V.P. Singh, Judicial Member
1. This Company Petition No. 16 of 2009 has been filed by the petitioners under section 397, 398, 402 and 408 read with Section 111 of the Companies Act, 1956 (hereinafter will be referred to as the Act) regarding oppression and mismanagement against the respondents for the acts that led to the removal of the petitioners from the company.
2. Brief facts as per the present petition are that the company, Medinimata Agro Products (P) Ltd (company), was incorporated on 10th May, 2006, and its registered office is situated at Paschim Medinipur. The authorized share capital of tire company is Rs. 1 crore divided into 10 lakh equity shares. Petitioner No. 1 is an engineer by profession and a social activist who had earlier worked for Gujarat Heavy Chemicals Ltd. and started his own business which was a construction firm called Ideal Constructions in 1999, wherein his brother, petitioner No. 2, was helping him. The petitioner No. 1 also had another company Purvanchal Agro Products (P) Ltd. which was a private company incorporated in 2005.
3. Respondent No. 2 is a businessman by profession and is a majority shareholder and director in various privately incorporated companies. Respondent No. 4 is the brother-in-law of the respondent No. 2 and was a close friend to petitioner No. 1 for a long time.
4. The petitioners have contended that they had acquired a factory unit for the respondent's company from the UPFC, deposited an earnest money and got the same transferred to the company where they were to be a majority shareholder. However, at a later point of time, their dues were paid off by the respondents and they were ousted from the company.
5. The petitioners contended that tire authorized share capital of the company was Rs. 1 crore divided into 10 lakh equity shares of Rs. 10 each. The legally issued, subscribed and paid-up capital is Rs. 1,17,83,200 divided into 1,17,8320 equity shares of Rs. 10 each. The petitioners further contended that they were the holders of 52% shareholding in the company before the illegal dilution of their shareholding and their elimination as directors and as shareholders by the respondents 2, 3 and 4, through a series of illegal and fraudulent activities. The petitioners also contended that the respondents have filed false returns with the ROC, especially Form 2 and Form 32 and also the annual return for the year 2006-2007. The petitioners further contend that the respondents have also allotted further shares to themselves clandestinely thereby reducing the petitioners, who were the legal majority shareholders of the company, to a minority.
6. The petitioners have submitted that they were on the board of the company as whole-time directors and were instrumental in the functioning of the company. The petitioners further contended that, pursuant to an auction conducted by Uttar Pradesh Finance Corporation (UPFC), petitioner No. 1 purchased the factory unit of one Singh Extraction (P) Ltd. through an auction process from UPFC. Despite petitioner No. 1 declared as the auction purchaser, the Conveyance Deed was executed in favour of the company where the petitioner was a majority shareholder, which was Medinimata Agro Products (P) Ltd. The petitioners further contend that the respondent No. 2 owned Medinimata Agro Products Ltd. and had decided to use that company for carrying out their business in which the petitioners would be issued the majority shares of 52% and thereafter petitioner No. 1 would make that company the nominee for the Deed of Conveyance that was to be executed by UPFC in respect of the extraction unit of Singh Extraction (P) Ltd. purchased by the petitioner No. 1 in the auction purchase. Therefore, the petitioners contend that they were inducted into the company as 52% majority shareholders and were holding equity shares of the company. The petitioners contended that at a later point of time they discovered that respondents Nos. 3 and 4 have eliminated the petitioners as shareholders and also from the board of directors of the company through a series of illegal and fraudulent acts. The petitioners further contend that the respondents have also filed false returns with the ROC, especially Form 2 and Form 32 and also annual return for the year 2006-07. The petitioners contend that in addition to the reduction in petitioner's shareholding from 52% and their subsequent elimination, the respondents have also allotted further shares to themselves. The petitioners have stated that they had 52% equity shareholders of the respondent company, before the illegal elimination and dilution of their shareholding by the respondents, whereby they held 1,30,000 shares which was fully paid up by them.
7. The petitioners again submitted that, as per the terms and conditions of the auction held by UPFC, petitioner No. 1 was required to deposit an amount of Rs. 49 lakhs out of which the petitioner had made an upfront payment and the remaining balance was to be paid in four instalments. The sale deed of the same is dated 7th September, 2006, which was done prior to starting the joint venture company. The petitioners have submitted that when the parties agreed to participate in the joint venture, the value of assets was assessed at Rs. 75 lakhs. It was agreed that since it was being acquired for only Rs. 49 lakhs, the petitioners would be getting the benefit of the difference, though it was agreed that the contribution of the petitioners towards equity would be Rs. 13 lakhs while that of respondent No. 2 to 4 would be Rs. 36 Lakhs. The working capital, 'according to petitioners', was to be the responsibility of respondent No. 2 while petitioner No. 1 was to be responsible for the day-to-day management, with the guidance of respondent No. 2 and under the supervision of the Board.
8. The petitioners also stated that they had inducted a further sum of Rs. 38 lakhs towards acquisition of the property, either directly or indirectly, therefore, in terms of the arrangement and understanding, Rs. 25 lakhs were refunded to the petitioners, while Rs. 13 lakhs was retained for the 52% equity shareholding. The petitioners further submitted that they were also engaged into a large litigation against UPFC and the Purvanchal Electricity Supply Corporation for providing the electricity connection which although sanctioned was never installed because of some arrears which were due against Singh Extraction (P) Ltd. prior to the auction purchase. The petitioners have submitted that all the paperwork of the company was at all times with the respondents and the faith and trust on the respondents by the petitioners was proved to have been misplaced subsequently. The petitioners, therefore, contended that, at the request of the respondents, the petitioners in trust, signed several documents including bank papers, blank transfer forms and so on, which the respondents represented to have been required by the bank or the ROC. The petitioners contended that despite being at the centre of the management of day-to-day affairs of the company, respondent No. 4 was reflected as the Chief Executive Officer. Moreover, at the banks request, when due diligence of the company was being performed, the petitioners found out that the respondents had taken loans in the name of the company and furnished personal guarantees as well.
9. The petitioners submitted that even upon request he was never provided with the statutory records of the company. The petitioners contend that respondent No. 2 had made unsecured loans to the company and had from time to time made withdrawals to settle his personal accounts upon confrontation of which the respondent promised, to return the sum due and also to compensate the petitioners for the work being done by them. The petitioners therefore received Rs. 11.68 lakhs as the compensation amount. The petitioners further contend that they had also not received their share certificates which were not supplied to them and was eventually refused in July, 2008. As a consequence, the petitioners lodged an FIR on 16th July, 2008, under Sections 406 and 506 of the I.P.C. against the respondents for fraud and criminal breach of trust committed by them. The petitioners contend that the respondents failed to respond despite being issued a legal notice on 29th July, 2008. The petitioners contend that the respondents had filed a counter civil suit against the petitioners under Civil Suit No. 132 of 2008 at Calcutta seeking a declaration that the share transfer in favour of the respondent No. 2 is valid and the legal notice sent by the petitioner is illegal and invalid. Moreover, according to the petitioners, the respondents filed an FIR on 13th August, 2008, under section 379, 384 and 506 against the petitioner No. 1 alleging that the petitioners had resigned from the company on 12th November, 2006, and the petitioners together had transferred their shares to the respondents on 9th September, 2006. The petitioners contend that they had also made a complaint to the ROC on 25th August, 2008, complaining against the non-issuance of the share certificates by the company to them. The petitioners contend that they had filed a petition on 28th August, 2008, to quash the FIR filed by the respondents against them and the Hon'ble High Court in the same matter had found substance and passed stay orders in favour of the petitioners.
10. The petitioners contended that despite having allegedly transferred the shares, the money was never paid to them by the company, and neither were there any board meetings that were conducted to transfer the said shares or to resign from tire board. The petitioners further contended that there is a discrepancy as to their alleged resignation from the board and the date of filing of Form 2 which was filed 20 months later and after the petitioners had lodged FIR for non-issuance of the share certificates by the company to them. Moreover, the petitioners contend that they had been remunerated as directors in the company till 2008 for their services.
11. The petitioners contended that the respondents have illegally, intentionally and fraudulently tried to hijack, takeover, and assume exclusive ownership and control of the company. The petitioners contend that they had been ousted despite the fact that the terms of auction mandated their majority shareholding the company for which the purchase had been made. The petitioners contend that the paid up share capital had been shown to have been increased and additional shares were issued to the respondents in December, 2006, however, Form 2 in respect of this allotment was filed in July, 2008, only. The same form also reflects the issuance of fresh equity shares of 7,00,000 shares to the respondents on 12th December, 2006. The petitioners contend that the respondents have increased their shareholding in the company from 48% to 100% and reduced the shareholding of the petitioners and finally eliminating them.
12. The petitioners have prayed for negating of the issuance of capital, subscribed and fresh, allegedly done on 9th September, 2006, and 12th December, 2006 respectively. The petitioners also pray for the cancellation of the increase in the authorised capital of the company. The petitioners have prayed for appointment of a local commissioner to seize, inspect, sign and authenticate the minute book of the board meeting, minute book of general meeting and all books of accounts and other records of the company which are in the possession of the respondent No. 2. The petitioners have prayed for restraining the respondents from transferring, alienating any assets or interests in assets owned by the company.
13. The respondents contended that the present petition is misconceived and not maintainable in law. The respondents further deny and dispute all allegations made by the petitioners against them. The respondents have also contended that the credentials of the petitioners as had been submitted in the petition are false. The respondents deny the petitioners shareholding which, as claimed by the petitioners, was 52%. The respondents also deny petitioners being the whole-time directors of the company for the tenure as had been mentioned by them. The respondents contend that they are the promoter directors of the company. According to the respondents, the initial authorized share capital of the company was Rs. 1 crore divided into 10 lakh equity shares of section 10 each and the paid-up capital of the company at one point of time was Rs. 3 lakhs divided into 30,000 equity shares of Rs. 10 each, which was divided between the respondent Nos. 2 and 3.
14. The respondents contend that upon the company's incorporation a rice mill was purchased and thereafter, respondent Nos. 2 and 3 invested huge personal capital in the company and also obtained necessary financial accommodation from the West Bengal Financial Corporation.
15. The respondents contend that in the beginning of July, 2006, the petitioners approached the respondent Nos. 2 and 3 with a request to invest at least Rs. 49 lakhs to purchase an extraction unit from the UPFC to save the investment of Rs. 13 lakhs from getting forfeited. The petitioners, therefore, participated in the auction and quoted Rs. 49 lakhs for buying the unit thereby becoming the highest bidder and deposited a sum of Rs. 13 lakhs as earnest money. Since the petitioners allegedly did not have the balance amount, they persuaded UPFC to purchase the same unit through a company wherein the petitioners would be the majority shareholders. The respondent contended that the petitioners have criminal records in Uttar Pradesh and despite knowing the same they agreed to bail them out of the UPFC contract knowing well that it would not be possible to run the business with them. However, the respondents did tire same with an understanding whereby the plant, machinery and the land would be purchased by the company, equity shares equivalent to Rs. 13 lakhs would be issued in the name of the petitioners, the shareholding would be increased in the company to the extent required by UPFC, the petitioners would sign a share transfer form in favour of the respondent No. 2 so that after execution of the sale deed by UPFC, the petitioners can be removed from the company after paying off their investment of Rs. 13 lakhs, and upto execution of the sale deed, the petitioners would be shown as directors of the company. The petitioners agreed to issue duly signed resignation letters which would be effective upon making payment of a sum of Rs. 13 lakhs. This agreement was allegedly made on 8th September, 2006.
16. The respondents have submitted that, pursuant to the understanding, the respondents infused further capital in the company and paid off the sum of Rs. 36 lakhs to UPFC. The respondents further contend that upon deposit of the said sum of Rs. 36 lakhs, UPFC agreed to execute the sale deed in favour of the company. Thereafter according to the respondents, they infused a further Rs. 9 lakhs in the company. Thereupon, UPFC executed tire necessary sale deed on 7 September, 2006, upon the respondent's request. Finally, the respondents, pursuant to their earlier made understanding, paid off Rs. 13 lakhs by account payee cheques. Thereafter, according to the respondents, the petitioners were shown to have resigned from the board of directors of the company, and, as a consequence, respondent No. 2 duly lodged the executed share transfer form of the petitioners for registration of those shares in their names in the company. The respondents contend that, despite the aforementioned events, the petitioners refused to hand over physical possession of the said plant, machinery and land of the said Singh Extraction Private Limited taking advantage of the local ground situation prevailing at Mirzapur of the local area to which the petitioners belonged to. The petitioners allegedly stopped the respondents from the possession of the land, plant and machinery. However, allegedly, with local intervention, the petitioners were forced to surrender the same which they did after allegedly stealing 250 KVA transformer of the company and sold the same to one Ashish Kumar and Company for which the respondents had filed a criminal proceeding before the Judicial Magistrate and money was recovered. The respondents deny that the petitioners had invested Rs. 40 lakhs in the company.
17. The respondents further contended that the petitioners never participated in the management of the company since 12th September, 2006 regarding which they ha& never complained and the petitioners have only allegedly tried to threaten the respondents to extract money and properties of the company.
18. The respondents contended that since tire petitioners have ceased to hold any shares since 2006, they do not have a right to apply under the provisions of the present petition for oppression and mismanagement against the respondents. The respondents contend that the initial paid up capital of the company was Rs. 3 lakhs which was thereafter increased to Rs. 13 lakhs which the respondents had to infuse for paying off the debts of the petitioners. The respondents contend that the share capital of the company had to be increased to effect a sale deed of the above referred extraction unit in favour of the company by infusing Rs. 36 lakhs, to pay off the balance amount of Rs. 36 lakhs to UPFC.
19. On the basis of the pleadings of the parties following issue arises for the decision of the case:
1. Whether the reduction in the shareholding of the petitioners whereby they signed the share transfer forms and the subsequent resignation of the petitioners from the board of director proves the existence of the understanding between the respondents and the petitioners, and whether the alleged acts of respondents in the petition constitute oppression against the petitioners?
20. The respondents in their counter-affidavit and sur-supplementary affidavit have mentioned that, pursuant to the understanding and allotment on 21th August, 2006, between the petitioners and the respondents, the petitioners were given shares for which the paid up capital of the company reflected an amount of Rs. 13 lakhs against the contribution of the petitioners, and the respondents contributed an amount of Rs. 9 lakhs to the paid-up capital. However there is no conclusive proof as to the fact that the petitioners had made the payment of Rs. 13 lakhs as a consideration for the shares given to them.
21. The petitioners contended that they had participated in the tender whereby they were the highest bidder and were successful in acquiring an asset which actually cost Rs. 75 lakhs and which the petitioner bought for Rs. 49 lakhs. The petitioner has claimed the same in both their petition and the rejoinder. The petitioners, in their petition, contend that when the respondents and the petitioners agreed to participate in the venture whereby the petitioners were given 52% shareholding in the company, the value of the assets was assessed at Rs. 75 lakhs. The petitioners contend that it was agreed that since it was being acquired for only Rs. 49 lakhs, the petitioners were to get the benefit of the difference and it was agreed that the contribution of the petitioners towards equity would be Rs. 13 lakhs while that of the respondents would be Rs. 36 lakhs. Further the petitioners contend that the working capital was to be the responsibility of respondents while the petitioners would be responsible for the day to day management under the supervision of the Board. The petitioners further contended that they inducted Rs. 38 lakhs toward acquisition of the property, either directly or indirectly, during this period which the petitioners have enunciated in the rejoinder wherein it has been reflected that Rs. 13 lakhs was the amount paid by them to UPFC, another Rs. 13 lakhs was the amount paid by them as consideration of the shares allotted to them in the company and another Rs. 12 lakhs was the amount that the petitioners made to the company in cash. The petitioners further contend that, consequently, in terms of the arrangement and understanding, Rs. 25 lakhs was refunded to the petitioners, while Rs. 13 lakhs was retained for the 52% equity shareholding. Moreover the petitioners have contended earlier in their petition at paragraphs 6.5 to 6.8, that with a view to expanding his business, the petitioner No. 1 participated in an auction conducted by UPFC with regard to the sale of a factory unit and in pursuance of the aforesaid public notice of UPFC the petitioner had deposited the required earnest money with UPFC from his individual account and participated in the bid whereby the petitioner was declared as the successful highest bidder at the auction. The deed of conveyance of the unit, according to the terms, could only be executed in the name of a company in which the petitioners held majority shares. The petitioners, in their rejoinder paragraph 13, have also denied having entered into any understanding along with the respondents whereby they could be removed from the company after paying off their investment of Rs. 13 lakhs, and have also denied having agreed to sign share transfer form in favour of respondent No. 2. Additionally, the petitioners have denied having agreed to sign resignation letters which would be effective upon making payment of Rs. 13 lakhs. The petitioners further contended in the rejoinder, that the petitioners through their efforts were able to purchase the said assets at a price much lower than the market value, because at the time when the parties agreed to participate in the joint venture the value of assets was assessed at Rs. 75 lakhs, therefore, since the assets were being acquired for only Rs. 49 lakhs, the petitioners should have got the benefit of the difference. Out of the amount of Rs. 38 lakhs, which the petitioners claim to have invested, the Rs. 12 lakhs that was allegedly lent by the petitioners to the company has no receipt against it, and, therefore, the veracity of this payment cannot be asserted. The amount of Rs. 13 lakhs allegedly paid by the petitioners in consideration of the share capital allotted to them in the company whereby they held Rs. 13 lakhs is also found to be false, because of the apparent contradiction in the statements in the petition and the rejoinder of the petitioners, whereby the petitioner has contended in the petition that consequent to the terms of arrangement and understanding, Rs. 25 lakhs was paid while Rs. 13 lakhs was retained for the 52% equity shareholding, and in tire rejoinder have contended that Rs. 13 lakhs, that the petitioners invested as a consideration in lieu of the share capital that they held in the company, has never been paid back by the respondents. However, the petitioners contend that the remaining Rs. 13 lakhs that was paid to UPFC as earnest money by the petitioners, has been paid off by the respondents through account payee cheques which have also been produced for proof. The subsequent acts of the petitioners of resigning from directorship on 12th November, 2006, and selling their shares that they held of the company through share transfer forms on 9 September, 2006, prove the existence of the understanding that the respondents have claimed to have entered with the petitioners at the inception.
22. The claims that the petitioners have made regarding the signatures, on the share transfer forms and the resignation letters being forged, merit scarce attention, as the claims have not been substantiated with any pieces of proof because the burden of proof relating to the proving or disproving the aforementioned signatures is on the party who claims forgery. Regarding the exclusion of oral evidence in presence of documentary evidence relating to the same, section 91 of the Indian Evidence Act, 1872, contemplates evidence of terms of contracts, grants and other dispositions of property reduced to form of documents which lays down that when the terms of a contract, or of a grant, or of any other disposition of property, have been reduced to the form of a document, and
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in ail cases in which any matter is required by law to be reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant or other disposition of property, or of such matter, except the document itself, or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions hereinbefore contained. 23. Section 92 of the Indian Evidence Act, 1872, excludes evidence of any oral agreement or statement, when the terms of a contract, grant or disposition of property or any matter required by law to be in writing have been proved as per section 91 of the Indian Evidence Act, 1872, for the purpose of contradicting, varying, adding to or subtracting from its terms. The principle lays down that when the terms of any such document have been proved by the primary or secondary evidence of the document, no evidence of any oral agreement or statement shall be admitted. Also section 94 of the Indian Evidence Act, 1872, deals with the exclusion of evidence against application of document of existing facts. This section applies when the execution of the document has been admitted and no vitiating fact has been proved against it. In the present petition the petitioners have themselves contended that, consequently, in terms of the arrangement and understanding, Rs. 25 lakhs was refunded to the petitioners by the respondents. The role of the petitioners in running the company and their involvement in the day-to-day affairs of the company is also lacking and without any significance. 24. Therefore, in the light of the contentions, it is concluded that there is no case of oppression against the petitioners and the company petition deserves to be dismissed. Therefore, the issue No. 1 of whether the reduction in the shareholding of the petitioners whereby they signed the share transfer forms and the subsequent resignation of the petitioners from the board of directors, prove the existence of the understanding, is decided in affirmative in favour of the respondents. Furthermore, the issue whether the alleged acts of respondents in the present petition constitute oppression against the petitioners, is decided in negative. Therefore, it is concluded that the subsequent acts of the petitioners thereby proved the existence of the understanding between the respondents and the petitioners and furthermore after careful consideration of the facts, contentions and arguments in the present case, the Tribunal is of the opinion that there is no proof of any acts of oppression committed against the petitioners. ORDER 25. The present company petition is hereby dismissed with costs.