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



Mangala Yuvaraj Nakade, Mumbai & Another v/s M/s. Shree Basveshwara Agro Foods Processing Ltd. & Others, Bengaluru

    C.P. No. 46 of 2012

    Decided On, 03 March 2020

    At, National Company Law Tribunal Bengaluru

    By, THE HONOURABLE MR. RAJESWARA RAO VITTANALA
    By, JUDICIAL MEMBER & THE HONOURABLE MR. ASHUTOSH CHANDRA
    By, TECHNICAL MEMBER

    For the Petitioners: B.B. Parekh, Vinod Kumar, Advocates. For the Respondents: Saji P John, Advocate.



Judgment Text


1. C.P.No.46 of 2012 (T.P.No.35 of 2016) filed by Mrs. Mangala Yuvaraj Nakade & Anr. (Petitioners) U/ss.397, 398, 402, 403 R/w Sec.111A and Other Applicable provisions of the Companies Act, 1956, by inter alia seeking declare that Respondent Nos. 2 to 4 either of them are/is engaged into various acts of omissions and commissions amounting to the acts oppression of Petitioners as minority shareholder and various acts of mismanagement of the 1st Respondent Company; to declare purported allotment of Equity Shares of Rs.10/- each made on 05-10-2006 and further allotment of Equity Shares of Rs.10/- each made on 18.10.2006 is illegal and void and the said allotment of shares may be cancelled including 3,90,000 shares of Rs.10/- each allotted to the 2nd Petitioner on 18.10.2006 be also cancelled; the purported allottees of the illegal allotment dated 05.10.2006 of 2,84,500 equity shares of Rs.10/- each and further illegal allotment dated 18.10.2006 of 7,63,500/- equity shares of Rs.10/- each be restrained from exercising voting rights to the extent of said allotment in any of the forthcoming meeting of the members of 1st Respondent Company etc.

2. The said C.P.No.46/2012 was initially filed in the then Company Law Board, Chennai and thereafter the case is transfer to this Tribunal on 15.12.2016 and it is renumbered as T.P.No.35/2016. And it is adjourned on several dates at the requests of the parties, and also filed I.A.No.38 of 2018 in C.P.No.46/2012 (T.P.No.35/2016), and it was rejected by this Tribunal vide Order dated 30.07.2019, which was ultimately upheld by Hon’ble NCLAT, by an order dated 16.10.2019, passed in Company Appeal (AT) No.281 of 2019, by dismissing the Appeal.

3. Brief facts of the case, as mentioned in the Company Petition, which are relevant to the issue in question, are as follows:

(1) M/s. Shree Basveshwara Agro Foods Processing Ltd., (herein after referred to as Company) is originally incorporated as Basaveshwara Agro Foods Processing Ltd., was incorporated on 9th March, 2001, under the Companies Act 1956, bearing CIN: UI5499KA2001IPLCO28733 by the Registrar of Companies, Karnataka. Subsequently, the Company changed its name on or about 25th April, 2009 as Shree Basveshwara Agro Foods Processing Ltd. Its Authorized Share Capital is Rs.2,00,00,000/- consisting of 20,00,000 Equity Shares of Rs.10/- each. The Issued, Subscribed and Paid-up Share Capital of the Company is Rs.1,50,00,000/- comprising of 15,00,000 Equity Shares of Rs.10/- each. The main object and business of the 1st Respondent Company, which is mainly dealing export, import, manufacturing of agro food products etc., as set out in the Memorandum of Association of the 1st Respondent Company.

(2) Mrs. Mangala Yuvaraj Nakade (herein after referred to as 1st Petitioner). The 1st Petitioner is a house wife and staying far away from the registered office and factory premises, which is situated at Bengaluru and Bijapur respectively in the State of Karnataka. And is holding 1,10,000 fully paid-up equity shares of Rs.10/- each of the aggregate value of Rs.11,00,000/-. Representing 7.33% of the paid-up capital on the date of allotment, and 7.33% of the paid-up capital on the date of Petition.

(3) Mr. Satish Shankar Gouda (herein after referred to as 2nd Petitioner) is likewise holding 1,10,000 Equity Shares of Rs.10/- each of the aggregate value of Rs.11,00,000/-. Representing 7.33% of the paid-up capital on the date of allotment, and 7.33% of the paid-up capital on the date of Petition. While the 2nd Petitioner is an individual and working for gain in a Gulf Country and was prima facie an investor. He also happens to be closely known to Mr. B.G. Mirji, the original founder promoter of the said Company.

(4) Mr. B.G.Mirji along with One Mr. Vimalchand Kevalchand Nahar and five others being nominees of Mr. B.G.Mirji acted as original Promoters who floated the 1st Respondent Company in the year 2001 with initial Capital of Rs.10,00,000/-. Mr. B.G.Mirji acted as a Managing Director of the said Company. The said Company under the stewardship of the said Mr. B.G.Mirji was unable to show any noteworthy performance as object and activity of the said Company required much larger liquidity and needed fresh capital to be infused. Thereafter, Mr. B.G.Mirji contacted the 2nd Petitioner in the year 2004 and invited him to join the said Company by bringing fresh Capital. Since it was beyond budget of the 2nd Petitioner he consulted the Petitioner family and eventually it was decided to join the said Company as an investor. The 2nd Respondent being a close relative of the Husband of the 1st Petitioner expressed his willingness to join the new investing group and it was decided to infuse fresh capital of Rs.35,00,000/- and therefore, Special resolution was passed on 14.05.2004/- and the 1st Respondent Company to increase the Authorized Capital from Rs.10,00,000/- to Rs.45,00,000/- and following shares were allotted and corresponding Return of Allotment was filed. And, 1,10,000 Shares of Rs.10/- each fully paid-up were allotted to Petitioners and Respondent No.2 and balance 2000 shares were allotted to Mr. Kalappa Shedbale and thereupon following persons were inducted as additional Directors in the Company viz.,

i. Mr. Satish Shankar Gouda Hiregoudar

ii. Mr. Sanjay Sidlingappa Wadkar

iii. Mrs. Mangala Yuvaraj Nakade

(5) Initially, the new investing group comprising of the Petitioners and 2nd Respondent had immense faith in Mr. B.G.Mirji. They did not have any idea as to the several irregularities being committed by the then management. Gradually several irregularities and unethical practice followed by the management under Mr. B.G.Mirji were noticed. However, when confronted with facts and figures of such irregularities Mr. B.G.Mirji was unable to offer any plausible explanation for huge cash expenditure, which resulted in the new investors losing faith in him and his removal as a Managing Director. Therefore in the Annual General Meeting held on 30th September, 2006, the 2nd Respondent was appointed as a Managing Director of the Company for a period of 5 years w.e.f.30.09.2006 till 29.09.2011.

(6) Thereupon, the new investing group having taken over cudgel of running the Company embarked expansion program and for that Indian Bank was approached for necessary financial assistance. A contract was awarded sometime in the year 2005 to the firms – M/s. Unity Refrigeration & Fabrication Bangalore & Mr. L.B.Jadhav that too without complying with provisions of law as much as no interest of the Director was ever noticed, who submitted inflated bills to the tune of Rs.140,00,000/- where in fact work was carried out at an approximate cost of Rs.75,00,000/-. The Indian Bank released a sum of Rs.140,00,000/- in favour of the said contractors and it s apprehended that the difference money of Rs.65,00,000/- were paid over the 2nd Respondent in cash. The 2nd Respondent utilized the said cash fictitiously and utilized in getting a bogus demand draft worth several lacs of Rupees from State Bank of India, Bijapur Branch, which were deposited in the Company as Share Application Money in the name of nominees of the 2nd Respondents and the bogus allotment of shares worth approximately Rs.65,00,000/- or so were made on 5th October, 2006 by utilizing aforesaid ill generated money. The said allotment was in respect of 286500 Equity Shares of Rs.10/- each and corresponding Form No.2 for such fictitious allotment was also filed with office of Registrar of Companies, Bengaluru, Karnataka. Another, fictitious allotment of 7,63,500 Equity Shares were made on 18.10.2006 to the nominees of the 2nd Respondent by utilizing illegally generated cash from the Company resources and using the same for getting bogus demand draft to be deposited with the Company as Share Application Money. The bogus allotment to the allottees being nominees of Respondent No.2 made on 18.10.2006, corresponding Form No.2 for such fictitious allotment was also filed with Office of Registrar of Companies, Bengaluru, Karnataka. In the purported allotment made on 18.10.2006- 3,90,000 shares purported to have been shown to be allotted to the 2nd Petitioner who has neither applied or subscribed or paid any consideration for the purported allotment for said 3,90,000 shares purported to have been shown to be allotted to the 2nd Petitioner who has neither applied or subscribed or paid any consideration for the purported allotment for said 3,90,000 shares and the same being void are liable to be annulled.

(7) The 2nd Respondent used the refrigeration facility for hiring charges in Cash and misrepresented to the Bankers of the Company and showed material stored in the refrigeration unit as stock in trade and part of the realization was credited to the Company account by showing as profit from the sale of fictitious stock and part of the cash realization was misappropriated and probably utilized in illegally allotting the shares of the 1st Respondent Company to consolidates his own position in the Company and thus the 2nd Respondent indulged into illegal activity to the detriment of minority shareholders apart from the siphoning the funds of the Respondent Company. He has floated Companies such as Samarth Enterprises, E-Town, Shri Samarth Food Processing Unit, Samarth Processing Industry etc. All these entities belong to the Respondent but for the sake of record he showed to have been owned by his friends, relatives and employees for example; the concerned Samarth Enterprises is shown to be proprietary concern of one Mr.Navnath Bhosale who was his driver for about 5 years. The 2nd Respondent firm is located at the office belonging to the close relative of the 2nd Respondent at 105, 1st Floor, Udyog Bhavan Office Complex, Behind Latur Urban Bank, Shivaji Nagar, Latur, the 2nd Respondent has never disclosed to the 1st Respondent Company his interest in such concern and entering into contract worth million of rupees such firm without disclosing its interest in the said firm. In the meanwhile the Horticulture Department of the Central as well as the State Government offered huge incentive and subsidy to the formers.

(8) The 1st Respondent Company has acquired appropriate land and commenced construction work at KIADB Bijapur for Cold Storage on or about 01.06.2005 and completed construction by 30.11.2006. Thereafter, the work of installation of plant and machinery for the said Cold Storage was undertaken from 24.12.2006 to 30.09.2007. The Contract work was awarded to one M/s. United Refrigeration and was completed by 30.09.2007. The trial run of the plant was commissioned on or about 01.11.2007 and was ready for commercial operation from 01.11.2007 onwards. The 2nd Respondent instead of utilizing the said facility for Company’s work virtually converted it into a warehouse, for a small and medium fruit and vegetables growers and the same was offered by the Respondent and collected hiring charges in cash.

(9) The 2nd Respondent is indulging into huge cash transaction probably in connivance with the Bankers of the 1st Respondent Company. It is quite astonishing that during the period of 01.04.2008 to 31.03.2009 the 2nd Respondent has made huge withdrawal of the cash of the astonishing figure Rs.6,24,97,036.54 and this is against the provisions of the Income Tax Act which prohibits any cash transaction in the excess of statutory limit of Rs.20,000/- and obviously this cannot be done without active connivance of the Bank, who is supposed to report to the Reserve Bank of India and other monitoring agency of such huge cash withdrawal. Even the Statutory Auditors of the 1st Respondent Company had connived at by not reporting such blatant breach of law. During the 2006-2010, the 2nd Respondent has made huge unauthorized payment and that too in cash to Respondent No.3 who is his nominee to the extent of Rs.68,70,000/-. In spite of being designated as the Managing Director of the 1st Respondent Company for the period 30.09.2006 to 30.09.2011 fabricated records purportedly passing Board Resolution on 15.03.2010 purportedly appointing Petitioner No.1 as a Managing Director by passing another Board Resolution on the same day authorizing himself to attend day to day business of the 1st Respondent Company and No notice of such Board’s meeting is ever received by the Petitioner. The Respondent No.2 has forged the signature of the Petitioner to mark their presence in such concocted meeting. Thereafter, the 2nd Respondent has carried out several major financial irregularities using the false signature of the 1st Petitioner.

(10) The 2nd Respondent has unauthorisedly removed the auditors M/s. Anant Mutalik office at Bangaluru and illegally appointed M/s. Madusudan Bajaj Office at Latur in his place without following the due process of Law.

4. The Company Petition is opposed by the Respondent Nos.2-4, by way of filing reply dated 14.06.2012, by inter-alia contending as follows: (1) The reliefs claimed in the Petition are barred by laches limitation provided in Companies Act and the Law of Limitation. The reliefs which cannot be claimed due to bar of limitation have been tries to be claimed by shaping and coloring the present Petition as a Petition by minority share holders claiming the oppression of minority and suppression of minority shareholders. Both the conditions in clauses (a) & (3) of Sub.Sec.2 of Sec.397 of Companies Act must exist before this Bench to entertain the Applications. Where there are no allegations to support a winding up, the Petition cannot be entertained.

(2) The instant Petition did not contain all material facts and particulars of alleged oppressive conduct. The real purpose of the Petitioners is to avoid payment of loan amount borrowed by the Company. The Petitioners are Directors of the Company. The Petitioner No.1 was Whole Time Director from 01.07.2007 – 14.03.2010, and was the Managing Director from 15.03.2010 to 09.08.2010. The Petitioner No.1 received salary @ Rs.18,500/- P.M. The Petitioners are the Directors of the Company and they are equally responsible for the compliance of the statutory provisions and they cannot blame the Second Respondent for their omission and commission. Both the Petitioners failed to discharge their duties under the Articles of Association of the Company. Hence, they are not entitled for reliefs. They are well aware of day to day business of the Company as well as affairs of the Company. They have signed almost all balance sheets and audit reports till 2010. They have also suppressed that concern Bank has initiated proceeding for recovery of loan under SARFESI Act, and the Petitioners have accepted accounts by signing audit reports of every year without raising any objections and the accounts of all the years were duly audited and adopted without any objection on the part of the Petitioners. The Respondent No.2 is not holding majority shares. The Petitioners and their group are holding more shares than the shares held by the Respondent No.2. 5. Heard Shri B.B.Parekh, learned Counsel for the Petitioners, and Shri Saji P. John, learned Counsel for the Respondent Nos.2 to 4. We have carefully perused the pleadings of both the Parties and extant provisions of Companies Act, 1956/2013, and the Rules made there under, and the law on issue.

6. Shri B.B.Parekh, learned Counsel for the Petitioner, while reiterating various averments made in the Company Petition has subsequently, filed written gist of arguments dated 20.02.2020, by inter-alia contending as follows:

(1) The purported exercise of increasing Capital was allegedly carried out in the purported Annual General Meeting, and there were only three Directors, the Petitioners and Respondent No.2. The Petitioner No.1 ordinarily residing at Mumbai was not given any notice of any Board meeting proposing to convene the Annual General Meeting. Further, the 2nd Petitioner was out of India as his working for gain abroad was also not given notice of any Board Meeting. Therefore, the question arises by what authority in form of a Board resolution authorizing calling of Annual General Meeting whereat the proposal of enhancing the capital from Rs.50 lakhs to Rs.2 crore was proposed and from where the authority came for allotment of shares. The Petitioner No.2 have held Rs.5 lakhs shares of Rs.10 shares of which 3,90,000 equity shares were allotted for which he has never applied and were never paid any amount for such allotment. The Respondent No.2 has failed to produce any documentary evidence purporting authorizing allotment of 3,90,000 equity shares. And Petitioner have no hand in allotment of shares dated 18.10.2006, which is neither legal nor enforceable.

(2) The modus operandi was that the cold storage constructed by RespondentNo.2 at highly inflated value was being used for the dual purpose renting out slot of cold storage to the vegetable and fruit vendors in collecting rent in cash and the said cash amount was utilized for procuring fictitious demand draft, which was later used as allotment money for the engineered allotment of shares motivated to increase on shareholding by the Respondent No.2 to gain control of the first Respondent Company by artificially manoeuvring the majority. The second purpose was to show the vegetable and fruits stored in cold storage is never belongs to first Respondent Company as the stock-in-trade to avail the financial assistance from the banker of the Company namely Indian Bank who willingly obliged the Respondent No.1. The 2nd Respondent had hired services of officiating Bank offer namely Mr. Rajiv Pradhan to prepare project reports and accounts to facilitated smooth sanction of the financial assistance by the Bank and to prepare suitable reply on behalf of Respondent Company against queries raised by the credit manager. From the scrutiny of the bank account of the various years it is revel that the first Respondent Company has generated and dealt in huge cash amount exceeding Rs.6 Crore which neither the auditor nor the bank willing to take cognizance.

(3) It is stated that one Mrs. Vandana Jadhav, who is wife of Mr. Laxmikant Jadhav, the Respondent No.3, has given a personal guarantee which the Bankers with the collusion with the Respondent No.2 has willfully obliterated with a view to release her from the guarantee executed by her is done with connivance with management of the Company headed by Respondent No.2 and the Bankers of the Company namely Indian Bank and such arbitral release of the co-guarantors also result in to the release of the co-guarantor within the meaning of Section 142 to 145 of the Contract Act and the other relevant provisions. The 2nd Respondent in connivance with the Bankers of the Company have diverted huge funds for the personal use of 2nd Respondent and in this connection the Tribunal attention is drawn to misguide Mission Director of Horticulture Department, Karnataka Govt. in getting subsidy 43.75 Lakhs to release by fabricating documents is a clear cut case of misappropriation of fund for that purpose. The Respondent No.2 has made payment of Rs.96.50 Lakhs to M/s. Samarth Enterprises (Prop. Navnath Bhosale – Driver of Respondent No.2) against false and fabricated Tax Invoices and siphoned the amount from the Respondent Company Bank account.

(4) The Respondent No.2 has filed his counter and raised certain objections, which are more particularly enumerated in para 2 of Written Submission raising some probable issues to which the argument on behalf f the Petitioner is as under:

a) Whether the Petitioner is time barred?

In this regard, it is stated that the instances of the oppression and mismanagement came to light by virtue of the accounts of the Company as on 31.03.2010 were handed over belatedly, and on scrutinizing the same, the Petitioners have come to the conclusion various acts of oppression and mismanagement have been committed and thus the instant Petition is filed in 2012. He has relied upon the ratio of the judgment of the case (1972) ILR 1Cal 286, wherein, it interalia held that Article 137 of the Limitation Act will come into play and the period of 3 years is prescribed period of limitation. Hence the Petition is quiet within period of limitation.

b) Whether the condition stipulated under Section 397 2(a) (b) are complied?

In this regard it is contended that prescribed Conditions are: whether Companies affairs are being conducted in a manner prejudicial to the public interest or in a manner oppressive to its Members. There is large scale division of the public funds by the Management headed by Respondent No.2 with the connivance of the Banker of the Company being a Nationalized Bank. It has resulted into huge loss to exchequer of public money and the system needs surveillance by the Institute like Reserve Bank of India or Ministry of Finance are issue of vital public interest the resultant loss is the loss of erosion of capital of the Members of the Company including Petitioners. The perpetrators are immense beneficiary of such fraudulent activity and they want mind loss occasioned to them as they are immensely compensated.

c) With reference to contention that 1st Petitioner has occupied position of whole time Director/Managing Director, and has drawn salary, it is stated that the circumstances under which she has never effectively participated in the management in view of the particular facts of the case that the 2nd Respondent is near relation to Petitioner No.1 and basically he was prompted to join the Company in order to establish and stabilize in life. It is regretted that un-minding such gesture, he has acted dishonestly and deceitfully and made attempts to grab the majority by dubious means. The Other factor was that all relevant time, the 1st Petitioner resided at Mulund, Mumbai, which is about 700 km., away from the registered office and factory of the Company.

d) By restoring to the mindless borrowing and depleting the Company to repay it has brought the Company on the brink of winding up had the lender preferred the route of taking the Company into winding up. There are enough instances of fraudulent instances of siphoning of the fund in collaboration with 3rd party namely unit refrigeration and arranging fictitious export by using ghost plastic crates and siphoning huge amount as averred in the Petition are sufficient evidences of defalcation and mismanagement of the Company.

e) It is further submitted as laid down in the ratio of the judgment reported in (1964) 34 Company Cases 510 Cal and various other judgments clearly lays down ratio that Section 397 of the Companies Act neither contemplated nor required continuous course of oppressive wrongful conduct for a period of time.7. Mr. Saji P. John, learned Counsel for the Respondent Nos.2 to 4, while reiterating various averments made in the Statement of Objections, has subsequently filed written arguments dated 14.02.2020, by inter-alia contending as follows:

(1) It is stated that the reliefs claimed in this Petition are barred under the law of Limitation. The Petitioners have come to this Tribunal with unclean hands. All the material facts relating to the Respondent Company is not disclosed in the Petition. The real purpose of this Petition is to avoid payment of Loan amount borrowed by the Company for which the Directors/Shareholders of the Company had given Personal Guarantees. The real intention of the Petitioners is to avoid the payment of Bank Loan borrowed by the Respondent No.1 Company for which Petitioners have given personal Guarantees along with Respondent No.2. Since both the Petitioners failed to discharge their duties under the Articles of Association of the Company, they are not entitled for reliefs.

(2) The Petitioners have suppressed the fact that the Indian Bank, Bijapur Branch in order to recover the loan taken by the Respondent Company under SARFESI Act has attached and sold the residential house of 2nd Respondent to the highest bidder. On the request and advice of Second Petitioner and first Petitioner’s Husband, Mr. Yuvaraj Nakade, the Second Respondent kept his residential property as Collateral Security with the Indian Bank for obtaining the said loan. The Petitioners have signed almost all Balance sheets and Audit Reports till 2010. There is no specification of date of Cause of action in the Petition. It is obvious that the alleged oppression are spreading over a period ranges from 2006 to 2010. The Respondents submit that the Accounts of all these years were duly audited and adopted without any objection on the part of Petitioners. They have acquiesced and consented. The Doctrine of Latches is involved in this case. The Petition was filed in the month of March 2012 which is over two years of the alleged acts of Oppression. Thus the Petition is inordinately delayed.

(3) The Petitioner No.1 is party to most of the transaction claimed to be Oppressive in this Petition and the Petitioner No.2 having full knowledge of the transactions has signed various documents like and including Director’s Report, Balance Sheet of the Company and those documents filed with the office of Registrar of Companies. As such, Petitioner No.2 also cannot plead ignorance about the facts challenged by the Petitioners in the Petition. The Petitioners have signed various documents like Audited Balance Sheets from 2005-2006 to 2009-2010, Director’s Reports etc., which are to be filed to the Registrar of Companies, Bangalore. As such both the Petitioners are now estopped from challenging the legality and validity of Annual General Meeting of the Respondent Company in which Authorized Share Capital was increased from Rs.45,00,000/- to Rs.2,00,00,000/- and additional Rs.10,50,000/- shares of Rs.10/- each total worth Rs.1,05,00,000/- were allotted on dated 05.10.2006 and 18.10.2006 to various shareholders including 3,90,000 shares to the Petitioner No.2 on 18.10.2006.

(4) The Second Respondent was running his STD/PCO business in Latur. He was offered a good post with lucrative salary in the Company and was instigated to invest his belongings in the Share Capital of the Company. Thus, he disposed of his business of STD and sold gold etc., and raised a sum of Rs.11,00,000/- which was invested in the initial share capital of the Company. However, the Respondent No.2 has not received the amounts towards his remuneration from the Respondent Company. On the other hand, the Petitioner No.1, contrary to the AOA of the Company that there must be minimum three Directors, had chosen to send a Letter of Resignation. The Petitioners have not given any letter to call for EGM or Board Meeting to discuss the issues raised in the Petition filed by them. The impugned allotment of shares on 05.10.2006 and 18.10.2006 is completely legal and valid as per extant provisions of the then Companies Act, 1956. The Petitioners have challenged the validity of part of allotment of shares made on 05.10.2006 and 18.10.2006 total amounting to shares worth Rs.1,50,00,000/- on the grounds, inter-alia, legality of meeting, issue of Notice to Petitioners etc. The Petitioners being the Director and Chairman at that time had full knowledge of agenda of meeting and further business transacted at meeting thereafter.

(5) The fact of receipt of Share Application money and its deposit in Bank is within the full knowledge of Petitioners, particularly Petitioner No.1, who has signed Audited Balance Sheet of the Company for year 2005-2006 showing an amount of Rs.1,05,00,000/- as Share Application Money. She was in full knowledge of the persons, who have applied for shares (in fact the relatives and friends were contacted by her husband, directly and also through Respondent No.2 as many relatives are common to both). Under such circumstances, Petitioners, Particularly Petitioner No.1 is expressly estopped from challenging the allotment of shares on 05.10.2006 and 18.10.2006. The list of allottees and their relation to Petitioner No.1., as is under:

Sow Kamal Nakade - Mother-in-Law

Amit Shankarrao Patil - Brother

Jayshree Shankarrao Patil - Mother

Milind Arvind Bhujbal - Husband of sister-in-law

Shankarrao Amrutrao Patil - Father

Shivraj Bashettiappa Nakade - Father-in-law

Supriya Vinay Kore - Sister-in-law

Swaroopa Milind Bhujbal - Sister-in-law

Mrs. Chandra Bangera - Friend

Mrs. Geetha P Joshi - Friend

In view of the above close relations of Petitioners with the allottees, they cannot claim that the Share allotment was bogus and fictitious.

(6) Both Petitioners were well aware about allotment of additional shares dated 05.10.2006 and 18.10.2006. Form No.2 showing details of allotment were made available by Petitioners through their legal advisers and Company Secretary engaged by them and the Second Respondent was asked to submit the same with the Registrar of Companies through the Company Secretary Mr. Ganapati and Mr.Mohan. They were regular Company Secretaries of the Respondent Company since its inception and they continued to work till 2010.

(7) It is contended that relief can be granted under Sec.397 of the Companies Act, only against continuous acts on the part of the majority shareholders oppressive to the minority. In the instant case, the Petitioners are not minority share-holders. The Petitioner No.2 is holding 1/3 i.e. 33.33% shares worth in his name. Moreover, he is also holding 8% shares worth Rs.12,00,000/- in the name of Mr. B.G.Mirji & his friends (The Founder Promoter of the Company and Co-Brother of Petitioner No.2). Thus, he holds 41.33% shares and the Petitioner No.1 holds 1,10,000 shares worth Rs.11,00,000/-. Her ten close relatives hold shares worth Rs.11,000/- she holds the 7.40% Total Shareholding of Petitioner 1 & 2 together is 48.73%. The shareholding of the Respondent No.2 is worth Rs.22,25,000/- i.e. 14.83% wife of the R2 is holding the shares of worth Rs.17,00,000/- i.e. 11.33% and Total shareholding of Respondent No.2 and his wife is 26.16% and rest of the shareholding of worth Rs.37,64,000/- i.e.25.11% are held by common friends & Relatives of Petitioner No.1 & Respondent No.2. Thus, it is obvious that the Petitioners are not minority shareholders. Hence, no relief U/sec.397 can be granted to them. This Respondent relies upon ratio laid down in Chander Krishan Gupta V/s. Pannala Giridharilal (P) Ltd. reported in (1984) 55 Com Cases 702 (Del.)

(8) Even prior to enhancement of share capital of the Company, the Petitioners were majority share-holders. They were holding shares worth Rs.22 Lac, when share capital of the Company was Rs.45 Lacs. As such, they were never minority share holders. Whenever any space was allotted to outsiders, it was recorded and hiring charges were credited to the Company’s account. When share Application money was deposited to Company’s accounts in the year 2005-2006 (Particularly before 31st March 2006) and when the construction of Unit was completed on 30/11/2006 and unit started commercial operation in the month of December 2007. It is strange on the part of Petitioners to say that the “so called cash generated through renting the space in cold storage in the year 2007, was utilized for purchasing bogus demand drafts of banks for payment of share application money in the year 2004-2005, 2005-2006 (before 31/03/2006).”

(9) The cash withdrawals from the Company’s Account was mainly for the payment to farmers for horticulture produce purchased from them and cash received from sales, which is deposited in Bank. And the Petitioners had full knowledge of these transactions. They have signed the Audit reports, Balance sheet of that year which is required to be filed with the Registrar of Companies. The Account with Union Bank of India was opened as directed by husband of Petitioner No.1 with full knowledge of Petitioners, which they are denying now.

(10) The Second Petitioner was actively involved in the activities of the Company. The Petitioner No.2 has given a Declaration to the Bank stating that he had invested Rs.16 Lakhs in the Respondent No.1 Company. The ledger account of the Petitioner No.2 for the year 2005-2006 also shows that a sum of Rs.19.40 Lakhs is shown towards share application money by DD/Cheques. In the details of the Assets and liabilities filed by the Petitioner No.2 with the bank, the Petitioner No.2 has shown the investment in the business i.e. investment in Respondent Company to the tune of Rs.50 Lakhs. Thereafter, the Company’s Share Capital was increased from Rs.10,00,000/- to Rs.45,00,000/- the Company undertook a cold storage project at KIADB Bijapur. For this purpose the Company availed a loan amount of Rs.1,30,00,000/-. After the commencement of the said project, it was understood that the project is under-financed. Then the Project was revised and approved by the Indian Bank for a loan up to the tune of Rs.4,83,00,000/- including existing loan of Rs.1,30,00,000. But in view of the high Debt Equity Ratio, the Bank imposed condition that the share capital of the Company to be increased to Rs.2,04,00,000/-. But the Promoters could only arrange paid up share capital of Rs.1,50,00,000/-. This was accepted by the Bank and accordingly sanction ticket of the bank dated 07/12/2006 was signed by all Directors and Guarantors which includes Petitioners.

(11) The Directors namely Petitioner 1 and 2 have also signed in the aforementioned Sanction Ticket. The Petitioner No.2 was the Chairman of the Respondent No.1 Company since the beginning and controls the affairs of the Company. The Petitioners have made baseless allegation regarding the Cold storage Project after the lapse of seven years of the sanctioning of the loan amount. When share capital was to be increased to Rs.1,50,00,000/- the Respondent No.2 was appointed as the Managing Director. Shri B.G.Mirgi the then Managing Director was reluctant to increase tee Share Capital as he did not have enough money to raise the Share Capital. His percentage of shareholding would decrease and so he quit the Company and the management was taken over completely by the Petitioners. It is at this stage the Respondent No.2 was asked to take up the post of MD by the Petitioners. The Second Respondent was assured that he would be under constant guidance and advice from Petitioners and expert lawyers and CS.

(12) The Petitioners were holding 48.88% of the entire paid up share capital of the Company even prior to the allotment of the shares on dated 5/10/2006 and 18/10/2006 which was greater than present percentage of 40.66% and thereby cannot be surpassed or oppressed by the Respondent No.2, was acted according to the advice of Petitioners. Mr. Yuvaraj Nakade who is the husband of first Petitioner herself was appointed as the Managing Director according to the advice of Petitioners. He was given full control of the affairs of the Company. He then appointed First Petitioner, who is his wife as the Whole time Director.

(13) Both Respondent Nos.3 and 4 had resigned from the Board of Directors with effect from 28.10.2010. The Respondents Nos.3 and 4 used to attend the Board meetings rarely and could not have changed or wanted to change or affect any decisions of any meetings as they always acted as per the wishes of Mr. Yuvaraj Nakade. Mr. Yuvaraj Nakade is now unnecessarily pulling their names to this Petition as a pressure tactic against Respondent No.2 as the Respondents were classmates when Mr. Yuvaraj Nakade was their teacher. The Respondent Company participated in the scheme of Central Government which provides plastic crates at 50% subsidy. This was not a decision taken by the Respondents alone. The Company was to get only 10% commission out of it. But nobody came to buy the plastic crates and thereby Company used it for packaging purposes. The grapes purchased by the Company were exported through M/s. Vintage Agro Exports and they have acknowledged the receipt of goods. The details of transactions effected between 12.04.2007 to 29.10.2007 filed by the Petitioners in the main Petition will clearly show that Respondent No.3 never kept in the Account more than Rs.20,00,000/-. He immediately accounted for the expenditure of the said account and only after this, fresh advance was given. The entire advance made to Respondent No.3 was through Cheque issued on Indian Bank. All the cheques were required to be signed by minimum two Directors. Thus the payment made to Respondent No.3 was with the signature of Petitioner No.1 along with Respondent No.2. It is clear that Petitioner No.1 has full knowledge of the payment made to Shri L.B.Jadhav. This amount is also accounted in the book of accounts of the Company, which was audited by the Statutory Auditor. Petitioners are fully aware of these transactions and in fact Petitioner No.2 has signed the balance sheet for the year 2007-2008 filed with Registrar of Companies. (14) As per the directions of Petitioner No.1 and her Husband in consultation with Petitioner No.2 the second Respondent No.2 tendered resignation from the post of MD. It was decided in the Board Meeting dated 15/03/2010 to appoint Petitioner No.1 as the MD. Accordingly, resolution was passed and Form No.32, 23, 25C along with consent letter and a copy of Resolution signed by both Petitioner No.1 and Petitioner No.2 was submitted to Registrar of Companies. However, Petitioner No.1 being a lady has her limitations in attending field work. So the Petitioners directed to pass further resolution authorizing second Respondent to attend day to day business of the Company under the supervision of Petitioner No.1. This included the business outside Company premises namely Bank, Government/Semi Government offices etc. After few months, Petitioners thought this kind of working is not very feasible and asked second Respondent to occupy the post of MD. Accordingly, Board Resolution dated 09.08.2010 in which resignation tendered by first Petitioner was accepted and second Respondent was reappointed as MD as per the directions of Mr.Yuvaraj Nakade, husband of Petitioner No.1. The resolution dated 15.03.2010 was signed by all the three Directors viz. both Petitioners and Second Respondent and resolution dated 09.08.2010 was signed by Petitioner No.1 along with Second Respondent. The Petitioners had attended the abovementioned Board Meetings. (15) The Board meetings were held at the Residence of Petitioner No.1 or 2 and there are a lot of occasions wherein decisions of Board Meeting was taken over phone and when the Petitioner No.2 returns to India he would come and sign the Resolution. When it was found that the Company is running in losses Petitioner No.1 thought it better to remain away from Companies affairs and to control the Company through the Respondent No.2. The Respondents have been made scapegoats by the Petitioners.

(16) The Respondent No.2 submits that he has never forged any documents or forged signatures of Petitioners. The Respondent Company had availed Loan from Indian Bank, Bijapur Branch for an amount of Rs.96 Lakhs + 56 Lakhs = 152 Lakhs. The Petitioners and Respondents who were the Directors and Shareholders of the Respondent Company at that time had given their personal guarantees towards the Loan Amount. The Petitioners have succeeded to stall or delay the Recovery Suit pending before the Debt Recovery Tribunal, Bengaluru in the name of the Present Company Petition filed by them against Respondents Nos.1-3. The Indian Bank, who is the Applicant in the said Recovery suit before the DRT has already attached and thereafter sold the Residential Property of Respondent No.2 situated at Latur, Maharashtra through auction. The Petitioners, on the other side have not suffered any loss. They even took out misfeasance Summons without the leave of CLB and sent to all Parties including Proposed Respondents.

(17) The certified copies of Form 8 filed by the Respondent Company with ROC for creation of charge. The attachments to the said Form 8 clearly shows that the Petitioners had all the knowledge about the Loan availed by the Respondent No.1 Company and the Petitioners have signed in all the pages. In fact, Mr. Yuvaraj Nakade who is the husband of Petitioner No.1 virtually controlled the management and day to day affairs of the Company through Petitioner No.1 and Respondent No.2. These documents undeniably establish that present Petition and the subsequent Application filed is only for the purpose of evading from the personal Guarantee Obligations given by the Petitioners by ruthlessly trying to throw the entire liability on to the Respondent No.2 under the guise of an Oppression and Mismanagement Petition. (18) The Company is not carrying on any operations since 2010 and not generating any revenue also. The Respondents are ready to give the entire Shareholding to the Petitioners subject to the Petitioners clearing the Bank Loan availed by the Company for which Petitioners and Respondents have given personal Guarantees for. The Respondents have absolutely no problem in transferring the Shares to Petitioners and exiting from the Board and Management of the Company upon Petitioners fulfilling the abovementioned condition.

8. The instant Company Petition is filed U/ss.397, 398, 402, 403 R/w Sec. 111A and Other Applicable provisions of the Companies Act, 1956 R/w 241 and 242 of Companies Act, 2013. Therefore, the broad issues arise for consideration in the case are: (a) whether ingredients as prescribed under provisions of Section 397 of Companies Act, 1956 R/w 241 of Companies Act, 2013 stand fulfilled by the Petitioners, in order to maintain the Company Petition (b) Whether the Petition is within limitation as prescribed under the provisions of Limitation Act, 1963 (c) Whether the Petitioners, being Directors of the Company, at relevant point of time, where cause of action arise, can maintain the Petition in the light of duties of Directors prescribed in terms of Section 312 and 388 of Companies Act, 1956, R/w 166 of Companies Act, 2013 (d) Whether allegations/contentions merits consideration. (e) if those issues goes in favour of Petitioners, what is the relief(s), they are entitled to.

9. In the first instance, it is relevant to refer Section 397 of the Companies Act, 1956, which reads as under:

“397. Application to Company Law Board for relief in cases of oppression.

(1) Any members of a Company, who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Company Law board] for an order under this section, provided such members have a right so to apply in virtue of section 399.

(2) If, on any application under sub-section (1), the Company Law Board] is of opinion—

(a) that the company’s affair’s are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members; and

(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up; the Company Law Board] may with a view to bringing to an end the matters complained of, make such order as it thinks fit.”

In the instant case, as stated supra, the Petitioners are not minority share-holders. The Petitioner No.2 is holding 1/3 i.e. 33.33% shares worth in his name. Moreover, he is also holding 8% shares worth Rs.12,00,000/- in the name of Mr. B.G.Mirji & his friends (The Founder Promoter of the Company and Co-Brother of Petitioner No.2.) Thus, he holds 41.33% shares and the Petitioner No.1 holds 1,10,000 shares worth Rs.11,00,000/-. Her ten close relatives hold shares worth Rs.11,000/- she holds the 7.40% Total Shareholding of Petitioner Nos.1 & 2 together is 48.73%. The shareholding of the Respondent No.2 is worth Rs.22,25,000/- i.e. 14.83%, wife of the R2 is holding the shares of worth Rs.17,00,000/- i.e. 11.33% and Total shareholding of Respondent No.2 and his wife is 26.16% and rest of the shareholding of worth Rs.37,64,000 i.e. 25.11% are held by common friends & Relatives of Petitioner No.1 & Respondent No.2. Therefore, the allegations are made against the Respondent No.2 rather than the Company.

10. It is not in dispute that both Petitioners are Directors of the Company and first Petitioner was whole time Director from 01.07.2007 to 14.03.2010 and Managing Director from 15.03.2010 to 09.08.2010 and received salary of Rs.18,500/- per month. There are only three Directors (which includes second Respondent) in the Company, when the Petitioners are Directors. Though, the Petitioners have not pin pointed when the alleged acts of oppression and mismanagement, as raised in the instant Petition, occurred, it is stated in the written arguments filed on behalf of Petitioners that they came to know those acts only on 31.03.2010, when the Company Accounts were belatedly handed over to them. Therefore, the alleged acts of oppression and mismanagement have taken place when both the Petitioners are majority Directors and shareholders. And for the reasons known to the Petitioners, they have not discharged their fiduciary duties as Directors, as per law, during their tenures. It is relevant to refer Section 166 of Companies Act, 2013 which is analogous Sections of 312 and 388 of Companies Act, 1956. As per law, Applications/Petitions filed under earlier provisions of Companies Act, 1956, are to be decided in accordance with analogous provisions of Companies Act, 2013.

11. It is relevant to extract Section 166 of Companies Act, 2013, which reads as under:

“Duties of Director 166 (1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company (2) A Director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. (3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment. (4) A director of a company shall not involve in a situation in which he may have direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. (5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company. (6) A director of a company shall not assign his office and any assignment so made shall be void. (7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.”

12. The Petitioners, instead of discharging their statutory duties, as majority Board of Directors, and their group holding majority shareholding, resorting to frivolous litigations by filing the instant Petition and also before DRT. Therefore, they have not to come to the Tribunal on bonafide grounds with clean hands. It is relevant to point out here that the Petitioners too sought to cancel shares allotted to them, as per law, on par with others. If the, Petitioners are not interested, they can make representation to the Company to cancel those shares, in which case, the Petitioners would loose share application money pending with the Company.

13. The contention of the Petitioners that the instant Petition is within Limitation as per Article 137 o

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f Limitation Act, basing on the ratio as laid down in case reported in 1972) (ILR I Cal 286), is not at all tenable. Limitation normally will start basing on cause of action arise in a given case, and thereafter prescribed period as per extant provisions of Limitation Act will start. The date of knowledge of Petitioners about the issue is not tenable in the facts of case. As stated supra, the Petitioners, being at the helm of affairs in the Company at the relevant point of time, cannot plead ignorance about alleged acts of oppression and mismanagement as mentioned in the Petition. Therefore, the Petition is barred by latches and limitation, and it is liable to be dismissed on this ground alone apart from other grounds. 14. The Petitioners failed to fulfill the requisite conditions under relevant provisions of Companies Acts as extracted supra. The Petitioners, being part of all affairs of Company at relevant point of time, cannot disown those affairs and file the instant Petition on un-tenable grounds. It is also relevant to point out here that the Company itself is stated to be in state of non-existent, since it is not carrying any operations since 2010, and not generating any revenue too. The Respondent have also expressed their readiness to exit from the Company by handing over their entire shareholding subject to Petitioners clearing the Bank loan availed by the Company for which both Petitioners and the Respondents have given personal guarantees. Since the Company stated to have stopped its operations, as early as 2010, and its Properties are mortgaged and personal guarantee are still pending, there cannot be any directions to be given to the Respondents. 15. As per supra, one of the pre-requisite conditions to file Petition as per the extant provisions of the Companies Act, 1956/21013 is that the affairs of the Company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the Company. In the instant case, there is no public interest involved. Therefore, the only point for consideration is whether the affairs of the Company being conducted in a manner prejudicial to the interest of the Petitioners and the Company. Admittedly, both the Petitioners are Two (2) Directors out of three (3) Directors of the Company holding substantially majority shares too. The alleged acts of oppression and mismanagement, as mentioned in the Petition, stated to have occurred during their tenure of Director/Managing Director, as detailed supra. In order to pass any orders, in an Application/Petition filed U/s.397, 398 of the Companies Act, 1956 R/w 241-242 of the Companies Act, 2013, the alleged acts of oppression and mismanagement are not only been occurred at the time of filing of the Company Petition but they should be continue to exists as on the date of final hearing of the Company Petition. In the instant case, admittedly, the Company itself is not in operations for more than a decade i.e. since 2010. Therefore, alleged acts of oppression and mismanagement are not in force as of now. However, it is stated that the Bank loans are pending against the Company with Personal Guarantees of the Directors (which includes the Petitioners) and the properties of the Company are stated to be mortgaged. Therefore, the Tribunal cannot pass any orders in order to put an end to the alleged acts of oppression and mismanagement on the part of Company. The Petitioner filed to make out any case so as to wind up Respondent No.1 Company, which would otherwise, prejudice the interest of the Petitioner and the Company and other stakeholders. Therefore, the Petition is liable to be dismissed to this ground also. 16. Though, the case was initially filed before the then CLB on 16th April, 2012, the case is kept pending for various reasons viz., to service of notices, filing of Miscellaneous Applications, Counsels inconveniences, to explore the possibilities of settling the issue between the parties etc. Though pleadings of case were completed as early as 08.01.2016, as per proceedings of CLB dated 08.01.2016, the main case could not be taken for final hearing by this Bench, due to pendency of I.A.No.38 of 2018 filed by the Petitioners, U/s.543 R/w Section 406 of Schedule IX Companies Act 1956, which was ultimately rejected by the Tribunal, by an order dated 30th July, 2019, by directing the Parties to get ready to argue the case finally on 03.09.2019. Aggrieved by the said order, the Petitioners have filed Company Appeal (AT) No.281 of 2019 before Hon’ble NCLAT, which was ultimately dismissed by an order dated 16.10.2019. Therefore, there is further delay to take up the case for final hearing. 17. For the aforesaid reasons and circumstances, by perusing the extant provisions of Companies Act, 1956/2013, the Rules made thereunder, and the law on the issue, which includes decisions relied upon by the parties, as stated supra, we are of the considered opinion that the Petitioners failed to make out any case so as to interfere in the affairs of Company by the Tribunal. Therefore, the instant Company Petition is only liable to be dismissed. 18. In the result, C.P.No.46 of 2012 (T.P. No. of 2016) is hereby dismissed. No order as to costs.
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