Rajeswara Rao Vittanala, Judicial Member.
1. C.P.No.40/BB/2017 is filed by Mr.Raju Rangadhamaiah and another (hereinafter referred to as ‘Petitioners’) under Section 241 & 242 r/w Section 244 of the Companies Act, 2013, by inter alia seeking to declare that the Resolutions passed in the Board meetings on 12/03/2015 allotting 15,00,000 equity shares of Rs.10/- each to Respondents 4, 5 and 6 and Board Meeting Resolution passed on 06/01/2016 allotting 10,00,000 equity shares of Rs.10/- each to the 7th Respondent as invalid and not binding on the Company and the Petitioners herein; declare that the alleged Resolution passed by the company in the Extra-ordinary General Meeting held on 14/07/2014 removing the Petitioners from the directorship of the company as invalid and not binding etc.
2. 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. Vinyas Constructions Private Limited, (hereinafter referred to as Company) was incorporated on 26.05.1994 under the Companies Act, 1956, having registered office at No.4, Anjaneya Nagar, Ittanadu, Padmanabha Nagar, Bengaluru 560083. The main objects of Company is inter alia to carry on the business of manufacturers importers and exporters and dealers in all kinds and classes of materials, tools etc.,
2) The R-2 is the Managing Director of the R-1 Company. However, he is not a shareholder of the R-1 Company. He was appointed as an Additional Director on 01.10.2015 and was appointed as the Managing Director on 21.07.2016. The R-3 is presently Member holding 1,30,000 equity shares of Rs.10/- each and is also Director of the R-1 Company. Further, the father of the R-3 Mr.K.Somashekar was the Founder Director and subscriber to the MoA. Subsequent to the demise of Mr.K.Somashekar, R-3 became Director on 05.04.2002. The Respondents No.4, 5 and 6 were allotted 5,00,000 equity shares each of Rs.10/- each on 12.03.2015 behind the back of the Petitioners. The R-7, Mr.L.N.Venugopal was allotted 10,00,000 equity shares of Rs.10/- each on 06/01/2016 behind the back of the Petitioners. The 8th respondent Mr.Ramesh holds 20,000 equity shares of Rs.10/- each. The Respondent No.8 is the brother of the 3rd Respondent. The Respondent No.9 herein was the Director of the R-1 Company from 10/11/2014 to 15/02/2016. The Respondent No.10 Mr.G.Abilash was appointed as a Director on 20.07.2016 and he resigned from the directorship on 28.10.2016. He is also a Director of Deltacorp Sciences Private Limited to which the R-1 company gave guarantee ad collateral security for an amount of Rs.8 crores to Federal Bank. He is also the son of Mr. G.T. Srinivas, the Managing Director of the R-1 Company. The 11th Respondent Mr. G.Chethan Kumar is the son of Managing Director of the R-1 company and was appointed as the Director on 20/07/2016, consequently, he resigned from the directorship on 28/10/2016. The Respondent No.12 is a shareholder of the R-1 Company holding 1,00,000 equity shares of Rs.10/- each and was the Director of the R-1 company from 29/11/2010 to 10/02/2015.
3) It is stated that, the Petitioner in the year 2010, the then Directors of the Company including the R-3 and R-8 both sons of Mr.Somashekar requested the Petitioner for financial assistance to overcome the problem of State Bank of India attaching the property of their mother Smt. K.S.Padma and Petitioners who had acquaintance with their family had transferred funds to avoid the sale and auction of Smt.K.S.Padma’s property. The Respondent No.3 and 8 called upon the Petitioner to fund the company to help it overcoming the problems being faced. At that relevant point in time, one of the Directors and shareholders Smt.Vijayalakshmi filed a Company Petition in CP No.26 of 2011 against the Company and other Directors at CLB, Chennai Bench. The Petitioner paid an amount of Rs.25,00,000/- (Rupees Twenty five lakhs only) by way of settlement to Smt. Vijay Lakshmi through cheque bearing No.452846 dated 21/12/2013 and thus the petition was withdrawn by her and closed. The Petitioners are the Directors of Minerva Infrastructures Private Limited.
4) It is stated that towards the amount paid by the Petitioner to R-3 & R-8, the Petitioner No.1 was allotted 1,25,000 equity shares of Rs.10/- each and Petitioner No.2 was allotted 1,25,000 equity shares of Rs.10/- each. On payment of the said amount of Rs.38,00,000/- (Rupees thirty eight lakhs only), the R-3 & R-8 had assured that they would transfer their entire shareholding in the Company to the Petitioners and also allot further shares to the Petitioners. The R-3 had also assured that he would purchase the shares from other existing shareholders viz., Mr.Jayappa Hegde (holding 20,000 equity shares) Mr. Chethan Reddy (holding 20,000 equity shares), Dr. R.M. Malavayya (holding 20,000 equity shares) and consolidate the holding and then transfer the same to the Petitioners towards the due to the Petitioners. However, the Respondents no.3 and 8 did not keep up their words and on the contrary acted against the interest of the Petitioners by allotting shares to R-4 to 7 behind the back of Petitioners. The Petitioners were appointed as Directors of the Company on 12.12.2013 and 01.12.2014 respectively.
5) The Petitioners, in order to meet the expenses, was providing cash to the Company regularly and the same comes to the tune of Rs.3.6 crores. However, it is alleged that Respondents continued to misappropriate the funds of the Company by alienating the properties and by manipulating its Accounts. On enquiry, in the month of March, 2016, the Petitioners came to know that they were illegally and unlawfully from the Directorship of the Company with effect from 14/07/2014, on the ground that they did not attend the Board meetings and did not take any interest in the activities of the Company. However, they were not aware of those proceedings.
6) It alleged that 2nd Respondent being a Director is manipulating documents in collusion Respondent No.3. The intention of removing the Petitioners was to allot further shares to the other Respondents herein, behind the back of the Petitioners. On coming to know about fraudulent activities of Respondents, the Petitioners gave Complaints to the Police, Income Tax Department, Enforcement Directorate, Serious Fraud Investigation Officer, Registrar of Companies and Regional Director. In fact the property of the R-1 company was mortgaged and charged in favour of Federal Bank for the purpose of giving security to the loan disbursed by the Federal Bank to Delta crop Sciences Private Limited which belongs to the sons of the Respondent No.2, who is the Managing Director of the R-1 company. The properties worth Rs.8 crores belonging to the Company was given as collateral security for the loan extended by the Federal Bank to Deltacrop Sciences Private Limited. The Petitioner lodged a complaint with the jurisdictional police station at Jigani on 04/03/2017. The moment, the complaint was lodged, and FIR registered on 04.03.2017, the R-10 and 11 i.e. sons of Respondent No.2 resigned from the Directorship of the Company and back dated the resignation letter to 28.10.2016. However, the manipulation can be clearly seen from the fact that the form for creation of charge Form CHG-1 was filed by using the DSC (Digital Signature Certificate and DIN (Directors Identification Number) of the Respondent No.10, on 02.11.2016 much after his resignation.
7) Further an enquiry, the Petitioners got to know that the Respondent No.12 had filed a complaint against the Respondent No.3 for forgery of his signature in the Notice dated 15/06/2014 and other papers. The Respondent no.12 has lodged a complaint with the jurisdictional police stating that by forging his signature and fabricating Documents, Respondent No.3 has managed to obtain the digital signature in his name and has used the same for the purpose for uploading the form DIR12 with the Registrar of Companies for the purpose of removal of the Petitioners. Further, the Respondent No.12 has also lodged Complaint with the Registrar of Companies, Enforcement Directorate, Income Tax Department, Serious Fraud Investigation Officer and Police. It is very clear that the Respondents 2, 3 and 8 have been manipulating things in order to deprive the Petitioners of their entitlement in the R-1 company.
8) It is alleged that the Respondents have deceived, cheated, breached the trust that the Petitioners and had committed fraud. Since the company was mainly under the control and belonged to the father of Respondent No.3 and 8. Late Mr.Somashekar, the Petitioners came to the rescue of the family, whenever it was in financial distress and since the company was being run like a quashi-partnership, their assurance that they would allot shares in favor of the Petitioner herein to transfer the entire ownership of the company along with the lands to the Petitioner was recalled upon. But however, the Respondent No.3 and 8 breached the trust that was reposed on them by the Petitioners. Hence the petition.
3. The Respondents Nos. 1, 2, 3 & 8 have filed Statement of objections dated 31.08.2017 by inter alia contending as follows:
1) It is agreed that the Directors of the Company, R3 & R8 requested for the financial assistance to overcome the problem of State Bank of India attaching their mother other property is true, however, the same was repaid by R-3, which has no relationship, with affairs of the Company. The financial assistance rendered by the Petitioners to the R-3 & 8 does not entitle to be appointed as Directors of Company. Further, the Petitioners has paid an amount of Rs.25,00,000/- for the settlement of a dispute between one of the shareholders and Director Smt.Vijayalakshmi against the R-1 Company is totally baseless. However it is true that the Petitioners were appointed as Director of the Company on 12.12.2013 and 01.12.2014 respectively. However, the Petitioner No.1 was appointed on the promise that he would invest an amount of Rs.20 crores, and the Petitioner No.2 was appointed on promise that she would speed up the process of investing Rs.20 crores into the Company. However, the Petitioners have not invested even a single rupee after their appointment as Directors. The said Smt. Vijayalakshmi had resigned from the R-1 company in the year 1995 itself. The personal transaction between the Petitioners, who are one of the Directors of Minerva Infrastructures Private Limited and said Smt.Vijayalakshmi has no connection to the affairs of the Company.
2) The contention of Petitioners that they were given assurance by R-3 & 8 to transfer of entire shareholding of the R1 Company is far from truth, if at all such assurance were made by the R3 & 8 the Petitioners ought to produce an agreement or any documents in support of the same. Further the transaction of Rs.38,00,000/- had taken place in the year 2009, when R-3 was merely holding 20,000 shares of the R-1 Company, and it clearly shows that R3 was not qualified to transfer the entire shareholding of the R-1 Company. The Board meeting were duly held on a timely basis as per the provisions of Companies Act, 1956 & 2013 and with due notice to the Petitioners regarding the appointment of the Petitioners as Directors.
3) For the removal of the Petitioners, as Directors of a Company, a special notice was issued by Mr.Narendra Babu Basappa and R2 in the capacity of Shareholders as on 15.06.2014, and further requisition was issued to call for an Extra-Ordinary General Meeting on 24.06.2014. Further, notice dated 02.07.2014 was received by the Petitioners on 14.07.2014 regarding the removal of the Petitioners as Directors of the Company. Even after receiving the notice, the Petitioners failed to appear and finally a resolution was passed removing the Petitioners as Directors of the company. The R-1 Company has followed the requisite procedure prescribed u/s 169 of the Companies Act, 2013 regarding removal of the Petitioners as Directors. Extra-Ordinary General Meeting of the Company took place on 14.07.2014 at the registered office of the company and the removal of the Petitioners was also intimated vide noticed dated 15.07.2014 to the Petitioners. They have not made any representation to the Company about alleged irregularity now raised. The Petitioners have no locus standi to question the affairs of Company in allotting shares to others. Further, the complaints filed by the Petitioners before Income Tax Department, Enforcement Directorates, SFIO and ROC etc., are not in the knowledge of the Respondents. Even if there are complaints filed by the Petitioners, the non-action by the Authorities on the alleged companies itself show that there is absolutely no malafide in the affairs and management of the R1 Company. The Respondents have also denied that R2 allegedly have brought his sons as Directors of R1 Company with malafide intention of providing collateral security for the Company run by the sons of R2. Further the alleged amount of Rs. 8,00,00,000/- was taken by another company by name M/s. Delta Crop Science Private Limited in when R-2 is the Managing Director of the Company is only to provide collateral security to avail the said loan. It is relevant that the sons of the R-2 have resigned from the Company on 28.10.2016 and the charges for the aforesaid loan were registered by ROC on 2.11.2016 and there is no illegality caused through the said transaction.
4) It is stated that R-1 Company stood as guarantor to Delta Crop Science Private Limited only after passing a resolution and fully complying with Section 180 of the Companies Act, 2013. Further the Petitioners have also filed a series of complaints across various Police Stations in the city of Bengaluru with an intention to harass and humiliate the Respondents. The following criminal cases were filed against the Respondents.
i) Crime No.189/2016 on the file of Jigani Police Station alleging commission of offences punishable under Section 406, 420, 468, 465, 471, 420, r/w 34 o I.P.C.
ii) Crime No.25/2017 on the file of Jigani Police Station alleging commission of offences punishable under Section 406, 420, 468, 465, 471, 420, r/w 34 o I.P.C.
iii) Crime No.55/2016 on the file of Jigani Police Station alleging commission of offences punishable under Section 406, 420, 468, 465, 471, 420, r/w 34 o I.P.C.
However, the Hon’ble High Court of Karnataka passed an order in favour of Respondents No.1 to 3 and observing that Company matter is being unnecessarily dragged into a criminal court and was pleased to intervene and grant an Interim Order of stay of investigation in all the complaints. The filing the complaints before different Police Stations clearly indicate the conduct of the Petitioners that despite fully knowing that this Hon’ble Tribunal is the appropriate forum to resolve disputes involving the Company.
Further the case is still pending for investigation regarding forging certain signature and fabricating documents and obtaining digital signatures, and scientifically it has been known that digital signatures can neither be stolen nor forged.
5) It is stated that as per Section 241 (b) of the Companies Act, 2013 only Members of the Company can file the petition seeking reliefs for allegedly being oppressed or for mismanagement of the R-1 Company, and in the instant case, the Petitioners were lawfully removed as Directors of the Company vide Board Resolution dated 14.07.2014, hence the Petitioners cease to be Members of the R-1 Company. Further the Petitioners are prohibited from exercising their right to apply u/s 241 of the Companies Act, 2013 as per the requisites provided u/s 244 of the Company Act, 2013. Thus the alleged share capital held by the Petitioners does not from the basic criteria to file the company petition u/s 241 of the Companies Act. The removal of the Petitioners as Directors of the R-1 Company is fully justified and within the limits of the procedure prescribed by law.
6) The Petitioners failed to point out from the conduct of the R-1 Company, as to how the Company has violated the MoA and AOA. The R-1 Company always upheld the core principles on which it is setup. The R2 & R3 have tirelessly working day in and day out for the welfare and upliftment of the R-1 Company with the sole intention of maintaining the key principles of the R-1 Company.
4. The Respondents No.4 to 7 and 9 have also filed their statement of objections dated 17.01.2020 inter-alia stating as follows:
1) It is stated that the petition filed by the Petitioners is speculative, per se vexatious and not maintainable either in law or in fact. Further the Petitioners have not come with clean hands before this Tribunal and the allegation made by the Petitioners are baseless. The documents provided by the Petitioner alleges the integrity of the Respondents No.2, 3 & 8 but the Petitioners have arrayed the Respondents No.4 to 7 & 9 to this petition as Respondents just to harass them and to mislead this Hon’ble Tribunal with ill intention. Further, the removal of the Petitioners as Director of the R-1 Company is not bound on the Respondents No.4 to 7 & 9, as the removal of the petitioners from the Directorship is prior to the appointment of the Respondents No.4 to 7 & 9 and are nowhere concerned with the termination of the Petitioners and the R-9 was appointed as Director of the Company on 10.11.2014 after the termination of the Petitioners from their Directorship.
2) They have no knowledge regarding the promises made by the R3 & R8 to the Petitioner. They have purchased the shares of Company for valuable consideration wherein the Petitioner has no locus standi to allege the same as on that date, the Petitioners were nowhere related and were terminated from the Directorship to the R-1 Company. Further the termination of the Petitioners from the Directorship of the R1 Company was passed by the Managing Director and Director of the Company in the Board meeting and the same minutes are uploaded to the website of RoC through FORM DIR12 dated 14.07.2014 along with EGM notice, extract of EGM resolution, requisition for removal by Shareholders etc., The Petitioners would have fetched these information from the website, but ignored in updating the information and plead ignorance till March 2016. The properties of the Company were pledged with the Federal Bank just to raise the creditability through guarantee and security of Delta Crop Sciences Private Limited where this Company is nowhere concerned with the R1 Company.
5. The Petitioners have filed the Memorandum of Rejoinder in response to the objections filed by the Respondents No.1, 2, 3 & 8 on 24.09.2019 interalia stating as follows:
1) It is alleged that R-1 Company has fabricated the Board Meeting minutes dated 25th May 2014 showing that the cheque dated 20.12.2013 for an amount of Rs.25,00,000/- issued by the Petitioner to Smt.Vijayalakshmi who was the Director of the R-1 Company has got returned as dishonoured. The Petitioners, who are the Directors of Minerva Infrastructure Private Limited, have issued cheque from their Company for the above said purpose.
2) The Respondent No.12 had also lodged a Police complaint against the Respondents No.2, 3 & 8 forging the signature on various documents and for fraudulently using his digital signature without his consent or knowledge. The balance sheet as at 31st March 2014 very clearly show that the paid-up share capital was increased from Rs.15,00,000/- to Rs.50,00,000 and there has been inflow of funds to the extent of Rs.35,00,000/- and also the payment of Rs.25,00,000 has been shown in the Balance sheet of 31st March 2014 made by the Petitioners.
3) The R1 Company has also filed the requisite statutory documents before the ROC and had confirmed the allotment of shares to the Petitioners, and the R1 Company has not issued any share certificate to the shareholders till date. Further once the shares have been allotted to the shareholders, the company cannot revoke the same. It is further stated the no formal agreement was entered between the parties and all the transactions was based only on mutual trust the Petitioners had towards the Respondent, since the Petitioner being family friends of Respondents No.3 & 8 and being under the impression that the Respondents are trustworthy had come forward to provide financial assistance to the Respondents.
6. Heard Shri.Vivekananda Learned Counsel for the Petitioner, Shri. Anappa K.G. Learned Counsel for the Respondents Nos. 1, 3 & 9, and Shri A. Rajesh Learned Counsel for the Respondents Nos. 4 to 7 & 9. We have carefully perused the pleadings of all the Parties and the extant provisions of the Companies Act, 2013, and the Rules made thereunder and the Law on the issue.
7. Shri.Vivekananda Learned Counsel, after arguing the case, has also filed Written Arguments on 10.02.2020 by inter alia stating as follows:
1. It is stated that the list of allottees was signed by the R3 and counter-signed by K.R. Prabhakar & Associates, Chartered Accountants. Further, the Petitioners have also filed the Annual Returns for the financial year 2013-14. After removing the Petitioners from the Directorship, at their back, shares were further allotted to the other Respondents. Though the Petitioners have been reduced from 50% shareholding to 8.32%, such reduction is challenged under Section 241 of the Act.
2. Further, under Section 244 of the Companies Act, 2013, 100 members or members not less than 1/10th of the total number of its members, whichever is less shall have the right to apply under Section 241. Further, there are a total of 10 members and the Petitioners who are 2 in number, are more than 1/10th number of Members, hence, the Petitioners have the qualification under Section 244 of the Act to file this petition under Section 241 of the Companies Act, 2013. It is stated that there has been continuous infighting in the Respondent Company even after filing of this petition. He has relied upon the following decisions in support of his case:
a. M.s. Therm Flow Engineers Private Limited & Others v/s Mr.Bhavesh Narumalani & Another in C.A (AT) No.159/2017 passed by NCLAT, Newdelhi.
b. Mr. P.M.Johny and another v/s Seaqueen Builders Private Limited in TCP No.64/2017 passed by Hon’ble NACLAT.
c. Varadarajan v Udhayem Leasings and Investments Private Limited passed by CLB in CP No. 60 of 2002.
8. Shri. K.G.Anappa, learned Counsel for the Respondents No.1, 3 & 8, after arguing the case, has also filed his written submissions dated 10.02.2020 by inter alia contending as follows:
1) The Petitioner lacks the locus standi to file the present petition under Section 241 r/w 242 of the Companies Act, 2013. The Petitioners must hold at least one-tenth of the issued share-capital of the Respondent No.1 Company to be eligible under Sec.244 of the Act. In this regard it is pertinent to note that the Shares were issued to the Petitioners with a bonafide intention that they shall bring an investment of R.20 crores to the Respondent No.1 Company. However, the Petitioners neither brought in fresh investments into the Respondent No.1 Company nor made any monetary payment towards the purchase of the shares as it was agreed that payment towards the purchase of the shares as it was agreed that payment would be made later on after the allotment of shares. Since the Petitioners have failed to bring in the promised investments or pay for the allotted shares, the allotment of shares stood suspended. The Petitioners have also mentioned same in the Memorandum of Rejoinder filed by them under Clause (i) – Significant Accounting Policies of the Company. Hence, when there is pending consideration to be paid for the avowed shares allotted to the Petitioners, they shall not be considered as Shareholders in the Respondent No.1 Company.
2. It is relevant to note that the Petitioners do not fall under the ambit of “members” u/s 2(55) of Companies Act, 2013. There is no mentioning the names of the Petitioners in the Register of Members as well. Hence, the Petitioners lacks the legal right to apply to the above Petition u/s 242 of Companies Act, 2013. The Petitioners in the instant case have failed to establish the necessary ingredients of Oppression and Mismanagement as stipulated under the provisions of the Companies Act, 2013.The Petitioners have merely relied upon certain irregularities in the minutes of the meetings, which do not in any form or manner disclose a case of oppression or mismanagement. For a case of oppression to be made out, it has to be shown that the same was continuous and was done by the majority shareholder abusing his dominant position against the minority shareholders.
3) It is further stated that there has been an inordinate unexplained delay by the Petitioners in filing the present Company Petition. It is relevant to note that due notice had been given to the Petitioners regarding the Extra-Ordinary General Meeting that was to be held at the R-1 Company on 17.06.2014. Despite effective service of notice, the Petitioners failed to appear for the meeting. Therefore, a resolution was passed regarding their removal as Directors of the Company on 14.07.2014. In view of the same, notice was sent to the Petitioners regarding their removal as Directors from the Respondent No.1 Company. Therefore, the Petitioners had due knowledge of the fact that they were removed from the Directorship in the year 2014 itself. Under these circumstances, the Petitioners were fully aware of the Extraordinary General Meetings called for the removal as Directors from the Respondent No.1 Company. Further, it is also relevant to note that the Petitioners had sent several complaints to the Income Tax Department, SFIO and Enforcement Directorate on 10.03.2016. This clearly indicates that they had due and personal knowledge of their removal as Directors from the R-1 Company. Despite the same, they have approached this Hon’ble Tribunal only in the year 2017, after an inordinate unexplained delay of more than 30 months. In this view of the matter, the Company Petition is barred by way of Limitation under the Limitation Act, 1963. Additionally, it is submitted that in the year 2016, the Petitioners filed multiple police complaints resulting in multiple FIRs before various Police Stations across Bengaluru City against the R-1 Company and R-3 regarding the averred illegal removal of Petitioners as Directors of the Respondent No.1 Company. Subsequently, all the aforesaid FIRs were stayed by the Hon’ble High Court of Karnataka, which prompted the Petitioners to file the above case before this Hon’ble Court.
4) It is further stated that the omissions and contradictions pointed out by the Petitioners with regard to the Original minutes of the meeting and the minutes of the meeting downloaded from the ROC website do no discloser case of oppression or mismanagement. In fact, it is prima facie evident that the said contradictions arise out of mere irregularities or typographical errors. The mere mentioning of the wrong provisions of law is not fatal to the case of the Respondents and no adverse inference shall be drawn with regard to the same. The correct provision of law has been mentioned at the original minutes of the meeting. In fact, it would be irrational to remove a Director under Section 100, Companies Act, 2013, as it only provides for calling an Extra Ordinary general meeting. The action to remove a Director shall be exercised u/s 169 of Companies Act, 2013.
5) It is stated that Resolution passed only stipulates the name of Mrs.Munivenkatappa Jagadamba as the Director viz Petitioner No.2. The wife of Mr.Raju Rangadamaiah (Petitioner No.1) as pointed out is the same Mrs. Munivenkatappa Jagadamba. Additionally, the minutes of meetings and other allied documents uploaded on the website of the Ministry of Corporate Affairs are merely extracts of the same. Hence, the contentions of the Petitioners contrary in this regard are without any basis and are beyond the scope of the present Petition.
6) It is stated that the allegation of the Petitioners stating that the amount of Rs.25,00,000/- given to one Vijayalakshmi is the basis on which shares were allotted is totally devoid of merit and contrary to facts. It is pertinent to note that the alleged transaction between the Petitioners and one Vijayalakshmi are of personal in nature and have no relationship with the affairs of the R-1 Company. Furthermore, Mrs. Vijayalakshmi had resigned from the Company in the year 1995, and therefore the submission of the Petitioners does not hold any water. The allegations of fabrications, forgery cannot be decided by this Hon’ble Court. As such, proceedings before this Hon’ble Court are summary in nature and disputed facts cannot be decided in such summary proceedings. He has relied upon judgment rendered in the cases of i.e _Sangramsinh P Gakewad & Ors v. Shantadevi P Gakewad (2005) 11 SCC 314 at Paragraph(s) 180, 181 & 183 passed by Hon’ble Supreme Court of India and Lanie Power Engineering v Sokeo Power Pvt Ltd., reported in (2018) SCC online NCLAT 414 by Hon’ble NCLAT. Therefore, he has urged the Tribunal to dismiss the Petition.
9. In pursuant to the pleadings of both the Parties, the main issues arise for consideration in the instant Company petition are as follows:
a) Whether the Petitioners are the Members of the R1 Company in terms of definition given U/s2(55) of Companies Act, 2013 to maintain the instant Company Petition, under Section 241 of the Act;
b) Whether the removal of the Petitioners as Directors is in accordance with law or not;
c) Whether the alleged acts of oppression and mismanagement are established or not;
d) If so, what reliefs the Petitioners are entitled for.
10. Since an Application/Company Petition U/s 242 of the Act, can be maintined only by Member of a Company, it is relevant to refer the definition of a Member given under Section 2 (55), which reads as under:
“Member”, in relation to a company, means—
(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members;
(ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;
(iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records o a depository;
Section 241 is qualified by section 244 of Act. Members of a Company, who are qualified by Section 244 of the Act, can file an Application/Petition U/s 241 of Act to seek relief(s) from the Tribunal u/s 242 of Act. It is relevant to extract Section 244 of the Companies Act for ready reference, which reads as under:
244. Right to apply under section 241
244(1) The following members of a company shall have the right to apply under section 241, namely:--
(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares;
(b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members;
Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241.
Explanation:-- For the purpose of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member.
(2) Where any members of a company are entitled to make an application under subscription
(1) any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them.
11. In the light of the above provisions of the Companies Act, it is necessary to refer the averments made by the Petitioners in the Company Petition. The Respondent Company was incorporated on 26.5.1994. As per Articles of Association (AOA for short) of the Company, the initial authorized share capital is Rs.5,00,00,000/- divided into 50,00,000 equity shares of Rs.10/- each with power to increase and reduce the capital. The Board of Directors are empowered with the sanction of the Company by an ordinary resolution in the General meeting to increase the authorized share capital. As per the Article 7 of the AoA “the shares shall be under the control of the Board, who may allot or otherwise dispose of the same to such persons on such terms and conditions and at such time as the Board may think fit subject to other Articles. The Board of Directors shall have the power to issue or allot shares for the consideration or otherwise in cash for the service rendered to the Company”.
12. As per the article 28 of the AOA ‘the first Directors of the Company are viz., Mr.K.Somashekhara, Mr.S.Venu and Smt.Vijayalakshmi and they are liable to retire as per the applicable provisions of the Companies Act, 1956’. As per the article 29 of the AOA ‘no share qualification is necessary for being appointed as or holding office of the direct of the Company’. Therefore the shares can be all allotted by the Board of Directors for the consideration or otherwise in case for the service rendered/to be rendered. The Petitioners were allotted Rs.25,000/- equity shares of Rs.10/- each on paper subject to payment consideration. The Petitioners contended that they have paid consideration of Rs.25,000/- to Smt.Vijayalakshmi to make settlement in the case filed against the Company vide C.P.No.26/2011. It is also stated that another amount of Rs.38,00,000/- was paid to the Company on the assurance that the Respondents No.2 & 8 would transfer their entire shareholding to the Company to the Petitioners and also allot further shares to the Petitioners. It is also contended that Shri Ssreedhar Somashekar, the Respondent No.3 herein has assured that he would bring funds to the company and will purchase the shares from the other existing shareholders and thereafter transfer those shares to the Petitioners. In support of their contention, the Petitioners have only produced the copy of the order dated 10.12.2013 passed by the CLB, Chennai. Wherein the C.P.No.26/2011 was dismissed as withdrawn as issue in question was settled. Smt. Vijayalakshmi also filed an affidavit dated 09.12.2013 in C.P.No.26/2011, wherein it is interalia stated that the parties are come to the mutual understanding and thus they received consideration of Rs.25 lakh by way of cheque bearing No.452845 dated 20.12.2013 drawn on Bank of India. VV Puram Branch and thus declaring no claim of 30,000 equity shares in the R1 Company and handed over the original share certificates.
13. Admittedly, the Petitioners are not parties to said CP. Therefore it is not known whether said amount of Rs.25,00,000/- paid on behalf of Petitioners is for allotment of shares in the Company or not. In support of contentions, in respect of payment, the Petitioners also produced letter dated 27.04.2017 issued by State Bank of India to the Petitioner No.1 by confirming the receipt of payment of Rs.20,00,000 which reads as under:
“With reference to your above letter, we confirm having received payment of Rs.20,00,000/- on 25.05.2009 and Rs.18,00,000 on 03.06.2009 to the loan account No.30590891362 of M/s.Wel Knit Macine Tools and Automation Private Limited which was remitted/paid by M/s. Minerva Tools and Travels limited (Bank of India, VV Puram branch A/C No.840230100001111) on behalf of Mrs. K.S.Padma W/o. Late K Somashekhar, No.994/A 4th cross, Banashankari 1st stage, Bengaluru -560 050.
We are not in position at present to furnish the copies of auction notices issued under 13(2) and 13(4) of the SARFAESI in the captioned case as the old records have been transferred to storage place”.
14. Therefore, the Petitioners failed to produce any document(s) to show that the Respondent Company has agreed to allot shares to the Petitioners. However, it is contended that the shares in question were issued subject to bringing their capital into the Company, as detailed supra. The Petitioners have also admitted that they are not issued share certificates for the allotment made by the Company and their names are not reflecting in the Register of Members of Company. Therefore, the Petitioners failed to establish that they are Members of the Company to maintain the instant Petition.
15. It is not in dispute that the Petitioners were not issued the share certificate, though the allotment was made subject to the payment of the consideration. The Petitioners themselves have filed annual returns of the Company vide AGM held on 23.09.2014, wherein it is clearly mentioned claim for 3,50,000 shares by Smt. M.Jagadamba, Mr. Raju Rangadamaiah and Narendrababu Basappa is under dispute, no share certificate or shares been issued, due of Rs.35,00,000 from three allotees is relating to unrealized amount of shares issued to the members as per the audited report. Even the Balance sheet as on 31.03.2014, it is mentioned that Rs.35,00,000/- was due from three alottees in relating to unrealized amount of shares issued to Members. Therefore, the contention of the Petitioners that they have paid consideration of Rs.25,00,000/- for the issue of shares is not established. Moreover, it is not the case of Petitioners that there is any agreement between the Petitioners and the Respondent Company for the same. The Petition is filed only basing on alleged assurances on the part of the Respondents. Moreover, Smt. Vijayalakshmi is stated to have resigned in the beginning itself and this she cannot allot any shares and i
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t is the Board of Directors to allot the shares of the Company. And she is not made party here to hear her version of case. 16. With reference to the averment of the Petitioners, that Board of Directors of the Company assured to allot shares is concerned, it is relevant to refer the minutes of the Board of Directors held on 01.02.2014, wherein, the Petitioner No.1 was present along with Mr.Somashekar, Mr.Sridhar Somakshekar and Ramesh Somashekar Directors, wherein the proposal of the First Petitioner to appoint his wife (Petitioner No.2) as Director was approved and the Resolution is extracted below for ready reference: “To Appointment of Director The Chairman proposed to appoint one director on the board of the Company. Sri Raju Rangadhamiah proposed that his wife may be taken as Director. She has rich Business and industrial experience and if she is appointed he will speed up the investment of Rs.20 crores which he had promise at the time of his appointment for Company project at Bukkasagara as Trade loan. The Board noted that Trade loan for Company’s construction project from a Director is exempt category under acceptance of Deposit Rules. The board appreciated and requested Mr.Raju Rangahamaiah to bring the funds of Rs.20 crores for Company’s project and Mr. Raju Rangadhamaiah promised to do so within one month”. 17. In the subsequent Board meeting held on 07.05.2014, it was mentioned that the cheque for Rs.25,00,000/- issued by the Petitioner No.1 towards the allotment of shares was not honoured by the Bank. Therefore, the Petitioner No.1 collected the cheque and promised to get Bank Pay Order, but failed to do so. Therefore the Petitioner No.1 collected the cheque and promised to get Bank Pay Order, but failed to do so. Therefore the Petitioner failed to substantiate the amount of Rs.25,00,000/- paid for allotment of shares as contended. Mere allotment of shares could not entitle to become Member unless the share certificate is issued and names are entered in the Register of Members of the Company. Moreover, the Petitioners have not sought for issue of share Certificates and to enter their names in the Register of Members of the Company by filing Application U/s 58/59 of the Companies Act. It is also relevant to point out here by allotting further shares to the Respondents, the alleged shares holding of Petitioners is reduced to less than 10%. And the Petitioners have not filed any Application for waiver of requisite conditions as per extant Provisions of Act. The Contention of the Petitioners that they are two shareholders out of total 10 shareholders is not tenable in the case of a Company having share Capital. 18. So far as the allegation of Petitioners about their removal as Directors of the Company, it is true that as per Articles of Association of the Company, Directors need not hold any shares of the Company. But as per law, such Directors cannot maintain an Application/Company Petition for their removal and in any case, it cannot constitute act of oppression and mismanagement. It is also relevant to point out here, that the Respondent have placed relevant material to show that Petitioners have been removed duly following law in which requisite notice was given by the Shareholders to convene the special meeting for removal of the Petitioners as Directors. The Petitioners were given due notice of the same and the Petitioners have not attended the Board Meeting as per the law. It is also relevant to point out here; that the Petitioners have made a complaint to the ROC, Karnataka, to the Enforcement Directorate and to the Income Tax Department, SFIO on 10.03.2016 making allegations against the Respondent for allotment of shares, removal of the Directors and the Petitioners failed to approach the Tribunal within reasonable time. The Petitioners, instead of approaching this Tribunal, have approached other Authorities and failed to explain the delay in filing the instant Company Petition. 19. For the aforesaid reasons and circumstances, we are of considered opinion that the instant Company is not maintainable and also lacks merits, and this it is only liable to be dismissed. 20. In the result, C.P.No.40/BB/2017 is hereby dismissed. No order as to costs.