Karnataka High Court
L Chandramurthy vs Pearl Insulations Pvt Ltd on 11 July, 2012
Bench: D.V.Shylendra Kumar, H.S.Kempanna
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 11TH DAY OF JULY, 2012
PRESENT
THE HON'BLE MR. JUSTICE D.V.SHYLENDRA KUMAR
AND
THE HON'BLE MR.JUSTICE H.S.KEMPANNA
COMPA. NO.8/2008
C/W
COMPA. No.9/2008
COMPA. NO.8/2008
BETWEEN:-
L.CHANDRAMURTHY
SON OF LATE NARANAIAH
AGED ABOUT 64 YEARS
DIRECTOR,
M/S PEARL INSULATIONS PVT. LTD.,
NOW RESIDING AT NO.502,
'SREE RAKSHE ' 1ST 'I' CROSS,
3RD MAIN, HOSAKERE HALLI CROSS,
BSK III STAGE
BANGALORE - 560 085 ... APPELLANT
(BY SRI.T.RUKMANGADHACHAR - ADV. )
AND:
1. PEARL INSULATIONS PVT., LTD.,
HAVING ITS REGD. OFFICE AT PLOT NO.505/506,
IV PHASE, PEENYA INDUSTRIAL AREA
II STAGE, BANGALORE - 560 058.
2. K.I.KAPSI
DIRECTOR
M/S PEARL INSULATIONS PVT., LTD.,
2
PLOT NO.505/506,
IV PHASE, PEENYA INDUSTRIAL AREA
II STAGE, BANGALORE - 560 058.
3. GEORGE JOSEPH
M/S PEARL INSULATIONS PVT., LTD.,
PLOT NO.505/506,
IV PHASE, PEENYA INDUSTRIAL AREA
II STAGE, BANGALORE - 560 058.
4. TUKARAM PAI
DIRECTOR
M/S PEARL INSULATIONS PVT., LTD.,
PLOT NO.505/506,
IV PHASE, PEENYA INDUSTRIAL AREA
II STAGE, BANGALORE - 560 058.
5. J.SURI,
NOMINEE DIRECTOR OF
M/S. VON ROLL ISOLA
(INDIA) HOLDINGS PVT., LTD.,
BANGALORE , ON THE BOARD OF
M/S PEARL INSULATIONS PVT., LTD.,
HAVING HIS OFFICE AT NO.43,
CUBBON ROAD, BANGALORE - 560 001.
6. M/S VON ROLL ISOLA INDIA HOLDINGS PVT., LTD.,
NO.5, CASAFINA, PRIMROSE ROAD,
BANGALORE - 560 001 ... RESPONDENTS
(BY SRI. A.MURALI - ADV. M & C PARTNERS FOR R-1, 5 &
6, SRI.C.K.NANDAKUMAR - ADV. FOR R-2 & 4,
SRI.SANJAY NAIR - ADV. FOR R-3)
THIS APPEAL IS FILED U/S. 10F OF THE
COMPANIES ACT, 1956 READ WITH SECTION 151 OF THE
CODE OF CIVIL PROCEDURE, 1908, PRAYING TO PASS AN
ORDER SETTING ASIDE ANNEXURE-A DATED 30.05.2008
PASSED IN THE COMPANY PETITION NO.42/2006 BY THE
ADDITIONAL PRINCIPAL BENCH, COMPANY LAW BOARD,
CHENNAI AND ETC.
3
COMPA. NO.9/2008
BETWEEN:-
L.CHANDRAMURTHY
SON OF LATE NARANAIAH
AGED ABOUT 64 YEARS
DIRECTOR,
M/S PEARL METAL PRODUCTS
(BANGALORE) PVT. LTD.
NOW RESIDING AT NO.502,
'SREE RAKSHE ' 1ST 'I' CROSS,
3RD MAIN, HOSAKERE HALLI CROSS,
BSK III STAGE,
BANGALORE - 560 085 ... APPELLANT
(BY SRI.T.RUKMANGADHACHAR - ADV. )
AND:
1. PEARL METAL PRODUCTS (BANGALORE) PVT. LTD.,
HAVING ITS REGD. OFFICE AT PLOT NO.527,
IV PHASE, PEENYA INDUSTRIAL AREA
II STAGE, BANGALORE - 560 058.
2. K.I.KAPSI
DIRECTOR
M/S PEARL METAL PRODUCTS
(BANGALORE) PVT. LTD., PLOT NO.527,
IV PHASE, PEENYA INDUSTRIAL AREA
II STAGE, BANGALORE - 560 058.
3. GEORGE JOSEPH
DIRECTOR,
M/S PEARL METAL PRODUCTS
(BANGALORE) PVT. LTD., PLOT NO.527,
IV PHASE, PEENYA INDUSTRIAL AREA
II STAGE, BANGALORE - 560 058.
4. TUKARAM PAI
DIRECTOR
4
M/S PEARL METAL PRODUCTS
(BANGALORE) PVT. LTD., PLOT NO.527,
IV PHASE, PEENYA INDUSTRIAL AREA
II STAGE, BANGALORE - 560 058.
5. J.SURI,
NOMINEE DIRECTOR OF
M/S. VON ROLL ISOLA
(INDIA) HOLDINGS PVT., LTD.,
BANGALORE , ON THE BOARD OF
M/S PEARL METAL PRODUCTS
(BANGALORE) PVT. LTD.,
HAVING HIS OFFICE AT NO.43,
CUBBON ROAD, BANGALORE - 560 001.
6. M/S VON ROLL ISOLA INDIA HOLDINGS PVT., LTD.,
NO.5, CASAFINA, PRIMROSE ROAD,
BANGALORE - 560 001 ... RESPONDENTS
(BY SRI. A.MURALI - ADV. M&C PARTNERS FOR R-1, 5 & 6,
SRI.C.K.NANDAKUMAR - ADV. FOR R-2 & 4,
SRI.SANJAY NAIR - ADV. FOR R-3)
THIS APPEAL IS FILED U/S.10F OF THE COMPANIES
ACT, 1956 READ WITH SECTION 151 OF THE CODE OF
CIVIL PROCEDURE, 1908, PRAYING TO PASS AN ORDER
SETTING ASIDE ANNEXURE-A DATED 30.05.2008 PASSED
IN THE COMPANY PETITION NO.41/2006 BY THE
ADDITIONAL PRINCIPAL BENCH, COMPANY LAW BOARD,
CHENNAI AND ETC.
THESE APPEALS HAVING BEEN HEARD AND
RESERVED FOR JUDGEMENT ON 02.02.2012 AND
COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS
DAY, KEMPANNA J., DELIVERED THE FOLLOWING.
5
JUDGMENT
These two appeals preferred under Section 10 (F) of the Companies Act, 1956 read with Section 151 of Code of Civil Procedure, 1908, are directed against the order dated 30.05.2008 passed in Company Petition Nos.42/2006 and 41/2006 respectively (presented under Sections 397, 398, 402 and 409 (1) (2) and (3) of the Companies Act, 1956 (hereinafter referred to as 'the Act' for short) by the Company Law Board Additional Principal Bench, Chennai, dismissing the said company petitions preferred by the appellant seeking for the relief in respect of the acts of oppression complained against the management and majority share holders of the first respondent company in both the petitions.
2. As the parties in both the appeals are common except for the first respondent companies and as the facts and question of the law involved in both these appeals are identical /similar, with consent of learned 6 counsel for the respective parties, they are heard together and disposed of by this common judgment.
3. The brief facts of the case are follows:-
It is the case of the petitioner that he along with respondents 2 to 4 initially floated a company under the name and style Pearls Insulation's Private Limited, in which, they were the directors for life holding 25% shares each in the capital structure of the company amounting to Rs.4,50,00,000/- . The company started its production activities in a rented shed to begin with. As the petitioner is more technically qualified than the second, third and fourth respondents he took keen interest and toiled with commitment for over all improvements of the company with all dedications. Even he mortgaged his residential property where he was living with his family and raised loan to the tune of Rs.65,00,000/- with State Bank of India, Yeshwanthpur Branch, Bangalore, in order to enable the company to come out of all the acute financial constraints and other teething troubles which it was facing initially. The 7 residential property was the subject matter of mortgage by way of security to the bank, until the company was able to sustain in the market, competitively. Respondents 2 to 4 had no immovable property of their own at that time. However, they were carrying out their duties in close association with the petitioner. The company in due course gradually earned a good name and was able to withstand tough competition from like companies in the market with the joint and concerted efforts of the petitioner and respondents 2 to 4. The petitioner and respondents 2 to 4 visualizing good market potential for their products, decided to start one more unit at Nelamangala situated within Tumkur District of Karnataka. Accordingly, the petitioner and respondents 2 to 4 entered into a memorandum of understanding among themselves on 16th January, 1997, under which an arrangement was arrived to safeguard the interest of the company and also the welfare of the families of the partners for all times to come.8
4. In pursuance of the said memorandum of understanding, the petitioner and respondents 2, 4 and Smt. Leelamma, wife of third respondent floated a company which was incorporated on 27.2.1997 under the Act having its registered office at Bangalore. Initially, the company was established as a firm and later it was converted into M/s. Pearl Metal Products (Bangalore) Pvt. Ltd., Bangalore, which is the first respondent company in Company Appeal No.9/2008. The promoters of the company were the equal partners and they are the first directors who shall hold the office permanently. However, the third respondent later became a permanent director consequent upon acquiring shares from his wife namely Smt. Leelamma. The entire issued and paid up capital of the company was equally held among the petitioner and the respondents 2 to 4. By virtue of a Share Purchase Agreement (SPA) and Shareholders Agreement (SHA) dated 03.12.1998, the sixth respondent acquired 51% of the equity shares from the petitioner jointly with the 9 respondents 2 to 4 at a price of Rs.718/- per share. By virtue of the SHA, the promoters and the sixth respondent agreed that for a period of five years from the completion of the SPA, each of the promoters would have continuing right to sell and the sixth respondent would have an obligation to buy 12.25% shareholding on the terms and conditions specified therein. The promoters will have a right of refusal in respect of shares offered to them in proportion of their respective shareholding.
5. The SPA and SHA being private agreements are never registered with the Registrar of Companies. The SPA shall come into effect only on fulfillment of all the conditions stipulated in clause 2.1 therein, which shall not be later then 20.12.1998 or such other extended date as may be agreed between the parties in writing. Nevertheless, the conditions in relation to the regulatory approvals and amendments of the memorandum and articles of association as envisaged in 2.1(e) and (f) have not been duly complied within the stipulated time. The 10 proposal for amending the existing articles of association of the Company is merely supported by the minutes of the board meeting dated 09.12.1998 and not by any other documents. There is no material to show that Form No.23 along with the copies of the board resolution dated 09.12.1998 and the amended articles have been filed with the Registrar of Companies. The Registrar in his repot dated 23.08.2007 has not confirmed the filing of any Form No.23 for alteration of the articles of association of the Company. Therefore, the articles produced along with the main petition, without incorporation of any of the clauses of the SHA are not binding on the parties. The certified copy of the articles of association of the Company obtained from the Registrar of Companies by the respondents and produced in the present proceedings is neither taken on record nor registered by the Registrar of Companies. None of the clauses relating to the SPA and SHA has been incorporated in the memorandum and articles of association of the Company. The petitioner has obtained 11 a certified copy of the memorandum and articles of association of the company on 05.04.2004, which disclose that the memorandum and articles of association of the Company have been filed with the Registrar of Companies on 20.02.1997 in terms of the receipt issued by the Registrar of Companies. The articles of association of the Company does not contain any of the clauses of the SHA, whereas the Company falsely claims that all clauses of the SHA are duly incorporated in the articles of association of the Company. The amended articles of association of the company produced by the petitioner before the CLB along with the un-numbered company petition containing the terms of the SHA does not have the seal of the Registrar of Companies. A memorandum of understanding came to be entered on 10.12.1998 among the petitioner and respondents 2 to 4 in the best interest of the Company and welfare of their families, according to which (a) the Board of the Company shall always be represented by one person from each of the 12 family members of the petitioner and the respondents 2 to 4; (b) the Board shall appoint the spouse or daughter or son of the petitioner and the respondents 2 to 4 as Chief Executives on monthly remuneration basis; (c) the directors shall retire at the age of superannuation and shall name a family member to be executive director on the Board of the Company; and (d) the bank account shall be operated by one of the members of the board of management upto Rs.50,000/- and in case of any amount exceeding Rs.50,000/- the cheques shall be signed by any two of the members of the board of management.
6. The fourth respondent, in terms of the SHA, issued a letter dated 04.08.2003 to the petitioner together with a valuation certificate of shares issued by the Auditors of the Company, in order to ascertain whether the petitioner was interested to purchase his balance 12.25% of equity shares at the rate of Rs.1,012.12 per share, in response to which the petitioner had endorsed on the said communication on 13 05.08.2003 stating that he was not interested in buying the shares of the fourth respondent. The respondents 2 and 3 had similarly declined to buy the balance equity shares of the fourth respondent and there is no material to show that the respondents 2 and 3 ever agreed to buy the shares of the fourth respondent, pursuant to his offer made in their favour. The petitioner declined the offer made by the fourth respondent with the intention that the shares of the fourth respondent would be purchased by the sixth respondent, whereas it subsequently came to his knowledge that the respondents 2 and 3 had purchased on 14.11.2003 the shares of the fourth respondent. The fourth respondent being the Managing Director, is duly bound to inform the petitioner before selling his shares to the respondents 2 and 3. The sale of shares in favour of the respondents 2 and 3 was also beyond a period of 30 days from the date of offer made by the fourth respondent in terms of the clause 7.6 of the SHA. The sale of 12.25% equity shares of the fourth respondent in 14 favour of the respondents 2 and 3 was approved at the meeting held on 14.11.2003 as borne out by the summary actions of the aforesaid meeting. The petitioner was not served with any notice of the meeting held on 14.11.2005 approving the sale of shares belonging to the fourth respondent in favour of the respondents 2 and 3. Article 10 stipulated that every member who intends to transfer shares must give notice constituting the company as his agent for sale of the said shares to members of the company at a price to be agreed upon by the vendor and the company or in default of agreement at a fair selling price, certified by the Board of Directors in consultation with the Auditors of the Company. The Company shall, upon fixation of the price, forthwith give notice to all members of the company of the number and price of the shares to be sold, ascertaining their willingness to purchase the maximum number of shares, within the time as stipulated in article 11. The petitioner was not served with any such notice before selling the shares of the 15 fourth respondent in favour of the respondents 2 and 3, under these articles. The company did not choose to file Form No.2 with the Registrar of Companies approving of the sale of shares of the fourth respondent in favour the respondents 2 and 3. The respondents 2 and 3 being directors of the Company, grossly abused their fiduciary duties as directors vis-à-vis the company and surreptitiously acquired the shares of the fourth respondent by holding invalid meeting on 14.11.2003. The fourth respondent also committed breach of his fiduciary powers, as Managing Director of the Company. The registration of share transfer being violative of the articles of association of the Company would constitute an act of oppression in the affairs of the Company.
7. The petitioner gave a notice dated 11.08.2003 in terms of Clause 7.6 of the SHA, of his desire to sell his 12.25% of equity share of the Company in favour of the respondents 2 to 4 and called upon them to exercise their option in terms of clause 7.2 of SHA, to purchase all or any of his shares at the rate of Rs.1,012.21 per 16 share. When the respondents 2 to 4 declined to acquire any of the shares of the petitioner, the latter gave a notice dated 23.08.2003 as per clause 7.1 of the SHA, conveying his desire to sell his 12.25% of equity shares at the rate of Rs.1,012,.21 in favour of the sixth respondent. The sixth respondent though acknowledged, never conveyed its acceptance to acquire the equity shares of the petitioner. The requirements of articles 10 and 11 have not been complied with in the case of sale of shares of the petitioner in favour of the sixth respondent.
8. The respondents failed to call for any board meeting of the company in spite of repeated requests made by the petitioner for holding discussions on various clauses of the SPA and SHA. Though the company used to send notice of every board meeting to all directors, who threadbare deliberated every business as enlisted in the agenda before passing any resolution, the petitioner never received any notice of the Board 17 meeting during the period between 10.04.2003 and 1.12.2003. The petitioner has produced copies of a number of notices received in respect of the board meetings held on 25.10.2000, 15.5.2001, 29.4.2002 & 14.04.2004 and general meetings of 31.07.2000, 27.07.2001 & 12.05.2003 convened and held by the Company. The Company is maintaining an attendance register of the meetings in accordance with the clause 19.18 of the articles of association of the company. The petitioner has signed the attendance register for almost every meetings, in particular the annual general meeting, extra ordinary general meeting and board meeting for approving accounts and declaring dividends. However, the respondents are taking false stand that no attendance register is maintained by the company. The directors present at the relevant board meeting approved the board minutes, as reflected from the minute dated 16.02.2000, 28.02.2000, 18.12.2001 and 25.03.2003 of the board of directors of the company. The respondents have produced a copy of the 18 notice of the board meeting convened on 18.10.2003 without containing any agenda and this notice is a concocted one. At the board meeting held on 18.10.2003 without notice to the petitioner , in terms of article 20.1, the directors present approved the purchase of 12.25% equity shares of the fourth respondent by the respondents 2 and 3 equally at the rate of Rs.1012.21 per share; recorded no objection to acquire by the sixth respondent 12.25% equity shares of the petitioner to initiate necessary steps for acquiring the shares of the petitioner. The respondents have similarly taken a number of decisions at the board meetings held on 22.09.2003, 18.10.2003 and 14.11.2003 without notice to the petitioner. The respondents have not produced the attendance register as required under Regulation 71 of Table A of Schedule I of the Act or any other document as a proof of service of notice on the petitioner before the Bench. In view of the settled proposition of law that if any board meeting is held without proper notice even to a single director, 19 such a board meeting is invalid and therefore, the resolutions passed at the aforesaid meetings are liable to be held invalid. The representation of the sixth respondent made before the Foreign Investment Promotion Board ("FIPB") to obtain permission for acquiring 12.25% equity shares of the petitioner is, thus based on false resolutions, improper and unauthorised documents. Consequently, the communication of FIPB dated 30/31.12.2003 permitting the acquisition of shares of the petitioner by the sixth respondent has to be declared as null and void. By virtue of the principles of legitimate expectation, the petitioner being a permanent shareholder is entitled to continue on the board as a director for life and enjoy all financial benefits flowing therefrom. The terms of private agreements cannot override, the rights of the petitioner which are guaranteed under the statute and the articles of association of the company. Clause 20.2 of the articles provides that a quorum for a meeting of the board should comprise of at least one director appointed 20 by the sixth respondent whether present in person or through an authorised person appointed in accordance with the articles and therefore, in the absence of the sixth respondent, fifth respondent shall be Chairman of the Company. By virtue of article 20.4 no resolution can be passed at a meeting of the board of directors, without an affirmative vote of at least one director appointed by the sixth respondent. Nevertheless, the fifth respondent without any authority in terms of article 20.2 chaired the board meetings on a number of occasions and all such proceedings are liable to be set aside.
9. The fifth respondent, though represented that FIPB granted clearance to the sixth respondent to acquire the shares of the petitioner, he did not choose to furnish copy of any such communication and further failed to convene any board meeting for ascertaining the developments in this regard. Nevertheless the respondents stated forcing the petitioner to resign from the office of director, since he would no longer be 21 holding any shares, in terms of clauses 7.14 and 8.6 of SHA. The fifth respondent has been reiterating from time to time that unless the petitioner resigns from the office of director of the Company, no payment would be made to his 12.25% equity shares, thereby infringing the petitioner's legal and proprietary rights as a promoter, first director and as a permanent member under the articles of association of the company. At a meeting held on 15.11.2004 at Bangalore with participation of the petitioner, fifth respondent and Shri. A.S.Lashmanan, director of the sixth respondent, the petitioner was forced and coerced to sign a letter of resignation dated 15.01.2004 which was prepared well in advance without the knowledge of the petitioner, and invoices, despite the protest and resistance of the petitioner, and thereby compelled to resign from directorship of the company. The petitioner was further forced to handover the original share certificates in respect of his holdings, on 17.01.2004 at Bangalore and pursuant to which the petitioner received an amount of 22 over Rs.3 crores by way of a pay order for his shares, the proceeds of which are kept in fixed deposits, thereby deriving some income by him. The petitioner prepared to return the said amount on the directions of the Bench. The fifth respondent and Shri.A.A.Lakshmanan exceeded the powers and acted beyond the provisions of the Act, violated several of the statutory provisions and committed breach of the articles and the SHA dated 03.12.1998. The respondent notifying as if the petitioner had voluntarily resigned from the office of director of the company. The firth respondent and Shri. A.S.Lakshmanan were hand-in-glove with the other respondent for the purpose of ousting the petitioner from the office of the Joint Managing Director of the Company, despite the fact that the petitioner is a permanent director for life, as envisaged in the articles of association of the company. Thus they played fraud on the petitioner and the company and deprived the petitioner of the future financial benefits and rights. It is necessary to cross-examine the respondents with 23 reference to their objections and affidavits filed by them, which will in no way prejudice the parties. The CLB vested with inherent powers under Regulation 44, to try the petition on every issue arising there from, may permit cross-examination of the respondents, to meet the ends of justice as claimed in C.A.205/2006.
10. Clause 7.14 of the SPA contemplates that in the event of any promoter sells his shares, he shall automatically also resign as a Managing/Joint Managing Director as the case may be, of the Company and all his rights under the SPA shall ipso facto come to an end. Clause 8.6 of the SHA specifies that directors shall be entitled to continue in office until their share holdings reduced below 12.25% or they cease to hold the office of Managing Director/Joint Managing Director for any reason whatsoever or they are attain the age of 65 years, which ever is earlier. These clauses are not incorporated in the articles of association of the Company and therefore, the Company is not bound by 24 any of these clauses of the SPA and SHA. The petitioner being a permanent member and director of the company, can manage his individual rights with all privileges and is entitled for strict compliance with the provisions of the Act, rules, regulation and the memorandum of association and articles of association of the Company. The articles do not contemplate any qualification shares and therefore, the petitioner being a promoter and signatory to the memorandum of association and articles of association cannot be deprived of his corporate right of holding his minimum shares of the Company to which he subscribed at the time of incorporation of the Company. The petitioner cannot be compelled and coerced to resign from the office of director of the company and is permanently entitled to continue in the office as director of the company. The respondents are attempting to exclude the petitioner from participation in the management of the company and it is therefore, just and equitable to 25 grant appropriate reliefs putting an end to the acts complained of by the petitioner.
11. The petitioner's 10% preference shares redeemable on 31.05.2004 were redeemed on 31.10.2003, without notice to the petitioner, prior to the redemption date, and without even calling a meeting of the members of the company and obtaining the consent of the petitioner and assigning any reasons and arranged forced payment prior to the date of redemption. By virtue of sections 106(a), 106(b) of the Act, any redemption in the absence of a valid notice, valid meeting of the members and a valid consent letter of the preference shareholder and a valid special resolution, prior to reduction of preference shares, is invalid. The petitioner was forced to hand over the original preference share certificates under his covering letter dated 03.11.2003, through one of the employees of the company.
26
12. The petitioner was denied inspection of the statutory and other records of the company in spite of the written requests made by him in this regard, compelling the petitioner to come out with an application to direct the company to furnish copies of the statutory records , in terms of C.A.NO.151 of 2006. The second respondent appointed all his three sons as executives, while the third respondent appointed one of his daughters and son-in-law and the fourth respondent appointed his son-in-law as executives of the company but denied such privilege to the petitioner's sons or daughters. The remuneration of the respondents 2 and 3 has been increased without any justification whatsoever. Therefore, he sought for the following reliefs:-
(i) to declare that the redemption of 10% preference shares of the petitioner by the Company is null and void;
(ii) to set aside the board resolution of the
Company, approving the transfer of 10%
27
preference shares in favour of the
respondents 2 & 3 or the sixth respondent;
(iii) to set aside the proceedings of the board meeting held on 14.11.2003 and declare that the transfer of 12.25% equity shares effected by the fourth respondent in favour of the respondents 2 & 3 is illegal;
(iv) to direct the respondents 2 & 3 to surrender 12.25% equity shares of the fourth respondent in favour of the Company;
(v) to declare that the petitioner is entitled to
purchase 1/3rd shares along with the
respondents 2 & 3 from and out of the
balance 12.25% equity shares of the fourth respondents;
(vi) to allow the petitioner to invest his monies in the Company to purchase 1/3rd shares of the fourth respondent;
(vii) to restrain the respondents from interfering with the functions and duties of the 28 petitioner as a permanent director of the Company;
(viii) to direct the Company to call for a board meeting for passing a special resolution to:-
(a) restore back to the petitioner 10% preference shares by the Company;
(b) maintain status quo in respect of equity shareholding parity;
(c) declare that the board meeting held on 18.10.2003 and the resolutions passed thereat the board meeting are invalid and bad in law;
(d) declare that the Share Purchase and Shareholders Agreement are private documents and not binding and enforceable on the Company and its members ; and 29
(e) direct the respondents to produce the statutory records maintained by the Company.
13. After service of notice, the respondents appeared and resisted the petition. In their statement interalia among other things it was contended that the petitioner had originally filed a company petition as early as on 01.02.2003 which was not registered by the Registry for various infirmities, upon which the petitioner came out with C.P.No.26 of 2004 for redressal of his grievances in the affairs of the Company. The C.P.No.26 of 2004 was dismissed on 25.08.2004 on the ground that the petitioner ceased to be a member of the Company, even before approaching the CLB. The petitioner challenged the CLB order dated 25.08.2004 before the High Court of Karnataka and in terms of the order of the High Court dated 17.11.2005, has now, come out with the present company petition carrying substantial new allegations and different reliefs, which would constitute gross abuse of the process of law. After 30 dismissal of C.P.No.26 of 2004, the petitioner is estopped from reviving the un-numbered petition dated 29.11.2003, under the guise of the present company petition.
14. By virtue of the SPA dated 03.12.1998, the sixth respondent had purchased on 18.12.1998, 30,906(12.75%) equity shares of the company, from each of the promoters namely, the petitioner and the respondents 2 to 4 at a price of Rs.718/- per share, aggregating a sum of Rs.2.22 crores and thereby the sixth respondent came to acquire 1,23,624 equity shares constituting the 51% of the issued and paid up capital of the company, for a total sum of Rs.8.88 crores.
15. In terms of clause 7.1 of the SHA dated 03.12.1998, each of the promoters has a right, but no obligation to sell his remaining 29,694 (12.25%) equity shares of the company to the sixth respondent at a pre- determined price as specified therein and to be certified 31 by the company's Auditors. The SHA further stipulates that before calling upon the sixth respondent to purchase the shares in terms of clause 7.1, each of the promoters would have to offer the shares to the other three promoters at the same computed price, who would have a right of first refusal, before the sixth respondent is called upon to purchase the shares. This option is available to each of the promoters for a period of five years from 18.12.1998 to 18.12.2003.
16. Clause 7.14 of the SHA explicitly provides that in the event of any one of the promoters exercising his option to sell his shares in terms of the SHA, he shall automatically also resign as a Managing/Joint Managing Director of the Company and all his rights under the SHA shall come to an end. Article 19.4 incorporating clause 8.6 of the SHA, envisages that petitioner was entitled to be the Joint Managing Director until (a) shareholding is reduced below 12.25%; or (b) he ceases to hold the office of joint managing director for 32 any reason; or (c) he attains the age of 65 years which ever is earlier. There is no provision for any '"directorship for life" in the amended articles of association of the company.
17. The company adopted a fresh set of articles of association incorporating various clauses of the SHA at the extra ordinary general meeting held on 09.12.1998. Accordingly, Clause 7 & 8 of the SHA came to be incorporated as Articles 9 & 19 respectively and duly filed Form No.23 with the Registrar of Companies. The petitioner has admitted in his original unregistered petition dated 29.11.2003 that the articles of association of the company was amended incorporating the provisions of the SHA and, therefore, he cannot retract from his past stand. The four promoters, namely, the petitioner and the respondents 2 to 4 have resigned on 18.12.1998 from the office of director of the company, as stipulated in clauses 8.3 and 8.4 of the SHA and clauses 19.2 and 19.3 of articles of association 33 of the company, which was recorded at the board meeting held on 18.12.1998. This was followed by Form No.32 filed with the Registrar of Companies, notifying the appointment of nine directors for a period of three years. The petitioner and respondents 2 and 4 have given a declaration that conditions preceding to the acquisition of the 51% of shares by the sixth respondent have been completed which included the stipulation regarding the amendment of articles of association of the company in accordance with clauses 2.1 and 2.3 of SPA. The amended memorandum and articles of association containing various clauses of the SHA have been produced by the petitioner along with his unregistered petition dated 29.11.2003, whereas he has produced the old and unamended memorandum and articles of association of the company along with the present petition, with a view to misguide this Bench. Clause 8 of the SHA deals with the control and management of the Company. All directors shall be appointed once in three years in accordance with the 34 principle of proportional representation, as envisaged in Section 265 of the Act. The petitioner and the respondents 2 to 4 were appointed as the whole-time directors including the petitioner as the Joint Managing Directors in terms of Clause 8.6 of the SHA, which has been incorporated as article 19.4 of the amended articles of association of the Company and further obtained necessary approvals of the Central Government in the matter of appointment as well as remuneration of the directors. The petitioner and the Joint Managing Director, in pursuance of article 19.4 discharged his functions accordingly, drawing remuneration for the whole period of his term, as the Whole Time Director and the Joint Managing Director of the company. At the extra ordinary general meeting of the Company held on 19.12.2001, the nominees of the sixth respondent were elected as directors and promoters were re-appointed as the Whole time directors, including the petitioner as the Joint Managing Director, upon expiry of the original term of the years 35 from 1998, as reflected in Form No.32 filed with the ROC. The petitioner similarly acted upon the aforesaid resolutions and availed the remuneration from the company for more than two years until his resignation in January 2004.
18. The fourth respondent in terms of the SHA offered to sell his remaining 12.25% shares in the company at the rate of Rs.1,012.21per share in favour of the petitioner and the respondents 2 & 3, upon which the petitioner promptly declined to accept the offer made by fourth respondent by way of making necessary endorsement in the letter of offer dated 04.08.2003. The respondents 2 & 3 purchased equal number of shares from the fourth respondent at the price certified by the company's Auditors, which was followed by delivery of share certificates, invoices, shares transfer forms, letter of resignation and no claim by the fourth respondent as well as delivery of cheque by the respondents 2 & 3. The petitioner having admittedly declined to buy the 36 shares offered by the fourth respondent, is estopped from claiming 1/3rd shares of the fourth respondent. The petitioner did not challenge the purchase of shares of the fourth respondent by the respondents 2 & 3 in the unregistered company petition dated 29.11.2003.
19. The petitioner, in terms of Clause 7.6 of the SHA had offered on 11.08.2003 his remaining 12.25% of equity shares of the company at the auditor certified price namely, Rs.1,012.21 per share to the respondents 2 to 4, who declined the offer made by the petitioner, and thereafter, the petitioner gave a notice dated 23.08.2003 calling the sixth respondent to purchase his 12.25% of equity shares in terms of the clause 7.1 of the SHA. The petitioner categorically stated in para 9 of the unregistered company petition dated 16.02.2004, to the effect that the petitioner offered to sell his balance 12.25% shares t o the existing promoters, at the first instance in terms of the SHA and the refusal the petitioner offered such shares to the sixth respondent 37 on 23.08.2003 before the stipulated period. This would show that the petitioner willingly offered his balance shares to the sixth respondent. There was no need on the part of the sixth respondent to confirm the purchase of the shares of the petitioner, since it was not under obligation to purchase but the sale was made in exercise of the option at the instance of the petitioner. Furthermore, the sixth respondent acknowledged the letter of offer issued by the petitioner for doing needful action as admitted by the petitioner. At the board meeting held on 18.10.2003 the directors recorded no objections for acquiring the shares of the petitioner by the sixth respondent, pursuant to the option exercised by the petitioner in terms of the SHA and no business was transacted affecting the rights of the petitioner in any manner. The sixth respondent concluded the purchase of the shares offered by the petitioner by making full payment of Rs.3,00,56,267/- on 17.01.2004 by way of a pay order, after obtaining FIPB permission, in the first week of January, 2004, against delivery of 38 invoices, share certificates, share transfer from and resignation letter of the petitioner. The petitioner promptly encashed the pay order on 20.01.2004 and absolutely enjoyed the proceeds of his remaining equity shares. It is, therefore, beyond doubt that the petitioner sold his equity share voluntarily in favour of the sixth respondent. The summary of action at the meeting held on 17.01.2004, attended by the petitioner, the fifth respondent and director of sixth respondent would evidence the due process of sale of shares of the petitioner in favour of the sixth respondent. The letter of resignation and no claim was prepared on 15.01.2004 and signed on 17.01.2006, on completion of the formalities of the sale and after receipt of the pay order by the petitioner, the proceeds are still held by him.
20. The petitioner in his legal notice issued dated 09.02.2004 sent to the sixth respondent challenged only his letter of resignation from the office of director of the company and no grievances have been made of the sale of his shares to the sixth respondent, which has been 39 reiterated in his reply legal notice dated 06.03.2004, showing the sale of his shares voluntarily effected in favour of the sixth respondent. The petitioner in his early company petitions (C.P.No.14 of 2004 and C.P.No.26/2004) raised grievances only in respect of his directorship and not of the sale of his shares to the sixth respondent. These company petitions were dismissed on 25.08.2004 on the ground that the petitioner ceased to be a member of the company even prior to initiating of the proceedings, against which appeals have been preferred before the High Court of Karnataka. The plea that the petitioner was coerced to sell his balance of shares to the sixth respondent is falsified by his categorical admission made in his reply notice dated 06.03.2004 and the unregistered company petiton dated 16.02.2004. By virtue of clause 19.4 of the articles of association, the promoters can hold the office of director till their shareholding is not reduced below 12.25%. Hence, the letter of resignation of the petitioner 40 is superfluous and accordingly, he ceased to be director as sale of his 12.25% shares to the sixth respondent.
21. The petitioner's son and daughter have incorporated a company under the name and style of Icon Insulation Private Limited (IIPL) on 21.02.2004, immediately after the petitioner receiving the sale proceeds of his equity shares in the Company, by subscribing to the memorandum and articles of association. IIPL is engaged in manufacturing of products which are identical and competing with the company. The petitioner has offered his personal guarantee as well as his residential properties to secure the bank dues availed by IIPL, thereby associating with IIPL since February 2004 onwards contrary to the MOU dated 10.12.1998.
22. The petitioner sold his entire shareholding in the Company voluntarily and willingly for huge sums of money as early as 17.01.2004 and thereby he ceased to 41 be shareholder as well as director of the company, not entitling either for inspection or for copies for the statutory records of the Company. The common order dated 25.08.2004 made in C.P.Nos.14 & 26 of 2004 would show that the petitioner did not challenge the validity of the SPA and SHA in his earlier unregistered company petition filed on 01.12.2003. The petitioner is a party to these agreements and acted in accordance with the same for nearly five years and therefore, cannot selectively disclaim a part of the agreements at his whims and fancy. Nonetheless the provisions of the SHA have been incorporated in the articles of association of the Company.
23. The petitioner having declined to purchase the shares of the fourth respondent and sold his own shareholding to the sixth respondent, in terms of the articles of association of the Company is not interested to associate with the company. The petitioner has confirmed in his letter of resignation and no claim that 42 the sale of his shares has been carried out in accordance with the terms and conditions as stipulated in the articles of association of the Company. The petitioner has been further confirmed that he has no rights as a shareholder or director or promoter or employee of the Company and that he has no claims agaisnt the company or any of its directors or shareholders.
24. The petitioner never raised any grievances in the unregistered company petition dated 29.11.2003 with regard to his preference shares redeemed in October, 2003 by the Company. The petitioner could never be forced to handover the preference shares by a middle level officer working in the company, as claimed by the petitioner being the Joint Managing Director and the covering letter dated 03.11.2003 does not indicate any protest on the part of the petitioner. In any event the petitioner himself had received and encashed the proceeds of Rs.26 lakhs before 03.11.2003 on which 43 date the preference share certificate came to be handed over by the petitioner. All preference shares were redeemed and the redemption proceeds were dispatched to all the promoters and therefore, there is no question of the petitioner being discriminated or oppressed as claimed by him. The petitioner at no point of time proposed the name of any of his children for employment in the company and however, cannot have any complaint, in view of their incorporation of a separate entity, thereby engaging in competing business with the company. Accordingly sought for dismissal of the petition.
25. The Company Law Board thereafter on hearing the learned counsel for the parties and on the basis of the material placed on record held that the petitioner has not established any acts of oppression being harsh and wrongful or mismanagement in the affairs of the company, entitling him for any equitable reliefs as claimed and further he has neither made out any case 44 justifying winding up order on just and equitable grounds and accordingly, rejected the petitions preferred by the appellant/petitioner by his order dated 30.05.2008.
26. The appellant/petitioner aggrieved by the order of rejecting his company petitions is in appeal before this Court.
27. We have heard the learned counsel for the respective parties.
28. During the pendency of these appeals respondents 2 to 4 have filed their respective affidavits dated 3rd March, 2009 stating that neither they are the share holders nor directors of the first respondent company. Therefore, they are not necessary party to these proceedings and accordingly, their names be deleted from the proceedings.
29. The learned counsel appearing for the appellant assailing the impugned order contended that 45 the Company Law Board has erred in not directing its attention to the issues raised by the appellant for which he has placed ample material to show that the respondents have acted detrimental to the interest of the appellant. He further contended that though the appellant had placed material to show that he had not been issued with any notice of the meetings of the Company in which meetings they had passed resolutions which affected the interest of the appellant and further as there is no material to show that the amended Articles of Association had been sent to the Registrar of Companies on which they are placing reliance to hold that the appellant had no interest in the company erred in holding non-issuance of notice has not prejudiced the interest of the appellant and the material on record has revealed that amended Articles of Association has been sent to R.O.C. He further contended that the Board has also failed in its function in not approaching the issues in the right perspective and examining the various acts of mismanagement, 46 oppression committed by the respondents/shareholders against which the appellant had complained. He also further contended that though it was pointed out that an uneven treatment has been meted out to him by the actions of the respondent which constituted an act of oppression, the Board holding it otherwise cannot be sustained. He further contended that the Company Law Board has erred in not taking into consideration the relevant aspects and the materials which has been placed by him before the Company Law Board and in the absence of worthwhile objections to the petition by the respondent, it has erroneously dismissed the petition and further as the decision of the Company Law Board is not based on the material placed on record and by not applying the relevant law to the petition on hand it is totally a perverse order. Further, he also contended that CLB has passed orders in the chambers contrary to what is contemplated as per the Rules and Regulations governing the procedure to be followed by the Board inasmuch as the order was neither dictated nor 47 pronounced after notifying the date in the open court hall, as such it being in violation of Regulation 29 of the CLB Regulations 1991, the order is a nullity. Therefore, the impugned order of the Company Law Board cannot be sustained as it suffers from legal infirmity, accordingly, it be set aside and the petition filed by the appellant/petitioner be allowed by granting the reliefs sought for in the same.
30. Per contra, the learned counsel appearing for the respondent Company supporting the impugned order contended that since the same is based on material facts supported with law, it does not call for any interference. In this connection, he submitted the material on record reveals that the petitioner had resigned from the company by taking the value of the shares which he was holding and as he was a party to the meeting in which resolution was passed, he cannot be allowed now to somersault and say he was not a party to any of the resolution and he had no notice of 48 the same. He further contended that the amended Articles of Association of the Company had been sent to the Registrar of Companies which the petitioner himself has placed before the Company Law Board and in view of the same, the contention that there is no amendment to the Articles of Association cannot hold water. He further contended the Company Law Board after examining all the material on record has come to the right conclusion that the petitioner had no interest in the company and in view of his conduct in accepting the share amount and having started another company along with his daughter and son, he cannot make a grievance that his interest has been affected and he has been ousted without any proper justification. He further contended that in the facts and circumstances of the case, the petitioner has not made out any acts of oppression and mismanagement by the respondents. Taking from any angle the impugned order of the Company Law Board having been based on substantive material placed by the respondent which is justifiable, 49 the same does not suffer from any illegality or infirmity calling for interference hence the appeal be dismissed.
31. In the light of the aforesaid facts, the material on record and the rival contentions the points that arise for consideration are :-
i) Whether the appellant has made out a case of either oppression or mismanagement or both?
ii) Whether the impugned order of the Company Law Board suffers from any legal infirmity calling for interference?
32. The undisputed facts as disclosed from the material on record are :-
Initially the petitioner along with respondents 2 to 4 floated a company under the name and Style Pearl Insulations Pvt. Ltd. in which they were the directors for life holding 25% share each in the capital structure of the company amounting to Rs.4,50,00,000/-.
Thereafter with the able assistance of the petitioner the said company prospered in the market and was able to 50 withstand tough competition from the like companies with the joint and consolidated efforts of the petitioner and respondents 2 to 4. Thereafter visualising the good market potential for their products, they decided to start one more unit and accordingly, they entered into a memorandum of understanding among themselves on 16.1.1997 under which an arrangement was arrived to safeguard the interest of the company and also the welfare of the families of the partners for all times to come. In pursuance of the said memorandum of understanding the petitioner, the respondents 2, 4 and Smt.Leelamma, wife of the third respondent floated a company which was incorporated on 27.2.1997 under the Act having its registered office at Bangalore. Initially the company was established as a firm and later it was converted into M/s.Pearl Metal Products (Bangalore) Pvt. Ltd. Bangalore. The promoters of the company were the equal partners and they are the first directors who shall hold the office permanently. However, the third respondent later became a 51 permanent director consequent upon acquiring shares from his wife viz. Smt.Leelamma. The entire issued and paid up capital of the company was equally held amongst petitioner and respondents 2 to 4.
33. By virtue of SPA and SHA dated 03.12.1998 M/s. Von Roll Isola Holding Ltd. a company having its principal office at Gerlafingen, Switzerland had acquired 51% of the total issued, subscribed and paid up capital equity capital of the company through its 100% subsidiary being the sixth respondent herein from the petitioner and respondents 2 to 4 for a total price of Rs.6.42 crores on the terms and conditions set out in SPA. The SHA dated 3.12.1998 envisages inter-alia that the 6th respondent and promoters shall respectively hold 51% and 49% of the equity share capital of the company. Each promoters would have for a period of five years from the completion of the SPA a continuing right to sell. The 6th respondent would have an obligation to buy from each of the promoters the remaining 12.25% shareholding of the company. The 52 sixth for a period of five years from the date of completion of the SPA would have a continuing right to sell and the promoters will have only a first right of refusal in respect of shares offered to them in proportion of their respective share holding in the company.
The terms and conditions of transfer of shares, which shall include price formula are explicitly specified in the SHA (clause 7.1). In the event of any one of the promoters desiring to dispose of his shareholding in the Company, he has to necessarily first offer his shares to the other promoters in terms of the conditions specified in clause 7.1 (a) (b) and (c). The exit option contained in clause 7 is available only in regard to the entire lot of 12.25% holding of each of the promoters in one lot, and not for any piecemeal disinvestment of such holdings. Any acceptance of shares by any parties in the SHA should require corresponding acceptance of the same number of shares of the Company (clause 7.5). Any party desirous of selling its shares (the "Selling Shareholder") shall serve a notice in writhing on all the 53 other shareholders ("the Non-Selling Shareholder") specifying the sale price in accordance with the price formula and certified by the Auditors of the Company, upon which a Non- Selling Shareholder shall exercise its option to purchase the shares within a period of 30 days from the date of the notice. The sale price certified by the Company's Auditors shall be final and binding on the parties, unless mutually agreed to otherwise by them. The Selling and Non-Selling Shareholders shall make necessary applications to the concerned regulatory authorities to complete the sale transaction (clause 7.6). The Non-Selling Shareholder in the event of not exercising its right to purchase the shares within the prescribed time, then for a period of 90 days, thereafter, the Selling Shareholder is entitled to transfer its shares to any third party. However, if the Selling Shareholder is unable to find a third party at the price formula specified in the SHA for a period of upto 90 days, then the same shares may be offered to a willing third party at a price lower than the price formula 54 stipulated in the SHA. However, the Selling Shareholder shall first offer the shares to the Non- Selling Shareholder at a price which is higher by a rupee one per share above strike price per share negotiated with the third party by the Selling Shareholder (7.8). In the event of any one of the promoters exercising his option to sell his shares in terms of the SHA, he shall automatically resign as a Managing Director/Joint Managing Director, as the case may be, of the Company and all his rights under the SHA shall automatically come to an end (Clause 7.14). The Sixth respondent, upon acquisition of 51% shareholding of the Company would control the overall financial and operating policies of the Company, while the day-to- day management and operations of the Company would continue with the promoters, so, long as the promoters function in accordance with overall policies and strategies determined by the sixth respondent (Clause 8.1). The election and appointment of directors shall be done in terms of clause 8.3, which 55 envisages appointment of five directors by the sixth respondent including the Chairman of the Broad and one director by each of the promoters (clause 8.3). All directors of the Company shall be elected and appointed once in three years, in accordance with the proportional representation by a system of cumulative voting as per the provisions of section 265 of the Act (clause 8.4). The sixth respondent shall have a right to fill in any casual vacancy caused in the office of directors appointed by it, by reason of his/her resignation, death, removal or otherwise. In the event of any of the promoters ceases to be the Managing Director/ Joint Managing Director of the Company and the said promoter individually or together with his family members, as defined in clauses 7.12 hold 12.25% of the share capital of the Company in accordance with the SHA, such promoter/family member shall be entitled to appoint another surviving family member as a director of the Company (clause 8.14). In the event of any conflict between the terms of the SHA and those of the 56 memorandum and articles of association of the Company, the terms of SHA shall prevail over the latter. The parties shall ensure that the terms and conditions of the SHA are adhered to, to the extent possible. The parties shall ensure that the memorandum of association or articles of association or altered as may be necessary to incorporate the terms of the SHA into the same.
34. The grievance of the petitioner is that :-
a) Illegal redemption of preference shares:
b) Coerced sale of equity shares belonging to the petitioner in favour of the sixth respondent;
c) Forced removal of the petitioner from directorship of the Company;
d) Sale of equity shares of the fourth respondent to the respondents 2 & 3, in gross violation of the terms and conditions of the SHA and articles of association of the Company 57
e) Denial of access to statutory records of the Company;
f) Non-sending of notices of board meetings; and
g) Statutory violations, while carrying on the affairs of the Company.
35. It is the case of the petitioner none of the terms of the SHA has been incorporated into the Articles of Association of the Company. On the other hand, it is the case of the respondent company that the Articles of Association of the company has been duly amended incorporating the SHA, terms and further, consequent legal formalities have been duly complied with by the Company. The said agreement deals with transfer of shares of the company, appointment of directors as per Section 265 of the Act and right of a director to appoint another surviving family members as a director. The minutes of the extraordinary general meeting dated 9.12.1998 attended by the promoters including the petitioner would reveal the unanimous approval accorded by the members of the company for 58 amendment and adoption of the Articles of Association of the company. The said resolution has not been challenged by the petitioner. The cash counter receipt dated 2.8.2001 of the Registrar of Companies Bangalore reveals that the document dated 16.7.2001 filed on 2.8.2001 with the Registrar of Companies was registered as document No.162 on 20.8.2001. It is seen that the said document No.162 relates to filing of Form No.23 with enclosures thereon viz. the extracts of the minutes of the extraordinary general meeting dated 16.7.2001 for conversion of the company from public to private u/s.43A (2A) of the Act together with the amended memorandum and articles of association of the company. The connected amendments pertains to document No.162 by the registrar of companies reflected the amended memorandum and articles of association of the company. The amended memorandum and articles of association form part of a document No.162, it contains the SHA clauses. 59
36. The amended articles incorporating the SHA clauses, relate to the document dated 09.12.1998 filed on 22.12.1998 with the Registrar of Companies. Though, this document, as per the report of the ROC, a copy of which has been made available to learned counsel for both sides, has not been registered, yet the registered document No.162 comprising of the amended memorandum and articles, contains SHA terms. Therefore, the amended articles of association of the Company incorporating the SHA clauses is deemed to have been taken on record by the ROC. Even otherwise, the irregularities, if any, in this behalf will not fall within the ambit of the provisions of sections 397 and
398. The veracity of the amended memorandum and articles of association of the Company which have been registered by the ROC can never be in doubt and is binding not only on the Company but also the members inter se, including the petitioner as well as the respondents, in the light of the decision in Smt.Claude- Lila Parulekar Vs. Sakal Papers Pvt. Ltd. and 60 others and V.B. Rangaraj Vs.V.B.Gopalakrishnan and others as reflected in the impugned order. A perusal of the amended Articles of Association which have been extracted to in the impugned order discloses that the amendments have been made and incorporated in the Articles of Association of the Company. Therefore, the various clauses of SHA now incorporated in the amended Articles of Association of the company would become relevant in respect of issue to be resolved in this particular case.
37. The material on record reveals that the members of the Company including the petitioner at the extraordinary general meeting held on 09.12.1998 have approved and adopted the amended articles of association of the Company incorporating the SHA clauses. No doubt an attempt is made by the petitioner to show that the ROC was not to locate the documents, but having regard to the material on record which reveals that the amended articles of association and the 61 relevant clauses of the SHA have been made available by the petitioner himself by way of copies in the un- registered petition dated 29.12.2003, it has to be taken that the respondents had taken all steps to issue the amended articles of association containing relevant clauses of the SHA with the Registrar of Companies. It is the case of the petitioner after having become the Joint Managing Director asserted that all the Joint Managing Directors shall be allowed to continue in the office as Director till the age of super-annuation, which is fixed at 65 years in terms of the articles of association of the Company, but the amended articles of association of the Company, empowers the Joint Managing Directors to hold their office until their (1) shareholding is reduced below 12.25%, or (2) ceasing their office for any reason whatsoever, or (3) on attaining the age of 65 years, which ever is earlier.
38. The petitioner in his petition dated 29.12.2003 has conceded, the directorship of all the Joint Managing 62 Directors, in both the Companies was for life. However, in view of joint venture with Von-Roll Isola, the articles have been amended by fixing the superannuation at the age of 65 years. The petitioner in the un-registered company petition has accused that the respondents have been deliberately violating not only the articles of the Company, but also provisions of section 284 of the Companies Act, 1956. It was with reference to the amended articles of association of the Company. The minutes of the board meeting dated 18.12.1998, to which the petitioner is also a party would reveal that pursuant to the SPA/SHA and the articles of association of the Company, the promoters had resigned from the board in order to make fresh appointment of directors on the board of the Company on proportional representation by a system of cumulative voting under section 265 of the Act at the proposed extraordinary general meeting. In the said meeting held on 19.12.1998, the promoters, including the petitioner came to be appointed as directors of the Company 63 pursuant to the amended articles of association of the Company on the terms and conditions set out in the minutes of the aforesaid extraordinary general meeting. The promoters including the petitioner and other promoters have affirmed on 18.12.1998 by way of a declaration, duly stamped, inter alia, that all conditions contained in paras 2.1 and 2.3 of the SPA have been completed. That goes to show that the Company has duly fulfilled in terms of the affirmation of the petitioner in dealing with the amended articles of association of the Company. Therefore, the petitioner after having acted upon and enjoyed benefits of the amended articles of association of the Company, by drawing his salary and perquisites as the Joint Managing Director till the date of his disputed resignation, is estopped from urging that the SHA clauses have not been incorporated in the articles of association of the Company.
39. Coming to the question of the respondent Company has redeemed the prescribed shares from the 64 completion of the SPA viz. 31.5.2004, it is relevant to know that the promoters and the sixth respondent expressly agreed as contemplated in Clause 5(b) of the SHA that as far as possible in the best interest of the company and subject to any law for the time being in force, they shall not redeem the 10% preference shares subscribed by them before 5 years from the completion date of share purchase agreement. The intention of the parties is clear from the words employed viz. as far as practicable in the best interest of the Company. Therefore, the paramount interest of the company overrides the individual interest of the preference share holders. Accordingly, there can be no prohibition for redeeming the preference shares in the interest of the company before the redemption period. The company has not adopted any partisan attitude, but has redeemed all preference shares before due date by making payments to all preference share holders. The petitioner admittedly and without there being any proof of resistance has received the amount from the 65 Company due to him by way of cheque in October, 2003 and also realised the proceeds towards the value of preference shares held by the company. According to him he was forced to hand over preference share certificate, but his own letter dated 31.1.2003 enclosing the original preference share certificates duly cancelled by him and handed over to an official of the company by name Shivanand does not indicate any force or coercion played on the petitioner. Therefore it is unthinkable that the petitioner who was functioning as a Joint Managing Director would yield to the pressure of his subordinate staff in respect of surrendering the certificate.
40. Further, after handing over the preference shares he has not chosen to make any complaint of any forced redemption of the preference shares with any competent authority. Apart from the same in the legal notice issued on 9.2.2004, he has never raised plea of any force. On other hand in his reply legal notice dt. 66 6.3.2004 there is no whisper of any force or coercion exercised on him at the time of premature redemption of preference shares. He has also not raised the said plea and the irregularities in the earlier petition. Therefore it being an after thought cannot be an act of oppression as contended by him. Thereby it cannot be considered as a grievance made out by him.
41. Coming to the next aspect of the sale of share of the fourth respondent in favour of respondents 2 and 3, the petitioner admittedly has declined to exercise his option to purchase the shares of the fourth respondent and thereby he has waived his right to purchase the same on being offered to him. By virtue of SHA the fourth respondent is entitled to sell his shares to any third party in the event of the non-selling shareholder not exercising his right at a price lower than the price formula specified in manner prescribed therein. After the petitioner rejected the offer of the fourth respondent and having lost his remedy as per the agreement cannot in any way make any grievance of the sale of the shares 67 by the fourth respondent in favour of respondents 2 and 4 despite they having not exercised the option at the first instance in view of the fact that the shares were acquired by them at the price formula. On the other hand, there would have been justification to question the sale of shares in favour of respondents 2 and 3 in the event of their acquiring shares from the fourth respondent at a price lower than the price formula. The minutes recording the summary actions of the meeting held on 14.11.2003 in relation to sale of share of the fourth respondent in favour of respondents 2 and 3 depicts due completion of the transaction between the parties and from the aforesaid very minutes, it is clear that it could not relate to any Board Meeting of the company and as such, there is no need to send any notice to the petitioner of the meeting held on 14.11.2003. The material on record reveals the transfer of shares of the fourth respondent in favour of respondents 2 and 3 was not approved in the meeting held on 14.11.2003. The meeting of 14.11.2003 not 68 being a Board meeting cannot invalidate for not sending notice to the petitioner. Articles 10 and 11 laid down restrictions on account of transfer of share forming part of the original Articles of Association whereas, the amended Articles of Association of the Company does not retain either Clause 10 or 11 of the original articles in view of the amendment. Therefore, the transfer of share of the fourth respondent need not be in compliance of Clauses 10 and 11 of the original articles as claimed by the petitioner.
42. The next charge that the sale of shares in favour of respondents 2 and 3 is beyond 30 days of the offer made by the fourth respondent do not survive on account of the rule of estoppel and waiver which squarely applied to this case. This purported irregularity according to the petitioner cannot constitute oppression when the petitioner himself has made-up his mind to sell balance equity shares by issuing notice dated 11.8.2003 in terms of the agreement to 69 respondents 2 to 4 which was followed by another notice dated 22.8.2003 offering his shares to the 6th respondent. Therefore, there is no merit in the grievance of the petitioner in respect sale of shares in favour of respondents 2 and 3.
43. The next grievance of the petitioner is in relation to the transfer of his 10.25% of equity share of the company in favour of respondent No.6 on the ground it was done by practicing coercion and making him to sell by force. The material on record reveals the petitioner has made the offer by issuing notice dated 11.8.2003 in terms of the SHA thereby offering his 29,694 equity share of the company at the price formula specified in SHA in favour of respondents 2 to 4 was explicitly declined by them. When respondents 2 to 4 exercised the first right to refuse in respect of the shares offered to them by the petitioner, the petitioner offered the same to the sixth respondent by issuing notice dated 23.8.2003 as per SHA. In his legal notice dated 70 9.2.2004 though he made a grievance that the 6th respondent has grossly flouted the clauses of SPH and SHA, in his reply notice dated 6.3.2004 has clearly admitted that he was not coerced to sell the balance 12.25% of shares, but he exercised his right. Therefore, from his own admission as reflected in his reply notice it cannot be said that there was any coercion or pressure brought on him. On the other hand, he has voluntarily sold his 12.25% equity shares in exercise of his right and option as provided in the SHA. He has not made any grievance of the same in his earlier petition. Therefore, there is no merit in the contention of the petitioner that his 12.25% equity share have been transferred in favour of the company by exerting coercion and forcing him to sell. Apart from this it is on record that in the meeting held on 17.1.2004 at Bangalore, the petitioner has received cheque for Rs.3,00,56,267/- for purchase of his shares, has tendered the letter of resignation and no claim from the petitioner to the Company. The material on record 71 which includes letter of resignation and no-claim of the petitioner to the company would categorically go to show that he has sold his balance equity shares in the company to the sixth respondent and has delivered the share certificates together with the signed share transfer forms in accordance with the Articles of Association of the Company. He has also confirmed his resignation from the board of Directors of the Company and has acknowledged the receipt of entire dues arising from his employment as Managing Director of the Company. Therefore, the petitioner will have no claim as a shareholder or Director or Promoter or Employee under the memorandum and articles of association of the Company or under the SHA. In view of the admission made by him the 6th respondent has completed the deal after obtaining necessary approval from FIBP in terms of his communication dated 30th/31st December, 2003 under which permission for conveying of the Government in favour of the 6th respondent to acquire the equity shares of the petitioner 72 in the company. The record clearly reveals that the petitioner has lost his interest in the company by not only selling his shares accepting the value of the said shares, but also tendering his resignation to the Company and issuing no claim certificate.
In the Board meeting held on 18.10.2003 the Board of Directors recorded no objection in respect of respondents 2 and 3 acquiring the equity shares of the fourth respondent held in the company and the 6th respondent acquiring equity shares in the company. The grievance of the petitioner is that he had no notice of the said meeting and other board meetings. But, the petitioner has not been able to place any material to show any prejudice that he has suffered on account of the resolutions of the Board of Directors regarding no objection of the sale of shares by the petitioner and the fourth respondent or any hardship faced pursuant to any resolution passed by any other Board meetings. Therefore, the non-issuance of the notice would not 73 vitiate the Board meetings as no prejudicial decision has been taken in the said meetings.
44. As already pointed out in view of his tendering resignation on 17.1.2004 and as he has received the amount in respect of the equity shares to the extent of 12.25% held by him to the Company, he cannot lay any claim that he is still a permanent share holder in the company to continue as Joint Managing Director.
45. Further, the material on record reveals the petitioner approached the Board by filing a petition in which he had not raised any of these issues. His grievance is the Board failed to summon the records from the Registrar of Companies which would substantiate his case that there were no amended Articles of Association and that of SHA. But, the material on record is otherwise which have been adverted to above which clearly discloses that the petitioner was a party to the meetings in which the 74 amendments were made to the Articles of Association of the company, after the 6th respondent gained entry into the Company by acquiring the shares. The impugned order of the Board and the material on record now placed before us would not disclose that the grievance made by the petitioner are supported with any substantive material. In view of the fact that the petitioner has resigned from the Company after taking the value of his shares and as his daughter and son have started another company which is competing with the respondent company, there is no merit in the case made out by the petitioner in respect of oppression and mismanagement.
Insofar as the contention of the learned counsel that the CLB has passed orders in the chambers by not pronouncing in the open court hall after notifying the date and therefore, it is vitiated on account of it being in violation of Regulation 29 of CLB Regulations 1991 is concerned, at best it may amount to an irregularity and not an illegality affecting the order and as the decision 75 of the Board being based on merits and the irregularity not affecting the order nor it has affected the interest of the appellant -Company petitioner, we are not inclined to disturb the impugned order in this appeal only on account of such procedural irregularity.
46. Taking from any angle the impugned order of the Board having been passed on facts and justifiable in law, does not suffer from any infirmity or illegality calling for interference in this appeal.
Accordingly, we proceed to pass the following order :-
The appeals are dismissed.
Sd/-
JUDGE Sd/-
JUDGE rs