Company Law Board
Pratima Pal, Subhra Pal, Sayantani Pal ... vs Naba Press Pvt. Limited And Ors. on 12 June, 2006
Equivalent citations: [2006]134COMPCAS617(CLB), [2006]72SCL415(CLB)
ORDER
S. Balasubramanian, Chairman
1. M/s. Naba Press Pvt. Ltd. ("the company") is a family company promoted by one Kali Charan Pal, who expired some time in November, 1997, had two sons - the 2nd respondent and one Kunal Pal, who also expired intestate in May, 2004. The 1st petitioner is the wife of Late Kali Charan Pal and 2nd petitioner is the wife of Late Kunal Pal. The 3rd and 4th petitioners are the daughters of 2nd petitioner. The 3rd and 4th and 5th respondents are the sons of Sailandra Nath Pal, who was the brother of late Kali Charan Pal. The authorized capital of the company is Rs. 5,00,000/- divided into 5,000 equity shares of Rs. 100/- each and the paid-up capital was Rs. 4,50,000/- divided into 4,500 equity shares of Rs. 100/- each, before allotment of 500 shares impugned in the petition. The 1st petitioner held/holds 1,900 shares while Late Kunal Pal held 500 equity shares. The respondents collectively held 2,100 equity shares. The allegations in the petition are that the company has been refusing to transmit 500 shares in the name of the petitioners, being the legal heirs of Late Kunal Pal and that in exclusion of the petitioners, 500 un-subscribed shares have been entirely allotted to the respondents.
2. Shri Mukherjee, appearing for the petitioners, submitted that the company is a family company, promoted by the husband of the 1st petitioner, who is also the Chairperson of the company. As far as non-transmission of 500 equity shares is concerned, the petitioners have filed a separate petition, which has been recently disposed of by the CLB directing the company to transmit 500 shares in favour of the petitioners and the company has done so. With this, the petitioners collectively hold 2,400 shares as against 2,100 shares held by the respondents group. However, with a view to gain control of the company, in allegedly held Board meeting all the 500 un-subscribed shares had been allotted to the respondents group by which, presently they hold majority shares of 2,600. The disputes among the parties arose some time in 2004. The company had issued a notice on 20.4.04 for convening an Extra-Ordinary General Meeting (EOGM) which was challenged by the petitioners. In the meanwhile, the respondents held the meeting on 12.5.04, passing various resolutions. The Calcutta High Court by an order dated 19.7.04 directed that none of the resolutions taken at the EOGM shall be given effect to and the said order is still subsisting. From the letter dated 6.4.05, addressed to the 1st petitioner, she came to know that in spite of the subsisting interim order of the High Court, the Board was re-constituted. The petitioners have filed a contempt petition before the High Court. The company allegedly held a Board meeting on 30.3.05 and passed a resolution to allot the un-subscribed 500 shares @ 100 shares each to the 1st petitioner, 2nd 3rd 4th and 5th respondents. The company purportedly sent an offer notice on 6.4.2005 to the 1st petitioner which was never received by her. Likewise, the other petitioners also did not receive the said offer notice. The 1st petitioner received a notice dated 8.3.05 in connection with holding of EOGM of the Board of directors on 30.3.05. On pointing out that there can be no EOGM of Board of directors, the company admitted the mistake. On inspection of records of the company in the office of Registrar of Companies, West Bengal (ROC), the petitioners came to know that 2nd 3rd 4th and 5th respondents had been allotted 125 equity shares each on 31.5.05. The alleged notice dated 6.4.04 offering 125 shares to the 1st petitioner was never received by her and only from the reply filed in respect of other proceeding under Section 111, the petitioners came to know of the said offer letter. There is no mention of the proposed allotment in the letter sent by the company on 6.4.05 wherein other businesses conducted on that day had been given. (Annexure-P.7). Therefore, the claim that a Board meeting was held on 30.3.05 and decision to select shares is nothing but a fabrication. Even in the notice for the EOGM dated 8.3.05 wherein the agenda items had been indicated, there is no mention about the allotment of further shares. If the offer notice dated 6.4.05 had been received by the petitioner, she would have definitely applied for the shares, as failing to do so, it would reduce the petitioners into a minority. Further, the need for allotment has not been explained in the resolution allegedly passed to increase the share capital. The averments in para 15 of the reply that the respondents are in majority in view of their holding 2600 shares would very clearly indicate that the motive of allotment was only to gain majority control of the company. The 1st petitioner, even though she is the Chairperson of the Board, never received any notice for the Board meeting, allegedly held on 31.3.05 wherein shares had reportedly been allotted. It is a settled law that directors are not to allot shares to maintain control of the company in of breach of their fiduciary duties. The shares were allotted when the petitioners were prosecuting for transmission of shares. Even in terms of the resolution, allegedly passed, shares were to be allotted in equal proportion to all the shareholders. Therefore, pending transmission of 500 shares, held in the name of Late Kunal Pal, proportionate entitlement in respect of these 500 shares should have been kept intact.
3. The learned Counsel relied on the following authorities:
1. Date & Carrington Investment Pvt. Ltd. v. P.K. Prathapan--Even if Section 81 of the Act is not applicable to private company, yet in closely held companies, the principle should be followed. It has also been held that when shares were allotted without actual offer to all the shareholders, the same is liable to be quashed.
2. Bajaj Auto Ltd v. N.K Firodia Even absolute discretion is vested in the Board to refuse to register transfer of shares, the same should be bona fide. Similarly, in the present case, neither any justification for allotment of shares has been given nor the shares were offered to all the shareholders.
3. PIERCY v. Mills and Co.-1919 AFR 313 Ch D-Directors cannot use their powers for maintaining their control.
4. Parmeshwari Prasad Gupta-v. Union of India If any Board meeting is held without notice to all the directors, the same is invalid.
5. Ramashankar Prosad v. Sindri Iron Foundry Pvt. Ltd. majority shareholder would commit hara kiri by not attending a meeting in which his interests are going to be affected, if he had received the notice. Similarly, in the present case, if the 1st petitioner had received the offer letter, she would have definitely applied for the shares.
4. Shri Mitra, appearing for the respondents, giving a list of dates, submitted that the petition is not maintainable as provisions of Section 111 are not applicable in the matter of allotment of un-subscribed shares. In the present case, the allotment impugned in the petition, is neither contrary to provisions of the Articles nor the Act. All the cases cited by the counsel for the petitioners are relating to the decisions in petitions under Section 397/398 and these decisions cannot be applied in a petition under Section 111. The respondents have always been associated with the management of the company and the 1st petitioner, who is over 80 years of age, even though is the Chairperson of the company, was never in control of the company as such. The 2nd petitioner is using her mother-in-law to surreptitiously take over the control of the company. Originally, the 1st petitioner held only 900 shares and on devolvement of 1,000 shares held by her husband, her shareholding came to 1,900 shares. Earlier, all the respondents held 500 shares each except the 2nd respondent who held 600 shares. The company has acted in bona fide manner in accordance with Article 4 which vests with the directors' power to allot shares as they deem fit. If the petitioners allege oppression in the allotment of shares, the same is beyond the scope of Section 111. Section 81 of the Act is not applicable as the company is a private company and the question as to whether the petitioners received the offer letter, is a disputed question of fact, which cannot be determined in a petition under Section 111. Therefore, this petition should be dismissed. Referring to Dale & Carrington Investment Pvt. Ltd. v. P.K. Prathapan, he pointed out that the allotment of shares was considered in a petition under Section 397/398 and not in a petition under Section 111. In Tarsen Kansil v. Deb Spinners Ltd. 103 Comp Cas. 835 the CLB has held that there are disputed question of facts, the same should be adjudicated in a civil suit. In Amonia Suppliers Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd. also it has been held so. In view of the legal position indicate above, the petition should be dismissed.
5. In rejoinder, Shri Mukherjee submitted that the first letter dated 6.4.05 (Annexure-P.7) confirmed that there was a Board meeting on 30.3.05, but there was no mention about the allotment of shares. The said letter refers only two resolutions relating to increase in the remuneration of the directors and another matter. Even the agenda sent on 8.3.2005 did not contain the business of allotment of shares. Therefore, the alleged decision to allot shares and the alleged notice of offer are all fabricated. It is wrong to claim that under Section 111, malafide cannot be alleged in the matter of allotment of shares. In Dale and Carrington case, the Supreme Court has held that even if Section 81 is not applicable to a private company, yet, in family companies this principle should be applied.
6. I have considered the pleadings-and arguments of the counsel. In the petition, the petitioners have sought for rectification of the register of Members by deleting the names of the 2nd to 5th respondents in respect of the impugned 500 by canceling the said allotment. Section 111(4) deals with rectification of Register of Members in case the name of any person is entered in committed from the Register without sufficient cause. Shri Mitra while contending that allotment of shares cannot be agitated in a petition, urged that even otherwise, a petition under Section 111 can lie only on the allegations of non compliance with the provisions of the Articles or the Act and cannot lie on the allegations of oppression, malafide, fraud etc. As far the contention that allotment of shares cannot be agitated in a petition under Section 111 is concerned, it is to be noted that Section 111(4) dealing with rectification was earlier a part of Section 155 in which allegations relating to both allotment and transfer could be agitated. After assimilation of the provisions of Section 155 in Section 111, the position has not changed. Therefore, even allotment of shares could be challenged under Section 111(4).
7. This Board had the occasion to examine the term "sufficient cause" as in Section 111 in Tracstar Investment Ltd. v. Gordon Woodroffe Ltd. 87 CC 941. In that case, this Board held that not only statutory violations, even fraudulent and malafide and other allied factors would constitute a sufficient cause to seek for rectification. This decision was approved by the Division Bench of the Madras High Court in Shoe Specialties Ltd. v. Tracstar Investment Ltd. 88 CC 471. Therefore, since in this case, the petitioners allege malafide in the allotment of shares the same can be examined under Section 111.
8. The petitioners have challenged the factum of the alleged decision to allot shares in the Board meeting on 30.3.2005 and the allotment of shares on 31.5.2005. I do not propose to examine this allegation and propose to only examine whether on other grounds a case has been made out for ordering rectification on the basis that decision to allot shares was taken in the Board meeting on 30.3.2005 and the shares were actually allotted in the Board meeting on 31.5.2005. The allegation of the petitioners are that without offering shares to the 1st petitioner which was allegedly approved to be offered to her in the Board meeting on 30.3.2005, the 1st petitioner's entitlement of 500 shares has been distributed to the respondents and that the other petitioners were also not offered proportionate shares, by delaying the transmission of shares in their favour. As far as the 1st petitioner is concerned, while the company contends that the notice of offer was sent along with copy of the minutes on 6lh April, 2005 by speed post, the receipt of which has been acknowledged by the petitioner, according to the petitioner that speed post cover did not contain the offer letter. Her further contention is that if she had received the offer, she would have definitely applied for the same, as otherwise, the respondents would become majority in the company. Shri Mitra contended that whether the petitioner received the offer notice or not, being a disputed question of fact, the same cannot be decided in a summary proceeding under Section 111. I do not find any complicated question being involved. I have seen a copy of the alleged offer notice and also the copy of the minutes which were allegedly sent together on 6.4.2005 in a single cover. Both are dated 6th April, 2005. While the top of every page of the 3 pages of the copy of-the minutes carry the words "speed post with A/D", the alleged off notice does not contain these words. This gives credence to the contention of the 1st petitioner that she never received this offer notice along with the copies of minutes. Taking into consideration the fact that by non subscribing to the shares offered, the 1st petitioner would be at peril, I have to perforce hold that the company had not sent the offer notice to the 1st petitioner. Therefore, appropriating the shares decided to be offered to her in the Board meeting cannot be sustained. As far as the other petitioners are concerned, it is seen from the minutes of the Board meeting on 30.5.2005, that the 3rd respondent proposed that the balance of 500 unpaid equity shares of the authorized share capital of the company be offered to all the existing shareholders of the company in equal proportions and the same was seconded by the 4th respondent and the Board considered the said proposal and unanimously resolved to allot the shares in equal proportion to the 1st petitioner and the four respondents. In the same Board Meeting, the Board had also noted the pendency of the application for transmission of shares held in the name of Late Kunal Pal. When the proposal was to allot shares proportionately to the existing shareholders and since the name of Shri Kunal Pal was in the Register of Members, his entitlement of proportionate shares should have been kept intact till the transmission issue was resolved, it was contended that Section 81 is not applicable to the company. Even if that be the case, when the Board had decided to allot shares proportionately to the existing shareholders, the Board had actually applied the provisions of Section 81. Therefore, the entitlement of Late Kunal Pal whose name was in the Register of Member should have been kept intact and offered to the petitioners as per the succession certificate. Accordingly, I hold that the allotment of the impugned 500 shares to the respondents themselves was with a malafide intention of denying the rights of the petitioners and as such the register of members deserves to be rectified.
9. Considering the fact that the minutes dated 30.3.2005 do not disclose any justifiable reason for allotment of further shares, like requirement of funds etc, I direct the company to rectify the Register of Members by removing the names of the respondent Nos. 2 to 5 in respect of 125 equity shares allotted to each of them on 31.5.2005, by 15.7.2006. The company will refund the consideration received in respect of these shares to these respondents simultaneously and the paid up capital of the company shall stand reduced to that extent from the date of rectification. Other allegations that the company had acted in breach of the High Court order etc, being not germane to the provisions of Section 111, I have not examined the same.
10. The petition is disposed of in the above terms without any order as to costs.