Jharkhand High Court
Nand Kumar Singh vs Indica Composite Private Limited ... on 2 April, 2018
Author: Aparesh Kumar Singh
Bench: Aparesh Kumar Singh
1
IN THE HIGH COURT OF JHARKHAND AT RANCHI
Company Appeal No. 03 of 2014
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Nand Kumar Singh --- ---- Appellant
Versus
1. Indica Composite Private Limited through
Board of Directors, Jamshedpur
2. Rajiv Ranjan Singh
3. Abhijit Singh
4. Sanjay Kumar Singh
5. Rakesh Kumar Singh --- --- Respondents
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CORAM: The Hon'ble Mr. Justice Aparesh Kumar Singh
For the Appellant: M/s Akhilesh Kr. Shrivastava, Vikash Kumar, Rohit Sinha, Advocates For the Respondents: M/s Indrajit Sinha, Kaustav Panda, Advocates
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C.A.V. on: 17.11.2017 Pronounced on: 02/04/2018
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Heard learned counsel for the parties.
2. This appeal under Section 10(F) of the Companies Act, 1956 is directed against the order dated 24.09.2013 passed by the learned Company Law Board(CLB), Kolkata Bench in Company Petition No. 04 of 2012.
3. The appellant herein approached the CLB under section 397,398,399,402 and 403 of the Act of 1956 inter alia asserting as follows:- That petitioner is the Promoter- Director of the Respondent Company and the virtual owner of the Company. The Respondent Company was incorporated on 01.11.1999 to carry on the business of manufacture and sale of automobile components. The directors and subscribers of memorandum of the Respondent Company were
(a) Nand Kumar Singh (petitioner);(b) Narayan Jha;(c) Kavita Mishra;(d) Rajeev Ranjan Singh (respondent no.2) and (e) Rakesh Kumar Singh(respondent no.5). All the aforesaid persons subscribed 500 shares each of Rs.10/- aggregating Rs.25,000/- comprised in 2,500 shares of Rs.10/- each against the authorized capital of Rs.20,00,000/- divided into 2,00,000 shares of Rs.10/- each. The paid up share capital as per the annual return for the financial year 2005-06 was Rs.1,75,000/- divided into 17,500 shares of Rs.10/- each as per the details of the shareholdings furnished as under:-
Sl. Name No. of Nominal Total %
No Shares value per Value of
. share (Rs.) (Rs.) Shareholding
1 Nand Kr. Singh 3325 10/- 33,250/- 19.00%
(the petitioner)
2
2 Rajeev Ranjan 3325 10/- 33,250/- 19.00%
Singh(R-2)
3 Rakesh Kr. Singh 3325 10/- 33,250/- 19.00%
(R-5)
4 Ashutosh Kr. Singh 50 10/- 500/- 0.29%
( son of petitioner)
5 Kumar Prabhakar 75 10/- 750/- 0.43%
Singh
( son of petitioner)
6 Kamla Singh 375 10/- 3,750/- 2.14%
(wife of petitioner)
7 Menka Singh 375 10/- 3,750/- 2.14%
(wife R-2)
8 Sanjay Kr. Singh 3325 10/- 33,250/- 19.00%
(R-4)
9 Abhijit Kr.Singh 3325 10/- 33,250/- 19.00%
Total 17500 10/- 1,75,000/- 100.00%
4. Respondent no.2 to 5 are brothers of the promoter-director / petitioner. These shareholders were holding shares as trustees and the sole beneficiary is the petitioner himself as all such moneys against such shares were paid by the petitioner himself. Production and other operational parts were looked after by the petitioner while the finance, accounts and other legal compliances were delegated to his brother Rajeev Ranjan Singh, respondent no.2. The shareholding, as reflected in the annual return for the financial year 2006-07 pursuant to the transfer of certain shares to the family members are also furnished as under:-
Sl. Name No. of Shares Nominal value
No per share (Rs.)
.
1 Nand Kr. Singh 3325 10/-
(the petitioner)
2 Rajeev Ranjan Singh 3325 10/-
(R-2)
3 Rakesh Kr. Singh 3325 10/-
(R-5)
4 Abhijit Kr.Singh 3325 10/-
(R-3)
5 Sanjay Kr. Singh 3325 10/-
(R-4)
6 Ashutosh Kr. Singh 50 10/-
( son of petitioner)
3
7 Kumar Prabhakar Singh 75 10/-
( son of petitioner)
8 Kamla Singh 375 10/-
(wife of petitioner)
9 Menka Singh 375 10/-
(wife R-2)
5. As per the annual return for the financial year 2007-08, the shareholding pattern of the respondent company is as follows:
Sl. Name No. of Nominal Total Value %
No Shares value per (Rs.) of
. share (Rs.) Shareholding
1 Nand Kr. Singh 16725 10/- 11.49%
(the petitioner) 1,67,250/-
2 Rajeev Ranjan 16925 10/- 1,69,250/- 11.63%
Singh(R-2)
3 Rakesh Kr. Singh 3325 10/- 33,250/- 2.29%
(R-5)
4 Ashutosh Kr. Singh 8050 10/- 80,500/- 5.53%
( son of petitioner)
5 Kumar Prabhakar 14075 10/- 1,40,750/- 9.67%
Singh
( son of petitioner)
6 Kamla Singh 8375 10/- 83,750/- 5.76%
(wife of petitioner)
7 Menka Singh 375 10/- 3,750/- 0.26%
(wife R-2)
8 Sanjay Kr. Singh 8325 10/- 83,250/- 5.72%
(R-4)
9 Abhijit Kr.Singh 3325 10/- 33,250/- 2.29%
(R-3)
10 Manisha Singh 6000 10/- 60,000/- 4.12%
(daughter of
petitioner)
11 Gulab Merchandise 24000 10/- 2,40,000/- 16.49%
Pvt. Ltd.
12 Axiom Tie Up Pvt. 12000 10/- 1,20,000/- 8.25%
Ltd.
13 Highrise 24000 10/- 2,40,000/- 16.49%
Apartment Pvt.
Ltd.
Total 1,45,500 10/- 14,55,000/- 100.00%
As per this, shareholding pattern emerged after new allotment of shares aggregating to 1,28,000 over the earlier paid up capital of Rs.17,500/-, the total 4 shareholdings of the petitioner's group came to 53,225 constituting 36.581% of the total paid up capital of the company.
6. The shareholding pattern of the annual return for the financial year 2008- 09 is as follows:-
Sl. Name No. of Nominal Total %
No Shares value per Value of
. share (Rs.) (Rs.) Shareholding
1 Nand Kr. Singh 53225 10/- 5,32,250/- 36.58%
(the petitioner)
2 Rajeev Ranjan 23069 10/- 2,30,690/- 15.85%
Singh(R-2)
3 Rakesh Kr. Singh 23069 10/- 2,30,690/ 15.85%
(R-5)
4 Sanjay Kr. Singh 23069 10/- 2,30,690/ 15.85%
(R-4)
5 Abhijit Kr.Singh 23069 10/- 2,30,690/ 15.85%
(R-3)
Total 1,45,500 10/- 14,55,000/ 100.00%
-
The above shareholdings had crystallized after fraudulent transfer of shares during the financial year 2008-09, as indicated under:
Sl. Date of No. of Transferor Transferee
No. registration of Shares
transfer of
shares
1 01/04/09 8050 Ashutosh Kr. Singh Nand Kr. Singh
2 01/04/09 14075 Kumar Prabhakar Nand Kr. Singh
Singh
3 01/04/09 8375 Kamla Singh Nand Kr. Singh
4 01/04/09 6000 Manisha Singh Nand Kr. Singh
5 01/04/09 5769 Gulab Merchandise Rajeev Ranjan
Pvt. Ltd. Singh
6 01/04/09 18231 Gulab Merchandise Rakesh Kr. Singh
Pvt. Ltd.
7 01/04/09 1513 Axiom Tie Up Pvt. Rakesh Kr. Singh
Ltd.
8 01/04/09 10487 Axiom Tie Up Pvt. Sanjay Kr. Singh
Ltd.
9 01/04/09 4257 Highrise Apartment Sanjay Kr. Singh
Pvt. Ltd.
10 01/04/09 19743 Highrise Apartment Abhijeet Kr. Singh
Pvt. Ltd.
5
7. Petitioner alleged that in the above transfer of share no Form 7B was signed and 60,000 shares of Rs.10/- each held by the company i.e. M/s Gulab Merchandise Pvt. Ltd., M/s Axiom Tie Up Pvt. Ltd. And M/s Highrise Apartment Pvt. Ltd. have been fraudulently shown as transferred in the name of Mr. Rajeev Ranjan Singh (5769 shares), Rakesh Kumar Singh (19,762), Sanjay Kr. Singh(14,744 shares) and Abhijit Kr. Singh(19,743 shares). All these shares belonged to the petitioner. The relevant Form 20B was signed by Mr. Sanjay Kr. Singh, living at Mumbai along with his elder brother Mr. Abhijit Kr. Singh at the instance of Mr. Rajeev Ranjan Singh, whereas the enclosure i.e. Schedule-V was unsigned. Petitioner further alleges that huge number of shares in the name of petitioner were transferred in the financial year 2009-10 by his 4 brothers without his knowledge nor any form B was ever signed by the petitioner in favour of any of his brothers nor any consideration was ever received from any of the said brothers being the transferees. The shares fraudulently shown as transferred in the financial year 2009-10 are in the following pattern:-
Sl. Date of No. of Transferor Transferee
No. registration of Shares
transfer of
shares
1 01/04/10 13306 Nand Kr. Singh Sanjay Kr. Singh
(petitioner) (R-4)
2 01/04/10 13306 Nand Kr. Singh Rakesh Kr. Singh
(petitioner) (R-5)
3 01/04/10 13307 Nand Kr. Singh Rajeev Ranjan
(petitioner) Singh
(R-2)
4 01/04/10 13306 Nand Kr. Singh Abhijit Kr. Singh
(petitioner) (R-3)
8. Form 20B was digitally signed by Shri Sanjay Kr. Singh, director of the Company and one C.A namely Anil Kr. Jajoo. The Schedule-V attached to Form 20B is unsigned and has been filed with Registrar of Companies (ROC), Bihar & Jharkhand. The annual return for the financial year 2009-10 filed on 18.09.2010 has revealed the following shareholdings in respect of total paid up capital of Rs. 1,45,500/-.
Sl.No. Name No. of Shares % of share - holding
1 Rajeev Ranjan Singh 36376 25.00%
(R-2)
2 Rakesh Kr. Singh 36375 25.00%
(R-5)
6
3 Sanjay Kr. Singh(R-4) 36375 25.00%
4 Abhijit Kr.Singh 36374 25.00%
(R-3)
Total 1,45,500 100.00%
9. Petitioner further challenged the fraudulent increase of share capital of the Respondent Company from Rs.20,00,000/- to Rs.1,50,00,000/- in the financial year 2010-11 as per the relevant Form 5 filed with the ROC, Bihar & Jharkhand on 23.09.2010. It refers to a special resolution in the meeting of the members on 04.09.2010, which had approved the increase of authorized capital. Further the Form 2 was filed on 25.09.2010 and out of the total increased authorized capital of Rs.1,30,00,000/- an amount of Rs. 1,10,00,000/- was shown as allotted fraudulently to Respondent no. 2 to 5, all being younger brother of the petitioner. The allotment of these shares has been shown as under:
Sl. Name No. of Nominal Total Value %
No Shares value per (Rs.) of
. share (Rs.) Shareholding
1 Rajeev Ranjan 2,75,000 10/- 27,50,000/- 25%
Singh(R-2)
2 Rakesh Kr. Singh 2,75,000 10/- 27,50,000/- 25%
(R-5)
3 Sanjay Kr. Singh 2,75,000 10/- 27,50,000/- 25%
(R-4)
4 Abhijit Kr. Singh 2,75,000 10/- 27,50,000/- 25%
(R-3)
Total 11,00,000 10/- 1,10,00,000/- 100%
10. Petitioner Appellant further stated that the audit balance sheet of the respondent company for the financial year 2007-08 showed an amount of Rs. 1,10,14,188.58 being advance from parties in Schedule-IX under the head "Current Liabilities & Provisions" which was in fact 'cumulative unsecured loan' granted by M/s Inova Enterprises Pvt. Ltd., owned and controlled by the petitioner. The amount of the loan was independently certified by the statutory auditor of the respondent company Shri R.K.Gupta vide his certificate dated 28.10.2009. Out of these Rs. 1,10,14,188.58, Rs.70,000 has been transferred to "Share Application Money" in the audited annual accounts for the financial year 2008-09 of the Respondent Company and the balance has been shown to 'Sundry Creditors for goods' under "Current Liabilities" as per Schedule-IX of the audited annual accounts of the respondent company. Finally 7 Rs.1,10,00,000/- was shown as transferred under the head Share Application Money in the financial year 2009-10 as all the shares allotted in the financial year 2010-11 on 25.09.2010 were shown in the name of Respondent no.2 to 5, all being brothers of the petitioner. This was in the background that the money was paid by M/s Inova Enterprises Pvt. Ltd., company owned and controlled by the petitioner and promoter-director of the respondent company. Petitioner alleged that he has been fraudulently shown as retired / ceased from the directorship of the company w.e.f. 10.01.2010 and Form 32 for his removal was filed on 17.08.2010 digitally signed by Shri Rajeev Ranjan Singh as director of the respondent company and one C.A. Shri Anil Kr. Jajoo. A blank paper signed by the petitioner on request of Respondent no.2 for statutory purpose at Lucknow was used to prepare the resignation letter and was enclosed as an attachment in the said Form 32. In this way petitioner's shareholding in the respondent company has been reduced from 53.08% in the year 2007-08 to "nil" in the financial year 2010-11by fraudulent transfer of shares belonging to the petitioner and his family members. According to him, he never signed on the transfer deed (Form 7B) nor did he receive any monetary consideration in view of the transfer of shares. Even at para 13(s) of the Secretarial Compliance Certificates for the financial year 2008-09 and 2009-10, there were no transfers of shares during the said periods. The respondents have with ulterior motives removed the statutory auditor of the respondent company Shri Rama Kant Gupta & Associates and Sagar & Co., Chartered Accountants have been appointed in his place. Similarly the secretarial auditor of the company has also been changed during 2008-09 by Shri Sanjay Kr. Mohta, Company Secretary. Not only was the petitioner fraudulently retired from the directorship of the respondent company and his shares were fraudulently transferred, but the Respondents also indulged in disposal of the assets of the company to gain an illegal financial advantage. According to the petitioner, the office flat no T6- 504, 5th floor Block No. T-6, Parasvanath Planet, Gomti Nagar, Lucknow purchased by the company in the year 2006-07 was being attempted to be fraudulently transferred to one Mrs. Prathibha Tripathi, which has been confirmed through email by the builder Parasvanath Developers Ltd. Petitioner had already issued a public notice on 21.07.2010 and a notice to the builder on 30.07.2010 and also apprised the local police about the illegal transfer being committed by Respondent no.2. Similar public notice was also served on Nav Durga Construction, Mumbai through local newspaper on 19.07.2010.
811. Based on the aforesaid averments, petitioner prayed for the following reliefs:-
(a) That the meeting of the shareholders of the company purportedly held on 04.09.2010 as regards the approval of increase of authorized share capital from Rs. 20,00,000/- to Rs.1,50,00,000/- be declared as illegal and void and the corresponding resolutions and minutes of the meeting of the shareholders of the company held on the same date should also be cancelled and declared void.
(b) Minutes and resolutions of the meeting of the Board of Directors purportedly held on 25.09.2010 for allotment of shares and on 10.01.2010 for removal of the petitioner as director of the company be also cancelled and declared null and void.
(c) Allotment of shares of Rs.1,10,00,000/- to Respondent no.2 to 5 being directors of the company and filing of Form no.2 be also declared as null and void.
(d) To hold and declare all bank transactions effected by Respondent no.2, which were not in relation to the business of the company were not proper and the same being returned back to the company with interest.
(e) To declare the purported transfer of Lucknow office flat as illegal and null and void.
(f) Petitioner also sought injunction restraining the Respondents no. 2 to 5 from appointing any person as director of the company and filing forms other than statutory forms mandated to be filed periodically under the Act.
(g) For any other order or direction as may be deemed fit and proper.
12. As per the case of the Respondents, put before the learned CLB, respondent Company was promoted by the joint efforts of 5 subscribers and the first directors of the company and not only by the petitioner. They denied that they are holding shares of the company as trustees for the sole benefit of petitioner. No such declaration was ever submitted by the petitioner to the respondent company nor Form 22B was ever filed for this purpose. The Respondent company was never a sole proprietorship business by the petitioner rather Respondent no. 2 & 5 were amongst the promoters-directors of the company, while respondent no.3 and 4 were inducted on 24.05.2004 on resignation of the other two promoter-directors namely Mr. Narayan Jha and Mrs. Kavita Mishra. According to the Respondents, petitioner was looking after the finance, accounts and other compliance department, while the operations, productions, liaisoning, sales, marketing etc. were handled by respondent no.2. Respondents stated that M/s Indica Composite Private Limited was incorporated with the sole intent to be the business of the 4 respondents. Petitioner was inducted because of the fact that the respondent company did not have its own premises and it was to carry out its operations from the premises 9 of the petitioner. It was agreed that once the respondent company will secure its own plot, the petitioner would resign from the company and his shares will also get transferred amongst Respondent no.2 to 5.
13. According to the Respondents these transfer of share made on 20.03.2006 were based on the written family settlement dated 16.10.2005 where under it was agreed to transfer the share of the shareholders other than the petitioner and Respondent no.2 to 5 amongst the petitioner and respondent nos. 2 to 5 in order to make them equal shareholders. Respondent no.2 to 5 alleged that earlier allotment / transfers were effected illegally by the petitioner to gain majority in shareholdings of the Respondent Company. As per them on 27.05.2004 petitioner filed Form 2 with ROC showing allotment of 1,500 equity shares on 18.10.2002. This form was signed by the petitioner only. The enclosure to the said form being extract of the meeting of Board of Directors of the respondent company held on 18.10.2002 was signed by the petitioner only. This extract was without the knowledge and consent of the Respondents by which petitioner allotted shares to his wife, sons and even to wife of Respondent no.2, which were against the Articles of Association (AoA) of the Company. Petitioner also transferred 1000 shares belonging to Mr. Narayan Jha and Mrs. Kavita Mishra to his two sons without their consent which were shown in the annual return for the financial ending 31.03.2005. It was also contrary to the provisions of Clause 8 of AoA. The said annual return though signed by Respondent no.2 as well was done only in good faith. The annual return for the financial year 2007-08 shows that fraudulent allotment were made by the petitioner without the consent of the Respondent pursuant to the illegal Board meeting held on 20.10.2007. A total of 1,28,000 equity shares were shown to be allotted at Rs.25/- per equity share including share premium amount of Rs.15/- each. Out of the total allotment of 1,28,000 shares, 18,600 shares representing 14.53% of total allotment was made to these respondents while balance 1,09,400 shares, representing 85.47% of the total allotment was made to the petitioner along with his wife, sons , daughters and 3 private limited companies with whom the Respondent company had no dealing nor were they known to it. Further the share application money of Rs.4.65 lakhs was shown as outstanding from respondent no.2 to 4 in the audited balance sheet of the respondent company for the financial year ending 31.03.2006. Petitioner allotted shares worth Rs.4.65 lakhs to Respondent no.2 to 4 in the aforesaid fraudulent allotment. The respondents denied that the company was ever in need of financial assistance from any outside party. It has got fresh 10 credit limits of Rs. 429 lakhs sanctioned, which is almost un-utilized and available. They denied that money was received from 3 companies i.e. M/s Gulab Merchandise Pvt. Ltd, M/s Axiom Tie Up Pvt. Ltd and M/s Highrise Apartment Pvt. Ltd. They also denied that shares were allotted to these 3 companies against money received from them with an understanding to transfer the shares in the name of the petitioner on payment of the said amount. This was also against the AoA and the provisions of Companies Act, 1956. They further alleged that as per the terms of the family settlement dated 16.10.2005 amongst father of the petitioner, petitioner and the Respondent no.2 to 5, shares of the Respondent company were neither to be allotted nor transferred to any other person except the 5 sons. Petitioner having signed the family settlement dated 16.10.2005 and transfer of share of the respondent company done annually on 20.3.2006, fraudulently allotted shares again on 20.10.2007 violating the terms of the said settlement without the consent of Board of Directors. Petitioner also filed Form 2 by putting his own digital signature in the said form and attaching the unsigned extracts of minutes of Board Meeting purportedly held on 20.10.2007.
14. Regarding the alleged fraudulent transfer of share made in the year 2009- 10, as per the respondent no. 2 to 5, this was done pursuant to a written family settlement where under any separate Form 7B or consideration was not required. The transfer of shares were done with the knowledge of the petitioner as per the terms of settlement dated 12.12.2009. It was accepted that respondent company shall be managed and controlled jointly by Respondent no.2 to 5 while M/s Innova Enterprises Pvt. Ltd. shall be looked after and controlled by the petitioner. It was further agreed that petitioner for himself and on behalf of his family members and being an authorized representative of M/s Gulab Merchandise Pvt. Ltd. and M/s Axiom Tie Up Pvt. Ltd. had given his consent to transfer in the name of respondent no.2 to 5 all the shares of the respondent company which were held in his name, name of his other family members as well as in the name of other 2 companies. This settlement was signed by the petitioner himself and the transfer had his consent. Petitioner has intentionally suppressed the existence of family settlement. According to the Respondents increase in the authorized shares capital from Rs.20,00,000/- to Rs.1,50,00,000/- in the financial year 2010-11 was done after due compliance of provisions of the Act of 1956. Respondents denied having taken any loan from M/s Inova Enterprises Pvt. Ltd. (IEPL). They alleged that the C.A. M/s Ramakant Gupta was statutory auditor of both IEPL and the respondent 11 company for the financial year 2006-07 and 2007-08 and was acting as an aide of the petitioner. It has been certified that IEPL had given an amount of Rs.1,10,14,188.58 as advance to the respondent company as on 31.03.2008 and this figure has been shown in the asset side of the balance sheet of IEPL as on 31.03.2008 under the head " advances and deposits". Even then it does not disclose the name of the respondent company to whom such advance has been made. It has denied that a sum of Rs.1,10,00,000/- which was transferred as share application money, was paid by IEPL. According to the Respondents, petitioner has tendered his resignation voluntarily and never signed on a blank paper as alleged by him. Resignation of the petitioner was in terms of the family settlement with his full knowledge and consent. According to the Respondents, statutory auditor had no where certified the shareholdings of the petitioner at 53.08% rather a certificate of 24.78% as on 30.09.2008 was issued contrary to what has been claimed by the petitioner. Since the registration of transfer of shares by the petitioner to Respondent no.2 to 4 was carried out on 01.04.2010 beyond 31.03.2010, the Company Secretary issued the compliance certificate for the financial year 2008-09 and 2009-10 reporting no such transfer of shares during the period of such compliance certificate. Respondents further denied that company is having 6 immovable property. Property situated at 22, Goyala Industrial Area, Chinhup, Lucknow was purchased by Respondent no.2 and such payment was made by the respondent company as loan to respondent no.2. The sale of the office flat at Gomti Nagar, Lucknow was duly authorized by the Board meeting and that the said flat had already been transferred.
15. A supplementary affidavit was filed by the petitioner during course of hearing before learned CLB stating that he was in control of 77,225 equity shares in the company out of 1,45,500 valid issued and subscribed share capital of the company. Petitioner alleged fraudulent transfer of shares in the name of Respondent no. 3 and 4 in the annual return for the financial year2008-09, filed on 09.09.2009.
16. Respondent no.2 also filed an affidavit on 10.02.2012. A photo copy of the settlement dated 10.10.2012 signed by the petitioner and the other brothers was annexed to the said affidavit. Further affidavit were also filed by Sanjay Kumar Singh on 16.02.2012 asserting that Respondent no.2 was authorized by the Board on 02.06.2006 to deal with Central Excise Matters, Sales Tax Matters, Income Tax Matters, Service Tax matters etc. and also to sign all the bills, invoices, challans etc. This meeting was chaired by the petitioner himself.
12Photocopy of the extract of the minutes of the meeting dated 16.10.2012 was also annexed to the said affidavit. The Respondents have contended that in terms of the settlement dated 12.12.2009, 4 sons of Kailash Singh i.e. Respondent no.2 to 5 would be the owner of respondent company and petitioner would be the owner of M/s Inova Enterprises Pvt. Ltd. without any claim from each other.
17. This in sum and substance were the pleadings of the rival parties before the learned CLB. Upon consideration of the assertion and denial and the submission made on behalf of petitioner and the Respondents, learned Board proceed to hold as under:-
The allotment made by the petitioner in pursuant to the purported Board meeting held on 20.10.2007 is illegal and cannot form the basis of any challenge as no notice of the alleged Board meeting was ever received by any of the Respondent directors nor was it attended by them. Petitioner on his own cannot by himself form the quorum for taking the necessary decisions, which ultimately means that no such Board meeting was actually held. Further Form 2 was digitally signed by the petitioner and the attachment thereto being the extract of the purported Board Meeting was also unsigned, thus there was violation of Section 108 of the Companies Act, 1956 and the relevant AoA of the company prescribing the rules and procedures for allotment of additional share capital.
Similarly the transfer of share effected on 1.04.2010, where under the transfer of shares by the family members of the petitioner and shareholders of the private limited companies were also transferred to the brother of the petitioner i.e. Respondent nos.2 to 5 without complying with the provisions of the Act of 1956 and AoA of the company cannot be upheld. The relevant Form 20B signed by Sanjay Kr. Singh living at Mumbai with his elder brother Abhijit Kr. Singh, at the instance of Rajeev Ranjan Singh contains the enclosure Schedule -V, which was unsigned.
18. Learned CLB took note of the shareholding pattern as per the annual return for the financial year 2009-10 filed on 18.09.2010 where under the percentage of shareholdings of Respondent nos. 2 to 5 became 25% each. Learned Board found that Form 20B was digitally signed by Sanjay Kr. Singh as director of the Company and the C.A., Anil Kr. Jajoo but Schedule -V being the attachment to the said Form 20B was unsigned. This transfer of shares was purported to be made on the basis of written family settlement in which separate Form 7B or consideration of transfer was not required, as per the case 13 of the respondents. However, learned Board proceeded to hold that since the family settlement was not drawn through an affidavit in this regard and the father of the petitioner and respondent nos. 2 to 5 were not joined as party to the petition and such family settlement has been challenged by the petitioner before culmination of such purported family settlement, no due cognizance can be taken of such family settlement towards enblock settlement of dispute. Therefore, learned CLB concluded that purported transfer of share carried on 01.04.2010 by transferring entire holding of the petitioner equally amongst the respondent no. 2 to 5 is against the provisions of Act of 1956 and the relevant AoA of the company and cannot be upheld.
19. Further in respect of increase of share capital of the Respondent company from Rs. 20,00,000/- to Rs.1,50,00,000/- in the financial year 2010-11 and the consequential allotment of shares of Rs.1,10,00,000/- equally to Respondent no.2 to 5, learned Board disbelieved the plea taken by the Respondents that in order to give effect to the family settlement and to square up the account, credit standing in the name of IEPL in the books of the Respondent company was converted into equity for 4 brothers aggregating to Rs.1,10,00,000/- allotted on 25.09.2010. Petitioner had alleged that this allotment was done for the sole object to create new majority of the company and this per se is an act of oppression because such allotment was made to the respondents themselves. Further, no requirement of fund was there warranting such allotment and actually no consideration by way of allotment of shares has been received by the company. Further M/s IEPL had not given consent as lender towards allotment of shares to persons other than the lender. In addition the shareholders of the company have not been given notice about the intention of such further allotment of shares and the purpose of such allotment.
20. Learned Board did not agree with the contention of the Respondents that such allotment was made as an equitable method to give effect to the family settlement as the affairs of the company were not bound by such family settlement. As a matter of fact, such allotment without consideration had caused pecuniary loss to the company and it was held illegal and not maintainable. However, despite the aforesaid findings on the existence and enforceability of the family settlement raised by the Respondent to justify the wholesale transfer of shares by the petitioner and the family member and the other companies in the name of Respondent no.2 to 5, learned CLB had refused to accept that the resignation of the petitioner was not voluntary and that blank signed paper of the petitioner was utilized for filing his resignation. Learned Board went on the 14 hold that no evidence could be brought by the petitioner to substantiate such allegation and therefore, it is not in a position to set aside the cessation from directorship of the petitioner by way of his voluntary resignation. Learned CLB also refused to accept the proposition of the petitioner that all shareholders of the company including the respondents were the trustees of the shares of the company held by them for the petitioner, who was the only legal beneficiary, in view of the fact that petitioner could not adduce any conclusive evidence to justify that all the moneys for the purpose of allotment of share capital of the company were actually financed by him.
21. Learned CLB also did not find any substance in the accusation of the petitioner against the transfer / sale of the Flat no. T6-504, 5th floor at Parasvanath Plannet, Gomtinagar, Lucknow by the respondent no.2 as no matching evidence could be furnished to substantiate the aggregate investment made by the petitioner or M/s IEPL to respondent company or to his other brothers. Learned Board, in the wake of aforesaid findings, for or against the petitioner, ultimately came to the opinion that since the relation between the petitioner and the Respondent no.2 to 5 are strained and that they could not arrive at a mutual settlement out of Court, therefore one of the concerned party has to go out of the company. It is the minority shareholders who should go out of the Company on receipt of fair consideration for its shareholdings. Learned Board took the annual share holding pattern as per the annual return for the financial year 2005-06 as undisputed where under the shareholdings of all the brothers had been indicated at 19% each and the balance 5% of the shareholdings shown in the hands of the family members of the petitioner and Respondent no.2. Therefore, learned Board was of the view that for the purpose of equitable distribution of the shareholdings and because petitioner was already managing and controlling the affairs of the another company i.e. M/s Inova Enterprises Pvt. Ltd., for the exit of the petitioner, his shareholding including his family members is to be taken as per the annual return for the financial year 2005-06/2006-07. It accordingly directed that the Respondents should buy the shareholdings of the petitioner on a fair value to be determined by the independent valuer appointed by the Bench on the basis of balance sheet as on 31.03.2013 being the proximate date of the petition. On determination of such value, the respondents' group should pay the consideration on account of shareholdings of the petitioner within 6 weeks thereafter, otherwise the company will purchase the shares and reduce the share capital of the company to the extent of the face value of the shares. Further the amount of 15 Rs. 1,10,14,188.58 should be refunded back to M/s IEPL by the respondent company and after discharge of obligations of payment to be made by the respondents to the petitioner, no claim as regard the respondent company shall persist in favour of the petitioner and the business and the affairs of the respondent company shall be fully controlled and managed by the respondent nos. 2 to 5 being the remaining 4 brothers of the petitioner.
22. On the aforesaid determination made by learned CLB in the broad conspectus of the facts and material pleadings evidenced on record, petitioner has urged the following grounds to challenge the same:-
23. Learned counsel for the appellant has submitted that the pleadings along with the prayer of the petitioner have been correctly appreciated by the learned Member, CLB in the impugned order. However, according to him, learned CLB has either omitted to consider the significant points of law raised by the appellant or misconstrued the same. Learned CLB failed to take notice that on 17.08.2010 the appellant was the Director in the Company and was entitled for notice of the meeting. As per the judgment rendered in the case of Sri Parmeshwari Prasad Gupta Vs. The Union of India [(1973) 2 SCC 543], if no notice has been given to any of the Directors, both the meeting as well as all the Resolutions passed therein, are invalid, null and void. The Apex Court has interpreted section 286 of the Companies Act, 1956. Since the meeting was illegally convened by the Respondents, all their subsequent actions i.e. filing of other statutory form (20B, 5 and 2) viz. annual returns showing transfer of entire shares of the petitioner, increase of Authorized Capital, Conversion of loan into the share application money and allotment of shares worth Rs. 1.10 crores against the loan outstanding to the holding Company M/s Inova Enterprises Pvt. Ltd of the Respondent No. 1 Company, as per the audited Balance Sheets of both the Companies were rendered invalid and void. Learned Member, CLB committed serious error of law in overlooking this mandatory procedure specified in the Companies Act which are intended to prevent fraud in the Company. Learned CLB also failed to appreciate any transfer of shares requires execution of 7-B forms. Petitioner had never signed any such 7-B Form, nor received consideration for the same. These transfers were therefore invalid, null and void in view of section 108 of the Companies Act. In the case of Dove Investments (P) Ltd. and others Vs. Gujarat Industrial Investment Corpn. And another [(2006) 2 SCC 619, the Apex Court has categorically held that the transfer of shares are not to be registered except on production of instrument of transfer. Learned CLB rightly declared that purported transfer of 16 shares carried out on 01.04.2010 by transferring the entire holding of the petitioner equally amongst the Respondent No. 2 to 5 cannot be upheld as it is against the provisions of the Companies Act, 1956 and the relevant Articles of Association of the Company.
24. Learned Tribunal also came to a categorical opinion that since M/s Innova Enterprises Pvt. Ltd had not given consent as a lender towards allotment of shares to persons other than the lender and share holders of the Company had not been given notice about the intention of such further allotment of shares and the purpose of such allotment, such allotment was illegal and not maintainable. Learned Tribunal rejected the defence put up by the Respondents and held that affairs of the Company are not bound by such family settlement. In fact, such allotment without consideration had caused pecuniary loss to the Company. This finding was rendered on the challenge to the fraudulent increase of the share capital of the Company from Rs. 20,00,000/- to Rs. 1,50,00,000/- in the financial year 2010-11 and consequential allotment of shares of Rs. 1,10,00,000/- equally to the Respondent no. 2 to 5, all being younger brothers of the petitioner. The findings of the Learned Board were as per the provisions of the Companies Act and therefore, shares transfers effected in 2008-09 and 2009-10 through Form-20B (Annual Returns) filed on 09.09.2010 and 18.09.2010 within a gap of mere eight days, were declared null and void. In the case of V.B. Rangaraj Vs. V.B. Gopalakrishnan [(1992) 1 SCC 160], the Apex Court has also held that the provisions of the Companies Act make it clear that Articles of Association are the regulations of the Company binding on the Company and its shareholders. Shares are movable property and their transfers are regulated by the Articles of Association of the Company. The shares are transferable like any other movable properties, however with the only restriction that it should be done as per the Articles of Association.
25. Learned counsel has also placed reliance on the judgment rendered by the Apex Court on this point in the case of S.P. Jain Vs. Kalinga Tubes Ltd [(1965) 2 SCR 720] to support his submission that transfer of shares or other interest of any Member in the Company being a personal estate, are transferable in the manner provided by its Articles. Shares are presumed to be freely transferable and restrictions on their transfer are construed strictly. When a restriction is capable of two meanings, the less restrictive interpretation will be adopted by the Court. These restrictions have to be embodied in the Articles of Association. Learned Tribunal while out rightly rejecting the purported family settlement in which signature of the appellant was forged, 17 rightly declared both the transfers and increase of authorized capital and subsequent allotment thereunder as invalid and practically set aside those transfers, increase and allotments. As such, the entire statutory filing were impliedly declared null and void. Having declared so, the learned Tribunal fell in serious error on the question of his voluntary resignation. If the learned CLB refused to recognize the family settlement, any resignation purportedly made by the appellant to give effect to the family settlement, could not have been regarded as genuine and proper in the eye of law. Learned CLB went on to hold that since no evidence has been produced by him, the removal of the petitioner from the Directorship of the Respondent Company on the basis of his resignation, cannot be set aside as it was in the nature of voluntary resignation. Form-32 filed by the Respondent giving effect to the purported voluntary resignation of the petitioner, had to be declared as null and void.
26. According to the learned counsel for the appellant, learned Tribunal should not have disbelieved the case of the petitioner / appellant that he is the Promoter / Director of the Company and its virtual owner on the ground that the petitioner could not adduce conclusive evidence to justify that the money for the purpose of allotment of share capital were financed by him. Learned Board should have lifted the corporate veil and undertaken an inquiry contemplated under section 247 of the companies Act, 1956 and also adverted to the provisions of section 187(C) of the Act to render a considered finding that the petitioner was the only legal beneficiary of the consideration of such shares paid by his holding Company and that the Respondents were the only Trustees of the shares of the Company. As per Section 187C (1), a person whose name is entered in the register of members of a Company as the holder of a share in that Company, but who does not hold a beneficial interest in such share, shall within such time and in such form, as may be prescribed, make a declaration to the company specifying the name and other particulars of the person who holds the beneficial interest in such share. If such declaration is not made, as per section 187(C) (6), such charge or promissory note or any other collateral agreement created, executed or entered into in relation to any share, by the ostensible owner thereof or any hypothecation by the ostensible owner of any share in respect of which a declaration is required to be made under the foregoing provisions of this section, but not so declared, shall not be enforceable by the beneficial owner or any person claiming through him. Sub- section (6) is engrafted to protect the rights of beneficial owner of the shares in a Company and similar rights in other cases as enunciated by the Apex Court in 18 the case of Canbank Financial Services Ltd. Vs. Custodian [(2004) 8 SCC 355]. The learned Board has failed to consider and declare about the Trust and Trusteeship of the share of the holding Company of which, the petitioner / appellant is the beneficiary. The learned Board as a result, committed a serious error in law in penalizing the oppressed one and rewarding the wrong doers by issuing the directions, removing the appellant from the Board of Directors of the Company and purchase of shareholding of the Company by the Respondent Company, holding the appellant as minority shareholder. Such an error is fully amenable to the scope of power of this Court under section 10F of the Companies Act for being corrected. Learned Member, CLB committed serious illegality and inflicted arbitrary dispensation completely beyond jurisdiction in directing exit of the petitioner from the Company as a minority shareholder only on a misplaced understanding that the relationship between the petitioner and the Respondent no. 2 to 5 were strained and they could not arrive at mutual settlement out of Court. It completely undermined its own findings that all such transactions relating to shares made on 09.09.2010 and 18.09.2010 to give effect to the family arrangement, were invalid, being in teeth of Articles of Association of Company and the provisions of the Companies Act. Based on these submissions, learned counsel for the appellant has sought interference by this Court.
27. It is the case of the Respondents that the contention of the petitioner that he only started the business, is false. Reference has been made to the constitution of the Company Industrial Enterprises in which the petitioner being the eldest and only Graduate son, was inducted by his father to the Partnership firm which also comprised of Mrs. Arti Srivastava, wife of Mr. A.K. Srivastava and Mrs. Kalpana Das, wife of Mr. Das, friends of their father, for the purposes of starting a factory. Margin money apart from the loan advance by Bihar State Financial Corporation was arranged by their father partly from his savings and from borrowing from their grandfather who was a farmer. Industrial Enterprises was engaged in doing steel machining works, nut bolts and forging jobs. In 1999 it was decided to start a new venture for manufacture of fiber auto parts and components along with the current business. Respondent No. 5 had started the business of manufacturing fiber auto parts and components along with Mr. Narayan Jha, a technical expert and also a friend of the petitioner. As not much space was required for running this business, it was decided to undertake the manufacturing from the premises of the Industrial Enterprises only. Respondent No. 2 and 5 took the responsibility of running the fiber parts business in the 19 name and style of Rex Auto. Respondent No. 2 and 5 gave their full time to Rex Auto and looked after the family business of Industrial Enterprises. Petitioner during these times, tried to persuade his father that Industrial Enterprises should not be shared amongst the other four brothers. However, this was not agreed to, but on continued persuasion of the petitioner, it was decided to establish a separate Company to carry on manufacturing of fiber parts different from what Industrial Enterprises was engaged in. It was decided that Industrial Enterprises will pay Rs. 30.00 lakhs to the Respondent No. 1 for establishing his business, then the petitioner shall transfer his shares in Respondent No. 1 Company to the other four brothers and thereafter Industrial Enterprises would be owned and controlled exclusively by the rest of the four brothers.
28. Since the business of Rex Auto was flourishing, it was decided to form a new Company in the name and style of "Indica Composite Pvt. Ltd." and to run the entire fiber business then running in the name of Rex Auto. The Respondent Company was incorporated on 01.11.1999 accordingly. At the time of incorporation, petitioner was holding only 20% of the share capital while the Respondents were holding 40% of the share capital. Petitioner never paid for any shares of the Respondent. The entire manufacturing work of fiber parts was carried out by the Respondent No. 1 Company, though the work order from TELCO were being issued in the name of Industrial Enterprises as it had the vendor code of TELCO in his name. As such, payments from TELCO were also released in favour of the Industrial Enterprises. On receipt of these payments, petitioner used to transfer funds to the account of Respondent Company to enable it to make payments to its suppliers and labourers. However, he never transferred payments due to the Respondent No. 1 Company in full. The petitioner was looking into the finance, banking, compliance and accounts of both the Units while the Respondent Nos. 2 and 5 were looking after the operations of the Respondent Company and also after Industrial Enterprises. The petitioner never paid the entire dues for the materials supplied to the Respondent Company and started diverting funds of Respondent No. 1 Company for personal use. The Annual Returns of the Respondent Company for financial years 2005-06 and 2006-07 were digitally signed by the petitioner and the respective annual returns were manually signed by the petitioner and Respondent No. 2. As per these annual returns, the shareholding of the petitioner group was shown at 21.86% while that of the Respondent group was shown at 78.14%. Petitioner however with a malafide intention to gain control 20 over the shareholding Company, fraudulently filed Form-2 showing allotment of shares on 20.10.2007. This form was digitally signed by the petitioner. A list of allottees and a extract of Minutes of the meeting of the Board of Directors purportedly held on 20.10.2007 were attached to the said form. However, none of the attachments were signed and no such Board meeting was held ever. Petitioner again allotted shares to himself, his wife and son. He also allotted shares to the new members including his daughter and three private limited Companies which were neither known to the Respondent Company, nor had any dealing with it. Out of the total allotment of 1,28,000/- shares, 18,600/- shares representing 14.53% of the total amount was made available to the Respondents, while the balance 1,09,400/- shares representing 85.47% of the total allotment was made to the petitioner along with his wife, sons, daughters and three private limited Companies of Kolkata. This allotment was invalid being without the consent of other Board of Directors, as per the provisions of the Companies Act and Clause 5 of the Articles of Association. According to the Respondents, M/s Indica Composite Pvt. Ltd. (Respondent No. 1) had sufficient funds and it never required financial assistance from any outside body. The aforesaid allotment was merely an illegal attempt by the petitioner to gain illicit control over the Respondent Company.
29. According to the Respondents, disputes were raised by the petitioner about the business of the Respondent Company and being dependent upon M/s Industrial Enterprises which had registration with TELCO. However, with the efforts of their father, petitioner had agreed for some settlement. Second formal family settlement was signed by the father, petitioner and the Respondent Nos. 2 to 5 on 12.12.2009. It is titled as "In respect of partition / settlement of family business amongst my five sons" written in Hindi language by their father, signed by all of them. The said settlement is self-explanatory. As per the terms and conditions of the settlement, within two days, petitioner tendered his resignation from the Respondent Company and requested it to be effective from 10.01.2010. Form 32 along with resignation of the petitioner was filed with the ROC. This is the document in which the entire event and transfer of shares have been sought to be explained by the Respondent Nos. 2 to 5.
30. Learned counsel for the Respondent has opposed the submissions of the learned counsel for the appellant both on factual and legal grounds inter-alia as follows:
31. The contention of the appellant that the Respondent No. 1 Company was incorporated by him and two outsiders have been strongly denied. According to 21 the Respondents, M/s Indica Composite Pvt. Ltd was incorporated with five Directors and five subscribers including the petitioner and two Respondents i.e. Respondent No. 2 and 5 and the other two i.e. Mr. Narayan Jha and Mrs. Kavita Mishra were outsiders. All the five shareholders cum Directors were given 20% each of the Respondent No. 1 Company. Respondent No. 2 and 5 were holding double shares held by the petitioner. Since its incorporation till October 2007, Respondents were always in majority over the petitioner and it was only after purported allotment by the petitioner on 20.10.2007 that he could illegally gain so called majority.
32. The contention of the appellant that the Respondents were holding shares as Trustee of the Respondent No. 1 Company for the sole benefit of the petitioner, has been strongly denied. The Respondent No. 1 Company was never a sole proprietorship business of the petitioner,, rather it was incorporated with five Directors and five shareholders. Neither any oral or written Trust was formed, nor were the Respondents made Trustee of the said Trust. The appellant has not made any declaration to this effect, nor was any Form 22B ever filed for this purpose, as per the requirements of the provisions of section 187C of the Companies Act, 1956. Learned counsel for the Respondents has submitted that the Respondents were never required to comply with the provisions of section 187C (1) as they never held any share in Trust for any one. Contrary to this, the appellant has throughout tried to make out a false case that the Respondents were holding shares in Trust for him. If the petitioner / appellant claims to be beneficial owner of the shares held in the name of the Respondents, then it required him to make a compulsory declaration in terms of Section 187C (2). He never filed any such declaration, nor any Form 22B which was required to be filed by the Company with ROC. This clarifies the position of the shareholding in the Company that the Respondents have paid themselves for the shares held by them.
33. Learned counsel for the Respondents has justified the impugned direction relating to buying of the shareholding of the Company on a fair value and refund by the Respondents of a sum of Rs. 1,10,14,188.58 to M/s Innova Enterprises Pvt. Ltd in terms of section 402 of the Companies Act, 1956. Reliance on the judgment rendered in the case of Dale & Carrington Invt. (P) Ltd. & another (Supra) on the part of the appellant have also been refuted as there are factual difference in the present case. In the case of Dale & Carrington Invt. (P) Ltd. & another (Supra), the oppressed was not alleged or found to have been indulged in any act amounting to mismanagement and 22 oppression. In the instant case, the appellant as per his own saying and the finding of the learned CLB, had allotted shares pursuant to a purported Board meeting held on 20.10.2007 and by virtue thereof, became the majority shareholder to the extent of 85.47% along with his wife, two sons, daughter and three private limited Companies. The appellant himself admits that the shares allotted to the three private limited Companies were to be transferred back in the name of the appellant for which, steps were also taken. In consequence of such arrangement, the appellant acknowledges that he had bought back some shares from M/s High-rise Apartments Pvt. Ltd. Such conduct of the appellant is clearly an act of oppression and mismanagement in terms of the judgment rendered in the case of Dale & Carrington Invt. (P) Ltd. & another (Supra). Learned CLB has rightly set aside the allotment of shares made pursuant to the purported Board meeting held on 20.10.2007.
34. It is well settled that a person who approaches a Court / Tribunal, claiming equity, must himself do equity. Learned CLB has not come to a definite finding that the appellant had made out a case of oppression and mismanagement, though finding to that effect would be necessary to grant any relief in a petition under Sections 397 and 398 of the Companies Act, 1956. Reliance has been placed upon the judgment rendered in the case of Radharamanan (M.S.D.C.) Vs. Chandrashekhara Raja [(2008) 6 SCC 750, para-14 to 17]. Reliance has also been placed in the case of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [(2005) 11 SCC 314] on the point that in a given case, the court despite holding that no case of oppression has been made out, may grant such relief so as to do substantial justice between the parties. Jurisdiction of the court to grant appropriate relief under Section 397 of the Companies Act indisputably is of wide amplitude. The court while exercising its discretion is not bound by the provisions contained in Section 402 of the Companies Act, if in a particular fact situation, a further relief or reliefs, as the court may deem fit and proper, are warranted. Reliance has also been placed in the case of Needle Industries (India) Ltd. Vs. Needle Industries Newey (India) Holding Ltd. [(1981) 3 SCC 333 para-73]. In the case of Needle Industries (India) Ltd., the Hon'ble Supreme Court after holding that the Company petition must fail on the ground that no case for oppression was made out, held that the Court is not powerless to do substantial justice between the parties and place them as nearly as it may in the same position till the illegality was first committed and consequently directed sale and purchase of shares for a reasonable value. Learned counsel submits that the CLB has 23 followed the settled position in law and committed no illegality in issuing directions in terms of section 402 of the Companies Act, 1956 to do substantial justice.
35. The instant case is not a case where wrong doer is being benefitted. There is no doubt that it was the appellant who started illegal activities and only to undo such illegality, Respondents had to take steps which may not be strictly in accordance with law. However, the steps taken by the Respondents were in conformity with the Articles of Association of the Company. Respondents have undone the act of the petitioner / appellant in his capacity as a Managing Director of the Company in the year 2007 that he allotted shares in order to get absolute control of the affairs of the Company. Learned CLB has held the acts of the appellant to be unlawful and restored the position which was undisputed i.e. shareholding for the financial year2005-06 and 2006-07 and thereafter proceeded to give direction for purchase of shares by treating the Respondent brothers to be majority shareholders. Reference has been made to Clause-12 of Articles of Association of the Respondent Company which empower the Directors to transfer shares of any shareholder who is not working in the interest of the Company, by ordinary Resolution, at a fair value. Having regard to the undisputed shareholding and inescapable conclusion reached in this regard by the learned CLB, further directions to purchase the shares of the appellant at a fair value, is an order within the powers and jurisdiction of the Company Law Board, which requires no interference in appeal. Reference has been made to para-36 of the judgment rendered in the case of Dale & Carrington Invt. (P) Ltd. (Supra), where the scope of appeal under section 10-F of the Companies Act. 1956 has been delineated.
36. It is useful to observe here that though, Section 10-F refers to an appeal being filed on a question of law, but the Apex Court has clearly held that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. According to the Respondents, the Company Law Board has done substantial justice by taking into consideration all the relevant factors.
37. In the instant case, though both the parties are entitled to claim equity, but none of the parties can claim equity. It is well settled that when equity is claimed by both the parties, then the law should prevail. Reliance has been placed upon the judgment rendered by the Hon'ble Supreme Court in the case of Sailen Krishna Majumdar Vs. Malik Labhu Masih [(1989) Supp (1) 24 SCC 302, para-9] in support thereof. Reliance has also been placed upon a judgment rendered by the Apex Court in the case of Gurbax Singh Vs. Financial Commission [(1991) Supp (1) SCC 167, para-23]. Learned counsel for the Respondents have also questioned the unexplained delay of about one and half years on the part of the appellant in approaching the Company Law Board and that he had failed to establish that at the time when petition was presented, affairs of the Company were being conducted in a manner oppressive of him. The appellant has also failed to establish that his resignation letter was forged except making wild allegation. He has not shown that any steps were taken or compliance made after his voluntary resignation through letter dated 14.12.2009 were given effect to from 10.01.2010. Relying upon the judgment of the Apex Court in the case of Kale Vs. Dy. Director of Consolidation [(1976) 3 SCC 119, para-9 and 10], it is submitted that a family arrangement may be even oral and no registration may be necessary. A distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose of the record or information of the court for making necessary mutation. In such a case, the memorandum itself does not create or extinguish any rights in immovable properties and therefore does not fall within the mischief of Section 17(2) of the Registration. The Court while deciding the rights of the parties under family arrangements or claim considers in the broadest view the matter in the interest of families. The binding nature of family settlement is such that it must not be not interfered with, as has been reiterated by the Hon'ble Supreme Court in the case of K.K. Modi vs. K.N. Modi & Others [(1998) 3 SCC 573]. Lastly, it has been submitted that in terms of order 41 Rule 22(1) of Code of Civil Procedure, as interpreted in the case of Banarsi & others Vs. Ram Phal [(2003) 9 SCC 606], Respondents are entitled to challenge the correctness or otherwise of the findings of the Company Law Board qua the family settlement.
38. I have considered the submissions of the parties, gone through the relevant materials on record relied upon by them and also perused the impugned judgment. I have also gone through the judgment cited at the Bar. Necessary and relevant materials details of the pleadings have been narrated at length in the foregoing paragraphs and need no repetition.
39. The appellant herein approached the learned CLB with a grievance that the Respondent Nos. 2 to 5 had illegally increased the authorized share capital 25 of the Company from Rs. 20,00,000/- to Rs. 1,50,00,000/- on the basis of a purported meeting of shareholders of the Company held on 04.09.2010. Based on this, they further allotted shares of Rs. 1,10,00,000/- in their favour and also removed the petitioner as a Director of the Company with effect from 10.01.2010. Petitioner questioned the action of the Respondent Nos. 2 to 5 as being in complete violation of the mandatory requirements of the Companies Act and Articles of Association of the Company and sought it to be declared as null and void. Other consequential prayers were also made.
40. Respondents have justified their actions on the basis of family settlement dated 12.12.2009 entered into between their father and the petitioner and Respondent Nos. 2 to 5 in terms of which, affairs of M/s Innova Enterprises Pvt. shall be monitored and controlled by the petitioner / appellant and his family and, Respondent Nos. 2 to 5 would not have any objection or claim over the same. Similarly, the affairs of the Respondent No. 1 Company were to be managed and controlled by the four sons i.e. Respondent Nos. 2 to 5 of Mr. Kailash Singh and that the petitioner or his family members will have no objection to the same. Petitioner, his family members and their representatives and authorized representatives of Gulab Merchandise Pvt. Ltd and Axiom Tie- Up Pvt. Ltd. had given his consent to transfer of shares of Respondent No. 1 Company in the name of rest of his four sons i.e. Respondent nos. 2 to 5 which were held in the name of the petitioner and his family members. In terms of the partition / settlement, M/s Innova Enterprises Pvt. Shall be managed and controlled by Nand Kumar Singh and his family and any member of his family shall not have any claim over the rest of my four sons. This family settlement was not drawn through any affidavit. One of the parties to the family settlement i.e. father of the appellant and the Respondent Nos. 2 to 5 were also not party to the petition. Transfer of shares carried out on 01.04.2010 by transferring the entire shareholding of the petitioner equally among the Respondent Nos. 2 to 5 were in teeth of the provisions of the Companies Act, 1956 as also Articles of Association of the Company. The mandatory requirements of section 108 of the Companies Act were not followed. There was no instrument of transfer duly signed by the petitioner in terms of section 7B, nor any consideration thereof was evident from transaction.
41. In the light of the ratio rendered by the Apex Court in the case of Dove Investments (P) Ltd. (Supra) regarding compliance of section 108 of the Companies Act, 1956, such transfers were completely in teeth of the provisions of the Act. Learned Tribunal was therefore perfectly justified in refusing to take 26 cognizance of such family settlement purportedly to execute enbloc settlement between the appellant and his brothers i.e. Respondents 2 to 5. Respondents 2 to 5 had, by virtue of the purported Board meeting held on 04.09.2010 resorted to increase the share capital of the Respondent Company straightaway from Rs. 20,00,000/- to Rs. 1,10,00,000/- equally amongst them. This was justified as transfer was made under the head 'Share Application Money' in the financial year 2007-08 where the amount of Rs. 1,10,14,188.58 was shown as advance from parties in Schedule-ix under the head 'Current Liabilities and Provisions'. The Respondents sought to justify it on the ground that the petitioner had owed money to four brothers which were not paid off and that the credit shown in the books of the Respondent Company in favour of M/s Innova Enterprises Pvt. Ltd, was actually part payment of the actual amount due from M/s Innova Enterprises Pvt. Ltd to the Respondent Company on account of supply of fiber auto components made by the Respondent Company to M/s Innova Enterprises Pvt. Ltd. This was done in order to give effect to family settlement and square up the account, credit standing in the name of M/s Innova Enterprises Pvt. Ltd in the books of the Respondent Company by converting it into equity between four brothers aggregating Rs. 1,10,00,000/- allotted on 25.09.2010. The pleadings on record do not justify such an act on the part of the Respondent No. 2 to 5. On the one hand, M/s Innova Enterprises Pvt. Ltd had not given consent as a lender towards allotment of shares to the person other than the lender. No notice was given to the shareholders of the Company about the intention of such further allotment of shares and the purpose of such allotment. There was no consideration by way of which such shares has been received by the Company, nor were such allotment warranted. Since the learned CLB had given reasons to refuse to take cognizance of the purported family settlement under which this arrangement was made, learned Tribunal was justified in holding that such allotment was illegal and not maintainable. Moreover, other requirements of section 108 of the Act and submission of duly filled 7B Form by the transferor i.e. the petitioner, were also not complied with. Learned Tribunal having rightly held as above, however fell in complete error in holding that the petitioner had voluntarily tendered his resignation from the Directorship of the Company. The resignation, per se, was purportedly an act for giving effect to the family settlement which the learned CLB had rightly refused to recognize. If the family settlement had no legal sanctity, the petitioner / appellant had no reason to tender his resignation. In the background facts, suddenly the Respondent Nos. 2 to 5 27 within a period of 15 days in September 2010, resorted to a complete change in the share capital of the Company and illegally allotted among themselves Rs. 1,10,00,000/- out of the increase of share capital of the Respondent Company from Rs. 20,00,000/- to Rs. 1,50,00,000/- in the financial year 2010-11 without due notice of any of such Board meeting to such shareholders including the petitioner. This was in itself an overwhelming circumstance to show that the resignation tendered by the petitioner could not have been voluntary. If by these acts, Respondent Nos. 2 to 5 suddenly resorted to become the majority shareholders, their action amounted to an acts of oppression and mismanagement of the Company which could not be in the interest of Company. Therefore, learned CLB committed serious error of law in directing exit of the petitioner from the shareholding and Directorship of the Company being guided by the view that the relationship between the brothers was strained and efforts to settle their dispute outside the Court had failed. Such a course was neither justifiable in law under the scope of powers conferred on the Company Law Board under section 402 of the Companies Act, 1956, nor was it equitable.
42. Learned Tribunal had, on the other hand, proceeded to render findings in relation to increase in share capital of the petitioner, his family members and three Companies incurred in the financial year 2006-07 on the basis of Board's meeting held on 20.10.2007. Learned Company Law Board on consideration of the entire material evidences on record found that the purported Board meeting held on 20.10.2007 was illegal as no notice of the alleged board meeting was ever received by the Respondent Directors, nor was it attended by them. Appellant on his own, could not have formed a quorum to take necessary decision. In substance, the Learned Board concluded that no such board meeting could be treated as being held. Further, Form 2 was digitally signed by the petitioner / Appellant and extract of the purported board meeting was also unsigned. This was in violation of Section 108 of the Companies Act 1956 and Articles of Associations of the company prescribing the rules and procedures for allotment of additional share capital. The findings of the learned Tribunal are not vulnerable to challenge as on the parity of the same reasons, the illegal acts of Respondent no. 2 to 5 in resorting to increase in their capital to the Respondent company from 20,00,000 to 1,10,00,000 equally amongst them by virtue of the purported board meeting held on 4.9.2010, has been held illegal in view of violation of Section 108 of the Act 1956. Learned Tribunal refused to take cognizance of the said family settlement purported to be executed for en 28 block settlement of dispute between petitioner and Respondent no.2 to 5. Therefore, this Court does not find any reason to disturb the findings of the learned CLB on that score.
43. Respondent Nos. 2 to 5 have not even filed any cross objection in the present appeal to justify their acts based on the purported family settlement dated 12.12.2009. The Respondent No. 2 to 5 appear to be satisfied with the direction of the learned CLB wherein the petitioner has been exited from the shareholding and Directorship of the Respondent No. 1 Company and they have been given full charge. Such an arrangement would be definitely inequitable and impermissible in the eye of law. It would be beyond the scope of powers under section 402 of the Act of 1956. However, when learned Tribunal had good reasons to annul the acts of illegal allotment of shares and illegal increase of authorized capital of the company by three purported Board's meeting held on 04.09.2010 and subsequent meetings held on 09.09.2010 and 18.09.2010 in which annual returns were filed, then the proper course was to restore the position to the stage where illegality was committed. Reliance may be placed on the principles laid down in the case of Dale & Carrington Invt. (P) Ltd. & another (Supra) and also in the case Needle Industries (India) Ltd. (Supra).
44. On the other hand, the plea raised by the appellant that the Respondent Nos. 2 to 5 held the shares of the Company as the Trustee of the shares of the Company and that the petitioner is the only legal beneficiary as all the consideration for such shares was paid by the petitioner, is not acceptable in the eye of law. The appellant though has adverted to the requirements of compliance of the provisions of Section 187C(1) read with sub section (6) of the Companies Act on the part of the Respondent Nos. 2 to 5, but if the appellant claimed to hold the beneficial interest in the shares of the Company, it was he who was also required to make a declaration in the prescribed form specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the Company and such other particulars, in terms of Section 187C(2) itself. In the absence of such a declaration, the appellant's contention is untenable in the eye of law.
45. Having held as above, this Court is of the clear view that the impugned direction issued by the learned CLB regarding the exit plan of the appellant by purchase of his shares by rest of the Respondents 2 to 5, was not proper in the eye of law. Consequently, the impugned direction to that effect is set aside. The appellant is restored to the Directorship of the Company, as it stood prior to the 29 Board meeting held on 04.09.2010 as all other actions taken by the Respondents 2 to 5 on the basis of purported family settlement on 12.12.2009, have rightly been held to be illegal and unsustainable on the part of the learned CLB. Appeal stands allowed in the manner and to the extent indicated herein above.
(Aparesh Kumar Singh, J) A. Mohanty/Ranjeet/-