Company Law Board
Shri Ranjit Singh And Ors. vs Madan Mohan Cold Storage Pvt. Ltd., Shri ... on 27 September, 2007
ORDER
Vimal Yadav, Member
1. In this order I am considering Company Petition No. 108 of 2005 filed by Shri Ranjit Singh and Others under Sections 397, 398, 402, 403 and 408 of the Companies Act, 1956 (hereinafter called 'the Act'). The petitioners have alleged certain act of oppression and mismanagement in the affairs of the R-1 by the respondents. It has been alleged that the shareholding of P-1 to P-6 constituting 48.69% (total 18500 shares) has been reduced to Nil in complete disregard of law and Articles of Association without compliance to the terms of the MOU dated 24.1.2002 between the Uncle (P-1) and nephews (R-2 and R-3) as without payment of the consideration, squaring off of all book entries, the Escrow Agent (R-4.) could not have handed over the transfer deeds and the share certificates, transfer is antedated and illegal, the company being in the nature of quasi-partnership no right of pre-emption which is an equitable right was provided; P-1 to P-3 were illegally removed from the Board of the company; the memorandum and Articles were illegally charged to make the R-1 as a guarantor for providing loan to the Directors by the bank; Finalization of the Accounts of the R-1 was allegedly done in a clandestine manner; the R-4 had acted in a clandestine manner; the petitioners have no intention to enforce the MOU which the parties had abandoned by their conduct.
2. The undisputed facts of the case are: The respondent company, namely M/s Madan Mohan Cold Storage Pvt. Ltd. was incorporated on 14.10.1988 having Registered Office at 167/4 Lenin Sarani, Kolkata, West Bengal. The authorized share capital of the company was Rs. 50,00,000 divided into 50000 equity shares of Rs. 100/- each. The issued, subscribed and paid up capital of the company as on 31.3.2004 was Rs. 30,00,000 divided into 38000 equity shares of Rs. 100/- e ach. The main objects of the R-1 company were to own, establish, purchase, take on lease, rent, or on hire, build construct, develop or otherwise acquire Cold Storage Plant, space warehouses, godowns, containers, shops, showrooms, workshops, vehicles, plants machinery equipments apparatus, appliances, stores or services required in connection with or in relation to cold storage, etc.
3. Sh. Adesh Tandon, Company Secretary arguing on behalf of the petitioners pointed out that Shri Madan Mohan Cold Storage Pvt. Ltd. is a quasi-partnership company in which the entire share capital of the company is held by all family members of Shahi family. The petitioners and the Respondents (except R-4-the Auditor) are all related to each other. P-1 is the Uncle of R-2 and R-3. Petitioner Nos. 1 to 11 are all own brothers and sisters of R-2 & R-3. Petitioners which were 11 in numbers were holding about 66% shares in Respondent No. 1. By the MOU dated 24.1.2002 the petitioner No. 1 offered to sell the shares belonging to him, his family members and Sriprakash Singh to Subhash Singh and Subrata Singh for a sum of Rs. 90 lacs payable in three instalments. By the said agreement it was agreed that 24,250 shares belonging to petitioner No. 1 and his family and group would be sold to Respondent No. 2 and Respondent No. 3. While petitioner No. 1 signed on behalf of his family members and group, Respondent No. 2 signed on behalf of Respondent No. 3 and himself. A Supplemental Memorandum of Understanding was entered into by petitioner No. 1, Respondent No. 2 and Respondent No. 4 (Sh. D.K. De Sarkar, Chartered Accountant who was required to hold the shares till the consideration was paid to the Petitioner No. 1 through the Respondent No. 4). It was pointed out that the petitioners did not bother for enforcement as no transfer of even a single share would take place without the compliance of the MOU. Therefore, it was contended that the enforcement of MOU is not at all pleaded before the Company Law Board. The alleged transfer of 18500 shares has been shown to have taken place on 1st February 2004. It was contended that this transfer is ante-dated and illegal because (a) As per letter dated 28-01-2005 written by D.K.D. Sarkar, (R-4, the Escrow Agent) to the petitioner No. 1 the transfer deeds and share certificates reached R-1 between 6-01-2005 and 28-01-2005 then how a transfer can take place in Feb 2004. (b) An EOGM was called by petitioner No. 1 on 6 January 2005 which was attended by Respondent No. 4 who did not disclose that petitioners were not shareholders and did not disclose that share certificates and transfer deeds had already been handed over. In the said meeting, respondent no 2 was also present who left the meeting without giving answer to the questions raised in the meeting. The petitioners reiterated that firstly upto 6 January 2005 transfer deeds and share certificates did not reach the company; secondly, on 6th January 2005 the petitioner No. 1 to 6 were considered as members of the company; thirdly, in the said meeting petitioner No 1 occupied the chair since he was Director and member in eyes of respondents and, therefore, he was entitled to preside the meeting and accordingly he was voted to the chair. Thus, it was contended, transfer of shares allegedly as on 1st February 2004 is a forgery on part of the respondents. Neither it is possible nor it is permissible to lodge the transfer deed in January 2005 and show the transfer in February 2004. My attention was drawn to the provisions of Section 108 of the Act. Further, it was contended that - (i) The transfer deed has been executed on 15th March 2002, therefore, the date of ROC stamping has to be prior to this. Assuming it was 15th March 2002 itself then it would have been lodged with the company upto 14th May 2002 in compliance to Section 108(1A)(b)(ii) of the Act.
In other words, the concurrency of transfer deed in an unlisted company is only 2 months. It is also well established legal proposition that the provisions of Section 108 of Companies Act, 1956 are mandatory in nature. Any non compliance thereof renders the transfer meaningless and null and void ab initio. Therefore, the transfer deeds on which alleged transfers have been effected are invalid in the eyes of law (ii) Some of the transfer deeds are not witnessed, therefore, on this count alone these are not properly executed and no valid transfer can take place on these transfer deeds, (iii) The column for office use at the bottom of the transfer deeds are blank, neither it bears the transfer No. nor the approval date.(iv) The transfer has allegedly taken place on 1st February 2004 whereas no Board Meeting took place on such date. Five meetings took place in the financial year 2003 - 2004 on 25-04-2003, 15-07-2003, 28-10-2003, 24-12-2003 and 20-03-2004. Thus no Board Meeting took place on 1st February 2004. It is well settled law that without the previous consent in the Board Meeting no transfer of shares can take place in the facts and circumstances of this case, (v) Annual Return required Under Section 159 and 162 of the Act was to be filed with the ROC within two months of the AGM. The annual return made upto 29th September 2004 must have been filed by 28 Nov. 2004. It was actually filed in February 2005. The delay of more than two months in the filing clearly reveals the motive, purpose and objective of the respondent for engineering of the document, (vi) In a quasi-partnership company, it is well established proposition that whenever outgoing members decide to offer their shares for sale, the existing members are given the equal opportunity to buy the shares but in the present case no such opportunity was afforded to the existing members. Thus no right of pre-emption which is the equitable right was provided, therefore, MOU Transfer of shares is bad in the eye of law on this count alone, (vii) The alleged receipt of payment of Rs. 60 lacs is a mere forgery because: (a) Mr. Vishwajeet Shahi petitioner no 3 who has allegedly issued the said receipt assuming without admitting, did not have any authority and power in terms of the MOU. In fact, the petitioner no 1 was entitled to receive the consideration and issue the receipt, if any, for the consideration received, (b) Assuming without admitting the first instalment was alleged to be paid in March 2002, second was alleged to be paid in July 2002, and third was alleged to be paid on June 2003. But receipt of all 3 payments is only one. It is not known for what reason Escrow A/c holder respondent no 4 did not obtain the receipts instalment wise, why he thought fit to obtain an alleged consolidated receipt. This shows that instalments were not paid in fact the alleged receipt is a fabricated document, (c) On the alleged receipt there are no signatures on the revenue stamp, whereas in the actual receipt it is always ensured that signatures of the recipient appear across on the revenue stamp. This also shows that the alleged receipt has been fabricated for the purpose of the reply.(d) Without prejudice to above, receipt was to be obtained from petitioner No. 1 within 1 month from alleged receipt. The respondents have miserably failed to demonstrate any efforts made by them to obtain official receipt from petitioner No. 1 Shri Ranjeet Singh.
This circumstantial evidence again speaks of non-genuineness of the alleged receipt, (e) Assuming without admitting the consideration, the respondents have failed to demonstrate/explain the sources from which alleged Rs. 60 lacs were paid to the petitioner No. 3, otherwise in support of their payment, respondent would have justified withdrawal of money from the resources. No disclosure of resources clearly establishes that the amount was never paid to the petitioner, (f) The consideration as appears on transfer deed does not match with the consideration as per the MOU. Therefore, mismatch clearly suggests that no consideration has passed to the petitioners for their shareholding. Assuming without admitting Demand Drafts were ready for the payment as alleged by the respondents and those were not collected by the petitioners, why the Demand Drafts of full amount were not dispatched by Registered Post or by speed post to the petitioners. This suggests falsehood of the claim by the respondent that Demand Drafts were ready for the payment.
4. Sh. Adesh Tandon further argued that petitioner No. 1 was removed from directorship w.e.f. 18 February 2003 and petitioner Nos. 2 & 3 Vishwajit Shahi & Inderjeet Singh were removed with effect from 11th February 2003, the Forms No. 32 were filed on 6th March 2006.It was contended that (a) Assuming the Resignation of Director Shri Inderjeet Singh and Vishwajit Shahi petitioner No. 3 and 2 respectively was accepted on 11 February 2003, then Mr. Ranjeet Singh, petitioner No 1, was not present in the meeting, whereas Form 32 allegedly has been signed by him. Therefore, a Director who is not present in the meeting, who is also M.D. can neither accept resignation nor he can be authorised to sign form 32. (b) The said form 32 is dated 5th March 2003 and signature of M.D. Mr. Ranjeet Singh petitioner No. 1 appears on the said form, whereas in the other form 32 he is shown to have ceased to be director on 18-2-2003. Therefore, how can he sign on 5-3-2003. This clearly reveals of a clandestine removal. (c) In Form 32 in the column, "Brief of Particulars of Changes" Respondents have written "Ceases to be director w.e.f. 11-2-2003". A director ceases to be a director either by resignation or death or by removal. It is not clear in what manner they ceased to be a director as he neither resigned nor expired and furthermore no proceedings for removal Under Section 284 of the Act were taken by the R-1. Therefore, it itself shows that he had never resigned. The factum of cessation of directorship is false and concocted, (d) Form No. 32 relates to ousting of petitioner No. 1 who is Managing Director of the company. In this Form also reason of cessation from Managing Directorship is not given. Thus removal of all the three petitioners Nos. 1 to 3 without any reason is oppressive besides being harsh and burdensome and which further lacks probity and fair play on part of the respondents. Without proper Board Meeting no change in directorship can take place. In the Compliance Report for the year ended on 31-3-2003 dates of Board Meeting are: (i) 9-5-2002; (ii) 16-6-2002; (iii) 1-12-2002; (iv)21-3-2003 whereas petitioner No. 1 allegedly ceased to be a director from 18-2-2003 and petitioner No. 2 & 3 allegedly ceased to be a director from 11-2-2003. Thus there are no Board meetings on 11-2-2003 and 18-2-2003. In the absence of Board Meetings on the aforesaid dates, it is a clear case of a clandestine ouster of the petitioners.(e) Assuming without admitting cessation of all Petitioner Nos. 1 to 3 took place in the February 2003 then why two Forms 32 were filed as pursuant to Section 303, one Form 32 was sufficient to demonstrate the events of change in Directors occurred in 1 month. This also suggest the manipulation and manufacturing of document on part of the respondents. Further, no resignation letter from all 3 petitioners were annexed to Form 32 filed with the Registrar of Companies in March 2003. Reason which has been advanced for cessation of 3 Directors from directorship as disclosed in counter is that they declined to give personal guarantees to the Bank whereas Loan from the Bank was taken in November 2003 and application for loan to the Bank was made subsequent to February 2003. Therefore, the Respondents have taken contradictory stand for removal of 3 directors namely Sh. Ranjeet, Vishwajeet, Indrajeet from directorship. Otherwise also the stand taken by the respondents clearly suggests that cessation from directorship was not in furtherance of the MOU. From the above it is clear that removal from directorship is a clear case of Oppression on the part of the Respondents.
5. Further, the counsel for the petitioners argued that the Respondents have illegally amended the object clause of Memorandum by showing an EGM on 20-10-2003. The change in the Memorandum authorizes the company to be the Guarantor for the loan to be taken by the directors. It was argued that no Board Meeting on 22-9-2003 took place to call EGM of 20-10-2003. Without Board Meeting there cannot be a general body meeting in any circumstances. The Secretarial Compliance Report clearly states that "No Extra ordinary General Meeting was held during the Financial Year"
If no general meeting was been held during F.Y. 2003-04 then how a shareholders meeting can be said to take place on 20-10-2003 since 20-10-2003 falls within the F.Y. 2003-04. Furthermore, change in the object clause is ultra vires of the Act since the company cannot be a guarantor for the loan advanced to the Director of the company. In other words, it cannot be a business of the company to provide guarantee for the loan to director. Even if such type of business is started then company becomes a Non-Banking Finance company which needs registration with the Reserve Bank of India whereas respondent No. 1 is not a registered NBFC This clandestine amendment in the Memorandum besides being illegal is a grave act of oppression against the company as well as the petitioners. This also demonstrates their greed to enrich themselves at the cost of the company and its shareholders.
6. Sh. Adesh Tandon further argued that the balance sheet for 2000-2001 and onwards was finalized without knowledge, consent and approval of petitioner No. 1. Assuming without admitting that the petitioners ceased to be directors in February 2003 then balance sheet of 2000-2001 and 2001-2002 could not be finalized without a proper meeting of and notice of which must be given to all including Petitioners No. 1 to 3. Furthermore, petitioner No. 1 was the Managing Director and as per the provisions of Section 215 of the Companies Act signatures of Managing Director are compulsory. The idea was to keep the petitioners in dark about the affairs of the Respondent No. 1 Company. Admittedly the accounts for the Financial Year 2000-2001 were not ready as per minutes of the Board Meeting dated 30.8.2001. It is surprising how the balance sheet of 2000-2001 was got signed on 25.8.2001, which was not ready on 30.8.2001. This is a case of grave degree of oppression - the sole purpose of doing so was to keep the petitioners out of company from participation from the aforesaid exercise. No notice, no Board Meeting, no supply of annual accounts, no signature of Respondent No. 1 is a clear case of ouster, even when as per showing of the respondents petitioners No. 1 to 3 were directors.
7. Sh. Adesh Tandon further pointed out that a MOU between some petitioners and the respondent was drawn up which inter alia contained many clauses. When both the parties realized that the said MOU cannot be implemented at all, then by conduct both the parties abandoned the said MOU. The respondent counsel demonstrated certain entries in the Balance Sheet of 2003-2004 standing as debit against the petitioners. Thus, these were not squared up in terms of MOU without prejudice to the fact that no consideration was received at all. It was argued that it indicates that the MOU was not given effect to. The two points appearing in MOU were not read out by the respondent counsel which are as under:
1. Unless there is any objection by Ranjeet Singh regarding handing over of share certificates and transfer deeds Shri D.K.D. Sarkar Respondent No. 4 shall hand over the share certificates and transfer deeds to Subhash Singh Respondent No. 2 after expiry of 31st Jan 2004 which was the last date of final installment.
2. If there is any dispute on transfer of share certificates and transfer deeds then all the three parties of agreement shall decide future action of share certificates and transfer deeds thereto.
It was argued that the above two clauses were intended to deal with a situation arising out of transfer of shares, etc., but the respondents chose to adopt the method of clandestine transfer without any consideration. Sh. Adesh Tandon further pointed out that the respondent No. 4 had acted in a biased manner and a clandestine transfer and ouster of the petitioners from the Board has taken place with his connivance and conspiracy. There was no reason and occasion to hand over the share certificates and transfer deeds to the respondent No. 2. It was done to ensure ouster of the petitioners. My attention was drawn to petitioner No. 1's complaint before the Institute of Chartered Accountants of India and the said inquiry after hearing both the parties holding the Respondent No. 4 guilty of his conduct with regard to non-compliance of MOU etc.
8. It was reiterated that no notice of Board Meetings, General Body Meeting, and no other information about the affairs of the company was received by the petitioners. Even the Annual Accounts of R-1 were not supplied. It was further pointed out that this is not the case of petitioners no 1 to 6 only but other petitioners in the petition have annexed by way of letters written from time to time regarding the mismanagement of the Respondent No. 1 Company. It was contended that petitioners Nos. 7 to 11 have not withdrawn the charges made in the petition but have simply shown their disinclination to pursue the petition. The Learned Counsel for the respondents has not been able to match the charges levelled by the petitioners.
9. Sh. U.P. Mathur arguing for Respondent Nos. 1 to 3 pointed out that the petitioners No. 7 to 11 are all own brothers and sisters of the Respondent Nos. 2 & 3 who have since withdrawn from the present proceeding. The Respondent No. 4 who was the auditor of the company and well wisher of the family enjoyed trust and confidence of all the members of the family. My attention was drawn to the subscribers of the Memorandum of Association and it was pointed out that Sh. Ranjit Singh, the Petitioner No. 1 appointed himself as the Managing Director in 1989 and filed Form No. 23 with the Registrar of Companies intimating his appointment under his signature only. No meeting was convened in respect of the said appointment. No Board Meetings and General Meetings were held during his tenure as Managing Director. The concept of construction of a Cold Storage was initiated by Respondent Nos. 2 and 3. It was the understanding between the parties that the business of Cold Storage shall be carried on by Ranjit Singh, Petitioner No. 1, Subhash Singh and Subrata Singh, Respondent Nos. 2 and 3 respectively in equal shares. But the Petitioner No. 1 taking advantage as the senior most member of the two families on the demise of Shib Shankar Singh and allotted 15,150 Equity Shares in 1990 to his own family members. No Board Meeting was held in this regard. The dispute started after the first allotment of 15,150 shares which were made by Ranjit Singh (in 1989-90) discriminately to cause a division among the members of the two families. In 1995 R-3 was thrown out from the Board of Directors of the Company and interestingly Form No. 32 was signed by P-1 who inducted, upon the removal of R-3, the younger brother of R-2 and R-3 namely, Sh. Jay ant Singh as Director. It was pointed out that R-3 never tendered any resignation letter. The reason behind this action was that R-3 used to keep watchful eyes on petitioner No. 1's activities particularly the accounts maintained by him or persons under him. The allotment of shares to the members of R-2's family, without consideration was to carry out the ill designs of P-1 by creation of a division within the family of R-2. In 1999 Sh. Jayant Singh was removed as Director of the Company and R-3 was inducted as Director. According to the Respondents the removal of Jayanta Singh and appointment of R-3 was made by P-1 to compromise with R-2. P-1 defalcated more than Rs. 1.5 Crores. In fact, P-1 opened a Bank Account in the name of the Company with the United Bank of India, Lahurabir Branch, Varanasi on 12.4.1989. Fund was transferred to the said United Bank of India Lahurabir Branch, Varanasi for no reason and cash was withdrawn from the bank account by petitioner No. 1 who was stationed at Varanasi and used to operate the said Bank account singly. Respondent No. 3 raised objections in respect of the huge transfers and withdrawal of cash by petitioner No. 1. Petitioner No. 1 did not pay heed to the objections raised. Respondent No. 3 had to face the humiliation having raised the objection. The huge Bank loan was taken by the company upon mortgaging of the only residential house of Late Shib Shankar Singh, father of Respondent No. 2 and Respondent No. 3. Petitioner No. 1 and his group wanted to be majority share holders by hook or by crook and by making allotment of shares whimsically, and arbitrarily. Respondent No. 2 and Respondent No. 3 being in minority could not get their views supported by their uncle, petitioner No. 1. Unfortunately Respondent No. 2 met with an accident and at present he is physically handicapped.
10. Further, Sh. Mathur pointed out that on 20/3/1997 the Authorized Capital was raised from Rs. 25 lacs to Rs. 50 lacs. Form No 5 was signed by petitioner No. 1 but no EGM was held to increase the authorized capital from Rs. 25 lacs to Rs 50 lacs. It was pointed out that by allotting 8000 shares on 31.3.1997 and 5000 shares on 31.3.98 mostly to the petitioners, petitioner No. 1 ensured control over the company by holding more than 50% of the paid up capital of the Respondent No. 1.
11. Sh. Mathur further pointed out that when siphoning of about Rs. 1.5 Crores came to light petitioner No. I, approached Respondent Nos. 2 and 3 for an amicable settlement. An agreement was arrived at by the parties on 24th January 2002. Pursuant to the terms and conditions of this agreement Respondent Nos. 2 and 3 paid a sum of Rs. 60 lacs and interest of Rs 30,000/- to the Petitioners which as pointed out by the Respondents has been duly received, acknowledged and appropriated. The balance amount of Rs. 24.25 lacs was paid through demand draft and Rs 5.75 lacs in cash by Respondent Nos. 2 and 3 and the same was held by Mr. D.K. De Sarkar being the Respondent No. 4 and in spite of the intimation by Mr. D.K. De Sarkar the Petitioners or their representative did not accept the payment. The petitioners' group alleged that no consideration has passed. Such allegations, it was argued, are baseless and devoid of any substance. It is preposterous to suggest that the petitioner group handed over all the share certificates and transfer deeds and for more than two years no payment was made by the respondent group and the petitioners remained silent spectators without even writing a single letter. The total amount of Rs. 60 lacs had been received by Sh. Viswajit Shahi on behalf of the Petitioners against a clear acknowledgement as under:
As per the terms of agreement between Shri Ranjit Singh and Shri Subhash Singh dated 24.1.2002, I Viswajit Shahi son of Ranjit Singh acknowledge the receipt of the following payments.
It was further argued that the signatures on the receipt were also examined by a handwriting expert who held that the receipt was signed by Sh. Viswajit Shahi. It appears that only two Petitioners out of 11 had signed the rejoinder dated 14 March, 2006 to C.P. to deny the payment of part consideration for sale of the shares by the Petitioners to the Respondent Nos. 2 and 3 only to avoid criminal proceedings. Again the said bank draft was revalidated on 29.9.2004 and the Respondent Nos. 2 and 4 informed petitioner No. 1 to collect the balance consideration as written in the letter "to pay to you as the last and final payment as per the agreement dated 24th January, 2002." The question of last and final payment could arise only upon the receipt of the earlier instalments. But petitioner No. 1 did not collect the same. No reply was given. It was pointed out that the Petitioners have resorted to deliberate falsehood in the affidavit by denying the receipt of Rs. 60 lacs as by way of consideration in terms of the agreement and also the tendering of the balance of amount Rs. 30 lacs.
12. Responding to the allegation that the petitioner Nos. 1, 2 & 3 have been wrongfully removed as Directors of the company the counsel for the Respondents argued that the petitioners were urging that no liability be created in respect of the respondent Company and hence the respondent No. 4 had clearly stated that the liability of the petitioner group was upto 24.01.2002 and that the respondent B group were well within their rights to raise loans for the purpose of running the business. It was agreed that the petitioners were to resign from the Board so as to avoid any future liability. Accordingly, the petitioners No. 2 & 3 resigned and the Form 32 was signed by the petitioner No. 1 himself as the Managing Director. Similarly, in consonance with the understanding the petitioner No. 1 also resigned on 18.02.2003 and Form 32 was filed by the respondent group.
13. Responding to the allegation of certain discrepancies in maintenance of statutory records, it was argued that the petitioner No. 1 himself was that Managing Director of the company. He was overseeing day to day secretarial functions of the Company. As such it does not lie in his mouth to allege that there is any breach on the part of the respondent group in maintaining statutory books.
14. Further, the counsel for the Respondents argued that the petitioners' argument that the transfer being defective should be cancelled does not hold good. Technical defects cannot nullify a transfer based on a shareholders agreement as in the instant case. The provision contained in Section 108 of the Companies Act, 1956 that a company shall not register a transfer of shares in a company unless a proper instrument of transfer is duly stamped and executed and delivered to the company, is neither exhaustive nor mandatory and a registration of transfer of shares without strictly complying with the provisions of Section 108 cannot in all cases be treated as void or illegal. Though there has to be substantial compliance of a provision which is merely directory, in cases not strictly covered by the provision the authority can deviate from that rule and take a decision which is equitable and fair to both the parties. Maheshwari Khetan Sugar Mills v. Ishwari Khetan sugar Mills (1963) 33 Comp case 1142 (All). Further, it was pointed out that in Hindustan steel Limited v. State of Orissa The Apex Court has held:
that a mere technical defect is no defect and the punishment for the same is penalty. The entire transaction is not nullified.
15. The counsel for the respondents urged for dismissal of the company petition for not meeting the requirements of Sections 397 and 398, as set out in their preliminary objections. It was contended that at the time of filing of the present proceeding the Petitioner Nos. 1 to 6 have themselves admitted that they were not members of the company as they ceased to have any shares. Petitioners Nos. 7 to 11 claiming to hold 17.1 % equity shares of the company joined the Petitioner Nos. 1 to 6 so as to fulfill the basic requirements for initiating the present proceeding of having more than 1/10 shares as contemplated in Section 399(1) of the said Act. During the pendency of the present proceeding, all the Petitioner Nos. 7 to 11 withdrew from the present proceeding. It was argued that the prerequisite for invoking jurisdiction under Sections 397 and 398, which have been statutorily provided for in Section 399(1), is that the complaint must come forth from a member. One has to be a member before he can complain of oppression as a member of the company. Reliance was placed on the decision in Gulabrai Kalidas Naik and Ors. v. Laxmidas Lallubhai Patel and Ors. 1977-(047) COMP CAS-0151-GUJ. When the Petitioner Nos. 1 to 6 admit themselves that they are not members of the company at the time of filing of the petition, it was argued, it would be improper to permit such persons to maintain a petition under Sections 397 and 398. The present petition in the absence of Petitioner Nos. 7 to 11 is not permissible in as much as the same does not comply with the requirement of Section 399(1). It was argued that one can complain of oppression or conduct prejudicial to public interest, if he is a member of the company. The Petitioners No. 1 to 6 are not members of the company. Similarly, Section 398(1) provides that a member of a company, complaining of things sets out in the section, may apply for relief to the court, and it is absolutely well settled that for relief under Sections 397 and 398, the oppression complained of must be in the capacity of members. The language of Sections 397 and 398 leaves no room for doubt that the oppression complained of must not only be complained of by a member of the company, but oppression must be of some part of the members (including himself) in their capacity or his capacity as members of a company as such. The Respondents placed reliance on a plethora of judgment. The facts as alleged in the company petition, even assuming, without admitting as true, do not make out a case or cause of action under the provisions of Section 397/398, entitling the petitioners for any relief.
16. The counsel for the Respondents further argued that the main grievances of the petitioners are (i) removal of the first petitioner as the managing director of the company, (ii) removal of the second and third petitioners, as directors of the company, and (iii) non-payment of the of amounts under the settlement agreement. The grievances of the petitioners in relation to the affairs of the company, it was reiterated, stand resolved and mutually settled by means of agreement dated 24. 01. 2002, entered into between the petitioners and the respondents on the terms and conditions that (i) The petitioners shall exit from the company both as shareholders and as directors; (ii) The petitioners shall sell their shares in the company on or before January 31, 2004; (iii) The respondents shall pay the petitioners a sum of Rs. 90 lacs towards sale consideration of the shares of the petitioners in three installments, the last of which shall be payable on or before January 31, 2004. Admittedly, Rs. 60 lacs have been paid to the Petitioner No. 1's group in respect whereof Petitioner No. 3 has issued a receipt dated 20. 06. 2003. Furthermore, the balance Rs. 30 lacs were handed over to the escrow holder Mr. D.K. De Sarkar, through bank drafts of Rs. 24.25 lacs and cash of Rs. 5.75 lacs. In terms of the supplemental MOU, Mr. D.K. De Sarkar, who was authorized to hand over those share certificates and transfer deeds, duly handed over the same on 01.02. 2004 after receipt of the full consideration of Rs. 90 lacs which was payable by the respondents to the petitioner group. On 01.02.2004, annual return was filed with the ROC with intimation of transfer of shares. Further, it was contended that in order to raise loans from Bank, the personal guarantee of the directors of the Respondent No. 1 was necessary. Since the Petitioner Nos. 1, 2 and 3 refused to give personal guarantee, Petitioner nos 2 and 3 chose to resign as directors of the company on 11.02.03 and the Petitioner No 1 on 18.02.2003. Petitioner No. 1 himself filed the Form No. 32 with the ROC on 5th March 2003, holding him out as Managing Director of the Company. The first petitioner had not only accepted his removal as the managing director but also resigned from the board of the company on 18 02. 03, pursuant to the agreement reached between the parties. The respondents made payments aggregating Rs. 90 lacs to the petitioners within the stipulated period. The settlement agreement was accepted in full, but acted upon partly by the parties. The disputes in relation to the implementation of the settlement deed, which is attributable to the Petitioner no 1 himself who inspite of being offered, refused to accept the last instalment of Rs. 30 lacs, it was vehemently argued, cannot constitute acts of oppression or mismanagement in the company's affairs and the remedy for the petitioners is to approach a civil court for specific performance of the settlement deed claiming damages on account of the breach, if any, and the relief claimed in the company petition do not fall within the purview of Section 397/398. The counsel for the Respondents relied on a plethora of judgments to support their contentions. It was pointed out that the company petition is at the most intended for the purpose of recovering the money due from the respondents under the settlement agreement, which is not an object contemplated in Section 397. The petitioners have not approached this Learned Forum with clean hands and as such has no right to claim any equitable relief. On the contrary, as per the past conduct, the Petitioner No. 1 has been acting in a manner oppressive to the respondents and has siphoned off company's funds without rendering any explanation therefore. The petitioner No. 1 himself indulged into activities detrimental to the interest of the company. Since the Petitioner A Group after appropriating Rs 60 lacs have come out with a fabricated story that no consideration has passed, it was argued that it is clear that their claim is not bonafide and is based on falsehood. They have no right to approach the Courts of Equity and their case should be summarily thrown out. In view of the close relationship of the parties and in the light of the contract, dealings and approach of the parties, it was all along understood between the said two groups that the business being in the nature of quasi partnership requiring trust and confidence and that in the event the Petitioner No. 1 group sells off their shares the same would be first offered to the respondents group representing 39% shareholding in the company. The respondents and/or their group of shareholders therefore had a legitimate expectation that having regard to the closeness of relationship, the petitioner No. 1 and/or his group of shareholders will not sell their holding to any third parties and accordingly agreed to purchase the same adopting the methodology as suggested by the petitioner No. 1, including the mode of payment. Now that the respondents have fulfilled their commitments, it is not now open to the Petitioner Nos. 1 to 6 to allege or contend otherwise. The act of filing the present petition itself is an act of trespass into the title of the respondent B Group which the petitioners are otherwise debarred from raising. The whole motive of the petitioner no 1 is to grab the company by hook or by crook, which is evident from the fact that after receiving Rs. 60 lacs in cash, he is refusing to accept Rs. 30 lacs, thereby resiling from the very spirit of the family settlement entered on 24 01.2002.
17. Furthermore, the counsels for the Respondents argued that in any event the Petitioners not being members of the company cannot refer to any alleged mismanagement which is not their even otherwise. There is no truth in the allegations. The petitioner Nos. 1 to 3 have acquiesced the said resignation as directors as well as the factum of transfer of shares upon payment of the consideration amount in terms of the MOU dated 24.01.2002 and have thereby by their conduct accepted the same and have waived their rights, if any, to challenge the said resignation and or transfer of shares. The present application as such is bad in law by the principles of acquiescence and estoppel. The petitioner No. 1 to 6 having approbated the said transactions can not reprobate the same. The claim made in the application is barred by the principles of approbate and reprobate. The other petitioners being petitioner Nos. 7 to 11 all being brothers and sisters of the respondent Nos. 2 & 3 have withdrawn from the present proceedings unconditionally and have no grievances whatsoever.
18. Sh. U.S. Agarwal counsel for Respondent No. 4 argued that the Company Law Board has no jurisdiction at this stage to go into the question of the alleged misconduct of the Statutory Auditor of the company. The proceedings before the Institute are still pending and unless the said proceedings are disposed of one way or the other this Hon'ble Board cannot entertain the allegations of the Petitioners regarding the alleged misconduct of the Statutory Auditor. Further, it was argued that the Board without going into the question of the maintainability of the petition under Section 397 and 398 cannot look into any other issue not arising out of the Sections 397 and 398 petitions. The validity of sale of shares cannot be gone into in this proceeding and can only be tested by competent Court taking such civil court matters. The company petition in this case is intended for the purpose of recovering the money due, if any, to the petitioners which is not an object contemplated under Sections 397 and 398. The grievances of the complainant do not flow from the petition under Sections 397 and 398 and cannot, therefore, be entertained by the Board.
19. I find that the allegations in the present company petition are in the affairs of a company which is in the nature of a quasi-partnership. There is admittedly a MOU and a supplemental MOU. The MOU provides for transfer of shares of the petitioner's group and their going out of the company. The MOU has been accepted in full. But the petitioners do not intend to enforce the MOU contending that both the parties by conduct have abandoned the MOU. However, the Respondents' case in response to the petitioners' contentions given above is that the MOU has been complied with but the petitioners, specifically P-I & P-2 (the uncle and one of his sons, being the only two signatories to the rejoinder to the present Company Petition out of the total 11 petitioners) even after receiving the consideration for their shares have now chosen not to implement the MOU and that too, after having acquiesced for so long, even the annual return with intimation of transfer of shares was filed with the ROC on 1.2.2004. Further, the petitioners have no answer to the respondents' question that if no consideration for transfer of shares was received then how could they remain silent spectators without writing a single letter for more than two years of their handing over the share certificates and the transfer deeds. The present petition, it has been rightly pointed out, is nothing but a futile attempt to recover their balance money for transfer of shares (the last instalment which they themselves avoided to collect). The respondents have drawn my attention to the petitioners' conduct (specifically that of the P-I who himself had substantial powers of management being the Managing Director) reiterating that they have not come with clean hands. It has been vehemently argued that the petitioners cannot be permitted to approbate and reprobate. Apart from acquiescence, waiver, estoppel, unclean hands, delay and latches, the maintainability of the petition under Sections 397 and 398 has been questioned attracting the provisions of Section 399(1) of the Act.
20. In order to maintain a petition under Section 397/398 as per the provisions of Section 399 sub Section (1) the petitioners should hold either 10% or more shares of subscribed capital or should constitute 10% or more of total members in the company. The present petition has been filed by 11 petitioners out of which the petitioner Nos. 1 to 6 had transferred their entire shareholding and tendered resignation from the Board of Directors including the Managing Director of the company. However, to maintain the petition the consent of the petitioner Nos. 7 to 11 was taken. The right to maintain a petition has to be on the date of filing of the petition. For this reliance was placed on the following cases:
Rajahmundri Electric Supply Corporation v. Nageshwar Rao .
The validity of a petition must be judged on facts as they were at the time of presentation, and a petition which was valid when presented, cannot, in the absence of a provision to that effect in the statute, cease to be maintainable by reason of events subsequent to its presentation.
Varadarajan (S) v. Venkateswara Solvent Extraction (P) Ltd. (1995) 4 Comp LJ 297 (Mad) : (1995) 80 Comp Case 693 (Mad) The requirement of share qualification is relevant and material only at the time of institution of the proceedings.
On the basis of the above decisions, it was contended that the petitioners held more than 10% shares on the day of filing of the petition which is sufficient to maintain the petition as the consent of the petitioner Nos. 7 to 11 was withdrawn only subsequently. The respondents have contended that when the petitioner Nos. 1 to 6 themselves admit that they were not members of the company at the time of filing of the petition, it would be improper to permit such persons to maintain a petition under Section 397 and 398 in the absence of petitioner Nos. 1 toll as the condition of the requisite shareholding under Sub-section (1) of Section 399 of the Act remains unfulfilled. I find no reason to disagree with the respondents. MOU is not denied. P-1 to P-6's entire shareholding stands transferred for consideration. They admittedly are not members on the date of filing of the petition. The petitioners Nos. 7 to 11 have withdrawn their consent. On facts, the petitioners do not fulfil the requisite condition of shareholding provided in Sub-section (1) of Section 399 of the Act. I find that in the cases relied upon by the petitioners that petitions were maintainable on the date of the filing of the petitions, but the maintainability was questioned on the basis of subsequent events. But, in the present case before me, the maintainability of the petition is to be seen even after the filing of the petition as after the withdrawal of the consent by the petitioner Nos. 7 to 11, the petitioner Nos. 1 to 6 being not members there remains no member to maintain a petition under Section 397 and 398 of the Act. The requisite eligibility under Section 399 Sub-section (1) is also to be seen thereafter. Even that requisite condition is not fulfilled.
21. In view of the foregoing, I do not find any reason to hold the petition maintainable. All other above arguments of the petitioners on merits can be considered only if the petition is maintainable. The petition is not maintainable.
22. In view of the foregoing, the petition is hereby dismissed being not maintainable.
23. No order as to cost.