Company Law Board
Akkadian Housing And Infrastructure ... vs Pantheon Infrastructure Pvt. Ltd. And ... on 27 December, 2005
Equivalent citations: [2006]71SCL207(CLB)
ORDER
S. Balasubramanian, Chairman
1. In this order. I am considering the interim prayers sought for by the petitioners who have alleged oppression & mismanagement in the affairs of M/S Pantheon Infrastructure Private Limited.
2. The facts of the case are: The 2nd petitioner and the 2nd respondent entered into an agreement on 23.12.1999 to form a joint venture to purchase and develop the property admeasuring 13 acres in Bombay owned by M/s. Park Davis (India ) Limited. In terms of the agreement, each of them was to subscribe to 50% of the issued and paid up shares in the company. To execute the project, they acquired a company, namely, A-Class Builders & Developers Private Limited. Both of them invested a sum of Rs. 2.45 crores each. Thereafter by a supplementary agreement dated 15th June, 2000, it was decided to induct the 3rd respondent also in as a promoter and it was agreed that each of them would hold 1/3rd shares in the company. The purpose of induction of the 3rd respondent was that he would facilitate entering into an agreement with M/S Tata Housing Development Company for development of the property. When the agreement with M/S Tata did not fructify, with a view to mobilize funds for the project, the parties had agreed to induct the 4th respondent as a shareholder with an understanding that he would bring in Rs. 15 crores and that the remaining 3 shareholders would divest 5% of the shares to the 4th respondent. Thus, presently the petitioners hold 28.33% shares. The main allegation of the petitioners is that the 2nd respondent in the guise of divesting shares in favour of the 3rd and 4th respondents, has actually cornered the divested shares to himself/his associate companies and is thus controlling 71.67 shares as against the original understanding that both the petitioners and the 2nd respondent would hold 50% shares in the company. Other allegation of the petitioners is that the 2nd respondent, being in control of the company, has sold/leased out constructed areas below the market rates and has thus siphoned of funds of the company. The 2nd petitioner has also challenged his cessation of office as a director in terms of Section 283(1)(g) of the Act. With these allegations, various reliefs have been sought for in the petition. The interim reliefs sough for are: that the petitioners should be put back on the Board, that the company should be restrained from issuing further shares, that no contract for sale/lease should be entered into without the approval of the petitioners and that the petitioners should be given inspection of the statutory records and accounts of the company or in the alternative, a Commissioner should be appointed to authenticate the records.
3. Elaborate arguments were advanced by Dr. Singhvi, Shri Mukul Rohtagi, Shri Ganesh, Sr. Advocates appearing for the petitioners and by Shri Dave, Shri Haksar, Sr. Advocates for the respondents. For the purposes of this interim order, instead of elaborating their arguments, I consider that a summary of their arguments would suffice. A summary of the arguments of the counsel for the petitioners is: The 2nd respondent had falsely and fraudulently and with a view to gain control of the company, induced the petitioners to agree to reduce their shareholding initially from 50% to 33.33% and later to 28.33%. It was the 2nd respondent who had proposed the induction of the 3rd and 4th respondents on false and fraudulent premises. The petitioner agreed for the participation of the 3rd respondent only on the assurance of the 2nd respondent that 3rd respondent would arrange for an agreement with M/s. Tata. It never fructified. Again with the false assurance that the 4th respondent would bring in Rs.15 crores into the project, the 2nd respondent induced the petitioners to reduce their shareholding by another 5%. The 4th respondent did not bring in even a single pie. However, now the petitioner has found out that shares were which were to go to the 3rd and 4th respondents never went to them but were allotted only to the 2nd respondent and the entities controlled by him, and thus he is controlling over 70% of the share in the company. The 2nd respondent has taken away all his invesments and today the petitioner's contribution of Rs.2.45 crores alone -remains in the company. In other words, the company is being run on the investment made by the petitioner. All other project funding has been met out by loans given by banks/financial institutions. Therefore, the petitioners are entitled to 50% shares in the company and till such time the matter is decided, the respondents should be restrained from issuing further shares. The 2nd respondent is guilty of siphoning of funds of the company. It is a known fact that in property transactions, there are always underhand dealings and the properties sold/leased by the 2nd respondent are found to have been much lower than the market rates. Therefore, the company should be either restrained from dealing with the property or the consent of the petitioners should be obtained before entering into any agreement relating to the property. In so far as the cessation of office of director by the 2nd petitioner is concerned, no notice for the board meetings held on 29.9.2005, 8.10.05 and 18.10.05 was received by the 2nd petitioner. In spite of no notice for these meetings, the Board of the company had noted that the petitioner had vacated his office on 18.10.05 in terms of Section 283(1)(g) of the Act. The provisions of this Section come into play only when a director absents himself from 3 consecutive meeting of the board or from all meetings of the board for a continuous period of 3 months whichever is longer without obtaining the leave of absence from the board. In the present case, not only no notice for the Board meetings had been issued to the 2nd petitioner, even 3 months period would be over only on 29.12.2005 and as such the provisions of Section 283(1)(g) could not have been applied on 18.10.2005. Therefore, the petitioner should be declared to be a director, of the company. Since the petitioners have been kept in dark about the affairs of the company, they should be given inspection of the statutory records and account books of the company.
4. The summary of arguments of Shri Dave and Shri Haksar is: The petitioner was always consulted by the 2nd respondent in all matters. Even though the petitioner was fully aware about the financial needs of the company, he never showed any interest in bringing funds. It is the 2nd respondent who had been authorized by the petitioners to carry on the affairs of the company, mobilized funds from banks and other financial institutions by giving his personal guarantees. Only because of the efforts of the 2nd respondent, the 1st phase construction of the project could be completed and the 2nd phase is in progress. The present petition is for an oblique purpose to extract pound of flesh. If according to the petitioner the 2nd respondent had falsely induced the petitioners in reducing their shareholding, the proper remedy is the civil court and not through a petition under Sections 397/398 of the Act. So far, the company has issued/allotted shares only once to the existing shareholders on 14th March 2002 and all the share certificates in respect of the shares so allotted were signed by the petitioner himself. In other words, the petitioner was fully aware as to the identity of the persons to whom the shares were allotted as early as in March 2002 and when the same share holding is continuing even now, he cannot allege that something has been done behind his back. During the recent floods in Mumbai, not only the project has been extensively damaged, many of the tenants have vacated the premises resulting in repayment of the advances paid by them. Therefore the company is urgent need funds not only for repairing the damages and repayment of advances but also for completion of the 2nd phase and the petitioners are not willing to contribute. This petition itself has been filed only to avoid making any contribution. Therefore the company should be allowed to raise funds by issue of further shares. The allegation of the petitioners that the 2nd respondent is siphoning of funds of the company is baseless and is not supported by any material. All the lease rentals have been securitized against the loans given by the banks/financial institutions and from the chart furnished by the respondents, it would be evident that the lease rentals are either at market rates or higher than the market rates. Further, all the deals in relation to the property are transacted through reputed real estate agents that too in favour of reputed multinationals. Therefore, the question of any underhand dealings does not arise. The very fact that the company has been earning substantial profits would indicate that there is no financial mismanagement. Till date, the petitioner had never sought for details of any contract- sale or lease. The main business of the company is to construct and lease and as such no fetter should be placed in the sale or leasing out the properties of the company. As far as the directorship is concerned, right from the beginning, as a practice, no notice is issued for Board meetings and only oral intimation is given. For all the impugned Board meetings, oral intimation was given to the 2nd petitioner, but he chose not to attend and accordingly in terms of Section 283(1)(g), he vacated his office. Therefore, no interim reliefs should be granted and the earlier interim order should be vacated. Further, in terms of the agreements relied on by the petitioners and also in terms of the, Articles of Association of the company, any dispute among the shareholders is to be referred to Arbitration and accordingly the respondents have already filed an application under Section 8 of the Arbitration and Conciliation Act and the same should be decided first.
5. I have considered the matter carefully. When the petition was mentioned and interim reliefs were sought by the counsel for the petitioners on 9.12.2005, the counsel for the respondents sought time to file a short reply before arguing on the interim reliefs, Accordingly, while adjourning the matter to 15.12.2005,1 directed that there shall be no Board meetings and no change in the shareholding during the intervening period. Arguments on interim reliefs were heard on 15th, 19th and 20th December 2005. Counsel for both the sides have raised various factual aspects of the case which could be decided only after all the pleadings are completed. Normally, in a petition under Sections 397/398, at the interim stage, other than directing maintenance of status quo with regard to the assets of and shareholding in the company, this Board does not consider granting of any other relief unless the petitioners establish a prima facie case for granting such a relief and establish that the balance of convenience is in their favour with proper material and that granting of such a relief is not against the interest of the company.
6. In so far as directorship of the 2nd petitioner is concerned, the company has applied the provisions of Section 283(1)(g) and has contended that the petitioner had vacated his office by operation of law by not attending three consecutive Board meetings. This Section has two parts-absence in 3 consecutive meetings without leave of absence and all meetings in a continuous period of 3 months- which ever is longer. The three meetings, to which notices had been allegedly given orally and not attended by the 2nd petitioner fall within a period of 3 months and as such it prima facie appears that the provisions of Section 283(1)(g) are not attracted. Keeping this issue for determination at the final stage, I direct that the 2nd petitioner should be invited to all Board meetings with 10 days clear notice along with agenda and should be allowed to part take in the deliberations of the Board. Notices could be sent either by e-mail and/or by fax. The status quo as of today of the composition of the board with the petitioner as an invitee should be maintained.
7. The petitioners have sought for restraining the company from further diluting the equity of the petitioner or issuing further share capital in any manner whatsoever. While the prayer for a direction for non dilution of the petitioners' holding is just and proper, putting a blanket ban on issue of further shares, if the company is need of funds, would affect the interest of the company. Since it is evident that the company is in need of funds, with the view to protect the interest of the company as well as the petitioners, I allow the company to issue further shares if it so desires subject to the condition that such issue should be on a right basis to the existing shareholders and that the entitlement of the petitioners should be kept intact in case they do not subscribe to the shares and that the entire issue shall be subject to the final order on the petition. The petitioners have sought for either restraining the company from entering into any deal in relation to the property of the company or have sought for obtaining the approval of the petitioners. In so far as the prayer of the petitioners that their approval should be obtained is concerned, while it is the contention of the respondents that the 2nd petitioner was always consulted, the sam4 is denied by him. Considering the fact that there is no document to show that the 2nd petitioner had sought for such an approval in the past and that the main business of the company is to construct and lease/sell the property, I consider it appropriate, to ensure that there is transparency, to direct the company to place all the proposals relating to sale/lease of the property of the company before the Board for its approval as the petitioner, being an invitee to the Board meeting could also consider these proposals and react to the same. I accordingly do so. In so far as authentication of the statutory records and accounts books of the company, to avoid any allegation of tampering at a later date, I appoint Shri Pooran Chand, Bench Officer, Mumbai as Commissioner to authenticate all the statutory records and account books of the company. The petitioner will pay a sum of Rs. 10,000/- to the Commissioner.
8. The respondents have filed an application under Section 8 of the Arbitration & Conciliation Act, 1996 to which the petitioners should file their reply by 20.1.2006. By the same date, notwithstanding the pendency of the said application, the respondents should also file their replies to the petition. Rejoinders to be filed by 10.2.2006. The application and the petition will be heard on 15th and 16th February 2006 at 10.30 AM. (Full days)