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* Rashmi Seth v. Chemon (India) Pvt. Ltd. 1995 Vol. 82 CC 563- to show that any allotment of shares in violation of the articles of association and misuse of the fiduciary powers of directors is oppressive.
* Akbarali A. Kalvert v. Konkan Chemicals Pvt. Ltd. 1997 Vol. 88 CC 245 - to show that the issue of additional shares without offering them to other members in violation of the articles of association and without notice of the meeting for allotment of shares would constitute an act of oppression.
* PIK Securities (P) Ltd. v. United Western Bank (P) Limited- (2001) 4 Comp LJ 81 - to show that the issue of shares, by which the percentage of holding of a person comes down, even though it is a single act has continuous effect and therefore amounts to an act of oppression.
* Kshounish Chowdhury v. Kero Rajendra Monolithics Ltd - (2002)1 Comp LJ 552 - to show that if further shares are issued only with a view to convert a majority into a minority or for creation of a new majority, then, the same is a grave act of oppression, and if the shares are issued for the benefit of the Company which incidentally increases one's shareholding, it need not be considered to be an act of oppression.

The Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Limited (supra), while considering the provisions of Section 397 expressed the position: "that it is not enough to show that there is just and equitable cause for winding up the Company, though that must be shown as preliminary to the application under Section 397. It must further be shown 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 a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing upto the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietory rights as a shareholder."

In the present case, by virtue, of the impugned allotment, the majority shareholding 74.75% held by the petitioner has been converted into a minority of 48.75%. In a number of cases, this Board categorically held that if further issue of shares results in conversion of a majority into a minority, or creation of a new majority, then such issue of shares is not only in breach of the fiduciary responsibilities but also a grave act of oppression against the existing majority. I am, therefore, of the view that the allotment of shares impugned in the company petition without any notice of issuance of further shares, made with a view to gain advantage against the petitioner being a majority shareholder of the closely held Company, in breach of the fiduciary obligations of the directors is neither in compliance with the legal requirements nor ensured the fair play and probity in corporate management would amount to an act of gross oppression, as held in a number of decisions cited by learned Counsel for the petitioner. The issue of shares, by which the percentage of holding of a shareholder comes down, may be a single act, but has continuous effect constituting an act of oppression as held in PIK Securities (P) Ltd. v. United Western Bank (P) Limited (supra), satisfying the criteria laid down by the apex court in Shanti Prasad Jain v. Kalinga Tubes Limited (supra). The Board of directors of the Company had admittedly allotted 2,24,250 shares of Rs. 10/- each on 30.03.2000 in favour of the petitioner, in which case the share certificates ought to have been issued within a period of three months from the date of allotment of shares. Though the share certificate is dated 30.03.2000, the same is presented after two months of the date of its execution and is stamped as late as 24.10.2000, thereby prima, facie not satisfying the requirements of Sections 17 & 10A of the Karnataka Stamp Act, 1957 and Section 113 of the Act, for which the competent authority is at liberty to take such action as may be deemed fit. The theory propounded by the respondents that the share certificates issued in their favour bear the very same details and stamp embossing as in the certificate issued in favour of the petitioner and exchange of the correspondence between the second respondent and the stamp authorities, copies of which are on record, cannot in any way remedy the irregularities. The e-mails exchanged between the petitioner and the second respondent produced before this Bench clearly show that the petitioner was persistently demanding from the respondent the shareholding structure of the parties in the Company and the original share certificate to meet the requirements of Singapore Statutory Authorities. The stand taken by the second respondent is that the original share certificate was sent to the petitioner as early as in November, 2000 by courier service as borne out by copies of the invoice dated 30.11.2000 and delivery information report dated 07.12.2000 (Annexure-R10) of the courier agent. The invoice contains three consignments, out of which two consignments dated 02.11.2000 and 07.11.2000 are addressed to Rajesh Bothra, who is on the Board of the petitioner, but not in favour of the petitioner. It could not be made out whether the subject matter of these consignments is the original share certificate of the petitioner. It is unknown as to which of these two consignments contains the share certificate. There is no covering letter forwarding the original share certificate, a valuable document worth several lakhs of rupees. Mere production of copies of the invoice and delivery information report without details of the share certificate procured from the courier agent and mere entries in the statutory register of the share certificate number in respect of the shares of the petitioner, in the absence of the despatch register of the Company or any other concrete evidence in support of delivery of the share certificate, it cannot be conclusively said that the share certificate was duly sent by the second respondent to the petitioner and received by the petitioner. At the same time, the second respondent in response to the e-mail sent by the petitioner categorically replied by on 27.07.2004 (Annexure-All) that "certificates are not traceable at our end". This reply of the second respondent apart from being contrary to the plea that the share certificate was despatched through courier service to the petitioner as early as in November 2000 remains unexplained. The second respondent, pursuant to the allotment of 2,24,250 shares in favour of the petitioner constituting 74,75 per cent of the paid-up capital of the Company, by his communications dated 14.05.2001 invited Rajesh Bothra and Nikhil Shah, nominees of the petitioner to join the Board of the Company. The exchange of e-mails between the petitioner and the second respondent (Annexure-A10) clearly shows that while the petitioner was pursuing with the second respondent for inducting their nominees on the Board of the Company, the second respondent was explicitly agreeable for the proposal put forth by the petitioner, but apprehended whether there would be any need to "surrender SVB licence in the light of parent & subsidiary having common directors" and treated the Company as a subsidiary of the petitioner. It is observed from the order dated 27.02.2003 of the Additional Commissioner of Customs, Bangalore (Annexure-A39), that "The Indian Firm (the Company) has declared that the Foreign Supplier (the petitioner) is the holding company of the Importer (the Company), and holds 74% of the equity share capital in the Importer (the Company)". When the petitioner wanted to hasten the process of inducting their nominees on the Board of the Company by an e-mail sent on 15,03.2004 (page 254 of vol. II of company petition), the second respondent never resisted the proposal. Thus, these facts and circumstances would show that there was some basic understanding between the shareholders that the Company would be in the joint management of the petitioner and the respondents and that the Company has been treated as a subsidiary of the petitioner and therefore the petitioner has justifiable claim of legitimate expectation of being on the Board of the Company. In spite of the explicit understanding between the parties, the nominees of the petitioner have not been inducted on the Board of the Company of which the petitioner has legitimate grievance. The events relating to the issue of notice of the fourth annual general meeting, enhancement of the authorised capital, allotment of the impugned shares, filing of several statutory forms after inordinate delay and absence of adequate proof for proper issue and delivery of the share certificate to the petitioner in my view would be oppressive and prejudicial to the interests of the petitioner, warranting interference by this Bench. There is consensus among the parties that they could no more carry on together the business of the Company. While the petitioner is willing to purchase the shares of the respondents, the latter is desirous of retaining the Company. The question for the present is whether the petitioner or the respondents will continue to conduct the affairs of the Company in exclusion of one by the other. It is on record that the petitioner founded in the year 1978 with the corporate name "KOBIAN" has been manufacturing "MERCURY" range of products with offices world-wide. The Company was promoted with the name "KOBIAN" on 23.06.1999 by the respondents 2 & 3 for servicing the products of the petitioner, before which the respondents ought to have obtained from the petitioner a "No Objection" Certificate for using the name "KOBIAN", as per the advice of the Chartered Accountants (Annexure-A3) furnished to the petitioner. The Trade Mark Authorities have not so far registered the trade mark under the Indian law in favour of the Company. By virtue of Annexure-A5 (page 112 of vol.11 of company petition), Kobian ECS India Private Limited "has been assigned and authorised to use MERCURY logo for the product being manufactured and trade by them". The communication of the Chartered Accountants though claimed to be a privileged document, in my view, does not become so in the light of Section 126 of the Indian Evidence Act, 1872 providing privilege only to the communications of barrister, attorney, pleader or vakhil. The Company has the registered office at A-703, Adarsh Gardens, Jaya Nagar, Bangalore and the corporate office at 302, Sree Complex, St. John's Street, Bangalore. The advice of the Chartered Accountants covers, inter-alia, the procedure relating to obtaining name sanction, registration of the Company, induction of nonresident directors, investment by non-resident Indians and on the impact of accepting gift in India. (Annexure-A3). The second respondent had accepted a sum of Rs. 7,50,000/- by way of gift from the petitioner on 05.07.1999. The Company had on 15.07.1999 allotted, 75,550 equity shares of Rs. 10/- each in favour of the second respondent. Though the second respondent vehemently contended that he never utilised the gift amount received from the petitioner towards allotment of shares in his favour, yet he has not chosen to explain the source of funds for the allotment of 75,550 shares made in his favour. The second respondent neither divulged the purpose of having had accepted the amount gifted by the petitioner. Admittedly, the petitioner and the second respondent are strangers and there is no proof of any prior business dealings between them. The date of allotment of shares to the petitioner is proximate to the date of his acceptance of the gift from the petitioner. The admission of the second respondent before the Additional Commissioner of Customs (Annexure-A39) and the e-mail sent by the second respondent in favour of the petitioner on more than one occasion categorically treated the Company as a subsidiary of the petitioner and further used to seek permission for increase of his salary from the petitioner and other perquisites. The various press releases produced by the respondents clearly show the dependence of the Company on the petitioner for its business prospects. The petitioner claims, as borne out by its corporate profile (page 222 of vol.11 of company petition) that it has world-wide offices and one such office is "Kobian India Pvt. Ltd., 302 Sree Complex, 73, St. John's Street, Bangalore-560 042, India", which is undisputedly the corporate office of the Company. Though it is contended that the profile has been brought out by the petitioner, yet the respondents do not deny the veracity of the details furnished by the petitioner in its corporate profile. The cumulative effect of these events show that the respondents have been treating the Company as a subsidiary of the petitioner and drawing support from the petitioner. It is relevant to observe that the second respondent in his e-mail sent on 19.07.2004 to the petitioner (Annexure-A31) indicated, among other things, his option to keep out of the Company subject to certain conditions. Having regard to these facts and circumstances, it would be more equitable in my view for the respondents 2 & 3 to part ways, by selling their stake in the Company to the petitioner. The petitioner shall adequately compensate the respondents group for all their efforts towards progressive growth of the Company, as borne out by Annexure-R16. Against this background, the compensation of Rs. 10,00,000/- offered by the petitioner, to my mind, is rather meagre. The respondents cannot claim any compensation for the brand name "KOBIAN" and "MERCURY" for the reasons stated supra. It is observed that the Commissioner who was authorised to certify that the statutory records are in due form of law, acted beyond the scope of his authority and therefore no reliance is placed on his reports submitted before this Bench. In view of the foregoing conclusions, and in exercise of the powers of the CLB under Section 402, the following order is passed:-