Company Law Board
Shri Gautam Kapur And Ors. vs Limrose Engineering Works Pvt. Ltd. And ... on 17 June, 2005
Equivalent citations: [2005]128COMPCAS237(CLB), (2005)6COMPLJ323(CLB), [2006]65SCL388(CLB)
ORDER
S. Balasubramanian, Chairman
1. M/S Limrose Engineering Works Private Ltd. ( the company ) is a private company incorporated by the family members of one late Janaki Dass Kapur. He was survived by 3 sons, namely, Sarvshri B.D. Kapur, Jaidev Kapur and Jagdish Kapur. Shri B.D. Kapur has expired and the 2nd respondent Shri Arun Kapur is representing that group. In Limrose, the Board consisted of Shri Gautam Kapur, the 1st petitioner representing Jaidev Kapur group, Shri Salil Kapur representing Jagdish Kapur Group and Arun Kapur. Thus, all the 3 sons of late Janaki Dass Kapur are represented in the Board. All the 3 groups entered into a Memorandum of Understanding(MOU) in January, 1999 by which they had decided to split the ownership management and control of the companies and assets in equal share and to allot each share to the 3 units of the family. This MOU elaborately deals with the companies and assets of the family. It also contains an arbitration clause enabling the parties to submit to the arbitration of Shri Justice A.M. Ahmedi, former Chief Justice of the Supreme Court of India in case of any difference of opinion on any matter covered in the MOU. Differences having arisen, the arbitration proceeding was initiated which, it is learnt has been stayed by the High court.
2. In this petition, the allegations of the petitioners are that the 2nd respondent being the Chairman of Limrose had made unilateral changes in the structure of Limrose including its directorship and shareholding pattern by forging documents, fabricating the minutes books and by filing fake returns before the Registrar of Companies (ROC). By these acts, according to the petitioners, the 2nd respondent has gained control of Limrose both in terms of shareholding and also on the Board and these acts are oppressive to the petitioners.
3. Shri Choudhary, Sr. Advocate appearing for the petitioners submitted: Originally the petitioners' group collectively held 67% shares in the company while the 2nd respondent group held 33%. On the Board also, the petitioners' group had two representatives against one by the 2nd respondent. During the proceedings before the arbitrator, the petitioners came to know that by manipulating the records of the company, the 2nd respondent came to claim 76% shares in the company and also that the directors from the petitioners' group had been removed as directors in terms of Section 283(1)(g) of the Companies Act, 1956 ( the Act) and that two sons of the 2nd respondent had been appointed, as directors. In an alleged Board on 14th August, 2000 (Annexure G), the Board had allegedly noted that the petitioner directors had not attended 4 consecutive Board Meetings and as such they had ceased to be directors in terms of Section 283(1)(g) of the Act. The petitioner directors never received any notices for the allegedly held meetings. The certificates of posting filed by the company are all fabricated. A perusal of the certificates of postings would indicate that even though they purportedly relate to different Board Meetings on different dates, the word "Kumar" is found to be written in ink in all the certificates and in the same handwriting, clearly indicating that all of them had been obtained on the same date and from the same post office. Therefore, no reliance can be placed on these certificates of posting As a matter of fact there had never been a system of sending notices for the Board meeting, since all the directors including the respondent directors are living in the same building. Further, all the receipts have been obtained from Safdarjang Enclave post office while the registered office of the company is in Aurangzeb Road. The petitioner directors had never missed a single meeting from. 1994 and there was no occasion for them to miss any meeting if they had received the notices for the meeting. The fabrication of the minutes of the Board Meeting on 14th August is evident from the fact that the balance sheet for the year ended 31.3.2000 was signed by the petitioner directors on 1st September, 2000 as directors while according to the Board minutes, they had ceased to be directors on 14.8.2000. Even the AGM notice dated 1.9.2000 has been signed by both the petitioner directors. Therefore, only with a view to oust the petitioner directors from the Board, the 2nd respondent has fabricated the Board minutes dated 14th August 2000. In the Annual Return for the year ended 31.3.2000 which has been signed by one of the petitioner directors, and filed on 21.11.2000, both of them have been shown as directors. This Annual Return also shows the authorized capital as Rs. 1 crore. Even the minutes of the board meeting on 1st Dec. 2000 signed by the 2nd respondent indicates the attendance of the 1st and 2nd petitioners. If according to the 2nd respondent, these two directors had attended a board meeting in Dec. 2000, he cannot claim that the)' had ceased to be directors effective from August, 2000. In terms of Section 164 of the Act, the Annual Return is the prima facie evidence of its contents. Therefore, having shown the 1st and 2nd petitioners as directors in the Annual Report, the 2nd respondent cannot rely on the certificates of postings and Form No. 32. The company being a family company in the nature of quasi partnership, the petitioners have legitimate expectation to continue as directors and could not have been declared to have ceased to be directors on the false ground of not attending requisite number of meetings. As far as increase in the authorized capital is concerned, the same was purportedly approved in an EOGM held on 14.8.2000. The notice for this EOGM is dated 3rd July, 2000. There is nothing on record to show in which board meeting, the decision to increase the authorized capital was taken. In the EOGM purportedly held on 14.8.2000, the authorized capital was purportedly reduced from Rs.1 crore to Rs. 80 lacs by canceling 20000 preference shares of Rs. 1.00/- each and thereafter by creating 14,50,000 equip/ shares of Rs. 10/- each. The increase in the authorized capital could not have been approved without the consent of the petitioners since they were holding 67% shares in the company. The petitioners never received any notice for the meeting and as a matter of fact, no meeting was actually held but records have been fabricated. After the purported increase in the authorized capital, the company is purported to have issued/allotted 15 lakh equity shares to 3 companies owned and controlled by the 2nd respondent group. These shares were allegedly allotted on 14.8.2000. But the annual return as on 30.9.2000 indicates the shares capital only as Rs. 1 crore and the said return does not reflect any change in the shareholding pattern of the company. When all these facts were brought before the arbitrator, the 2nd respondent undertook to restore the status quo in respect of the shareholding as well as directorship but he never fulfilled the undertaking given by him. The main reason for the alleged issue of additional shares and taking complete control over the Board of the company is that Limrose controls nearly 8% shares in the flagship company of the family viz. Atlas Cycle company.
4. Shri Ganesh appearing for the respondents submitted: The respondents are not interested in going into the merits of the allegations of the petitioners. The 2nd respondent is ready and willing to restore the status quo in regard to the shares and the directorship if the petitioners are agreeable to restore the management of Palanpur unit to the 2nd respondent. As a matter of fact, in the hearing held on 12th April, 2001 before the Arbitrator, the 2nd respondent assured that he would take action in respect of shareholding as well as directorship in respect of Limrose within two weeks and all the family members including the petitioners indicated that they would have not hesitation in restoring the management of Palampur unit to the 2nd respondent. Since this Board exercises equitable jurisdiction, once the status quo is restored in respect of Limrose, the petitioners should be directed to entrust the management of Palampur unit to the 2nd respondent. As a waiter of fact, if the petitioners agree for this, the 2nd respondent is even prepared to go for a global settlement of all the disputes.
5. Shri Makkar appearing for the petitioners, in rejoinder, submitted that Palampur unit is under the control of Atlas Cycle Company Ltd. and this company is not before the CLB. Further the Board of Directors of Atlas Cycle Co. Ltd. removed the 2nd respondent as a director and since the petitioners do not represent the Board of Atlas, they cannot make any commitment as sought for by learned counsel for the respondents. As a matter of feet, the learned arbitrator himself in his order dated 4.4.2001 declined to grant this prayer on the ground that the Board of Atlas was not before him. Further the petitioners holding only 24% shares in Atlas cannot give any commitment on behalf of Atlas.
6. I have considered the pleadings and arguments of the counsel. During the proceedings, the respondents filed an application CA 194 of 2004 under Section 8 of the Arbitration & Conciliation Act seeking for referring the disputes to arbitration on the ground that the issues raised in the petition arose out of and in connection with the MOU which contained an arbitration clause. By a detailed order dated 16th Feb. 2004, this application was dismissed and the matter was fixed for hearing on merits.
7. The main grievances of the petitioners are that the 1st and 3rd petitioners have been illegally shown to have ceased to be directors in terms of Section 283(1)(g) of the Act and that by allotment of further shares, the 2nd respondent group has gained majority in the shareholding. Normally, in a petition under Sections 397/398 of the Act, directorial complaint cannot be agitated. However, in case of closely held family companies, this Board has been taking a view that directorial complaints can also be entertained if facts so warrant. In the present case, there are three distinct groups of shareholders holding equal percentage of shares and having one representative from each group on the Board. Any disturbance in the directorship could be considered as an act of oppression as each group has the legitimate expectation of being represented on the Board. In the present case, it is not a case of removal of a person from the Board but cessation of office in terms of Section 283(1)(g) of the Act which mandates that if a director absents himself from 3 consecutive meetings of the Board or from all meetings of the Board for a continuous period of 3 months, whichever is longer, without obtaining a leave of absence from the Board, he would cease to be a director. In the present case, according to the respondents, the 1st and 3 rd petitioners did not attend Board Meetings on 15.1.2000, 3.3.2000, 5.5.2000, 3.7.2000 and as such they were declared to have ceased to be directors in the Board Meeting held on 14.8.2000. The petitioners have denied receipt of any notice for these board meetings even though the respondents have produced certificates of posting to establish that notices were sent to these directors. However, the respondents have not established that the meetings did take place by enclosing copies of the minutes of the impugned board meetings. Further, it is on record that the 1st and 3rd petitioners were shown to have been present in a board meeting held on 1st September, 2000. A copy of the minutes of this meeting signed by the 2nd respondent has been annexed with the petition. In this meeting, the Board if found to have approved the Profit & Loss Account for the year ended 31st March, 2000 and the Balance Sheet as on that date and had also resolved payment of 20% dividend. It is also seen that the Board resolved convening the AGM for the year on 30th September. 2000. Further, the petitioners have also filed a copy of the minutes signed by the 2nd respondent of a Board Meeting held on 1st December, 2000 showing the presence of the 1st and 3rd petitioners. There is no denial by the respondents of the veracity of these minutes. In addition, the Annual Report filed with the Registrar of Companies as on 30th September, 2000 indicates that the 1st and 3rd petitioners were in office on that date and this Annual Return has been signed by the 2nd respondent and the 1st petitioner. Thus, the contemporaneous records signed by the 2nd respondent himself indicate that the 1st and 3rd petitioners were directors on 30th September, 2000 and as such they could not have been declared to have ceased as directors on 14.8.2000 and any record contrary to the contents of the Annual Return as on 30.9.2000 has no validity especially since other than enclosing photocopies of the certificates of posting about which the learned counsel for the petitioners has brought out various infirmities, the respondents have not brought on record any other document as indicated earlier. Therefore, considering all the facts, I declare that the 1st and 3rd petitioners have not ceased to be directors in terms of Section 283(1)(g) of the Act and they continue to be the directors on the Board of Limrose.
8. As far as induction of the respondents 4 and 5 as directors is concerned, there is a Form No. 32 filed with the Registrar of Companies on 25.8.2000 indicating that they were appointed as additional directors on 14.8.2000. However, the Annual Report as on 30.9.2000 does not indicate that they were directors on that day. As I have already pointed out the contents of the Annual Report as on 30th September, 2000 will have to prevail and as such the alleged appointment of the 4th and 5th respondents as directors cannot stand. Accordingly. I declare that they have not been validly appointed as directors.
9. In so far as allotment of additional shares is concerned, the authorized capital of the company was allegedly increased in the EOGM held on 14th August, 2000. However, the Annual Return as on 30th September, 2000 indicates the authorized capital as Rs. 1 crore as against Rs. 2.25 crores purportedly increased in that AGM. The same observations that I have made in regard to cessation of directors/appointment of directors is applicable in respect of the increase in authorized capital also. Even assuming that the authorised capital was in fact increased in an EOGM actually held on 14th August, 2000, there is nothing on record justifying allotment of further shares. It is a settled law, as has been recently reiterated by the Supreme Court, in Dale & Carrington Investment Pvt. Ltd. v. P.K. Prathapin (122 CC 161) and Sangram Sinh P. Gaekwad v. Shanta Devi P. Gaekwad (123 CC 566) that any allotment of further shares should be for a proper purpose, bonafide and in the interest of the company and cannot be for the purpose of creating a new majority. In the reply filed by the company, no justification has been given for allotment of further shares which has resulted in creation of a absolute majority in favour of the 2nd respondent's group. Therefore, the purported allotment deserves to be cancelled and accordingly I do so.
10. In view of my findings that the 1st and 3rd petitioners could not have be held to have ceased to be directors and that the allotment of shares was made solely with a view to create a new majority, I direct the restoration of status quo as existed before 14th August 2000 in respect of the Board of Directors as well as authorized and paid up capital of the company. These directions will take immediate effect and the records of the company shall be suitably rectified. All returns/documents filed by the company with the ROC in respect of the affairs of the company that are contradictory to the contents of the Annual Return as on 30.9.2000 are declared as null and void and under the authority of this Order, the ROC will ignore/reject all such returns/documents.
11. The learned counsel for the respondents, Shri Ganesh, urged that the 2nd respondent was willing to restore the status quo provided his position in Palanpur Unit is also restored. As rightly pointed out by the learned counsel for the petitioners, such a direction is beyond the scope of the petition and cannot be acceded to.
12. The petition is disposed of in the above terms with no order as to cost.