Company Law Board
Srichand Bajaj vs Bajaj Promoters Private Limited And ... on 4 August, 2006
Equivalent citations: [2007]137COMPCAS342(CLB), [2007]76SCL8(CLB)
ORDER
K.K. Balu, Vice-Chairman
1. In this company petition filed under Sections 397 and 398 of the Companies Act, 1956 ('the Act') in relation to the affairs of M/s. Bajaj Promoters Private Limited ('the Company') the main grievances of the petitioner, constituting more than one-tenth of total number of members and claiming 99.8% of the paid up capital of the Company, on account of the purported acts of omission and commission of the respondent Nos. 2 & 3 are illegal -(a) interference of the respondent Nos. 2 & 3 in day to day management of the Company; (b) forcible removal of the books of account and statutory records of the Company; (c) usurpation of control of the Company, thereby excluding the petitioner and the fourth respondent from the management; (d) convening of general and board meetings of the Company; (e) increase of the authorised capital of the Company from Rs. 10 lakhs to 21 lakhs; (f) allotment of shares in favour of the third respondent; (g) manipulation of the books of account and other records; (h) take over of the immovable properties of the Company without any valid authority; (i) denying of entry to the purchasers of flats constructed and sold by the Company; (j) sale of flats promoted by the Company without obtaining authority from the board of directors and misappropriating the sale proceeds thereof. Against this background, the petitioner is claiming the following reliefs;
i) to declare that the proceedings of all board meetings and general meetings purportedly held by the respondent Nos. 2 & 3 are null and void;
ii) to declare that the allotments impugned in the company petition are illegal and invalid; and
iii) to supersede the board of directors of the Company and appoint the petitioner and the fourth respondent as directors of the Company.
2. Shri A.K. Mylsamy, learned Counsel, while initiating his arguments submitted:
• The Company incorporated in March 1988 with an authorised capital of Rs. 10 lakhs divided into 1,00,000 equity shares of Rs. 10/- each is engaged in the business of promoters, developers, builders and residential flats and apartments. The petitioner is the father of the second respondent, the father- in-law of the third respondent and the husband of the fourth respondent. The petitioner and the third respondent being the subscribers to the memorandum of association are the first directors of the Company and not liable to retire by rotation. In May 1989, the petitioner was allotted 2500 shares, the respondent Nos. 2 and 3 were each allotted 100 shares of Rs. 10/- each. The balance sheet for the year ended 31.03.1990 and the annual return for the period made upto 23.09.1991 on record are undisputed, which confirm the shareholding of the petitioner and the respondent Nos. 2&3. This shareholding position remained unchanged till 03.01.1998, when 97,300 shares were allotted to the petitioner, to meet the increase in its assets as well as expenses in terms of Form No. 2 dated 23.01.1998, with which the entire unsubscribed portion of the capital stood issued by the Company and subscribed by the petitioner, especially when the respondent Nos. 2 and 3 were not interested in subscribing to any portion of the additional capital raised by the Company. The respondent Nos. 2 & 3 never evinced any interest and involved in the management of the affairs of the Company. The petitioner on the other hand is solely responsible for the growth of the Company, by acquiring and developing lands, promoting and selling flats. The report of the Commissioner would show that an aggregate amount of Rs. 178 lakhs has been collected from the allottees for the period ended with 31.03.2001 and further that the petitioner has incurred a total expenditure of Rs. 169.80 lakhs towards construction and office expenses. The Company has been in the management of the petitioner since its incorporation till about early 1999. The claim of the second respondent for the office of director is not supported by any primary document and hence his claim for directorship is not sustainable. Form No. 2 dated 24.12.1999 shows as if 1,10,000 shares were allotted on 24.12.1999 in favour of the third respondent, converting the existing majority into minority, but no extraordinary general meeting of the members of the Company was held on 21.12.1999 as claimed by the respondents, increasing the authorised capital from Rs. 10 lakhs to Rs. 21 lakhs. No notice was sent to the petitioner as well as the fourth respondent for the alleged extra ordinary general meeting, and they were not present at the meeting approving the increase of the authorised share capital of the Company. The respondents have not followed the prescribed procedure either for the enhancement of the authorised share capital or for the allotment of shares. The respondents have not produced the minutes book of board meeting or the general meeting and no presumption can be drawn in respect of those minutes, copies of which alone have been produced before the Bench. These acts would constitute oppression against the petitioner in his capacity as member. The disputes between the parties arose during 1999 and therefore, reliance may be placed on the statutory returns available prior to the disputed period, which would indicate that the petitioner held 99.8% of the shares and that he was in the management of the Company.
• The petitioner and the third respondent were initially directors of the Company, till the resignation of the third respondent from the office of director with effect from 28.08.1995. Sri Murali Lalchand, who became additional director, had resigned with effect from 01.11.1997, upon which Rohit Bajaj, another son of the petitioner came to be appointed as director with effect from 25.10.1997. The second respondent became director on 03.10.1998, in terms of Form 32 filed on 21.12.1998 with the Registrar of Companies. Later in February 1999 the second respondent and Rohit Bajaj resigned as "directors, and the respondent Nos. 3 and 4 were appointed as directors with effect from 09.02.1999. The respondent Nos. 3 and 4 continued to be directors between 09.02.1999 and 24.02.1999, when the petitioner was appointed as director of the Company on 24.02.1999 and necessary Form No. 32 was filed with the Registrar of Companies. There are no primary documents to support the co-option or resignation of directors and therefore, the returns filed with the Registrar of Companies may be taken into account to determine the validity of appointment of directors.
• The petitioner has been running the affairs of the Company until early 1999 by which time serious disputes arose between the petitioner and the fourth respondent on one hand and the respondent Nos. 2 and 3 on the other which resulted in physical violence against the petitioner and the consequent criminal complaint against the second respondent. In this back ground, the second respondent together with the third respondent took unlawful possession of the rear portion of the Company premises and forcibly removed the books of account and other records of the Company and precluded the petitioner from gaining access to the premises and the records belonging to the Company.
• The respondent Nos. 2 and 3 are controlling the books of account and other records of the Company, and hence they are in a position to fabricate the records and create documents and mismanage the affairs of the Company. The balance sheets for the year ended 31.03.1999 and 31.03.2000 are fabricated, concocted and prepared after the respondents took control of the books of account and records of the Company in the year 2000 and they are self serving documents and cannot be relied to substantiate their claim. The second respondent by way of a sheer force (a) usurped control of the Company excluding the petitioner from participating in the affairs of the Company; (b) prevented the development and construction of the property in front portion of the premises belonging to the Company; (c) obstructed those persons in whose favour the undivided portions have been sold by the Company from taking possession thereof; and (d) denied the occupants entry to the Hats sold by the Company, thereby preventing the Company from generating revenues from sale of the undivided portion in the aforesaid premises.
• The second respondent alienated the flats constructed and sold by the Company unlawfully to enrich himself at the cost of third party bonafide purchasers. The conduct of the respondent Nos. 2 and 3 unfairly prejudiced many members of the public who acquired undivided portions of the land from the Company. This conduct of the respondent Nos. 2 and 3 is highly oppressive and prejudicial to the interest of the Company as well as the public. There is justifiable lack of confidence in relation to the affairs of the Company which will be a ground for winding up under just and equitable clause. However, the order of winding up would cause prejudice to the interest of the Company and its shareholders more so when the Company could make substantial profits in its business venture.
• Though the petitioner and the second respondent reached certain understanding as borne out by the minutes of the meeting dated 31.03.1999 and the Memorandum of Understanding dated 01.06.2000, by which the entire shareholding in the Company was to be retained by the second respondent, yet, such understanding was not implemented, as reached between the parties. The second respondent who was to retain the entire shareholding the Company, must necessarily follow the procedure, without which he cannot make any claim in accordance with the memorandum of understanding, which remains only in paper and without being properly acted upon by the parties. The management may be restored back to the petitioner, who will take appropriate steps to safeguard the interest of the allottees and members of Lalchand family and recover the outstanding dues from the allottees.
• Sri A.K. Mylsamy in support of his legal submissions relied on the following decisions:
• M.G. Mohanraj and Ors. v. Mylapore Hindu Permanent Fund Ltd. by Secretary and Ors. (1990) 1 Comp LJ 73 (Mad) - to show that any general meeting and any resolution passed thereof without proper notice to the generality of shareholders are not valid.
• Micromeritics Engineers Pvt. Ltd. and Ors. v. S.Munusamy (2003) Vol. 116 CC 465 - to show that when any person who has not produced the original minutes book and only a copy of the minutes book has been produced before the Company Law Board without carrying any page numbers or initials or the date and signature of the Chairman in the last page of the minutes as required under Section 193 of the Companies Act, no presumption under Section 195 could be drawn.
• Kshounish Chowdhury and Ors. v. Kero Rajendra Monolithics Ltd. and Ors. (2002) Vol.110 CC 441 - to show that if further shares are issued only with a view to convert a majority into a minority or for creation of a new majority the same would constitute a grave act of oppression.
• Dale and Carrington Invt. P.Ltd. and Anr. v. P.K.Prathapan and Ors. (2004) Vol. 122 CC 161 - to show that if a member who holds majority of shares in a company is reduced to the position of minority shareholders in the company by an act of the company or by its board of directors malafide, the said act must ordinarily be considered to be an act of oppression to such member.
• V.G. Sundaraj v. New Theatres Carnatic Talkies Private Limited and Ors.(Judgment dated 18.01.1991 in O.S.A. No. 62 of 1982 on the file of the High Court of Judicature at Madras) - to show that the requisite procedure for rectification must necessarily be followed without which such rectification will not be valid.
• Sri A.K. Mylsamy, while arguing the contempt application (CA No. 29 of 2001) submitted that the petitioner has filed, during the pendency of the company petition, an application (C A No. 20 of 2001) for an order of injunction restraining the respondent Nos. 2 & 3 from interfering with construction and sale of undivided portion of the building situated at No. 4A Stringers Road, Vepery, Chennai-600 007 upon which the respondents were restrained from dealing with or negotiating for sale of the property until 18.04.2001 and, thereafter, by an order dated 20.04.2001 the respondents 2 & 3 were restrained from entering into any negotiation or deal with any member of the public for sale of any flat, apart from prohibiting them from carrying on any construction of the building. The respondent Nos. 2 & 3, in violation of the orders dated 18.04.2001 and 20.04.2001, commenced construction activities in respect of the fifth floor and the rear building thereby changing the structure, which is detrimental to the interest of the Company and sold certain flats promoted by the Company to make lawful gain for himself. Shri A.K.. Mylsamy, learned Counsel pointed out that the sale of flats in favour of among others, (1) Savitri Choonilal and Smt. Sarala Sant Kumar (2) Sant Kumar, under the guise of sale agreements and building agreements dated 16.01.2001 is in gross violation of the order dated 20.04.2001. These agreements and transactions are not reflected in the Commissioners' report, thereby it is evident that the sale agreements, builder agreements and other documents entered into with these urchasers are fabricated ones in order to circumvent the order dated 20.04.2001. During the pendency of the present proceedings, the espondent Nos. 2 and 3 has caused an advertisement in the Hindu dated 7.06.2006 for sale of flats belonging to the Company. This unlawful act f the respondents is quite contrary to the order passed on 20.04.2001. Therefore, the respondent Nos. 2 and 3 must be punished for having acted in gross contempt of the order dated 20.04.2001. Shri A.K. Mylsamy, learned Counsel opposed the company application filed by the respondent Nos. 5 to 7 (C.A. No. 69 of 2006) seeking to modify the restraint order dated 20.04.2001 mainly on the ground that if the respondent Nos. 5 to 7 are allowed to deal with the flats independently as claimed by them it will cause enormous prejudice to the Company and therefore, the order dated 20.04.2001 is not to be modified by the Bench.
3. Sri Karthik Seshadri, learned Counsel while opposing the company petition submitted:
• The petitioner has approached the CLB with malafide intention of grabbing the Company for himself. The petitioner having committed gross irregularities in the affairs of the Company is not entitled to any equitable remedy and therefore, the reliefs claimed by the petitioner must be declined by the Bench.
• There were no disputes till February 1999 between the parties in relation to the affairs of the Company. Form No. 32 dated 25.02.1999 signed and filed by the fourth respondent would categorically show that while the respondent Nos. 3 and 4 were appointed as directors with effect from 09.02.1999, the petitioner and his two sons, who are not parties before the Company Law Board, had resigned from the office of director with effect from 12.02.1999. Thereafter, the petitioner had abandoned the Company and never showed any interest in its affairs in view of his serious financial problems. The petitioner had received advance from the respondent Nos. 5 to 7 aggregating Rs. 91 lakhs and other customers as borne by the balance sheet for the year ended 31.03.1997, which has also been signed by the petitioner.
• The petitioner had collected an amount Rs. 204 lakhs from the allottees till February 1999 as borne out by the report of the Commissioner appointed by the Bench and thereafter, further collected an amount of Rs. 268 lakhs, petitioner is, therefore, accountable for these amount collected from the allottees.
• The petitioner though collected monies from the allottees failed to deliver the flats and further indulged in second sales of the flats even after vacating the office of director, thereby causing irreparable loss to the genuine purchasers, particulars of which are reflected in the report of the Commissioner. The petitioner has not chosen to produce any of the original records and therefore, no reliance can be placed on copies of the records produced before the Bench. The original records are not in his custody.
• By virtue of the arrangement entered into between the petitioner and the second respondent as borne out by the minutes of the meeting dated 31.03.1999 and the Memorandum of Understanding dated 01.06.2000, the second respondent was to retain the entire shareholding of the Company in lieu of his claim of Rs. 1.40 crores due from the petitioner and his group companies, as envisaged therein. The second respondent as per this understanding reached between the parties became director of the Company in March 1999 in terms of Form No. 32 dated 25.02.1999 filed with the Registrar of Companies and came to manage the affairs of the Company. The date of form 32 is very close to the minutes of the meeting dated 31.03.1999 evidencing the arrangement between the parties. The second respondent took necessary initiative to construct the fourth and fifth floors after regularisation by the Competent Authority, in order to meet the claim of the rival allottees, with the financial facilities availed from Bank of India by him as director of the Company. The report of the valuer appointed by the Bench would show that fourth and fifth floors of the building were constructed during the year 1999-2000.
• The petitioner as admitted in para 6.14 in the company petition has resigned from the office of director with effect from 12.02.1999. Form No. 32 showing the appointment of the petitioner as director with effect from 24.02.1999 was filed after a delay of nearly two years on 04.01.2001 by the fourth respondent, whereas company petition has been filed on 13.03.2001. There has been no explanation for the delayed filing of Form 32 with the Registrar of Companies. The claim of the petitioner for directorship, by virtue of form No. 32 filed on 04.01.2001 with Registrar of Companies, without supported by the minutes of the board meeting cannot legally be entertained. Therefore from No. 32 showing the appointment of the petitioner as director has no legal sanctity to establish his claim. This shows the malafide intention of the petitioner to usurp control of the Company. The petitioner pursuant to his alleged appointment as director executed sale deeds in favour of several of the allottees with ulterior motive to make unlawful gain, which resulted in double sale of the flats namely, the same flat has been sold in favour of more than one allottee. This malafide act of the respondent must be remedied in the interest of the Company.
• The balance sheets for the years between 1995-96 and 2000-01 would show construction expenses aggregating Rs. 1.47 crores, whereas the valuers' report would indicate the construction expenses at Rs. 1.23 crores. These expenses towards construction were not personally incurred by the petitioner, but they were met from the funds belonging to the Company. The petitioner has collected monies to the tune of Rs. 204 lakhs prior to 12.02.1999 and thereafter an aggregate amount of Rs. 268 lakhs, out of which a sum of Rs. 45 lakhs have been spent towards construction expenses as could be seen from the statement produced before the Bench. The petitioner failed to account for the balance amount of Rs. 426 lakhs and has not chosen to settle the dues of the respondent Nos. 5 to 7 and other allottees. The second respondent never collected any monies from the allottees, yet he is prepared to meet the obligations of the Company, provided the management of the Company is entrusted to him, the accounts are rendered and the amounts retained by him are refunded by the petitioner. The entire grievances of the petitioner and the reliefs claimed in the company petition are confined to the front building namely 4-A, Stringers Road, Vepery. Chennai-600 007 and do not relate to the rear building namely 4-B, Stringers Road, Vepery, Chennai-600 007.
• The allotment of 9,73,000 shares were purportedly made on 03.01.1988 in favour of the petitioner for valuable consideration. However, this allotment of shares is not reflected in the balance sheet for the year ended 31.03.1988, according to which the share capital accounts for only Rs. 27,000/-. There has been no further issue of shares on 03.01.1988 as claimed by the petitioner, whereas 97,300 shares were allotted on 16.04.1998 and further 1,10,000 shares were issued on 24.12.1999 to the third respondent, after increase of the authorised capital pursuant to the memorandum of understanding, which is duly reflected in the balance sheet for the year ended 31.03.2000. The consideration for the allotment in favour of the third respondent is supported by the bank statements produced before the Bench. The additional capital was required for the purpose of completing the construction in the front building in order to complete and hand over the Flats to various allottees. Thus, the increase in the authorised capital was in the best interest of the Company.
• The acts complained of by the petitioner are past acts, which are not amenable to the jurisdiction of the CLB in view of the decisions of several of the High Courts and the Supreme Court.
4. Shri M. Shreedhar, learned Counsel, representing the third respondent submitted that the company petition has been filed on 13.03.2001, whereas the petitioner has managed to file Form No. 32 on 04.01.2001 with the Registrar of Companies to show as if he was appointed as director of the Company. The claim for directorship is not supported by any primary documents and mere reliance on Form No. 32, in disputed circumstances cannot establish the fact that the petitioner has been validly appointed as director of the Company. At the same time, the petitioner collected huge amounts from the allottees as evidenced from the statement made by all witnesses examined in the criminal proceedings launched against the petitioner and the second respondent. The petitioner must refund the entire amounts collected from the allottees and in such an event this respondent will be in a position to reach settlement with the allottees. The balance sheet for the year ended 31.03.2000 shows a loss of Rs. 34.33 lakhs, in which case the expenses of Rs. 31.26 lakhs reportedly incurred by the petitioner for the year ended 31.03.2000 can never be true. These expenses are not reflected in the report of the Commissioner. This establishes the fact that the petitioner could not have constructed the flats, as claimed by him. The petitioner is making such false claim in order to wriggle out of the criminal proceedings pending against him. Shri M. Shreedhar, learned Counsel while opposing the contempt application reiterated that the second respondent was constrained to execute the sale deeds in favour of (i) Savitri Choonilal and Smt. Sarala Sant Kumar (ii) Sant Kumar, on account of the orders passed by the District Consumer Disputes Redressal Forum. Therefore, the respondent has not wilfully violated the order of the CLB, but was compelled to comply with the order of District Consumer Disputes Redressal Forum in terms of its orders. The petitioner has come out with the contempt application exerting pressure on the respondents in order to yield to his requirements. The terrace rights over the third floor in the front building have been sold to the third respondent for valuable consideration, in terms of the arrangement reached between the parties even prior to institution of the company petition. The fifth floor was constructed even at the time when local inspection of the property was under taken in the course of the present proceedings. There are no construction activities being carried at the fifth floor as falsely contended by the petitioner. The fifth floor belongs to the third respondent who carried out interior work, which would not amount to violation of the restraint order of the Bench.
5. According to Shri P.H. Arvindh Pandian, learned Counsel, the respondent Nos. 5 to 7 had entered into agreements during the period between 1996 and 1998 with the Company for purchase of undivided share of land and eleven residential flats constructed by the Company at No. 4 (new No.) Stringers Street, Vepery, Chennai - 600 007 for a total consideration of Rs. 88,55,000/- and paid the entire sale consideration. The Company failed to keep up its commitments, but indulged in double allotments thereby jeopardising the interest of the allottees as well as members of Lalchand family, which resulted in filing of civil suits before the High Court of Madras, seeking directions against the Company to register sale deeds in respect of the flats proposed to be purchased by these respondents. The Company has not so far conveyed title to the properties agreed to be sold in favour of the respondent Nos. 5 to 7, in view of the serious disputes between the petitioner and the respondent Nos. 2 to 4 herein. These respondents are interested either to get back the amounts lent to the Company or to get sale deeds registered in their favour. These respondents are in the process of identifying suitable persons for the purpose of renovating and selling the flats for the purpose of settling the rival claims, if any, of third parties and the claim of these respondents. These respondents are unable to sell the flats due to the restraint order of this Bench passed on 20.04.2001. These respondents have earlier agreed to adjust money given by them to the Company against the value of unallotted flats which will be given to them and balance, if any, in cash thereby giving up their claim in respect of eleven flats stated hereabove as borne out by the order dated 19.09.2003 of the Bench. In the circumstances, these respondents are seeking to modify the order dated 20.04.2001, thereby permitting the parties to sell the eleven flats agreed to be purchased, as claimed in the company application (C.A. No. 69 of 2006).
6. I have considered the pleadings and arguments of learned Counsel. The issue before me is whether the petitioner is entitled to the reliefs as claimed in the company petition in order to bring to an end the alleged acts of oppression and mismanagement in the affairs of the Company. The rival claims are dependent on the documentary evidence placed before the Bench. While the petitioner is accusing the respondent Nos. 2 and 3 for stealthily removing away the books of account, statutory and other records of the Company, it is contended by the respondents that the petitioner is in custody of the records but refusing to produce them to substantiate his claim being agitated in the present proceedings. It is needless to point out that the contentious issues in relation to (a) convening of general and board meetings of the Company; (b) increase in the authorised capital of the Company; (c) allotment of shares; (d) appointment and resignation of directors; and (e) manipulation of the books of account and statutory records must be established by causing production of the original books containing minutes of the proceedings of the general and board meetings maintained by the Company in accordance with the requirements of Section 193 of the Act. However, the admitted position is that there are no original minutes books, containing the general or board meetings or the books of account or statutory records to establish any of the disputed facts. A fact is to be determined on the basis of direct evidence and in the absence of any such direct evidence, circumstantial evidence as may be on record is permissible under the rules of evidence. In this context, the various facts which are under serious dispute are being considered on the basis of the existing evidence produced before me. The facts not in dispute are that the Company has been incorporated in March 1988 with the authorised capital of Rs. 10 lakhs divided into 1,00,000 equity shares of Rs. 10/- each. The petitioner and the third respondent being subscribers to the Memorandum of Association are the first directors of the Company and not liable to retire by rotation. While the petitioner, was allotted on 17.05.1989 2500 shares, the respondent Nos. 2 and 3 were allotted 100 shares each of Rs. 10/- each which is found reflected in the annual returns of the Company for the period upto 25.08.1989; 28.09.1990 and 23.09.1991. It is the case of the petitioner that the authorised capital was increased in January 1998 from Rs. 10 lakhs to Rs. 21 lakhs and that 97,300 shares were allotted on 03.01.1998 in his favour for valuable consideration, which are stoutly denied by the respondent Nos. 2 and 3, according to whom the authorised capital was increased only in December 1999 and 97,300 shares were issued on 16.04.1998 and 1,10,000 were allotted on 24.12.1999 in favour of the third respondent. These disputed allotments are supported only by Form No. 2 filed with the Registrar of Companies. Mere statutory returns without supported by any primary documents will not have any evidentiary value. The Registrar of Companies does only ministerial act and therefore, taking of statutory forms on record by the ROC, will have no sanctity in regard to the validity of such returns taken on record by him. Though the increase in the capital has not been supported by any primary documents, yet the same is for the benefit of the Company and therefore, any irregularity, while increasing the capital cannot be oppressive. There is, therefore, no necessity to go into the validity or otherwise of the increase in the authorised capital. Form No. 2 dated 23.01.1998 disclosing the allotment of 97,300 shares made on 03.01.1998 in favour of the petitioner has been filed on 23.10.1998 with the Registrar of Companies. Form No. 2 shows that the petitioner has paid Rs. 9,73,000/- by way of cash towards the allotment of shares. There is no material to show whether an amount of Rs. 9,73,000/- has been brought in by the petitioner towards allotment of the shares, purportedly made on 03.01.1998. The balance sheet of the Company for the years ended 31.03.1998 and 31.03.1999 would show that the paid up capital of the Company was only Rs. 27,000/-. The disputed allotment reportedly made on 03.01.1998 in favour of the petitioner is not reflected in any of these balance sheets. Form No. 2 filed on 24.12.1999 would show that 97,300 shares were allotted on 16.04.1998 in favour of the third respondent. Form No. 2 dated 24.12.1999 would show that 1,10,000 shares were allotted on 24.12.1999 in favour of the third respondent. These two returns would show that the third respondent brought in cash consideration towards the allotment of shares reportedly made on 16.04.1998 and 24,12.1999. The ledger extract of the Company coupled with the bank statement produced before the Bench reveals that the third respondent has brought in an aggregate sum of Rs. 22,76,592/- by 24.12.1999, comprising of Rs. 14,91,951/- by way of cheques, Rs. 86,350/- by way of cash, Rs. 4,00,000/- by way of transfer from the account of the second respondent and Rs. 2,98,291/- being the credit balance in the account. It is further observed from the ledger extract that a total sum of Rs. 19,73,000/-, out of the aforesaid amount of Rs. 22,76,592, has been transferred to share capital towards share allotment in favour of the third respondent. The balance sheet for the year ended 31.03.2000 would reveal that the paid up capital of the Company is of Rs. 21 lakhs which shall comprise of the undisputed 2700 shares held by the petitioner (2500 shares), the respondent Nos. 2 & 3 (100 shares each), 97,300 shares allotted on 16.04.1998 and 1,10,000 shares allotted on 24.12.1999 in favour of the third respondent. While there are documents to show that the third respondent has brought in funds for allotment of shares in her favour, payment of consideration towards the allotment of shares in favour of the petitioner remains unsupported by any material. The impugned allotments made as early as in 1998 and 1999 to the third respondent are being challenged for the first time in the year 2001 before the CLB. This unexplained silence on the part of the petitioner may perhaps be on account of the understanding that the respondent was to retain the entire shareholding of the Company, in which case the allotments cannot be said to be with a view to convert the majority into minority and therefore, the decisions in (a) Kshounish Chowdhury and Ors. v. Kero Rajendra Monolithics Ltd. and Ors.(supra); (b) Dale and Carrington Invt. P. Ltd. and Anr. v. P.K. Prathapan and Ors. (supra); and (c) V G Sundaraj v. New Theatres Carnatic Talkies Private Limited and Ors. (supra) have no applications to the facts of the present case.
The petitioner admittedly was in the management of the Company since incorporation till February 1999 when he had resigned from the office of director. There are reportedly several appointments and resignations in the office of director which are only supported by Form No. 32, copies of which are before the Bench. Form No. 32 dated 25.02.1999 filed with the Registrar of Companies on 26.02.1999 reveals that while among others, the petitioner had resigned from the office of director with effect from 12.12.1999, the respondent Nos. 3 and 4 were appointed as directors of the Company. It is observed from Form No. 32 dated nil that the petitioner once again was appointed as director at the board meeting held on 24.12.1999, but this Form No. 32 was filed nearly after a lapse of two years on 04.01.2001. The delay has not been explained by the petitioner. It may further be observed that Form No. 32 notifying the appointment of the petitioner as director has been signed by the fourth respondent, who is the wife of the petitioner. There is no other primary document to substantiate the appointment of the petitioner as director with effect from 24.02.1999. Form No. 32 filed on 24.12.1999 with the Registrar of Companies would show that the second respondent was appointed as director of the Company at the board meeting held on 03.03.1999 which is not supported by the relevant minutes of the board meeting. At this juncture the arrangement entered into between the petitioner and the second respondent in March 1999 by which the respondent was to retain the entire shareholding of the Company in lieu of the claim of Rs. 1.40 crores reportedly due from the petitioner and his group companies, shall not be lost sight of, which strengthens the plea of the second respondent regarding his appointment as director of the Company. According to the petitioner the understanding was not implemented by the parties. However, the second respondent's appointment as director with effect from 03.03.1999 is found to be in consonance with the arrangement between the parties. At this juncture it will be futile to go into the validity of appointment of the second respondent as director of the Company in the absence of any primary documents and in view of the reliefs proposed to be granted by me. I find that the remaining acts of mismanagement complained of by the petitioner remain without being established. The petitioner has neither made out as to how his interest has been unfairly prejudiced on account of the purported acts of mismanagement in the affairs of the Company, in which case this Board cannot invoke the jurisdiction of Section 398.
In the course of the proceedings a number of allottees aggrieved on account of double allotment of flats have been putting forthwith their grievances against the petitioner as well as the respondents, which resulted in the appointment of a Commissioner to ascertain details in relation to allotment of flats to various members of the public, remittances made by and the outstanding due from such allottees, progress of construction in the building, amount incurred in construction of the building, amounts collected by the Company etc. However, the grievances of most of such allottees came to be sorted out partly through the intervention of this Bench and partly on account of the appropriate remedies obtained through other Forums. There is admittedly justifiable lack of confidence between the parties in relation to the affairs of the Company, which would be one of the adequate grounds for winding up under just and equitable clause. Any such order of winding up of the Company with the stake of some of the allottees remaining unresolved would unfairly prejudice the interest of the Company and such allottees.
The main grievances of the respondent Nos. 5 to 7 are that the Company had taken huge amounts by way of loan from Murali Lalchand, since deceased against security of the flats promoted by the Company. In view of the double allotment of the flats by the Company, their interest has been adversely affected and therefore they expressed their preparedness in getting back their monies lent to the Company with interest as undertaken by the Company. It is observed that these respondents have already filed civil suits before the High Court against the petitioner and the respondents herein in respect of their claim, which is being agitated before this Bench. It is further observed that the fifth respondent in the civil. suit namely, C.S.No.557 of 2001 before the High Court of Judicature at Madras has sought for specific performance of the terms of the agreement entered into between the parties namely the Company and the members of Lalchand family, in respect of the very same flats, which are covered under the company application (C.A. No. 69 of 2006). In view of this, if the respondent Nos. 5 to 7 are allowed to deal with the flats independently, it would, as rightly pointd out by Shri A.K. Mylsamy, learned Counsel, jeopardise the interest of the Company.
The plea of the petitioner that the respondent Nos. 2 and 3 have been carrying on construction activities in the disputed property belonging to the Company has not been substantiated. This Bench cannot act merely on the basis of the pleadings without any proof. The other charges against the respondent Nos. 2 and 3 regarding sale of the flats in violation of the order dated 20.04.2001 must be seen in the light of the orders dated 13.01.2006 passed by the District Consumer Disputes Redressal Forum, wherein the present proceedings have also been taken into consideration, while directing the Company to execute sale deeds in favour of (i) Savitri Choonilal & Smt.Sarala Sant Kumar (ii) Sant Kumar. In this context, it may be observed that though the sale of flats in favour of these individuals is against the order dated 20.04.2001, yet these sales have not been effected voluntarily, but on account of the orders made by District Consumer Disputes Redressal Forum. Therefore, the respondent Nos. 2 & 3 cannot be found fault that they have registered the sale deeds in gross contempt of the orders of the CLB.
In view of my foregoing conclusions and in exercise of the powers under Section 402,1 direct as under:
i. The allotment of 97,300 shares made in favour of the petitioner on 03.01.1998 is declared to be null and void and therefore, set aside.
ii. The issue of shares made on 16.04.1998 as well as 24.12.1999 in favour of the third respondent is declared to be valid and binding on the Company.
iii. The members of the Company are at liberty to appoint their own directors as they may deem fit and the board of directors so constituted will (a) manage the affairs of the Company in terms of the Memorandum of Association and Articles of Association of the Company; (b) attend to the grievances of the respondent Nos. 5 to 7 and other allottees; (c) take appropriate steps in realisation of the outstanding dues, if any, from the petitioner, allottees and any other person in accordance with due process of law.
With the above directions, the company petition and the connected applications stand disposed of. All interim orders are vacated.