Company Law Board
Amanullah Khan vs Safina Construction (P) Ltd. And Ors. on 9 March, 2004
Equivalent citations: (2004)3COMPLJ429(CLB)
ORDER
S. Balasubramanian, Chairman
1. The petitioner claiming to hold 50% shares in Safina Construction (P) Ltd. (the company) has filed this petition challenging issue of further shares and also appointment of an additional director on the ground that the same were done without his knowledge and consent and as such, are acts of oppression and mismanagement in terms of Section 397/398 of the Companies Act, 1956 (the Act).
2. The facts of the case are that the petitioner and the 2nd respondent incorporated this company in 1996 with the object of carrying on the business of real estate. The petitioner and the 2nd respondent held shares worth Rs. 2 lakhs each of the authorised capital as on 31 March 1999 of Rs. 5 lakhs. Both were directors of the company. According to the petitioner, even though the 2nd respondent was not appointed as the managing director, he was exercising all powers of the managing director and he had failed to convene either Board meetings or general meeting after 16 August 1996. Without the knowledge and consent of the petitioner who is also a director, the 2nd respondent illegally convened a general meeting and appointed the 3rd respondent as a director and these facts came to the knowledge of the petitioner only from Form No. 32 filed with the RoC on 26 February 1999 indicating therein that the 3rd respondent was appointed as a director with effect from 15 November 1997. The petitioner also came to know [of] the allotment of 18,700 shares from Form No. 2 filed with the RoC. These shares have been allotted only to the 2nd respondent group without any offer to the petitioner. Accordingly, he has sought for cancellation of the allotment of shares and also for a declaration that the 3rd respondent is not a director.
3. In the reply filed by the 1st and 2nd respondents, all the allegations have been denied. The company needed funds and, accordingly, it was decided to increase the paid up capital. Even though oral offers were made to the petitioner to subscribe additional capital, he did not subscribe for any shares. In a Board meeting held on 6 May 1997 which was attended by the petitioner, as is evident from his signature on the minutes (page 42 of the reply), the authorised capital was increased from Rs. 2 lakhs to Rs. 5 lakhs. In the Board meeting held on 15 November 1997 which was attended by the petitioner, as is evident from his signature on the minutes (page 48 of the reply), it was decided to allot 20,000 equity shares of Rs. 100 each. Therefore, it is wrong to say that further shares were issued without the knowledge and consent or without any offer to the petitioner. Having consented to the issue of further shares to others, the petitioner cannot now take a stand that no offer was made to him. The company has been holding Board meetings regularly as is evident from the pages 34 to 52 wherein copies of minutes have been enclosed. In every meting, the petitioner had participated (except on 24 August 1998) as is evident from his signatures not only at the attendance portion of the minutes but also at the bottom of the minutes. The 3rd respondent was appointed as an additional director in the Board meeting held on 15 November 1997, which was also attended by the petitioner. Therefore, there is no substance in the allegations of the petitioner that allotment of shares and appointment of the 3rd respondent as an additional director had been done without his knowledge and consent and, therefore, the petition should be dismissed.
4. In the rejoinder, the petitioner has questioned the authenticity of his signatures on the various minutes and has alleged forgery. He has also stated in the rejoinder that he had filed an FIR alleging forgery and, therefore, no credence should be given to the averments of the respondents that the petitioner was present in the impugned Board meetings.
5. In the hearing held on 9 June 2000, the petitioner submitted that since the criminal court was seized of the matter relating to forgery, the proceedings should be kept pending till the findings of the. criminal court were available. Accordingly, by an order dated 9 June 2000, the present proceedings were stayed with liberty to the parties to approach this Bench after pronouncement of the decision by the criminal court.
6. The 2nd respondent has filed an affidavit on 29 January 2002 enclosing therewith the order of First Additional District and Sessions Judge, Aligarh, by which the criminal proceedings have been squashed on the ground that the petitioner had not proved the allegation of forgery of his signatures. Thereafter, the present proceeding was revived. With a view to amicably settle the disputes, it was suggested to the petitioner that he could go out of the company on receipt of fair consideration for his shares. While he was agreeable to this suggestion, he also demanded that he has paid substantial amount for purchase of a land jointly with the 2nd respondent and, therefore, that amount also should be refunded to the petitioner. While the respondents did agree that the petitioner had paid money towards purchase of the land, yet, they disputed the quantum of the money paid by the petitioner. In view of this, the compromise efforts failed.
7. As far as the allegations are concerned, while the petitioner's stand is that allotment of shares and appointment of additional directors were without his consent and knowledge, the respondents rely on his signatures on the minutes to contend that the petitioner was a party to these decisions. It was the petitioner who suggested staying the proceedings before this Board till the outcome of the criminal proceedings and now that criminal proceedings have been quashed, I have to necessarily believe, that the petitioner was a party to the decisions to allot shares and for appointment of the 3rd respondent as an additional director on the basis of the petitioner's signatures on the minutes containing these decisions. This being the case, the petition has to be dismissed.
8. However, taking into consideration that the petitioner is one of the two promoters of the company and that now disputes have started between the two promoters, in the interest of the company, the petitioner could go out of the company on receipt of the face value of his shares if he so desires. In case he desires to go out of the company, he should express the same in writing to the company/respondents within 30 days of this order. Once he expresses his desire to go out of the company, the same is binding on the company/the 2nd respondent and either of them at the choice of the 2nd respondent should purchase the shares at face value and pay the consideration within 30 days of receipt of the communication from the petitioner. In case the company purchases the shares, it is authorised to effect reduction in its paid up capital. As far as the claim of the petitioner for refund of the money for the land is concerned, the same being a private transaction between the two promoters (the land is not registered in the name of the company), the petitioner may take recourse to other appropriate proceeding, if so advised.
9. The petition is disposed of in the above terms with no order as to cost.