Company Law Board
Elias Masso vs Skybiz India Pvt. Ltd., Shri Abhay V. ... on 21 June, 2005
Equivalent citations: [2006]129COMPCAS803(CLB), [2006]66SCL276(CLB)
ORDER
K.C. Ganjwal, Member
1. Sh Elias Masso, who is a foreign national resident of USA and also a director of the Respondent Company has filed this petition under Section 397 and 398 of the Companies Act, 1956 against M/s Skybiz India Pvt. Ltd. and Others. The Respondent Company is an Indian company incorporated under the Companies Act with registered office at Shivaji Nagar, Pune. The main object of the company is to carry on the business of manufacture, traders, sellers etc. in all types of opt-homological glasses and lenses etc. The former name of Respondent Company was Pixcel Optical Pvt. Ltd. and it was changed to Skybiz India Pvt. Ltd. on 10.1.2001. The Petitioner alongwith Respondent No. 3 & 4 are the Directors of the Respondent Company whereas Respondent No. 2 is the Managing Director.
2. The Learned Counsel for Petitioner submitted that the Petitioner is holding Rs. 3,70,000 shares amounting to 74% of the Respondent Company's share capital of Rs. 50 lakhs and the remaining 26% shares are held by Respondent Nos. 2, 3 & 4 together. On 6.1.2001, the first Respondent entered into a contract with Skybiz international whereby the first Respondent was appointed as the exclusive distribution within India, for the products of Skybiz International. The Respondent Company was under the contractual duty to pay these commissions but failed to pay commission payment to various associates. A copy of the Distribution Agreement, Respondent No. 1 Company and Skybiz International dated 6.1.2001 has been placed on record. The Petitioner was issued a share certificate, which was duly signed by the Respondent and that clearly and categorically mentioned that 3,70,000 shares of Rs. 10 each are allotted to Respondent Company representing 74% of share capital. The inclusion of the name of the Petitioner in the Register of Members is not mandatory to maintain a petition under Section 397/398 of the Companies Act and the Learned Counsel relied on the judgment in the case of S.D.N. Wadiyar v. Venkateswara Real Estate (1990) 68 Comp Cas 216 wherein it is held that the Petitioner invoking the court's jurisdiction Under Section 397 and 398 are in a position to show that even though their name are not to be found in the Register of Members of the company, yet they have such an in-disputable and unchallengeable title to membership of the company that court may entertain a petition at their instance. If in a given case it was shown that name of the person not shown in Register of Members, if he had been treated as a member of the company, the company court can always exercise its equity jurisdiction. The Petitioner who is a foreigner, is induced into believing that the shares certificate is valid or that the shares are fully paid up, the company is precluded for making a plea on principle of estopple. The Respondent have failed to give any explanation as to why share certificate was issued to the Petitioner in February 2001 if he had not paid any money towards the same. The case of the Respondent that there was an oral understanding cannot be taken note of in view of specific bar as per Section 93 of the Evidence Act.
3. The Learned Counsel relied on the judgment of Banford Investment Ltd. and Ors. v. Magadh Spun Pipe and Orders, Company Law Board, Principal Bench wherein it is held that from a combined reading of all the decisions, tests that we have to apply in this case are (1) whether the Petitioners are in possession of relevant share certificates to claim the membership; (2) whether there are independent records to establish that they are the members of the company; (3) whether the company has treated the Petitioners as members of the company in the past.
It is the responsibility of the Respondent Company, both in terms of Article of Association (Article 12) and Section 292 of Companies Act to make a call, for any unpaid money in respect of the shares. Admittedly, no calls were ever made by the Respondent Company on the Petitioner to make any payment and they cannot take advantage of their own wrongs and defaults. The Petitioner in their letter 3.4.2001 have not mentioned any amount due from the Petitioner but only bald averment is made that amounts are due and payable. The Learned Counsel relied on the book of Pennigton's Company Law where a call has been held invalid when it was made by directors who had not been properly appointed or at a Board Meeting which was not attended by a quorum of Directors. A call must be made equally on all shareholder of the same class. A share certificate issued under the company's seal or securities seal is prima facie evidence of the named shareholder's title to the shares specified in it, but it is not conclusive evidence. Learned counsel submitted that share certificates which are merely signed by two of the company's directors, or by a director and the Company's Secretary, or by another officer or agent authorized by the company, are also evidence of the shareholder's title, at least as against the company itself.
4. The Learned Counsel also relied on the judgment in the case of Pabna Dhanabhandar Co. v. Foyezuddin AIR 1932 Cal 716 wherein it is held that the liability was not however enforceable against the share holders until a valid notice had been made to them in accordance with the Article of Association and the provisions of the Act. The mere passing of the resolution cannot in my opinion be regarded as a valid call. Something more is required to constitute a valid call, namely service of notice in pursuance of the resolution. No such notice having been served on the defendants in these suits, it must be held that their liability to pay the balance due on their shares cannot be enforced in the present proceedings.
5. The Learned Counsel for Petitioner also submitted that the Petitioner was made one of the necessary signatory of the Bank Accounts of Respondent Company alongwith one of either Respondent No. 2 & 3 vide Board of Directors resolution dated 1.3.2001. It was also provided that he would not be removed as such in his absence. However on 2.3.2001, the very next day Respondent gave instruction to Centurion Bank to stop payment of entire Cheque Book issued to them. The Petitioner was also removed as necessary signatory of Bank account allegedly in a Board Meeting held on 5.2.2001 in which the Petitioner was not present and he had no notice of Board Meeting as required in law. The Respondents have taken a plea that the Petitioner was informed telephonically which clearly manifest the fraudulent intentions. The Minutes of the alleged Board Meeting of 5.3.2001 was produced without any supporting affidavit. It is clear that no such meeting ever took place and these minutes were subsequently cooked up. The Petitioner was also removed from the office of Directors, no shareholder's resolution was passed in this regard. The Respondents have taken completely inconsistence stand for the removal of petitioner as Director. The reason given by the Respondent in Form No. 32 filed by them before, the Registrar of Companies is that the Petitioner was removed from directorship in terms of Article 75(A) of Article of Association for non payment of shares subscription amount. There is no such provision in Article of Association. In second stand taken in Para 7 of the reply, it is mentioned that the Petitioner was removed form the post of director in view of the "conduct and action of the Petitioner which had caused irreparable harm to the reputation of the company". Moreover in their letter dated 3.4.2001 relied upon by the Respondent, it is mentioned that Respondents were proposing to remove the Petitioner as Director. Therefore the Petitioner was still the director of the Respondent Company on the said date i.e. 3.4.2001. The Respondents have failed to give any explanation except the oral explanation that it is case of bad English. The minutes of alleged Board Meeting dated 30.3.2001 was once produced in the final hearing without any supporting affidavit. It is clear that Respondent have filed 3 different sets of pleadings and no such meeting ever took place and these minutes were subsequently cooked up.
6. The Learned Counsel for Petitioner further submitted that in terms of the agreement between the parties, the Respondents were required to remit commission payment to various associates which they failed to do and siphoned of the money. In these circumstances, Skybiz International was constrained to terminate the agreement with the Respondent and announced on its website against making any payment to Respondent Company. It is not the case of Petitioner that the Respondent owes any money to them. In fact, it is the Petitioner who has initiated recovery proceeding against the Respondent before Bombay High Court, which are independent and separate proceedings having no similarity with the present proceedings. Merely because some pleading are similar does not mean that two separate proceeding can not be initiated. The Petitioner has filed the suit before Bombay High Court for recovery of money, whereas, in the present proceedings he is agitating his rights as a shareholder. It is submitted that proceedings in USA are not subject matter of present dispute and the same are separate and independent proceeding having no bearing on the present case. The parties' heirs cannot, seek enforcement of USA authority's decisions. The Petitioner is willing to pay amount dues to 74% shareholding subject to the condition that Respondents give full and complete account to the petitioner and hand over management of the respondent company on proportion to his shareholding of 74%.
7. The Learned Counsel for respondents in reply submitted that the Petitioner has never been treated as member of Respondent No. 1 company as he failed to discharge burden cast on him and he is entitled to maintain the present petition under Section 397/398 of the Companies Act, 1956 as envisaged and under the provision of Section 399 of the Act. The statutory remedy under these sections of the Companies Act are available only to those members of the company who are qualified to maintain such petitions under Section 399 of the Act. The Petitioner has placed reliance on the share certificate but did not produce any document to show that Respondent Company treated him as a member. Only a prima facie opinion can be formed on the basis of share certificate which is not a conclusive proof of the title of the shares. The share certificate cannot be relied upon as it does not bear company's seal which is in violation of Section 84 of the Companies Act, 1956, read with Rule 6 of the issue of share certificate rule 1960 and Article 8(2) of Article of Association. The amount paid on these share has also not been mentioned. The Learned Counsel relied on case of Prameela Ravindran v. Vital Instrumentation Pvt. Ltd. and Ors., 2004 (vol.121) company cases, 837 at 845 wherein it is held that the Petitioner claims that the deceased Ravindran had 3350 shares at the time of his death. We have seen the original share certificates produced at the time of hearing. The shares certificates, we find are not dated and do not bear the seal of the company as required under. Rule 7 of the Companies (Issue of Share Certificates) Rules, 1960. Therefore, the plea of the Petitioner that she has established prima facie title of her husband to the impugned shares must fail and the decisions cited in this behalf have no application to the facts in question before us."
8. The reliance is also placed on the observation of Hon'ble Supreme Court in the case of Gurudevatta VKSSS Marydit v. State of Maharashtra, (2001) 4 SCC 534 reproduced below :-
"26. Further we wish to clarify that it is a cardinal principal of interpretation of statute that the words of a statue must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statue to suggest to the country. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statue are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the law-giver. The Courts have adhered to the principle that efforts should be made to give meaning to each and every word used by the legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statue."
9. The Petitioner never considered himself to be a member of the respondent company. He was issued a shares certificate in February 2001 but till April 2003, when he filed the present petition he has never written to company or asked for its audit of accounts and Balance sheet or sought any information regarding Annual General Meeting from the company. Such an indifference cannot be accepted from a member who claims to be holder of 74% shares of the company. The present petition is an after thought and a devise to get some relief when he failed to get from Bombay High Court in the suit filed by him against the Respondent. The Petitioner has paid absolutely no consideration for the said shares and did not mention anything in the petition about the consideration paid by him. When the objection was taken by Respondent in reply, the Petitioner made an attempt to justify the consideration for the said shares. The Petitioner claims that consideration was paid by M/S World Service Corporation which remitted $ 20,000 to M/S Axis Software Pvt. Ltd. The contention of the Petitioner is completely incorrect the said amount was transmitted to M/S Axis Software on 29.12.2000 for the consultancy rendered by MS World Service Corporation and has nothing to do either with the Petitioner or with the Respondent. The position becomes clear form the perusal of Balance Sheet of M/s Axis Software (P) Ltd. and Skybiz India Pvt. Ltd. In the letter dated 6.1.2001, countersigned by the Petitioner, it has been categorically mentioned that 74% of the shares of Skybiz India Pvt. Ltd would be allotted to Petitioner at such price ant terms which would be mutually acceptable to both the parties. The Petitioner never made any mention in this letter about said amount of US $ 20,000. Again in the letter 3.4.2001 written by Skybiz India Pvt. Ltd. to the Petitioner, it was clearly mentioned that the Petitioner has not paid for the share capital. The Petitioner has not replied the said letter which amounts to deem acceptance of the position. The Memorandum and Article of Association were modified in January 2001 and the same were approved in the EGM dated 12.2.2001 and in which the authorized capital was increased to Rs. 1 crores. Therefore, the said shares were not even in existence and could not be subscribed to. If the money was transferred by M/s World Service Corporation to M/s Axis Software for the subscription of share capital of Respondent Company, even then it would only be world service Corporation that would have any cause of action and not the Petitioner. The Petitioner has also made a statement that apart from above said amount, certain other hardware and software were provided to Respondent No. 1, of which no particulars have been mentioned and no cognizance can be taken for the same. The Learned Counsel relied on the judgment of the case of M.B. Deshpande v. Janardhan Kashinath Kadam, (1998) 8 SCC 315 wherein it is held that the appellants have relied upon Order 6 Rule 2 of the Civil Procedure Code which requires that every pleading shall contain a statement in a concise form of material facts on which the party pleading relies for his claims or defence. In the absence of any concise statement of material facts, the mere raising of a plea of tenancy is not enough for the purpose of raising an issue on the question.
10. The Petitioner did not pay for the said shares since he did not feel that Respondent Company is valuable as appears from the case filed by him in the Bombay High Court. It is only after the Bombay High Court decided that component of pound 70 will be retained by the Respondent Company, the Petitioner is now interested in controlling the company. No contract is complete without consideration and therefore, the Petitioner, not having paid for the said shares cannot claim to be a member or Respondent Company. The provision of Section 25 of the Indian Contract Act, 1872 provides that an agreement made without consideration is void.
11. The Learned Counsel for Respondent further submitted that Petitioner has averred only isolated instances of oppression and mismanagement, the last of which was in March 2001 while the present petition has been filed in April 2003. The isolated instances do not constitute oppression or mismanagement and a series of consecutive instance of oppression and mismanagement till the date of filing the petition have to be shown to get any relief Under Section 397 & 398 of Companies Act, 1956. The Learned Counsel relied on the judgment in the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 2 SCR 720 where in it is held that the conduct of the majority shareholders was oppressive to the minority as Members and this requires that events have to be considered not in isolation but as a part of consecutive story. The Learned Counsel also relied on the judgment of Karnataka High Court in the case of C.B. Pardhani v. M.B. Pardhani, 1990 (69) Company Cases 106 at 112 wherein it is held that the powers vested in the Court under Section 398 are not only discretionary, they are designed to remove an existing oppressive or prejudicial course of conduct of the affairs of the company and are not concerned with the past management except where the past projects itself as a continuing wrong and pervades the present conduct of the company's affairs.
11. The Petitioner has alleged that the Software Development Agreement was terminated due to failure of Respondent company to meet its contractual obligation whereas the Bombay High Court vide order dated 23.4.2001 held that the termination of the said agreement by the Petitioner was prima facie invalid. The so called unjustifiable expenditure incurred by the Respondent Company is commission paid to Axis Software Pvt. Ltd. as per agreement for sale and services. The other expenditure is software development of Respondent Company and professional fees.
12. The Learned Counsel dealing with the Board resolution dated 1.3.2001, 2.3.2002 and 5.3.2001 submitted that the Board resolution dated 5.3.2001 in no way altered the earlier resolution dated 1.3.2001 or 2.3.2002 as it merely clarify and affirm what was stated in the resolution dated 1.3.2001. The Petitioner has also pleaded regarding his removal from the directorship of Respondent No. 1 Company as an act of oppression. The Petitioner was removed from the directorship of the company because he failed to subscribe to the shares of the company and was indulging the activity prejudicial to the interest of the respondent company. The removal of the Petitioner from directorship can be challenged independently but cannot be decided in the present proceeding when the same are not maintainable. The present petition is not a bonafied petition for oppression and mismanagement, but in face it is in the nature of money recovery proceeding with is similar to Suit No. 1379 of 2001 filed before the Bombay High Court by Skybiz International (Bermuda) Ltd. of USA and the Petitioner is the President of the company. The Petition is actually a device by which the Petitioner wants to circumvent the orders dated 23.4.2001 and 6.1.2003 passed by Bombay High Court. The High Court declined to grant interim relief to the Petitioner on 23.4.2002 and confirmed its orders on 6.1.2004. Therefore, the present petition was filed on 11.4.2004. The Petitioner before Bombay High Court has stated in plaint that under the software development agreement dated 6.1.2001, the plaintiff company was entitled to $ 130 of the total sale price of $ 135 of the web packages sold by Respondent Company. In the present petition, the case of the Respondent Company is that the out of the total sale consideration, $ 50 were to be remitted to plaintiff towards the purchase price of said web package and $ 5 were to be distributed equally to defendant No. 2 to 4 and the remaining $70 were to be retained by the Respondent Company. Out of this amount, the commissions to the Indian associates were to made by the Respondent Company. This case is pending before Bombay High Court.
13. The Learned Counsel for Respondent further submitted that the case of Petition in the pleading is not that he did not pay for shares because no calls were made on him but is that he had paid full consideration for the shares in the form of $20,000 and others software provided by him to the Respondent Company. The argument of the Petitioner is fallacious for the reasons that the calls are made only to members and since the Petitioner is not the member of the company, no calls have been made to him. The Petitioner has not produced any document to substantiate the fact that he had ever applied for the shares. The 'type -A' shares which the Petitioner claim to be a owner, have never been brought into existence by the company by passing any Board Resolution and, therefore, no question of the same being allotted to the Petitioner and calls being made for him arises. The Board Resolution is statutory requirement under Rule 4 of issue of Share Capital Rules. According to Section 87(1)(b) of the Companies Act, 1956, the voting right of the member are directly to consideration paid by him for those shares. A person cannot be a member of the company unless he has paid some consideration for shares and he would not get the rights of the members. In any event the Petitioner was put to a notice that he had not paid for share. However, the Petitioner did not reply the same and did not deposit the money with the Respondent Company. The Petitioner has approached this Board with unclean hands. The Petitioner did not disclose of the Petition of the Bombay High Court. The Petitioner also did not disclose the letter dated 6.1.2001 which clearly mentioned that the share allotted mutually agreeable price to the Petitioner and the letter of 3.4.2001 which clear put the Petitioner on notice that he has not paid to these shares. The non disclosure of these documents amounts to concealing of material fact and such a party who has concealed a fact which have a bearing on the case, should not be granted any equitable relief. During the course of hearing, the learned counsel for Petitioner made an offer that they were willing to deposit the due amount for the said share. The offer is not acceptable to Respondent Company for the reason that the Petitioner has been acting to the detriment of the company as he illegally terminated the Software Development Agreement 6.1.2001 with the Respondent Company. Accordingly to the Petitioner, no money ought to be retained by the Respondent Company for the sale of web packages which is detrimental to the interest of the company. The Petitioner has already set up companies in Indian namely New valley trading and investment Pvt. Ltd. and World Service India (P) Ltd. which are engaged in the same business as that of Respondent Company, which is detrimental to its interest. The Petitioner has a history of criminal cases and other proceeding decided against him The Article of Association of the Respondent Company were modified in Dec. 2002 and the type-A has been deleted from the Article of companies. Therefore, no question of 'type-A' shares being allotted to Petitioner arises as the same are not contemplated under the existing Articles of Companies. The Petitioner not being members of the Respondent Company, the petition deserves to be dismissed with cost.
14. I have gone through the pleading of this case as well as the written submission of both sides. The first issue to be decided in this case is whether the Petitioner Mr. Elias Masso is the member of the Respondent Company with shareholding of 74% shares as claimed by him on the basis of shares certificate issued to him in February 2001 by the Respondent Company. The all other issues relating to oppression, mismanagement and termination of directorship would become relevant thereafter. Let me, therefore, examine the claim of the Petitioner that he is a member of the Respondent Company. In the judgment of Banford Investment Ltd. and Ors. v. Magadh Spun Pipe Ltd. and Ors. of principle Bench of this Board held that the test to be applied where the maintainability of a petition Under Section 397 & 398 is questioned on the ground that the Petitioner is not a shareholder and his name is not borne on the company's Register of Members, are: (1) whether the Petitioners are in possession of relevant share certificates to claim the membership; (2) whether there are independent records to establish that they are the members of the company; (3) whether the company has treated the Petitioners as members of the company in the past. As regards first test to be applied in this case, it is admitted position that a share certificate was issued indicating 3,70,000 'A-type shares each of Rs. 10/- in the name of Mr. Elias Masso, founder world service Corporation. The share certificate has been signed by the Managing Director, Director and authorized signatory. The share certificate does not bear the common seal of the company and also does not indicate the amount paid for each share, which is blank. The case of the Petitioner is that by virtue of issuance of this certificate, he became the member of the Respondent company. There is also an agreement between the parties dated 18.12.2000 about commercial transaction. On the other hand, the Respondent have pleaded that no reliance can be placed on share certificate which does not bear company seal and where the amount have not been paid nor it is backed by any resolution of Board of Directors. They have relied on Section 84 of the Companies Act, 1956 read with Rule 6 of Issue of share certificate Rule 1960 and Article 8(2) of Article of Association etc. During the course of arguments, when the objection was taken by Respondent in their reply that no consideration has been paid for shares, the Petitioner claimed that the consideration on said shares was paid by M/s World Service Corporation which remitted US $ 20,000 to Axis Software Pvt. Ltd. The position become clear from the perusal of balance Sheet of M/s Axis Software Pvt. Ltd. and M/s Skybiz Pvt. Ltd. If the said amount was transmitted to Ms. Axis Software Ltd. for the consultancy rendered by World Service Corporation and the argument of the Petitioner is accepted, then also the Petitioner would not become a beneficiary whereas the shares would go to World Service Corporation. The second argument of the Petitioner is that the Petitioner provided other softwares to Respondent Company as consideration for shares but no evidence has been placed on record.
15. I would like to mention here that share certificate in question has not been issued by the company to the Petitioner on any share application filed by the petitioner but shares certificate was issued as a part of mutual understanding and agreement between the parties. Having received the certificate of share without payment of consideration, which has been accepted by the Petitioner during the course of argument, the Petitioner now takes to legal course by pleading that no call was made to him. The call for share money is given by the company in a normal course, when shares are allotted on filing an application for shares. It is not so in this case, as already stated. The Petitioner was well aware of his deal with the Respondent Company and he was also aware that he has not paid consideration money. In any case, the letter of the Respondent dated 3.4.2001 which has not been denied, clearly states that Petitioner has not paid for the said shares. The Petitioner chose to keep quite till he filed this petition in April 2004. Accordingly, the first and second test are not established in this case. The third test whether the company has treated the petitioner as member in the past, there Is no doubt that the Respondent have taken certain action of relieving him as the Joint signatory in the accounts of the Bank and also removed him from the Directorship. However, all these factors would form part of the total package and it should be looked in that light. If no consideration money is paid for shares the petitioner does not become a member of the company and he cannot enjoy all other benefits agreed between the parties. The petitioner never considered himself to a member of the company. He was issued share certificates in Feb. 2001 but he kept quite till April, 2003. This indifference in the affairs of the company cannot be accepted from a member who claim to be holder of 74% shares of the company. The petitioner issued advertisement on website asking that the money meant for respondent company be sent to him in USA, which has not been denied.
16. In the light of the above discussions, it is clear that the petitioner never paid any consideration for shares as per agreement. As such, he is not a member of the company. All other question relating to oppression and mismanagement and termination of his directorship as well as removing his name as authorized signatory for the bank cannot be considered as petition itself is not maintainable. The petitioner also did not disclose that a case was pending in the Bombay High Court regarding software development agreement signed between the parties. The learned counsel for petitioner during the final arguments submitted that the petitioner was now willing to pay the consideration money but the respondents have not agreed to this proposition as they have lost faith and confidence in the petitioner, who according to respondents, is having criminal records which is not a subject matter of this petition.
17. As the petitioner did not become member and shareholder of the respondent company for non payment of consideration money inspite of share certificate issued to him, which is not a conclusive evidence, as discussed above. I find that the petitioner is not entitled to file the present petition Under Section 397 and 398 of the Companies Act, 1956. The petition is, accordingly, dismissed. There are no orders as to cost.