company enjoyed a good personal relationship and the families also had close social interaction. Dr Hans did make a trip to India in February 2002 when he did devote considerable time and attention towards the affair of the company and the relationship between him and the 2nd respondent was by and large cordial. Certain decisions were taken with regard to the shareholding and arrangement structure as per which the 3rd and 4th respondents were to totally disassociate themselves from the company. The resignation letters of the 2nd and 4th respondents from the Board of directors and letter confirming transfer of shareholdings in favour of the petitioner. Thereafter Dr Hans used to be constantly in touch with the 2nd respondent with regard to the affairs of the company and providing constant advice for improving the business. However, in the meanwhile the company got into financial difficulties in as much as the loans availed from Karnataka State Industrial Investment and Development Corporation Ltd (KSIIDC) could not be repaid and there was a threat of action under the State Financial Corporation Act, 1952. Besides, the other institutions from whom the company had availed loans were also pressing for payment. Realising that there was something amiss with regard to the affairs of the company, Dr Hans visited India in November 2002 and upon going through the books and records was shocked and surprised to see that Board meetings were purportedly held where under further allotment of 1,67,500 equity shares were allegedly allotted to the 2nd and 4th respondents, one Mr Rasaranajn and Mrs Sheela Srinivasan were appointed as directors, further borrowings from GE Capital Transportation Financial Services Ltd, Bank of India had taken place etc. Copies of the purported board meetings held on 31.03.2001, 12.07.2002 and 31.10.2002 are produced herewith and marked as Annexure – P, Q & R respectively. Obviously the 2nd respondent in collusion with the 3rd and 4th respondents who are his parents have made out as though board meetings were held and resolutions passed when the same could not have been so, particularly when the 2nd respondent and Dr Hans were the only directors at the relevant point of time. On instructions of the petitioner the counsel based at Bangalore brought the matter to the notice of the Registrar of Companies by letter dated 03.12.2002. Dr Hans representing the petitioner also by his letter dated 29.11.2002 brought to the notice of the company and the respondents 2 to 4 about the purported board meetings held between 31.03.2001 and 31.10.2002 and the illegal resolutions passed thereat. It is further submitted that during the course of discharge of his duties as director of the company Dr Hans visited the unit of the company on 03.12.2002, without provocation one Mr Vijay who is the assistant of Mr K. Rajagopal, who is the internal auditor of the company physically prevented him from opening the locker containing the files. Thereafter the said Mr Vijay snatched the keys of Dr Hans car and prevented him from leaving the premises. The said Mr Vijay also held threats to his life and when Dr Hans finally managed to leave the company’s premises the car was intercepted on the highway leading to Bangalore City and prevented him proceeding further. It is only at the intervention of the traffic police Dr Hans was able to proceed further. In the meanwhile Dr Hans held informal meetings and discussions with the respondents to remedy the situation, when they admitted that illegal resolutions were indeed passed and that allotment of shares had not taken place. However, no remedial action was taken validly. In fact whenever Dr Hans tried to contract the 2nd respondent for convening a meeting he was evading the issue. When under instructions the counsel for the petitioner requested for a meeting of the Board of directors to be held on 19.02.2003 at the administrative office and works of the company, the 2nd respondent replied stating that it is not possible to have a meeting since the other directors were out of station. The counsel or the petitioner wrote a letter dated 19.02.2003 requesting for another meeting to be held on 24.02.2003. In reply thereto the respondents again pleaded inability to convene the meeting on 24.02.2003 and instead suggested a meeting during the first week of March 2003. However, no date was indicated. Since no meeting was convened by the 2nd respondent, Dr Hans had to proceed back to Holland to attend to his other business commitments. It is submitted that Dr Hans was shocked and surprised to receive an exparte order of the City Civil Court, Bangalore in a suit filed by the company in O.S. 328/2003 restraining him from acting or holding himself out as a director of the company. On going through the copy of the plaint which is produced herewith and marked as Annexure – X it is seen that the company has taken the contention that Dr Hans had absented himself from the three consecutive Board meetings without obtaining leave of absence and that accordingly he has vacated office in terms of section 283(1) (g) of the Companies Act, 1956. Curiously it was stated that Dr Hans had not attended three board meetings held on 04.12.2002, 13.01.2003 and 03.03.2003. From the copies of the correspondence produced above it is clear that he was very much at Bangalore and in fact that it was he who was keen on board meetings being convened and held, and that the 2nd respondent was avoiding the same. The game plan of the respondents obviously is to keep the petitioner Dr Hans out of the way so as to take exclusive management and control of the company. The written statement and objections have been filed in the said suit and prayer has been made to vacate the interim order. The company has adopted dilatory tactics by filing frivolous applications so that the Hon’ble City Civil Court does not hear the matter on merits. The respondents are well aware that they have no case on merits and that the interim orders will came to be vacated. In any case the respondents by adopting illegal and unjustified means have kept away the petitioner and its representatives from the company. It is submitted that by series of action, the respondents are trying to reduce the petitioner aforesaid to a minority, prevent its representatives from participating in the management of the company and denying access to books and records of the company. The unlawful and unjustified stand of the respondent that Dr Hans has vacated his office as a director is only to prevent him from entering the company’s office or unit and thereby preventing access to the books and records of the company. As already stated earlier when the petitioner infused funds into the company and was allotted equity shares it was understood that the petitioner and the respondents would be equal partners and the affairs of the company would be conducted on the principles of partnership, good faith and mutual trust governing the relationship. However, the respondents by their evil designs and unlawful and illegal acts have ousted the petitioner from the management and administration of the company and are attempting to reduce the petitioner to a minority. The acts of the respondents against the petitioner are oppressive, harsh, burdensome and wrongful. Further the conduct of the respondents lacks probity and the mutual trust, confidence and also good faith on which the business relationship was founded have been of completely breached. It is further submitted that in the meanwhile the respondents have run the company to ground and the company is facing severe financial crunch. The petitioner has learnt that salaries of employees are not being paid in time, the company has defaulted in repayment of monies to financial institutions, cheques have been dishonoured and that the drawees of the cheques are contemplating criminal action against the company and the directors. It is submitted that due to the gross management of the affairs of the company by the 2nd respondent the assets have been dissipated, the liabilities have increased and the company has become commercially insolvent. It is submitted that grounds for winding up exist but such an extreme step would not be in the interests of the company and the shareholders. It is submitted that a prima facie case of oppression and mismanagement by the respondents has been made out calling for intervention by this Hon’ble Bench.

2. The respondents 1 & 2 filed counter to the petition. It is submitted that the 2nd respondent being a qualified Engineer in refrigeration systems ventured to start a company, and pursuant to the same, incorporated the 1st respondent company in the year 1997 with the Registrar of Companies, Bangalore. The 2nd respondent in addition to his qualification has also undergone vigorous training in Rosenberg Cold Storage, USA a company known for its cold storage facilities and of International repute for a period of one year. In the said annual conference the 2nd respondent was invited also to give a lecture on the technical aspects of logistic operations in developing countries with particular reference to India. Incidentally the said annual conference was also attended by one Dr Henry Cornolis Van Leeuwen, the Managing Director of the petitioner. Being highly impressed by the presentation given by the 2nd respondent and of his technical capabilities, the said Mr Henry wanted to do business in India with the 2nd respondent. The 2nd respondent explained to Mr Henry that already he has incorporated a company and the said company namely, the 1st respondent had also commenced its business operations. Mr Henry knowing the potential of the Indian market as well as the technical capabilities of the 2nd respondent insisted on his equity participation in the 1st respondent company and virtually lured the 2nd respondent with smooth and glib talk about the benefits of financial participation in the 1st respondent company out of financial resources which he was having at Holland, his country of origin. Taken in by the representations of Mr Henry the 2nd respondent agreed to discuss about Mr Henry’s equity participation in the 1st respondent company after due consultations with other stake holders. The 2nd respondent was not willing for the participation by Foreign Companies, the background of which he was totally unaware. Mr Henry however convinced the 2nd respondent, that virtually he and the two entities namely the petitioner and one another by the name of Berghoff B.V. were for all intents and purposes one and the same, and the said two corporate entities including the petitioner are accustomed to act only in accordance with his dictates and instructions. Subsequent to the investment and the External Commercial Borrowing (ECB) whereby sums to the extent of Euro 300,000 was brought into the 1st respondent company with the approval of RBI in May and October 1999 respectively, the attitude of Mr Henry became over bearing and he sought to interfere in matters totally not connected with his area of expertise. Further Mr Henry wanted to have a say in the financial matters, including the operations of Bank accounts, and since the 2nd respondent wanted to maintain a harmonious relationship with him, and the 1st respondent company with a bonafide belief had granted powers to operate its bank account held by it with Nova Scotia Bank around August 2000. However, contrary to the belief that absolute fidelity will be maintained by Mr Henry in the financial dealings, as well as operation of the Bank account, it came to the knowledge of the 1st respondent company through the internal auditing o the 1st respondent’s accounts that the sum of Rs. 22,90,050/- had been withdrawn, commencing from April 2001 onwards by Mr Henry and for which no explanation nor accounts were submitted by Mr Henry since the said withdrawals, were not supported by any vouchers evidencing that the same were withdrawn for the purposes of the 1st respondent company, the 2nd respondent being the managing director of the R1 Company refused to recognize the same as made for the purpose of the company. Mr Henry ignoring the financial condition of the company, sought to pressurize the respondent company to pay back the sums made available to it under the External Commercial Borrowing (ECB) availed by the two corporate entities which were under Mr Henry. Being a director of the R1 Company, Mr Henry was fully aware of the financial position of the company and the pressure which was being exerted by the financial institutions namely KSIIDC for repayment. Further he was also aware that the business required to heavy capital investment and the returns were normally spread after a 4 to 5 year period and that there was some initial financial constrains placed on the Cold Storage Business. Inspite of these obvious constraints. Mr Henry being a man in the know of the things of the trade namely cold storage/warehousing as he claims to be, due to personal vendetta, forced the entities of which he was the owner to recall the External Commercial Borrowing (ECB) made available through the two corporate entities including the petitioner. Since the petitioner at the instigation of Mr Henry threatened to take drastic action against the 1st respondent company in case of non-payments, the 1st respondent was forced to raise finance from its promoters by way of equity as it had no other means to fund the repayment. Even the promoters, namely the 2nd to 4th respondents, towards its end, and in order to satisfy the demand of the petitioner, had to sell off their valuable properties and ultimately it managed to repay on 19.10.2002 a sum of Euro 1,50,000/- in relation to the External Commercial Borrowing (ECB) raised from the petitioner as full and final settlement of the same. Mr Henry not being satisfied with the financial impediments he sought to place on the respondents, and with a view to obstruct the running of the company, visited the registered office of the R1 Company on 03.12.2002, and misusing his position as a director of the company, sought to remove the records of the R1 Company in toto. Since the removal was resisted by the persons handling the records, the said Mr Henry, virtually man handled the concerned person and badly injured him and took away the record of the company which as of date is in his custody and is yet to be returned by him. Immediately thereafter, the R1 Company convened a Board meeting on 04.12.2002, in order to seek an explanation and his version about the happenings on 03.12.2002 as well as for the return of documents which had been forcedly removed from the registered office of the company by him, based on the complaint given by the person who had been injured by the manhandling perpetrated by Mr. Henry. However Mr Henry chose not to attend the meeting convened on 04.12.2002 and instead spoke to the 2nd respondent over phone as it transpired according to the submissions of the 2nd respondent before the board, Mr Henry had earlier also sent a letter dated 29.11.2002 making vague allegation against the 2nd respondent and other directors of the company. Disgusted by the attitude of Mr Henry the Board took note of the conversion between the 2nd respondent and Mr Henry and also expressed its anguish and dismay over the unruly conduct of the said director of the company. Apart from the above at the board meeting convened and held on 04.12.2002 the Chairman informed that the company had paid the overdue interest and penal interest of Rs. 10,90,786.26 to KSIIDC on 27.11.2002. The 1st respondent company convened a board meeting on 13.01.2003. Mr Henry although being a director of the company and inspite of the board meeting being fixed as per his request, chose not to attend the meeting. Mr Henry through the sister concern of the petitioner, issued a notice for winding up the respondent company on the ground of inability to pay the debts in a sum of Euro 1,50,000/-. A board meeting on 03.03.2003 was convened to take up predominantly the said issue as well as the re-schedulement of KSIIDC term loan. Further in the said meeting, it was also resolved to convene an EGM to increase the authorised capital of the company to augment the long term resources as well as to repay the balance of External Commercial Borrowing (ECB) to thwart the winding up of the company. On 10.03.2003 another board meeting was convened to follow up with the winding up notice issued. Since more than three consecutive meetings dated 04.12.2002, 13.01.2003 and 03.03.2003 as well as on 10.03.2003, Mr Henry had not been attended, by operation of law, perforce he vacated the office of the directorship which was taken note of by the board in the meeting held on 10.03.2003. Apart from Mr Henry another director Mrs Sheela Yamuna sister of the 2nd respondent also vacated office by operation of law due to the said reason. The company had convened and held an Extra Ordinary General Meeting on 13.03.2003 as stated earlier to enhance the authorised capital of Rs. 400 lakhs. This was done primarily to allot shares to those promoters who have brought in the required funds to fund the expansion project, pay off the overdue and other accumulated interest to KSIIDC and to meet the repayment of the External Commercial Borrowings suddenly recalled by the representative of the petitioner through the companies controlled by him. Since the repayment of the External Commercial Borrowing (ECB) were made and as Mr Henry had vacated the office of his directorship, the R1 Company with a view to avoid future hassles from him, was forced to invoke legal remedies available to it by way of filing an injunction suit in O.S. No. 328 of 2003 before the Principal Civil Judge (Senior Division) Bangalore Rural, Bangalore on 19.04.2003. In the said suit filed by the 1st respondent the court on 19.04.2003 was pleased to grant U/O 39 Rules 1 and 2 R/W section 151 of the Civil Procedure Code an exparte order of temporary injunction restraining Mr Henry from representing himself as the director of the plaintiff company and entering and interfering in the affairs of the R1 Company. The R1 Company submits that subsequent to the exparte interim order of injunction granted, the same has been extended by the court at Bangalore from time to time and the suit is pending solely due to the delaying tactics adopted by Mr Henry in defending the suit filed against him as well as the delay in the production of documents relied on by him or supporting his contention in relation to the written statement filed by him. Having failed in his attempts to financially cripple the R1 Company and as well as to wind up the company, Mr Henry through the facade of the petitioner and in order to satisfy personal animosity with the 2nd respondent and based on perceived insults, had chosen to initiate the present proceedings on totally unjustifiable grounds and based on deliberate misrepresentation of facts with a view to coerce the respondents. Mr Henry and the petitioners are not interested in the running or the welfare of the R1 Company. The present capital structure of the company is as follows:

(i) Authorised share capital Rs. 4 crores.

(ii) Issued and Subscribed Capital Rs. 3,40,13,080/-

(iii) Paid up capital Rs. 3,40,13,080/-

3. It is stated that the 2nd respondent is the managing director of the company and the 3rd and 4th respondents are also directors of the company. It is further submitted that respondents 2 to 4 hold the following percentage of share capital in the R1 Company namely:

(i) Mr Chaitanya Srinivasan – 15.97%

(ii) Mr M.V. Srinivasan - 28.98%

(iii) Mrs Niranjani Srinivasan - 13.14%

It will be seen from the above that they together hold 58.09% of the share capital in the 1st respondent company and not as alleged in the petition. Further the petitioner holds only 17.82% and not 50% as claimed in the petition. The initial understanding was that the amount promised by Mr Henry was to be brought only as an equity investment. However subsequently it transpired that Mr Henry was trying to misuse the funds made available by the Dutch Government by way of grants/soft loans to third world countries like India on a concessional basis and by routing the same through corporate entities and subsequently siphoning if off. The above will clearly disclose as to the way in which Mr Henry is accustomed to act in the financial dealing with his own Government as well as with respect to others. The allegations that the technical services were provide by Mr Henry is totally false and denied. In fact the technical feasibility study was done by M/s. Tedmag and on which basis the loan by KSIIDC was advanced soon after incorporation of the company in the year 1998, a year, before Mr Henry decided to invest in the 1st respondent Company. However using his over bearing attitude he demanded the amounts to be paid under the said head or otherwise threatened to with draw the financial support extended by/through him. Mr Henry was not actively discharging the duties as required of him. But on the other hand he was expending the valuable resources of the company for his own personal benefits. When questioned about the same, Mr Henry as narrated in the earlier paragraphs took it as a personal affront which has culminated in the oppressive methods perpetrated by him on the R1 Company, its management and other shareholders. On the other hand he sought to pressurize, ignoring the financial difficulties of a start up venture like the R1 Company for the return of the External Commercial Borrowing (ECB) extended by the petitioner and its sister concern. The attitude was shylockean in its nature as the petitioner sought to demand its pound of flesh when the R1 Company was already being put under great financial strain due to the recall of the loan by KSIIDC. However in order to settle the long terms liabilities, the R1 Company had to raise its equity capital to settle the borrowings made from the petitioner to the extent of 300,000/- Euros. In fact the neglect of duties by him and to effectively manage the financial resources of the R1 Company and on the contrary pestering from the return of the sums led to the company virtually coming to a standstill as suddenly the R1 Company found itself strapped of financial resources. The reliance on the minutes of the 29th meeting on 19.02.2002 is also not sustainable as it does not reflect the correct recording of the events that took place in the said board meeting. It is pertinent to note that even though it is alleged that the resignation letter of Mr M.V. Srinivasan had been obtained from the directorship of the company by the petitioner as early August 2000 it will be seen that in the subsequent board meetings the said Mr M.V Srinivasan had attended and which fact had also been acknowledged by Mr Henry. As already stated Mr Henry making use of the blank minutes sheets which had been kept in the registered office of the company signed by the managing director had been misused to suit his own convenience and to support his version of story being concocted to sustain the present petition. It is further submitted that the resignation of Mr M.V. Srinivasan namely the 3rd respondent as well as Mrs Niranjani Srinivasan never took place due to the non-adherence of the terms and conditions as required to be performed in relation to bringing funds for the company. On the other hand it came to the notice that substantial monies as stated earlier were found to be withdrawn from April 2001 onwards by Mr Henry which led to the impasse. Even though Mr M V Srinivasan and Mrs Niranjani Srinivasan had given resignation letters based on the promise that Mr Henry will perform certain obligations to further the interest of the company and as the said obligations were not performed the resignations were not acted upon and they continued to be directors even according to the express consent of Mr Henry as evidenced in the documents filed by him. In the circumstances to claim that there were only 2 directors subsequent to the said date is denied. The R1 Company has been regularly conducting the board meeting in order to carry the activities of the company as well as to comply with statutory requirements. Mr Henry cannot complain about the board meetings after neglecting to attend the same. The further allegation that board meeting were not convened on his requisition is also quite contrary to facts. It was suggested that board meeting be convened on 03.03.2003 by Mr Henry and in fact meeting was also held on the said date after giving due notice to all concerned. However it is seen that the request for sustaining the operations of the company on the part of Mr Henry were not serious and the request for convening the board meeting of the company was only a sham as the sister concern of the petitioner at the instigation of Mr Henry sought to wind up the company by statutory notice dated 12.02.2003 issued under the hand of its legal counsel. The backdrop for the issue of notice is quite obvious as even as per the admission of the petitioner in the petition in paragraph 6(vi), the R1 was admittedly in a financial crisis. This clearly exposes that intention of the petitioner and the person behind the petition and proves that they were not acting in the best interest of the company as sought to be portrayed in the present petition filed before this Hon’ble Bench. The attitude of Mr Henry and his inimical behaviour towards the respondents and wilful non-attendance of the board meetings validly convened due to which he had vacated the office of directorship by operation of law, the R1 company was forced to move the Civil Court at Bangalore seeking an order of injunction restraining him from interfering with the affairs of the company in the best interest of the company and its shareholders. The petitioner due to its strangulating tactics in seeking the closure of the company by adopting various means through Mr Henry has forced the R1 Company with no other alternative other than to increase its capital and hence now to 'Cry Wolf' is totally unsustainable. It has been made only as a ploy by the petitioner and Mr Henry to hoodwink the Hon’ble Bench from their true intentions. It is submitted that it is Mr Henry who has siphoned of more than Rs. 22 lakhs for which no account has been rendered to prove that it has been spent for the purpose of the company. The alleged accounts which have been enclosed by Mr Henry through the petitioner in the petition also does not support his cause as the vouchers which have been signed on trust has been misused by him for his own personal purposes as has been done by him in relation to minutes sheets forcibly removed by him. In view of the reasons it is prayed this Bench to dismiss the petition.

4. Heard the respondents perused the pleadings and documents filed by the respective parties. It is seen from attendance cum order sheets dated 30.04.2015 none appeared for the petitioner, however the counsel appeared for the R1 Company submitted that he has no instructions to appear on behalf of R1 Company. The Bench adjourned and posted the matter for hearing on 25.06.2015. However none appeared for the parties on that dated. The matter is posted on 01.09.2015 for hearing and disposal. Except PCS for respondents none appeared for the petitioner nor present themselves in person. Keeping in view of the long pendency of the matter the Bench decided to pass orders on the basis of pleadings and documents available. After analysing the pleadings the issues which are felt for consideration is (a) whether the allotment of shares made by the Board of directors on 31.03.2002 is legal and valid and (b) whether the petitioner has made out any case for seeking equal representation on the Board of directors of the R1 Company.

5. Now I deal with the issue (a) regarding purported allotment of shares. It is an admitted fact from the records that the petitioner company is a shareholder holding 6,06,079 shares in the R1 Company. The R1 Company was incorporated on 05.09.1997 with the objects as stated therein. Admittedly the respondents 2, 3 & 4 are the subscriber to the Memorandum and Articles and are named as first directors of the company. The Board of directors in their meeting held on 14.05.1999 resolved to allot 4,23,800 equity shares of Rs. 10/- each to the petitioner. Further the Board in their meeting held on 20.07.1999 allotted 1,82,279 shares. Thus the total shareholding of the petitioner comes to 6,06,079. The petitioner company entered a loan agreement with the R1 Company dated 23.08.1999. As per the loan agreement the petitioner company agreed to provide a secured loan to an extent of 300,000 Euros to be used by the borrower i.e. the R1 Company. As per the terms of the agreement, loan is to be repaid in 36 instalments of Euro 8,333 each and the last instalment being Euro 8,345 to be repaid @ 1.50% interest per annum. The company has filed its annual return for the year 2001 year ended 29.09.2001 reflecting the total issue of equity share is 12,11,579. The petitioner’s shareholding is reflected as 6,06,079 shares. The respondent No. 2 shareholding reflects as 3,15,162. The 3rd respondent shares reflects as 11,617 and the 4th respondent shares reflects as 2,79,300. Admittedly the petitioner is holding more than 50% of the paid up share capital in the R1 Company. The grievance of the petitioner is that the respondents in an alleged Board meeting held on 31.03.2002 allotted 1,67,500 shares to the 2nd and 4th respondents. The petitioner enclosed a copy of the board meeting dated 31.03.2002 wherein among other decisions the company resolved to allot 1,67,500 shares to respondents 2 & 4. Out of the above total number of shares the 2nd respondent was allotted 11,75,000 shares and the 4th respondent was allotted 50,000 shares. As per the annual return for the year 2001 the authorised capital of the company is Rs. 15 crores of Rs. 10/- each divided into 15,00,000 equity shares. The paid up share capital is 12,11,579. The contention of the respondents is that the company need to raise finance by way of equity to repay the External Commercial Borrowings of Euro 1,50,000/-. It is an admitted fact that the petitioner is more than 50% shareholder as admitted by the board of directors in their meeting held on 11.08.2000. At para 3 of the minutes of that board meeting it is clearly stated that Mr Hans may be appointed as additional director of the company. The petitioner company was owned by Mr Hans and Mr Rudo already acquired 50% of the equity capital in R1 Company. Accordingly Mr Hans was appointed as additional director of the R1 Company and he will be incharge of all financial matters of the company and also was made as an unauthorised signatory for both the bank accounts held by the company. Further it was recorded in the minutes of the meeting dated 11.08.2000 at para 8 that the petitioner will continue to hold 50% of the equity capital of the company. The said board meeting was attended and signed by all the three respondents and Mr Hans the nominee of the petitioner. I am of the view that the board has taken note of the fact that the petitioner company will continue to hold 50% of the equity capital. In such a situation any further allotment of shares the Board need to offer the shares proportionate to the petitioner’s shareholding and to the other shareholders. It is responsibility of the board to offer the shares on proportional basis to all the shareholders including the petitioner company by affording a reasonable time to subscribe to the shares. However in the present case the respondents failed to produce any documentary evidence to show that the board has offered the shares to the petitioner and the petitioner having received the offer failed to subscribe to the shares. The company is not prevented to raise the capital to meet its requirement. However having decided to continue the petitioner’s shareholding upto 50%, the respondents should have offered the shares to the petitioner. If the petitioner failed to subscribe to the offer made to it by the company, the company would have taken a decision to offer the same to the other existing shareholders. The company is having four shareholders and the 50% shareholder cannot be denied the right to subscribe to the shares. The petitioner through his Advocate addressed a letter dated 03.12.2002 to the ROC, Karnataka detailing out the illegal allotment of shares to the respondents and requested the ROC not to take any forms on record. Further the petitioner company addressed a letter dated 29.11.2002 to the company and shareholders wherein it has been clearly stated that the purported board meeting held on 31.03.2002 to which the petitioner had not notice and the petitioner’s shareholding reduced to minority. It is stated that the said action on the part of the respondents is betrayal of trust and confidence. As stated supra the respondents have not produced any evidence regarding offer of shares to the petitioner. In my view the said allotment of share

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s to the respondents 2 & 4 excluding the petitioner and the other shareholders in a board meeting purportedly held on 31.03.2002 is illegal and the same is set aside. The shareholding pattern is restored prior to 31.03.2002. Accordingly the issue is answered. 6. Now I deal with (b) removal of the petitioner’s nominee from the Board by invoking section 283 (1) (g) of the Companies Act, 1956. The contention of the petitioner is that the petitioner was continuing as director of the company and he was shown as ceased to be a director of the R1 Company on the ground that he has not attended three consecutive meetings on board dated 04.12.2002, 13.01.2003 and 03.03.2003. Certain facts are essential to record here. The petitioner’s nominee was admittedly continuing as director of the company. It appears that there are some untoward incidents taken place which led to lodge police complaint by the petitioner’s nomine. The nominee of the petitioner i.e. Mr Hans visited the unit of the company on 03.12.2002 and one Mr Vijay physically prevented Mr Hans from opening the locker containing the files. The said Vijay snatched the keys of Mr Hans car and prevented him from leaving the premises. Somehow Mr Hans left the company premises and lodged a police complaint on 03.12.2002 with the Station Officer of the Jurisdictional Police Station. The said incident took place on 03.12.2002. The respondents did not dispute the said incident however stated that Mr Hans resorted to take out the files from the office premises. I am not going into the details of the said incidents. The respondents contended that they hold a board meeting on 04.12.2002 i.e. immediately the next day of the incident. The respondents have produced the copy of the minutes wherein it is recorded that the company has not received any communication from Mr Hans regarding not attending the board meeting and stated that the notice was given to him and no leave of absence is granted to them. The purported board meeting held on 13.01.2003 the same reason recorded stating that though notice was issued to Mr Hans, the company has not received any communication for attending or not attending the board meeting and stated that leave of absence is not granted. The 3rd board meeting dated 03.03.2003 also noted that no leave of absence was granted to Mr Hans and notice was sent to Mr Hans. In the purported board meeting held on 10.03.2003 at item No. 2 it is stated that Mr Hans vacated the office as director by operation of law as per section 283(1) (g) of the Companies Act, 1956 for not attending the board meetings on 04.12.2002, 13.01.2003 and 03.03.2003. The respondents have not produced any notice sent to the nominee of the petitioner. I am of the view that the petitioner could not have attended the board meeting on the very next day of the incident for the reason of physical threat or any other reason better known to Mr Hans. However the company should have sent notice to the petitioner’s nominee director. If the respondents contend that the notice was sent to the petitioner’s nominee, the respondents should have produced the evidence regarding sending of notice. Further the respondents have not produced any documentary evidence to show that notice was sent to Mr Hans. There is no complaint from the respondents that Mr Hans on earlier point of time absented himself from attending the board meeting. In view of the reason, I am of the view that the said decision taken by the respondents in their purported board meeting held on 10.03.2003 showing cessation of Mr Hans as director of the R1 Company as illegal and void. The petitioner company entitled to have its nominee director on board. Further the R1 Company is directed to send notices to all the share holders for all the general meetings. The company shall take necessary action in this regard. The R1 Company is also directed to comply with the statutory requirement of law in conducting the meetings, and filing of statutory forms with the concerned authorities. In view of the aforesaid reasons, the CP is disposed of. Interim orders if any operating as on this date stand vacated. Applications if any pending as on this date stand disposed of. No orders as to costs.