Rajasthan High Court - Jodhpur
Panday Minerals Pvt. Ltd. & Ors vs Sanjay Sukhwal & Ors on 4 April, 2018
Author: Sangeet Lodha
Bench: Sangeet Lodha
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
S.B. Company Appeal No. 4 / 2014
1. Panday Minerals Private Limited, Outside Suraj Pol, Udaipur
(Rajasthan).
2. Laxmi Narayan Panday s/o Shri Amrit Lal Panday, Aged 85
years, Resident of 71/12, Polo Ground Udaipur.
3. Mohit Panday S/o Shri Prabash Panday, Aged 28 years,
Resident of 71/12, Polo Ground, Udaipur.
4. Rakhee Panday w/o Mr.Rohit Panday, Aged 27 years,
Resident of 71/12, Polo Ground, Udaipur.
5. Prabhash Panday s/o Laxmi Narayan Panday, Aged 57 years,
Resident of 71/12, Polo Ground, Udaipur.
6. Vimla Panday w/o Prabha Panday, Aged 56 years, Resident of
71/12, Polo Ground, Udaipur.
7. Rohit Panday s/o Prabhash Panday, Aged 31 years, Resident
of 71/12, Polo Ground, Udaipur.
8. Ritika Panday, Resident of 71/12, Polo Ground, Udaipur.
----Appellants
Versus
1. Sanjay Sukhwal s/o Late Shri Laxmi Narayan Sukhwal,
Resident of 10-C, Madhuvan, Udaipur.
2. Registrar of Companies, Corporate Bhawan, II Floor, G 607,
Residency Area, Civil Lines, Jaipur.
3. Deepak Vijaywargiya S/o Vishwasnath Vijaywargiya, Aged 48
years, Working as Company Secretary C/o Panday Minerals
Private Limited, 5A, Madhuvan, Udaipur.
----Respondents
_____________________________________________________
For Appellant(s) : Mr. Manoj Bhandari
For Respondent(s) : Mr. Vikas Balia with Mr.Dinesh Pal Singh
_____________________________________________________
HON'BLE MR. JUSTICE SANGEET LODHA
Judgment 4th April,2018
1. This Company Appeal under Section 10F of the Companies Act, 1956 ( for short "the Act") is directed against judgment and (2 of 17) [COA-4/2014] order dated 31.3.14 passed by the Company Law Board, Northern Region Bench, New Delhi ('CLB'), whereby the Company Petition [No.98(ND)/2013] preferred under Sections 397 & 398 read with Section 402 of the Act by the first respondent for restoration of his directorship, for declaring the issuance and allotment of 60,000 equity shares to the appellants no.2 to 8 as null and void as also to declare Form No.2 dated 5.9.12 filed with the Registrar of Companies, Jaipur for giving effect to the share allotment as void ab initio, for declaring the appointment of appellant no. 3 as Director of the Company w.e.f. 6.1.10 and appointment of respondent no.4 as Director w.e.f. 30.9.10 as illegal and for consequential correction in the forms and statutory record corresponding to aforesaid relief, has been allowed.
2. The relevant facts are that the Appellant Company, a company registered under the provisions of the Act, is engaged in the business of manufacture, fabrication, design, engrave, assemble, refine, treat, cut, mine, crush, grind, polish, process, wash, wax import & export and sale of minerals. The subscribed and paid up share capital of the Appellant Company at the time of incorporation was Rs.1,00,000 divided into 10,000 equity shares of Rs.10/- each which was held as under:
S.No. Name of Shareholder No. of Shares Held
1. Shri Laxmi Narayan Panday 7,500
2. Shri Sanjay Sukhwal 2,500
TOTAL 10,000
(3 of 17)
[COA-4/2014]
The respondent Sanjay Sukhwal was Director of the
Appellant Company, however, he was removed from the office of Director w.e.f. 30.9.10 and E-form 32 was filed on 15.12.10.
3. On 2.11.09, the subscribed and paid up capital was increased to Rs. 3,00,000/- divided into 30,000 equity shares of Rs.10/- each. The allotment of 20,000 additional shares was made as under:
S.No. Name of Shareholder No. of Shares Allotted
1. Shri Mohit Panday 8,000
2. Smt. Rakhi Panday 2,000
3. Shri Laxmi Narayan Panday 10,000 TOTAL 20,000
4. The subscribed and paid up capital of the company was further revised on 27.8.12 with issuance of 60,000 shares of Rs.10/- each and thus, the total paid up capital stood increased from 30,000 shares to 90,000 shares of Rs.10/- each valuing at Rs.9,00,000/-. The additional 60,000 shares were allotted as under:
S.No. Name of Shareholder No. of Shares Allotted
1. Shri Laxmi Narayan Panday 10,000
2. Shri Mohit Panday 3,500
3. Smt. Rakhi Panday 5,500
4. Shri Prabash Panday 10,000
5. Smt. Vimla Panday 10,000
6. Shri Rohit Panday 13,500 (4 of 17) [COA-4/2014]
7. Smt. Ritika Panday 7,500 TOTAL 60,000
5. The first respondent alleging oppression and mismanagement on the part of the Appellants filed a petition under Section 397 & 398 read with Section 402 of the Act claiming the reliefs indicated as above. The petition was contested by the Appellants by filing a reply thereto.
6. Precisely, the case set out by the first Respondent before CLB was that he was removed from the Directorship of the Appellant Company without tendering an opportunity to give representation against the removal, in gross abuse of the mandatory provision and procedure provided for under the Act.
The Appellant no.2 & 3 playing fraud, illegally transferred the share of the first Respondent without execution of shares transfer deeds and without payment of any consideration on 1.4.10. In this regard, the first Respondent moved the petition before CLB for seeking rectification of Register of Members pursuant to Section 111(4) read with Section 108 of the Act vide Company Petition No.08/111/2013. The first Respondent contended that the appointment of Appellant no.3 herein Mr. Mohit Pandey as Director of the Company w.e.f. 6.1.10 and Ms. Rakhi Pandey as Director of the Company w.e.f. 30.9.10 has been made without his consensus and in complete disregard and violation of the provisions of the Act. The Appellant no. 2, 3 & 4 herein were mismanaging the affairs of the Company by diverting Company's fund and misusing it for discharging their own liabilities. Apart from that the (5 of 17) [COA-4/2014] Company's fund was being debited on account for payment of personal expenses of the Respondents. That apart, it was contended that the Appellants herein had reduced the legitimate unsecured loan to the tune of Rs.6,13,500/- reflected in the Balance Sheet of the Appellant Company since 2006 onwards given by the first Respondent to the Appellant Company without paying back the same to the first Respondent by way of book entries.
7. The Appellants herein categorically denied that the first Respondent was illegally removed from the Directorship of the Appellant Company w.e.f. 30.9.10. On the contrary, he was removed from Directorship of the Company when he committed fraud and transferred funds and business of the Company in his firm, Sanjay Minerals. The Appellants herein further contended that the first Respondent was removed after serving him proper notice as per law and he did not file any representation or complaint about non receipt of the notice at any point of time. An objection was raised that the first Respondent does not qualify and meet the mandatory requirement of Section 399 of the Act as he does not hold 1/10th of the paid up capital of the Company and therefore, the Company Petition preferred is not maintainable.
8. Responding to the objection raised, it was contended on behalf of the first Respondent that he never sold and handed over 2500 shares held in the Appellant Company to the Appellant no.2. It was contended that there being no offer and acceptance for transfer of aforesaid shares for alleged purported settlement of the debt of the Appellant no.2 if any with the first Respondent and (6 of 17) [COA-4/2014] thus, the transfer of the share as alleged is a concocted story and the ledger entries were made without any consent or authorisation by the first Respondent.
9. It is pertinent to note that the petition filed by the first Respondent challenging the transfer of 2500 shares was allowed by the CLB vide order dated 19.3.14. Aggrieved thereby, an appeal (No.2/14) preferred by the Appellants before this court stands dismissed vide order dated 10.10.14 and thus, the order passed by the CLB setting aside the transfer of 2500 shares held by the first Respondent in the name of Appellant No.2-Laxmi Narayan Pandey and accordingly, the directions issued to enter aforesaid share holdings of 2500 shares in the name of the first Respondent in the Register of Member has attained finality.
10. In the instant case, after due consideration of the pleadings, material on record and rival submissions of the parties, the CLB arrived at the finding that though there is no evidence on record to prove that proper notice of Extra Ordinary General Meeting held on 9.10.09 was given to the first Respondent, there appears proper acquiescence on his part as the Form No.5 for increase in the authorised capital from Rs.1,00,000/- to Rs.3,00,000/- was filed on 12.10.09 under his own digital signature. Regarding further increase of share capital to Rs.9,00,000/- divided into 90,000 shares of Rs.10/- each on 27.8.12, the CLB observed that the Appellants herein have not produced any documentary evidence in reply to the effect that proper notice to the Board Meeting held on 2.11.09 and 27.8.12 were given to the first Respondent in compliance of the provisions of the Act for (7 of 17) [COA-4/2014] allotment of 20000 shares and 60000 shares respectively. However, in respect of allotment of 20000 shares on 2.11.09, the CLB observed that the Form has been digitally signed by the first Respondent only. The contention of the first Respondent that the Company Secretary i.e. the Appellant no.9 herein has misused his digital signature, was not accepted by the CLB. Rather, the CLB arrived at the finding that the first Respondent was aware about allotment of 20000 shares on 2.11.09, however, in respect of the allotment of 60000 shares on 27.8.12 in respect whereof, Form No.2 was signed by the Appellant no.3 herein and no notice of the Board Meeting was given to the first Respondent as he was allegedly removed from the Directorship on 30.9.10 and since there was no quorum in the Board Meeting held on 27.8.12, was treated to be an act oppressive against the Respondent. The removal of the first Respondent from Directorship of the Company was held to be in violation of the provisions of Section 284 & 190 of the Act. The appointment of the Appellant no.3 Mr. Mohit Pandey as the Director of the Company w.e.f. 30.9.10 without the consensus of the first Respondent and in violation of the provisions of the Act was also held illegal. Regarding the appointment of Ms. Rakhi Pandey, the Appellant no.4 herein, as Director of the Company w.e.f. 30.9.10, CLB arrived at the finding that no notice was given to the first Respondent and the Appellant no.2 herein was the only Director present in the meeting and thus, for want of proper quorum, the appointment of the Appellant no.4 herein as Director was held to be invalid. Accordingly, the petition (8 of 17) [COA-4/2014] was allowed and the directions were issued by the CLB as indicated above. Hence, this appeal.
11. Learned counsel appearing for the Appellants contended that as per provisions of Section 399 (1) (a) of the Act, for a member to apply under Section 397 & 398 of the Act, he must hold at least 1/10th of paid up capital of the Company and since, the first Respondent at the time of filing the petition before the CLB was not holding 1/10th of the paid up capital of the Company was not entitled to maintain the petition. Learned counsel submitted that a combined reading of the order impugned dated 31.3.14 and order dated 19.3.14 passed in Company Petition No. 08/111/2013, reveals that on the one hand, CLB invalidated the transfer of share holding of 2500 shares of the first Respondent to the Appellant no.2-Laxmi Narayan Pandey, on the other hand, it validated the allotment of 20000 shares made on 2.11.09 in favour of Shri Mohit Pandey, Smt. Rakhi Pandey and Shri Laxmi Narayan Pandey and thus, as per impugned order, after 2.11.09, the subscribed and the paid up capital of the Appellant Company stood increase from 10000 shares to 30000 shares with the first Respondent holding only 2500 shares. In this view of the matter, since the first Respondent was not holding 1/10th of the issued share capital i.e. 1/10th of 30000 shares, he was ineligible to move a petition under Section 397 & 398 of the Act. Learned counsel would submit that ignoring the statutory provisions, the CLB has seriously erred in holding the petition preferred as maintainable. Learned counsel submitted that Companies running family business may be equated with the quasi partnership and in such enterprises, (9 of 17) [COA-4/2014] Partner/Director can be removed if his acts are prejudicial to the interest of the Company. The first Respondent was not able to make out any case of oppression and mismanagement and thus, the petition was liable to be dismissed. Learned counsel would submit that the Company Petition filed suffered from delay and laches and thus, was liable to be rejected on this count alone. Learned counsel submitted that the CLB has failed to consider that a special notice dated 14.8.10 was issued and delivered to the first Respondent as per the mandate of Section 284 of the Act. It is submitted that in case where breach of fiduciary duties are apparent on the part of the Director as also the fact that he had acted against the interest of the Company, the law empowers the Board to remove the Director when the Director being terminated chooses to abstain from participating in the Board meetings even after service of the special notice. Learned counsel submitted that as on 27.8.12, the first Respondent was non-share holder and thus, was not entitled to seek proportionate subscriptions in shares and thus, the Board has seriously erred in holding the issuance of 60000 equity shares on 27.8.12 on the strength of order dated 19.3.14 passed in Company Petition No.8/111/2013. Learned counsel submitted that mere non allotment of shares does not constitute oppression. In support of the contention, learned counsel relied upon a decision of the Supreme Court in the matter of 'Shanti Prasad Jain vs. Kalinga Tubes Ltd.', AIR 1965 SC 1535 and Chatterji Petrochem vs. Haldia Petrochemicals, 2011(10) SCC 466.
(10 of 17) [COA-4/2014]
12. On the other hand, learned counsel appearing for the Respondents contended that the eligibility of the member of the Company to maintain the petition under Section 397 & 398 of the Act in terms of the provisions of Section 399 of the Act has to be determined prior to the act complained of and thus, the subsequent allotment of the shares cannot be taken into account. Learned counsel submitted that admittedly, the first Respondent was holding much more than 1/10th of issued share capital of the Company prior to increase of the share capital which was impugned in the petition and thus, by no stretch of imagination it can be said that the first Respondent was ineligible to maintain the petition by virtue of provisions of Section 399 of the Act. Learned counsel submitted that right from the act of illegally transferring the share held by the first Respondent, his removal from Directorship of the Company without notice and the increase of the share capital unilaterally were the acts indicative of oppression and mismanagement continuing as on the date of the filing of the petition and thus, the question of the first Respondent being non suited on the ground that he was not holding requisite share in the issued share capital of the Company does not arise. In support of the contention, learned counsel has relied upon a decision of Karnataka High Court in the matter of 'Mr.Vijayan Rajes & Anr. vs. M.S.P. Plantations Private Limited rep. by Managing Director & Ors.', (2009) 151 CompCas 413 (Kar). Learned counsel would submit that the findings arrived at by the CLB remains findings of facts and thus, on the basis of the facts proved, the violation of the provisions of the Act being established, the present appeal (11 of 17) [COA-4/2014] does not give rise to any question of law, which requires consideration of this court and thus, the appeal preferred deserves to be dismissed.
13. I have considered the rival submissions; carefully gone through the order impugned and perused the material on record.
14. In the first instance, it would be appropriate to consider the preliminary objection raised by the appellant regarding maintainability of the petition preferred by the first respondent before the CLB on the ground that the first respondent is not fulfilling the mandatory requirement of shareholding upto the percentage as prescribed under Section 399 of the Act.
15. It is noticed that before the CLB, the objection raised was that the first respondent herein having transferred his 2,500 shares of book value Rs.25,000/- in favour of appellant no.2 herein, the petition preferred was not maintainable. The objection raised was not found sustainable by the CLB observing that the issue relating to alleged transfer of 2,500 shares by the first respondent was raised in separate petition bearing no.08/111/2013 wherein the direction to restore said 2,500 shares in the name of first respondent was issued. The appeal preferred by the appellants questioning the legality of the order passed by the CLB already stands rejected by this Court vide order dated 10.10.14 passed in Company Appeal No.2/2014. Thus, order passed by the CLB directing restoration of said 2,500 shares in the name of the first respondent has attained finality.
(12 of 17) [COA-4/2014]
16. But then, now the objection is raised by the appellant in terms that the allotment of 20,000 shares made on 2.11.09 in favour of Mohit Panday, Smt. Rakhee Panday and Laxmi Narain Panday having been validated by the CLB, after 2.11.09 the subscribed and paid up capital of company stood increased from 10,000 shares to 30,000 shares and since the second respondent was not holding 1/10th of the issued share capital i.e. 1/10th of 30,000 shares, he was ineligible to maintain the petition against the Appellant Company under Section 397 & 398 of the Act.
17. Indisputably, while filing the petition under Section 397 & 398 of the Act before the CLB, the petitioner had inter alia questioned the legality of action of the Appellant Company and majority shareholder in increasing the share capital of the Company from 10,000 shares of Rs.10 each to 30,000 shares of Rs.10 each as on 2.11.09 as also further increase of 60,000 shares as 27.8.12. In the considered opinion of this Court, the increase in number of shares and admission of additional members being part of the cause of action for filing the petition , the eligibility of the petitioners to maintain the petition in terms of Section 399 of the Act, cannot be determined on the basis of increased share capital, which is subject matter of challenge as an act oppressive to the first respondent as member of the Company. As laid down by the Karnataka High Court in Vijayan Rajes's case (supra), if the date of presentation of the petition be looked into in a technical way, it could defeat the very purpose of the legislative enactment of Section 397 & 398 of the Act, as overbearing majority shareholders can simply by high-handed action or even (13 of 17) [COA-4/2014] for the purpose and by oppressive methods, dismember minority shareholders and leave them with no remedies as, dismembered minority shareholders technically do not qualify for maintaining a petition under Section 399 of the Act, being not member at all. The Court observed that minority shareholders will be complaining only after the acts occurred and when they have been removed from the membership of the Company, the understanding and interpretation to be given to Section 399 is only so as to Author the object of relief to be given in a situation governed by Sections 397 and 398 of the Act and do not foreclose the options to an aggrieved person and deny the very relief sought to be extended as complaining minority shareholder/s envisaged under Sections 397 and 398 of the Act. Thus, it stands to reason that the eligibility of the members for maintaining a petition in terms of Section 399 of the Act, has to be determined on the basis as to whether the petitioners constituted the requisite number of members or they had requisite shareholding in the Company prior to the acts complained of.
18. In view of the discussion above, in the considered opinion of this Court, the petition under Sections 397 and 398 of the Act, preferred before the CLB by the first respondent, who was holding 2,500 shares out of 10,000 shares i.e. the subscribed and paid up capital of the Appellant Company prior to the various acts of oppressions of the Company and majority shareholders complained of, was not liable to be dismissed as not maintainable.
19. Indisputably, there is no evidence on record showing that notice of Extra-ordinary General Meeting held on 9.10.09 was (14 of 17) [COA-4/2014] given to the first respondent, wherein the paid up share capital of the Company was increased from Rs.1 lac to Rs.3 lac but the Form No.5 was filed with the Registrar of Companies on 12.10.09 under the digital signature of the first respondent. There was nothing on record suggesting that the digital signature of the petitioner was misused and thus, the CLB rightly arrived at the finding that there appears proper acquiescence on the part of the petitioner in respect of the increase of authorised capital of the Company from Rs.1 lac to Rs.3 lacs.
20. Coming to the issue of removal of the first respondent from directorship, admittedly the first respondent was appointed as the Director of the Appellant Company on 19.12.2000 and was removed from the directorship w.e.f. 30.9.10 and Form E32 was filed on 15.12.10. The case of the first respondent is that before removal no opportunity was given to him to give representation and in gross violation of mandatory provisions of the Act, he was removed from the directorship. Precisely, the case of the respondent is that the first respondent was a shareholder of the Company only till 2010 and thereafter since, he had transferred 2,500 shares of value of Rs.25,000 in favour of the appellant no.2 herein, for adjustment of the amount of personal loan given by the appellant no.2. As noticed above, the alleged transfer of the shares by the first respondent in favour of the appellant no.2 herein, has been declared illegal by the CLB while deciding a separate petition preferred by the first respondent. Though the first respondent had contended before the CLB that special notice dated 14.8.10 under Section 284 read with Section 190 of the Act (15 of 17) [COA-4/2014] of the Board Meeting held on 30.9.10, was served upon the first respondent but no documentary evidence was produced to establish the factum of service of the notice as alleged. In this view of the matter, apparently the petitioner was not given an opportunity to explain his position against the proposed removal from directorship. In this view of the matter, for violation of mandatory provisions of Section 284 of the Act, the removal of the first respondent from directorship of the Company has rightly been held illegal by the CLB.
21. It is also not in dispute that Smt. Rakhee Panday, the appellant no.4 herein, was appointed as Director of the Company in the Board Meeting held on 30.9.10 wherein the first respondent was removed from directorship. No notice of Board Meeting was given to the first respondent and therefore, he was absent in the meeting, thus the appellant no.2 herein, being the only Director present in the meeting, there was lack of proper quorum. In this view of the matter, the finding arrived at by the CLB holding the appointment of appellant no.4 herein, as Director of the Company was not validly done, cannot be faulted with.
22. The first respondent had already been removed as Director of the Company w.e.f. 30.9.10 and therefore, no notice of the Board Meeting held on 6.1.10 wherein Shri Mohit Kumar Panday, the appellant no.3 herein, was appointed as Director, was issued to the first respondent. The shareholdings of the first respondent being restored and his removal from the directorship of the Company being found illegal, for parity of the reason i.e. non (16 of 17) [COA-4/2014] service of the notice of the meeting held on 6.1.10, has rightly been held invalid for want of quorum.
23. Lastly coming to the increase of share capital from Rs.3 lacs to Rs.9 lacs and shares from 30000 to 90000 of Rs.10/ each, as on 27.8.12, there was no documentary evidence produced on record by the appellants herein showing that the notice of the Board Meeting was given to the first respondent. The first respondent was entitled to offer for allotment of shares proportionately but no such offer was extended to the first respondent. The shares originally held by the first respondent stand restored by the order of the CLB and thus, on account of non allotment of the shares to the first respondent proportionately, his shareholdings in the Company stand considerably reduced. As observed by the CLB, the increased 60,000 shares of Rs.10 each have been allotted to individuals of Panday Group having same residential address, which has resulted in absolute majority of the Group and thus, the same is rightly been treated to be an act oppressive against the first respondent.
24. It is noticed that the respondent had filed the petition before the CLB on the basis of continuing acts of mismanagement and oppression on the part of the appellants herein. That apart, subscribed and paid up capital was further increased on 27.8.12 with the issuance of 60,000 shares and Form No.2 in this regard was filed with the Registrar of Companies, Jaipur on 15.9.12. The Company Petition was filed by the first respondent before the CLB on 23.7.13 and therefore, it cannot be said that the petition filed suffered from inordinate delay and laches. Moreover, the first (17 of 17) [COA-4/2014] respondent had challenged transfer of 2500 shares by way of separate petition before the CLB, which was allowed vide order dated 19.3.14. Other acts of oppressions as alleged were consequential in sequence. In any case, the CLB exercising discretion having entertained and decided the same on merits, this court does not find any justifiable reason to entertain the objection raised on behalf of the appellants at this stage.
25. In the result, the appeal fails, it is hereby dismissed. No order as to costs.
(SANGEET LODHA),J.
Aditya/