Company Law Board
Dipak G. Mehta And Ors. vs Shree Anupar Chemicals (India) (P) Ltd. ... on 8 May, 2000
ORDER
S. Balasubramanian, Vice-Chairman.
1. In this order, we are considering three applications--CA 14 of 2000 filed by the 2nd respondent, CA 15 of 2000 filed by respondent 10 to 23 and CA 226 of 1999 filed by the petitioners--who were all par- ties in the proceedings CP 46 of 1998. The company petition was disposed of by this Bench by an order dated 22.3.1999 [since reported as Dipak G. Mehta v. Shree Anupam Chemicals (India) (P) Ltd. (1999) 2 Comp LJ 539 (CLB)], inter alia, giving various direct- tions. This order was taken on an appeal by both the sides to the High Court of Bom- bay which were subsequently dismissed. These application have been filed seeking implementation of the directions given in the order dated 22.3.1999.
2. The directions given in the order dated 22.3.1999 [since reported as Dipak G. Mehta v. Shree Anupam Chemicals (India) (P) Ltd. (1999) 2 Comp LJ 539 (CLB) are as follows (hereinafter referred to as directions):
1. The Board of directors stands reconstituted with immediate effect with the petitioners 1 and 4, and respondent 2, as directors.
2. The reconstituted Board will meet within a week from the date of this order and allot shares to Group A against their share application money of Rs. 29 lakhs.
3. Respondent 7, 8 and 9 will have the option to repurchase the shares trans-
ferred by them, and the respondent transferees are bound to retransfer the same consideration, at which the shares were originally, transferred.For this purpose, the transferor respondent should indicate, in writing, their desire to purchase, within 15 days of the date of this order, and the transfer should be effected within 15 days thereafter.
4. In case these respondents do not exercise their option to repurchase, and the transferees, in view of the changed allotment, the Group, A will have the first option to purchase the shares at the same price at which the shares were trans- ferred/allotted. Once the offer of sale is made, the Group, A is bound to pur- chase the same within 15 days of the offer, to be made in writing.
5. Being the original shareholders, as long as they are shareholders, petitioner 1 and 2 will continue as directors on the Board and all other directors will be elected in accordance with the articles.
6. Within 15 days of allotment of shares to Group A, the Board will convene a general body meeting of the company to elect no more than four more direc- tors, as the Board may deem fit.
7. In case the respondent 2 also desires to sell his shares, then the first option to purchase shall be with Group A.
3. The grievances of all the respondent 10 to 23 CA 15 of 2000 is that the peti- tioners styled as Group A have failed a purchase the shares held by these respon- dents styled as Group B in spite of the directions contained in paragraph 4 above. According to the respondents, they had made an offer to sell the shares of 1 lakh held by them to Group A for Rs. 10 lakhs and without accepting the shares within 15 days, they are refusing to accepted the same. Their further grievance is that they had invested a sum of Rs. 11.4 lakhs as share application money which also the Group A has not refunded. The grievances of the 2nd respondent is that in spite of the directions con- tained in para 5 above, the petitioners have declared the 2nd respondent to have ceased to be a director in terms of Section 293(1)(g) of the Act and that they have also allotted shares to him against application money and that have also failed to implement the directions in para 7 above by which they have to purchase the shares held by the 2nd respondent. The grievances of the petitioners is that the respondents have failed to hand over various statutory and other record of the company even though the management of the company has been taken over by the petitioners in terms of para 1 of the directions.
4. Shri Jay Salva, Advocate, appearing for respondents 10 to 23, submitted that as per the directions contained in para 4, these respondents made an offer in writing to sell 1 lakhs shares held by the them to Group A for Rs. 10 lakhs. However, they have refused to accept the offer, which rejection, which rejection, he submitted, is against the directions of the Company Law Board. Further, he submitted that these respondents have also invested a sum of Rs. 11.4 lakhs as application money which should also be refunded to them as they are no longer shareholders of the company. As far as return of statu- tory records of the company is concerned, he submitted that respondent would have no objection to hand over certain records kept with them provided Group A accept the sale of shares and refund the share application money. He pointed out that these documents have to be necessarily kept with the respondent to establish their claim of certain other dues by the Group A/the company.
5. Shri Mathur, appearing for the 2nd respondent submitted that the 2nd respon- dent did not attend the Board meeting held on 25.3.1999 and 7.4.1999 in view of the pendency of the appeals in the Bombay High Court and, therefore, his absence in these meetings cannot be a ground to invoke the provisions of Section 283(1)(g) of the Act especially, in view of the directions contained in para 5 of the directions, accord- ing to which the 2ns respondent is entitled to be a director as long as he is a share- holder. He also, referring to para 7, submitted that since the 2nd respondent has offered to sell his shares to Group A, they are bound to purchase the shares held by 2nd respondent and the company be directed to refund the money invested by this respondent by cancelling the allotment of shares made to him without any applica- tion for allotment of shares.
6. Ms. Bina Gupta, Advocate, appearing for the petitioners, pointed out that the direction contained in para 4 only gives the first option to the petitioners to purchase the shares of the respondent and, therefore, the petitioners have rightly rejected the offer. She submitted that in view of the option given to the petitioners, the question of forcing them to accept the offer does not arise. As far as the application money is concerned, she submitted that the accounts do not reflect any investment by the respondent as application money and further the directions contained in the Company Law Board order do not mention anything about the refund of the application money. She pointed out that the respondent have to account for a large amount of money when they were in the management of the company and as such without accounting for the same, the respondents cannot expect the Group A to purchase their shares and refund the alleged application money. She also submitted that the respondents are illegally holding on to the statutory and other records of the company which should legitimately be handed over to the company. As far as the application of the 2nd respondent is concerned, she submitted that the directions at para 7 does not cast any obligation on the part of Group A to purchase the shares held by him, and as such, the question of Group A purchasing the shares does not arise. As far as his vaca- tion of office is concerned, she pointed out that the 2nd respondent has admitted receipt of notices for the 3 Board meetings and since he did not attend the same, he vacated the office of director in terms of Section 283(1)(g) of the Act. As far as allot- ment of shares to this respondent is concerned, she pointed out that of the total amount of Rs. 7.2 lakhs in the name of the respondent as share application money, he had already withdrawn a sum of Rs. 2.73 lakhs and the Board of directors allotted shares for the balance amount of Rs. 4.47 lakhs. Therefore, she submitted that the question for refunding the amount of Rs. 7.2 lakhs does not arise.
7. We have considered the pleadings and arguments of the counsel. Our findings in CP 46 of 1998 were that the respondent had highjacked the company from the petitioners by allotment of further shares and changing the composition of the Board of directors. Accordingly, the Board was reconstituted with petitioners in majority and further shares were authorised to be issued to Group A to make them majority shareholders. At the same time, an option was given to the respondent to go out of the company. The object was that there would be parting of ways. The directions con- tained in the said order have to be considered in this light. Ms. Bina Gupta relied on wording in para 4:
"Group A will have the first option to purchase the shares at the same price at which shares were transferred/allotted.", without referring to the following sentence, which reads as:
"Once the offer is made, the Group A is bound to purchase the same within 15 days of the offer, to be made in writing".
In view of the last sentence of para 4 of the directions, the Group A is bound to pur- chase the shares offered by Group B. As far as the prayer relating to the refund of application money is concerned since such a prayer does not arise out of the direc- tions given by us in the order on the petition, we are not passing any order on the same. Since the respondent are keeping certain statutory records of the company, they will exchange these documents with the consideration to be paid by Group A for the shares held by the respondents 10-23 as per the offer made by them in line with para 4 of our directions. This should be done on or before 31.5.2000.
8. In regard to the prayer of the 2nd respondent to direct the Group A to purchase the share held by him and also refund the application money, since this prayer does not arise out of the directions in our order, we decline to pass any order on this prayer. As far as declaring the 2nd respondent to have ceased to be a director in terms of Sec- tion 283(1)(g) of the Act, we find that this respondent had not attended the Board meeting held on 25.3.1999, 7.4.1999 and 30.7.1999. According to this respondent, he did not attend the meeting on 25.3.1999 and 7.4.1999 as they were held during the pendency of the appeals in the Bombay High Court. We are, therefore, of the view that considering para 5 our directions that as long as the 2nd respondent continues as a shareholder, he will be a director, his non-attendance in these two meeting in view of the pendency of the appeal proceedings in Bombay High Court, should not be taken cognizance of to invoke the provision of Section 283(1)(g) of the Act and, accordingly, direct the company to recognise him as a continuing director and sere him notices for all the Board meeting with at least 7 days notice by registered post acknowledgement due. However, this direction does not prevent the company from invoking the provision of Section 283(1)(g) of the Act in future on satisfaction of the requirements of this section.
9. With the above directions and observations, all the three applications are dis- posed of.