COMPANY LAW BOARD, principal bench, NEW DELHI
Rajendra Prasad Rungta
Amber Commercial (P.) Ltd.
C.P. NO. 82 OF 2005
AUGUST 26, 2011
1. In this order I am considering Company Petition No. 82 of 2005 filed by the petitioners against the respondents [R-1-company, namely, Amber Commercial (P.) Ltd. and others] under sections 397, 398, 402 and 409 read with section 111 of the Companies Act, 1956 (‘the Act’) alleging oppression and mismanagement and, hence, seeking setting aside of illegal and fraudulent transfer of 21,000 shares held by P-1 ; 9,090 shares held by P-2 ; 20,000 shares held by P-3 ; 20,000 shares held by P-4 ; 35,500 shares held by P-5 and 3,000 shares held by P-6 in R-1-company; rectification of register of members accordingly ; setting aside appointment of R-4 to 11 as directors appointed, vide Board resolution dated 5th July, 2004 ; appointing of an administrator ; directing a thorough investigation to be conducted into the affairs of the company and directing holding of an extraordinary general meeting (‘EGM’) of the R-1-company under a chairman appointed by the Company Law Board (‘CLB’) in accordance with the provisions of the Act and in accordance with the articles of association of the company.
2. The R-1-company, namely, Amber Commercial (P.) Ltd., was incorporated on 11th August, 1988 to carry on the business as exporters, importers, traders, dealers, distributors, buyers, sellers, agents, brokers, processors, laminators, and manufacturer of Jute, Jute goods, bags, laminated jute cloth, corrugated products, packaging materials and of plants, machinery and to carry on business of distributors tea, coffee and textiles, cotton cellulosic or synthetic fibre, silk, yarn, wool and woollen goods, handicrafts, marble and other stones, etc. The R-1-company is an investment company having its registered office at 1/2, Darpanarayan Tagore Street, Kolkata-700 006. The authorised capital of the company is Rs. 20,00,000 divided into 2,00,000 equity shares of Rs. 10 each. The subscribed capital of the company as per the annual return filed for the year 2004 was Rs. 19,45,000.
3. The petitioners’ case is that they have filed the company petition in the capacity of the shareholders holding 1,31,090 equity shares representing 67.39 per cent of the total 1,94,500 equity shares of the R-1-company. In addition, R P Rungta, Hindu undivided family (‘HUF’), part of petitioner group, is also shareholder holding 15,000 equity shares representing 7.71 per cent of the total 1,94,500 equity shares of the R-1-company. The R-3 and others are shareholders holding 48,410 equity shares representing 24.89 per cent of the total shareholding of the R-1-company. The P-1 is holding 36,000 equity shares out of total 1,94,500 equity shares and is the single largest shareholder of the R-1-company. According to the petitioners this correct position has been reflected in annual returns for the years 2002 and 2003 duly signed by the R-2 and 3 respectively. The R-3 has wrongfully deleted 1,23,590 equity shares held by the P-1 to 6 from the register of members and added the said equity shares in the name of the R-3, 12 to 15 without any transfer deeds and without producing any corroborative evidence in this respect and unlawfully reflected in the annual return of the year 2004 signed by the R-2 and another director respectively. As a result of manipulation of records, the shareholding of the petitioners was illegally reduced to 22,500 equity shares representing 11.57 per cent of the total shareholding of the R-1-company. On the contrary, as a result of manipulation of records, the shareholding of the respondents was increased to 1,57,000 equity shares representing 80.72 per cent of the total shareholding of the R-1-company. It was pointed out that there are 15 respondents in the present petition and R-3 alone has filed the reply to the present petition and has tried to justify the manipulated shareholding of the R-1-company, the R-12 to 15, who have been allegedly shown as shareholders in annual return 2004, have not filed any reply or affidavit in support of alleged shareholding in their names, the balance sheet of the R-12 to 15 do not show the investment for the alleged shareholding in the R-1-company.
4. It was argued that since the R-1-company is one of the shareholders of RMC Med. Ltd. (CP No. 37 of 2004), the R-19 has deliberately deleted the above said equity shares held by the petitioners which nefarious act has converted the shareholding of the petitioners into minority so that the R-19 can exercise the voting rights, through R-1-company, in RMG Med. Ltd. to control the affairs in RMC Med. Ltd. It has been pointed out that P-1 came to know from inspection of the records of Registrar of Companies (‘RoC’) that the R-2 and R-3 have unlawfully appointed the R-4 as well as the R-5 to R-11 as the directors of the R-1-company with effect from 1st July, 2004 and 5th July, 2004 respectively without convening any Board meeting of the R-1-company, and Form 32 was dated 27th July, 2004 and annual general meeting (‘AGM’) was allegedly held on 30th July, 2004 as stated in annual return 2004 by the R-2 and another director. It was argued that it is not understood as to why the alleged appointment of the R-4 as well as the R-5 to R-11 was made on 1st and 5th July, 2004 respectively when the ensuing AGM was convened on 30th July, 2004 and even Form 32 was also filed around the date of AGM not before. The petitioners never approved the alleged appointment of the R-4 as well as the R-5 to 11 as directors of the R-1-company. My attention was drawn to article 54 of the articles of association pertaining to appointments of director by the Board of directors and also to article 50 to show the maximum number of directors. It was argued that the new directors appointed have not only exceeded the maximum numbers of the directors, there was no need to appoint eight more directors in the respondent-company which has no business at all. The R-3 has failed to produce any notice, attendance sheet and minutes of the alleged Board meeting in which alleged appointment of R-4 as well as the R-5 to 11 were approved. The alleged appointment of the R-4 as well as the R-5 to 11 were forged and fabricated and for oblique motive to gain control on the Board of directors of the R-1-company. It was pointed out that when P-1 issued requisition dated 15th July, 2004 for holding requisitioned general meeting for removal of three directors and appointment of two additional directors, the R-3 issued letter dated 9th August, 2004 denying the requisition and unlawfully alleging that the P-l is not the shareholder. It was pointed out that when on 13th July 2004 the CLB had passed an interim order granting status quo in respect of shareholding of RMG Med. Ltd. which prompted the R-7 to delete/transfer the above said equity shares held by the petitioners which nefarious act has converted the shareholding of the petitioners into minority so that the R-7 can exercise the voting rights, through R-1-company, in RMC-Med. Ltd. to control the affairs in RMC Med. Ltd.
5. My attention was drawn to the annual return of the R-1-company for the year 2002 signed by the R-2 and 3 filed by the respondents and annual return 2004 which have shown totally different position of shareholding without showing any transfer of shares in the said annual return 2004, the list of shareholders shown in the annual return 2004 is forged and fabricated and on the contrary, the list of shareholders shown in annual return 2002 signed by the R-2 and 3, it was argued, is based on factual position and the same needs to be sustained. My attention was drawn to the balance sheet of the P-2 for the year ended 31st March, 2000 which under the heading Schedule 9 ‘Investment’ clearly shows 9,090 equity shares held in the R-1-company, the balance sheet of the year 2000 has been duly signed by the R-3 along with P-l. It was argued that the respondents including the R-3 are estopped from alleging to the contrary. It was also argued that the respondents including the R-3 has never sent notice of the shareholders meetings of the R-1-company.
6. The petitioners’ contention is that the respondent No. 3 has not filed the specific para-wise reply to the above petition deliberately to present vague, distorted and misleading reply to mislead the CLB. The petitioners have stated all the continuous acts of oppression and mismanagement which manifestly show that there is lack of probity and loss of confidence and faith between the petitioners and the respondents and the above petition deserves to be allowed though the continuous acts which are oppressive justify the making of a winding up order on just and equitable grounds but winding up of the R-1-company shall not be in the interest of the petitioners.
7. Responding to the R-3’s defence that there was heavy rain in Kolkata late in the year 1999 and the roof of the premises at 8, Akshay Bose Lane, Kolkata collapsed and the entire records of the R-1-company stored in the said premises were destroyed, it was argued that the exact dates of heavy rain in Kolkata and the date when the roof of the premises collapsed was not disclosed, the exact description of the records kept in the said ill-fated premises has not been disclosed. It was argued that the R-3 has failed to produce any copy of public notice and/or intimation to statutory authorities like Income-tax Office and/or RoC in the present petition, the R-3 has also failed to produce the soiled/drenched records kept in the said ill-fated premises, R-3 has failed to disclose the corrective steps to restore the records like availing certified copy of the forms and returns filed with RoC, ITO, etc. R-3 has also failed to produce any record maintained afresh/restored after alleged heavy rain in Kolkata. The R-3 has failed to produce any statutory registers and/or records of the R-1-company including the alleged deletion/addition of shareholders in the present petition from the years 2000 to 2007 at the time of filing the reply.
8. The petitioners’ contention is that they have produced the copy of invoice dated 16th August, 1999 for purchase of equity shares, the R-3 has no legitimate right to question the validity of the said contract, its price and other factors as he is not privy to the contract between the sellers and the petitioners, the sellers have never denied the said contracts at any time. The respondents have failed to produce any corroborative evidence in respect of purchase of 1,23,590 equity shares from the petitioners by the R-3, 12 to 15, respondents have failed to produce the transfer deeds, the minutes of Board meeting and the register of members of the R-1-company.
9. It was pointed out that the R-3 has produced the copy of the alleged share certificates in his possession along with the reply to justify his manipulation of the shareholding and deletion of the shareholding of the petitioners. It is noted that the said copy of the share certificates includes the share certificates of the P-1, 3, 4, and 6 as well. It was argued as to how the R-3 has claimed the possession of the original share certificates belonging to the P-1, 3, 4 and 6 while the petitioners have never given the possession of the said share certificates. On the contrary, the said share certificates had been stolen in the year 2004. It was further argued that the copies of the alleged share certificates produced are forged and fabricated. It was pointed out that the stamp duty affixed, on the said alleged share certificates is deficient resulting in nullifying the said alleged share certificates. The petitioners have further argued that how the R-3 got the possession of the original share certificates belonging to the P-1, 3, 4, and 6, these were stolen in the year 2004 and first information report (‘FIR’) was registered against the R-3 and others for theft of all the share certificates belonging to the P-1, 3, 4 and 6. It was pointed out that the R-3 has now filed additional affidavit dated 23rd April, 2011 contradicting his earlier allegation under solemn oath and now alleging that he had only photocopies of the share certificates in his possession which nullifies his own earlier stand that the original share certificates of all the shareholders of the R-1-company were in his possession. It is argued that the R-3 cannot be allowed to file two affidavits to contradict his stand before the CLB.
10 Further, the petitioners pointed out that in the FIR against the R-3 and others for theft of securities including equity shares held by the petitioners before Police Station, Jaipur and the Police has filed enquiry report before Addl. Chief Judicial Magistrate, Jaipur vindicating the averments of the petitioners in the present petition.
11. Petitioners’ case is that the respondents have not given para-wise specific reply to the averments made by the petitioners in the present petition and rather the respondents have given evasive reply which is unequivocal admission by the respondents that they have admitted the averments made in the present petition. It was contended that :
“….The written-statement must deal specifically with each allegation of fact in the plaint and when a defendant denies any such fact, he must not do so evasively, but answer the point of substance. If his denial of a fact is not specific but evasive, the said fact shall be taken to be admitted. In such an event, the admission itself being proof, no other proof if necessary.” – Badat & Co. v. Commissioner of Income-tax (sic) AIR 1955 SC 74 refers.
Further, it was contended that –
“73…. Once it is held that the statements made in paragraph 18 of the election petition have not been specifically denied or disputed in the written statement, the allegations made therein would be deemed to have been admitted, and, thus, so evidence contrary thereto or inconsistent therewith could have been permitted to be laid.”
“…. Such an evasive denial attracts order 8, rule 5 of the Code of Civil Procedure. The statements made in paragraph 18 of the election petition must, therefore, be deemed to have been admitted.” – Sushil Kumar v. Rakesh Kumar AIR 2004 SC 230 refers.
Further, it was reiterated that –
“14. An admission made in a pleading is not to be treated in the same manner as an admission in a document. An admission made by a party to the lis is admissible against him proprio vigore.”
“16. A thing admitted in view of section 58 of the Evidence Act need not be proved. Order 8, rule 5 of the Code of Civil Procedure provides that even a vague or evasive denial may be treated to be an admission in which event the court may pass a decree in favour of the plaintiff. Relying on or on the basis thereof a suit, having regard to the provisions of order 12, rule 6 of the Code of Civil Procedure may also be decreed on admission. It is one thing to say that without resiling from an admission, it would be permissible to explain under what circumstances the same had been made or it was made under a mistaken belief or to clarify one’s stand, inter alia, in regard to the extent or effect of such admission, but it is another thing to say that a person can be permitted to totally resile therefrom ” – Gautam Sarup v. Leela Jetley  7 SCC 85 refers.
12. It was contended that the respondents have been involved in continuous acts of oppression and mismanagement against the petitioners and the present petition deserved to be allowed in favour of the petitioners. It was pointed out that summing up the scope of sections 397 and 398 considered in extenso in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd.  51 Comp. Cas. 743 (SC); M.S. Madhusoodhanan v. Kerala Kaumudi (P.) Ltd.  46 SCL 695 (SC); Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan  54 SCL 601 (SC); Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad  57 SCL 476 (SC) and Kamal Kumar Dutta v. Ruby General Hospital Ltd.  70 SCL 222 (SC) in the case of V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd.  142 Comp. Cas. 235/83 SCL 44 the Apex Court has held that :
“..It is clear that oppression would be made out :
(a) Where the conduct is harsh, burdensome and wrong.
(b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-a-vis the others.
(c) The action is against probity and good conduct.
(d) The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under sections 397 and 398.
(e) Once conduct is found to be oppressive under sections 397 and 398, the discretionary power given to the CLB under section 402 to set right, remedy or put an end to such oppression is very wide.
(f) As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact.”
The petitioners also relied upon the case of Collyer Logistics International Ltd. v. Collyer India Freight Forwarding (P.) Ltd.  154 Comp. Cas. 161 (CLB).
13. It was contended that the respondents are estopped from denying the fact that the petitioners are shareholders of the respondent 1-company particularly when the respondents have signed and filed the annual return of the respondent 1-company for the years 1999 to 2002 which clearly show the names and equity shares held by the petitioners in the annual returns of the R-1-company. Reliance was placed on the case law as under :
“13. Estoppel is a rule of evidence and the general rule is enacted in section 115 of the Indian Evidence Act, 1872 (‘the Evidence Act’) which lays down that when one person has by his declaration, act or omission caused or permitted another person to believe a thing to be true and to act upon that belief, neither he nor his representative shall be allowed in any suit or proceeding between himself and such person or his representative to deny the truth of that thing.” – Sunderbai v. Devaji Shankar Deshpande AIR 1954 SC 82 refers.
“15. On the whole, an estoppel seems to be when, in consequences of some previous act or statement to which he is either party or privy, a person is precluded from showing the existence of a particular state of facts. Estoppel is based on the maxim allegans contraria non est audiendus (a party is not to be heard to allege the contrary) and is that species of presumption juries et de jure (absolute or conclusive or irrebuttable presumption), where the fact presumed is taken to be true, not as against all the world, but against a particular party, and that only by reason of some act done, it is in truth a kind of argumentum ad hominem.” – B L Sreedhar v. K.M. Munireddy  2 SCC 355 refers.
14. It was contended that in the present petition, the respondents have signed and filed the annual return of the respondent 1-company for the year 2002 which clearly shows the names and equity shares held by the petitioners in the annual returns of the respondent 1-company. The respondents being businessmen cannot take any plea contrary to the same and are acquiescenced from denying the position of the petitioners being as shareholders, of the respondent 1-company while the respondents have shown the petitioners as shareholders in annual return for the years 1999 to 2002 duly signed by them on one hand and alleging that the petitioners are not shareholders in view of annual returns of 2003 and 2004. Reliance was placed on the case law as under :
“In our opinion, when a person signs a document, there is a presumption, unless there is proof of force or fraud, that he has read the document properly and understood it and only then he has affixed his signatures thereon, otherwise no signature on a document can ever be accepted. In particular, businessmen, being careful people (since their money is involved) would have ordinarily read and understood a document before signing it. Hence, the presumption would be even stronger in their case.” – Grasim Industries Ltd. v Agarwal Steel  1 SCC 83 refers.
15. It was contended that the respondents have played fraud on the CLB due to the fact that the respondents have not produced relevant supporting documents deliberately in the present petition and depriving the CLB to adjudicate the matter in a cohesive manner. Reliance was placed on the case law as under :
’29. By “fraud” is meant an intention to deceive ; whether it is from any expectation of advantage to the party himself or from the ill will towards the other is immaterial. The expression “fraud” involves two elements, deceit and injury to the person deceived. Injury is something other than economic loss, that is, deprivation of property, whether movable or immovable or of money and it will include and any harm whatever caused to any person in body, mind, reputation or such others. In short, it is a non-economic or non-pecuniary loss. A benefit or advantage to the deceiver, will almost always cause loss or detriment to the deceived. Even in those rare cases where there is a benefit or advantage, the second condition is satisfied.’ –
Dr. Vimla v. Delhi Administration  Supp. 2 SCR 585; India Bank v. Satyam Febres (India) (P.) Ltd.  5 SCC 550 and State of Orissa v. Harapriya Bisoi  12 SCC 378 refers.
1. “Fraud avoids all judicial acts, ecclesiastical or temporal observed Chief Justice Edward Coke of England about three centuries ago. It is the settled proposition of law that a judgment or decree obtained by playing fraud on the Court is a nullity and non est in the eyes of law.
5. The courts of law are meant for imparting justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more often than not, process of the court is being abused.
6. A fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another’s loss. It is a cheating intended to get an advantage. A litigant, who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation, if he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party.” – S.P. Chengalvaraya Naidu v. Jagannath  1 SCC 1 refers.
16. The petitioners have contended that the respondents have made frivolous pretext and no plausible reason is given for non-production of statutory records of the R-1-company before the CLB. Reliance was placed on the case law as under :
“The second respondent is falsely claiming that the minutes book and other statutory records of the company were lost. This would show the conduct of the second respondent, depriving the petitioners of their valuable rights in the company. No annual general meeting was held on 3rd August, 2001 and the petitioners did not receive any notice for the said meeting. The resolution passed at the alleged meeting should be declared as null and void…” – P. Narayanaswamy v. Tiruppur Transport (P.) Ltd  152 Comp. Cas. 238 (CLB – Chennai).
17. Further, the petitioners relied upon the case Arun Kumar Mohta v. Ganesh Commercial Co. Ltd.  134 Comp. Cas. 500 (CLB) to show that (a) when the directors issue shares in breach of their fiduciary duty, for an extraneous purpose, the issue cannot be upheld ; (b) mere production of the certificate of posting issued by the postal authorities cannot establish service of the communication upon the addressee ; (c) in cases of family companies, directorial complaints can be adjudicated in section 397/398 proceedings ; (d) any allotment of additional shares without being supported by any consideration but made to gain control of the company is an act of oppression in its affairs ; (e) vacation of office of director by operation of law by virtue of section 283(1)(g) must fail in the absence of any proof of proper service of notice on the directors ; (f) the allotment of shares for personal gains, without complying with the legal requirements and maintaining fair play and probity in corporate management ; and (g) appointing directors and removing the petitioners as directors without following the proper procedure, would be oppressive and harsh warranting interference of the CLB.
18. Replying to the respondents contention that :
“23. It was argued that P-1 had attended Board meetings of respondent No. 1-company regularly and, particularly. Board meetings held on 1st September, 2004 and on 1st September, 2005, respectively, and petitioner No. 1 had approved the annual accounts for the year 2003-04 and 2004-05 respectively of the respondent No. 1-company. As a result, petitioners are stopped from making any allegation of diversion and siphoning of profits of funds.”
18.1 The petitioners have contended that the R-2 had approved and signed the balance sheet of the year ended 31st March, 2000 of the petitioner No.2-company which shows the investment of 20,000 equity shares in the R-1-company is unequivocal admission by the R-2 and the list of shareholders in annual returns 2003 and 2004 is forged and fabricated by the respondents.
Further, reliance was placed on the case law as under :
“35. As regards the rival contentions pertaining to the allegations of acts of oppression and mismanagement, it is noted that the petitioners’ contentions regarding depletion of the reserves of R-1 company remain incontroverted. On the other hand, the respondents’ contention that the P-l had attended the Board meeting of the R-1-company regularly and particularly the Board meetings held on 1st September, 2004 and on 1st September, 2005, respectively, and that the P-l had approved the annual accounts for the year 2003-04 and 2004-05, respectively, of R-1-company also remain uncontroverted.” – Nagesh Kumar v. Nagesh Hosiery Exports Ltd.  93 SCL 233 (CLB – New Delhi).
19. Responding to the case laws relied upon by the respondents it was contended that the cases of Smt. Abha Puri v. Amethi Hume Pipes (P.) Ltd.  93 SCL 263 (CLB – New Delhi); S.P Nachiappan v. AEE Castings Ltd.  155 Comp. Cas. 267 (CLB – Chennai); Jagdish Mills Ltd., In re  24 Comp. Cas. 241 (Bom.); Martin Castelino v. Alpha Omega Ship Management (P.) Ltd.  33 SCL 210 (CLB); Jayanthilal Purshottamdas Patel v. Gordhandas Desai (P.) Ltd.  38 Comp. Cas. 405 (Bom.); Mathrubhuomi Printing & Publishing Co. Ltd v. Vardhaman Publishers Ltd.  73 Comp. Cas. 80 (Ker.) are absolutely irrelevant and inapplicable to present petition in view of the fact that the petitioners’ names were duly entered in the register of members of the R-1-company after transfer of related shares and the same was duly reflected in the annual return 2002. It is not the case here that the equity shares were purchased by the petitioners and the same were not transferred and registered in the register of members. On the contrary, this judgment supports the averments of the petitioners.
20. The counsel for the respondents (R-3 and R-1) pointed out that the respondent No. 1-company is a family company and is one of the group companies of Rungta family, RMC Med. Ltd., Jaipur is the flagship company of the Rungta family. Till 1999 the entire shareholding and assets’ which were the property of the family, used to be under the control of Shri Vinod Kumar Rungta, however, on 6th February, 1999, the younger son of Shri Vinod Kumar Rungta, namely, Dinesh Kumar Rungta, died. Shri Rajendra Prasad Rungta, P-l took the advantage of the situation and coerced Shri Vinod Kumar Rungta to surrender all the shares and property of the family to him. In this process Shir Rajender Prasad signed an agreement ignoring all other beneficiaries and family members Shri Vinod Kumar Rungta to enter into the memorandum of understanding (‘MoU’) on 6th July, 1999, within 4 months from the death of his son. It was pointed out that the MoU dated 6th July, 1999, inter alia, states that Shri Vinod Kumar Rungta is entitled to l/3rd share in the entire property of the family including the Rungta Hospital, Shri Rajendra Prasad Rungta had stated that he will pay to the Shri Vinod Kumar Rungta Rs. 40 lakh, however, Shri Vinod Kumar Rungta had stated that there are five beneficiaries in the entire property. Further, it was pointed out that the family was subject to another great tragedy of the death of Shri Rakesh Agarwal, aged about 25 years, the youngest son-in-law of Shri Budhi Prakash Rungta, Shri Rajendra Prasad Rungta did not miss this opportunity also and entered into an agreement on 4th January, 2001 with Suresh Kumar Rungta, Shri Rajendra Prasad Rungta further wrote a letter to Shri V K Rungta on 28th June, 2001 which was sent through one of the employees. In this letter Shri V.K. Rungta was warned by the P-l for all the consequences if the cheque book of Hodoti Cement was not handed over and balance payment from Bangur did not come. Further, it was pointed out that the mother of Shri Rajendra Prasad Rungta, Shri Budhi Prakash Rungta, Sh. Vinod Kumar Rungta, Sh. Suresh Kumar Rungta and Dr. Narendra Rungta died on 28th September, 2003. During the mourning period all of them were present and had cordial interaction among themselves Shri Rajendra Prasad Rungta took the advantage of the atmosphere and induced Shri Suresh Kumar Rungta for entering into the MoU dated 18th October, 2003.
21. As regards P-2, namely, Roadco (India) (P.) Ltd. and P-5, it was pointed out, are not the shareholders in R-1-company and cannot maintain the present petition.
22. The respondents have contended that the petitioner’s claim that they are holding 67.39 per cent of the entire shareholding of R-1-company and are in majority is completely false and incorrect. The petitioners have only relied upon the annual return of R-1-company filed for the year 2002. The petitioners were in control of the books of account and the statutory registers of the R-1-company as Shri Rajendra Prasad Rungta, taking advantage of the bereavements in the family took upon himself to ensure the statutory compliances of the company. The records of the R-1-company were destroyed during the heavy rains at Calcutta in 1999, whereby P-1 took advantage of the lost records and manipulated the shareholders’ list of R-1-company for the year 2002. When R-3, Shri Suresh Kumar Rungta came to know about the incorrect and false shareholding list, he filed the corrected list of shareholders along with the annual return of 2004 as per the photocopies of the share certificates available with the company. The respondents drew up two statements on the basis of the photocopies of the share certificates. The first statement was prepared in the chronology of share certificates and the second statement was prepared as per the shareholding of the petitioner’s and the respondent’s group. As per these statements petitioner’s shareholding in R-1-company, it was argued, is 13.11 per cent and respondent hold 86.89 per cent. P-2 and P-5 are not the shareholders of R-1-company and should be deleted from the array of parties and, therefore, even the plea of the petitioners for the rectification of the register of members is liable to be dismissed as their names were never appearing in the register of members of the company.
23. Further, it was argued by the respondents that though the petition has been filed by Roadco (India) (P.) Ltd. but the same is not supported by any Board resolution or any affidavit, instead an affidavit signed by some Mr. Amjad Ali has been annexed with the petition signed and affirmed in his individual capacity, therefore, the petition has been filed without any authority from P-2, and is liable to be dismissed on this ground itself. It is further submitted that the affidavit filed in support of the rejoinder on the behalf of the P-2 has been signed and affirmed by Shri Rajender Prasad Rungta but the Board resolution annexed with the rejoinder has authorised Amjad Ali, accountant of Roadco India (P.) Ltd. to file the above said rejoinder, therefore, again the affidavit, verifying the rejoinder for Roadco (India) (P.) Ltd. has not been signed by proper authority. It was argued that technically both the petition and the rejoinder on behalf of P-2 cannot be taken on record. It was pointed out that the P-2, Roadco (India) (P.) Ltd., has been shown in the petition as a private limited company, whereas the name of which has been changed by petitioners from Roadco (India) Ltd. to Roadco India (P.) Ltd., by fabricating the documents and it has been decided that the conversion of P-2 company from Roadco India Ltd. to Roadco India (P.) Ltd. is null and void. However, the petitioners’ appeal is pending.
24. Responding to the petitioner’s allegation that the respondents have illegally transferred petitioner’s shares as mentioned in the annual return of 2002 and their names are not reflecting in the annual return of 2004, it was contended that the annual return for the year 2002 was prepared by P-1 himself and got signed by R-3 in good faith, the P-l prepared the annual return as per his own wish and not as per record or document of R-1-company and he had shown the shareholding of his own family and associates as per his own wish, since all the records of the R-1-company were destroyed in the rain during 1999 and petitioners took the advantage of the situation and filed the wrong details of shareholders in the annual return for the year 2002, in 2004 when respondents came to know about the fraud played by P-l by changing the shareholding list, the respondents filed annual return for the year 2004 as per the copies of share certificates, the R-1-company is in the possession of the photocopies of the share certificates and R-3 is holding the original share certificate relating to his shareholding.
25. It was contended by the respondents that the petitioners have cooked up the story and made the case that they have purchased shares from different persons and attached copies of the invoices and bank statements on “the basis of which they have tried to justify their contention. Pointing out the defects and discrepancies it was contended that these invoices do not have the distinctive number, it is surprising to observe that the rate per share, has been mentioned in the invoices in the fraction of rupees. For example : Rate of Active Traders (P.) Ltd. at the rate of Rs. 3.03 per share, rate for RMC Med. Ltd. is Rs. 2.23 per share, all the invoices are issued on the single day on 16th August, 1999, the petitioners have failed to put any evidence on record how the valuation of shares under these transaction has been arrived, invoice dated 16th August, 1999 issued by Sarita Rungta to Hadoti Cement (P.) Ltd. has been signed by Sushila Devi Rungta whereas Sushila Devi Rungta has not signed her own invoice at p. 22 of rejoinder. These invoices produced by the petitioners do not show any evidence of the delivery of shares, petitioner No. 5 has purchased 10,000 shares from Mrs. Saroj Periwal as per her Bill dated 20th October, 1998 and payment was made through DD No. 33784 dated 11th November, 1998 on Union Bank of India for Rs. 30;600 whereas the copy of the pay in slip clearly shows that the pay order was issued by Union Bank of India on 11th November, 1990, it is not understood how the payment has been made 8 years before the sale of shares; there is no mention of the transfer deeds for the alleged transactions. Nor is there any proof of lodgment of any transfer deed with the company, for the transfer of the alleged shares.
26. Alternatively the respondents have contended that without prejudice to their contentions and considering the worst case scenario, and assuming that the above invoices are genuine, the question arises whether on the basis of the sale and purchase of shares of a company, can the purchaser become the member of a company, the answer is no because as per the provision of section 41(2) of the Act, a person can become the member of the company by subscribing to the memorandum, by allotment of shares, and by the transfer of shares. As far as the case of the petitioner is concerned, admittedly, their case is transfer of shares. Their contention is that they have purchased the shares from different sellers, but they have not talked about the transfer of shares in the name of the purchasers. There is no compliance of the provisions of section 108 of the Act. Reliance was placed on the cases of Jayantilal Purshottamdas Patel (supra) and Radha Krishan Menon in Mathrubhvmi Printing & Publishing Co. Ltd. (supra) to support their contentions. It was contended that the petitioners have not pointed out whether any transfer deed was executed between the seller and the purchaser, whether these transfer deeds have been delivered to the company for affecting the transfer, and whether they had received the share certificate back duly certified from the R-1-company.
27. As regards the petitioners’ contention that their share certificates were stolen, in support of which they had filed copy of FIR and investigation report through an additional affidavit dated 15th July, 2010 it was contended by the respondents that complete facts have not been given to the investigation officer, hence, the investigation report cannot be relied upon.
28. As regards the balance sheet as on 31st March, 2000 of Hadoti Cement, as it reflects an investment of 23,400 equity shares of R-1-company as contended by the petitioners, the respondents’ contention is that the same was signed in good faith, he being younger brother of P-1 as usually other documents were being got signed by P-l in earlier occasions also. In this regard reliance was placed on the case of Smt. Abha Puri (supra), wherein it was held that in family company, in view of the closeness of the parties, it is not uncommon that the documents are signed without going through line by line.
29. Replying to the petitioners’ contention that the respondents have tried to defeat the rights of petitioner, to requisition the EGM of R-1-company, the P-1 had served a notice on the R-1-company on 21st July, 2004 for holding the EGM under section 169 of the Act for the appointment of two directors and the same was not convened by the petitioners, it was pointed out that the abovesaid notice was dated 21st July, 2004, whereas the copy of the notice show the date of notice as 15th July, 2004, meeting could not be called in view of the order of the CLB in CP No.37/2004. Moreover there is no need for the respondents to do any such alleged act as the petitioners are neither in the majority on the Board of directors of R-1-company nor in majority in the share capital of the R-1-company and their presence in any meeting of the R-1-company would not have any adverse impact on the passing of resolutions in such meetings.
30. Replying to the allegation that respondents have illegally appointed R-4, Rakesh Kumar Rungta on 1st July, 2004 and R-5 to R-11 on 5th July, 2004 as no notice of the Board meeting was given, proof of despatch of notice was not given, appointee were not shareholders, the respondents’ contention is that the directors were appointed in the EGM on 30th June, 2004 with effect from 1st and 5th July, 2004 and not in any Board meeting, therefore, the directors were appointed in accordance with the article 53 of articles of association of the company, the above appointments were made much before the date of serving of the alleged notice (i.e., 21st July, 2004), therefore, the allegation of the petitioners that the appointment has been made in order to defeat the purpose of the notice of the petitioners under section 169 is absolutely false and incorrect, the article 50 of articles of association provides that the directors are not required to hold any qualification shares, therefore, the contention that the directors are required to hold qualification shares is baseless.
31. I have considered the rival submissions and the case law relied upon by the parties. There is no dispute with the case law cited. Each case turns on its own facts. The petitioners’ case is that R-3 has wrongfully deleted their shareholding as evidenced in the annual returns of 2002/2003 and added the same in the name of the respondents in the annual return of 2004 hereby reducing the majority shareholders to a minority and creating a new majority to gain control and management of the R-1 with an oblique motive. It has been alleged that immediately after the CLB passed an interim injunction ordering status quo in RMC Med. Ltd. (CP No. 37/2004) on 13th July, 2004, the respondents, to circumvent that order, appointed more directors in back date, however, Form 32 for alleged appointments were filed only in the last week of July 2004 around which the AGM was shown to have been held. The respondents’ case is that the petitioners’ claim regarding their shareholding is completely false and incorrect and is based only on the annual return of R-1-company filed for the year 2002 when the petitioners were in control of the books of account and the statutory registers of the R-1-company, P-1 taking advantage of the bereavements in the family took upon himself to ensure the statutory compliances of the company. Further, the records of the R-1-company were destroyed during the heavy rains at Calcutta in 1999, whereby P-1 took advantages of the lost records and manipulated the shareholders list of R-1-company for the year 2002. When R-3 came to know about the incorrect and false shareholding list, he filed corrected list of shareholders along with the annual return of 2004 as per the photocopies of the share certificates available with company. Annual return for the year 2002 as prepared by P-1 was signed by R-3 in good faith. According to the respondents She petitioners’ case is transfer of shares, they contend that they have purchased the shares from different sellers, but they have not talked about the transfer of shares in the name of the purchasers in accordance with the provisions of section 108 of the Act, the purchase invoices, not produced earlier, do not show distinctive numbers, rate per share is in fraction of the rupee, rate on a single day is different, how the valuation of shares has been arrived at is not shown, some invoices have been signed by a different family member, invoices do not show any evidence of delivery of shares, it is not known whether any transfer deed was executed between the seller and the purchaser, whether these transfer deeds were delivered to the company for affecting transfer, whether they had received the shares certificates back duly certified from the R-1-company, P-2 is not a shareholder, P-2’s affidavit is defective, how can their claim be based on balance sheet of 2002; the directors were appointed in EGM and not Board meeting. The petitioners’ FIR regarding stealing of these shares, the investigation report filed through the petitioners’ additional affidavit should not be relied upon as complete facts have not been given to the investigation officer.
32. It is noted that R-1-company is a family company and is one of the group companies of Rungta family. Like several other group companies the R-1-company holds shares in RMC-Med. Ltd. (CP No. 37/2004) is the flagship company of the Rungta family. It is noticed that out of 15 respondents only one respondent, namely, Shri S.K. Rungta (R-3) alone has filed counter affidavit to the company petition. Only when the arguments commenced in 2011, the R-1-company has adopted the reply filed by R-3. Other respondents have avoided entering appearance and filing any reply affidavit. The petitioners’ contention that after the CLB ordered status quo to be maintained in its order dated 13th July, 2004 in the flagship company of Rungta family (RMC Med. Ltd. – CP No. 37/2004), the respondents, to circumvent the CLB’s orders, appointed directors in back date exceeding the limit of total number of directors as provided for in articles of association is found to be correct. The petitioners have rightly observed that the R-1-company has convened AGM in 2004 during last week of July 2003 first week of August 2004 while earlier AGM was convened in the last week of September. Respondents have failed to explain as to why the directors were appointed in separate Board meetings or EGM when AGM was about to be convened. There is no explanation as to why the R-1-company required more directors, even exceeding the limit prescribed in the articles, when there was no business being done. The necessity for appointing directors before 13th July (the date of the CLB’s order) whereas Form 32 washed in the last week of July remains unexplained. The benefits of such appointments and the advantages, if any, from 2004, till date, have not been pointed out. Petitioners’ contentions that the appointments were made at their back, they being family members and having major stake in the R-1-company were not informed, no notice(s) were served on them, their consent was not taken, remain uncontroverted. The respondents have failed to produce any notices for convening Board meeting(s), EGM, Board minutes, minutes of EGM. The respondents’ contention that the records were destroyed in rain in Calcutta in 1999 does not carry their case any further. Instead it strengthens the petitioners’ contentions since no records even for the subsequent years to 1999 have been produced by the respondents. Appointment of directors in July 2004 is for the purpose of gaining control over R-1-company by circumventing the CLB’s order dated 13th July, 2004. Appointment of directors is not borne out from the records which were avoided to be produced. It reflects the state of affairs of the R-1-company. Resolutions were passed arbitrarily without complying with the procedures laid down. The acts done, when powers are used merely for an extraneous purpose like maintenance or acquisition of control over the affairs of the company, the same cannot be upheld. The respondents contention that the directors were appointed in EGM and not Board meeting does not carry their case any further, as no notices were given to the petitioners, appointments were at their back, were not justified, were in excess of the limit prescribed, the respondents have avoided to file counter affidavits, even if the petitioners are not on the Board, they have legitimate expectation of representation in control and management of the R-1-company.
33. As regards the change in the shareholding as shown in the annual return for 2004 reducing the petitioners to a minority and creating a new majority, it is noted that no annual returns have been filed by the respondents after 2004, nor have they revised the annual returns of 2002/2003. The petitioners have relied upon their shareholding as reflected in the annual return for the year 2002/2003 and earlier years as filed by the R-1 with the ‘RoC. The annual return for the 2002/2003 has been signed by R-3. Though the respondents, after having signed the annual returns, have attempted to find certain defects and discrepancies to disbelieve the petitioners’ claim of being the shareholders and are now raising objections to the effect that there are no transfer deeds and the petitioners have not proved as to when did they apply to the R-1-company for transfer of the shares as per requirement of the provisions of section 108 of the Act, it is not understood as to why the original share certificates are not produced by the respondents to substantiate their claim as per the annual return of 2004. It was first stated by the respondents that the share certificates are available, and the same can be produced as well, but when the petitioners referred to the FIR and the investigation report regarding their shares having been stolen, and that even the sellers have given statement before the police during investigation that the shares were sold by them to the petitioners, the respondents changed their stand to state that the photocopies of the share certificates only were available. When photocopies of the share certificates were produced by the respondents, the petitioners pointed out even the stamp duty was deficient. Original share certificates were not produced by the respondents. Nor did they produce any other document/statutory record to substantiate their claim. No supporting documents like transfer deeds, register of members, Board minutes were produced. The same story of rain in Calcutta in 1999 in which the records were said to have been destroyed was told. Even the records subsequent to 1999 were not produced. The petitioners have produced the contract notes, purchase vouchers, confirmation from seller, the shareholder’s own balance sheets showing those investments, some of those balance sheets have been signed by the respondents as well whereas the shareholders, as reflected in the annual return of 2004, which include certain limited companies have not shown their shareholding in their own balance sheets. The petitioners’ case is based on annual returns of an earlier period, i.e., 2002 which has been signed by the respondents as well, unless these annual returns are revised the annual returns of 2002 and 2003 have to be relied upon. There is no transfer of shares shown in the annual return for 2004 which shows a changed position from 2002/2003. It is surprising that the shareholders as shown in the annual return of 2004 have, instead of defending their claim, have chosen to avoid entering appearance and filing counter-affidavits. Despite service and opportunities given, they have not filed reply to the company petition. The petitioners’ case is that their names were duly entered in the register of members of the R-1-company after transfer of related shares and the same were duly reflected in the annual return for the year 2002, it is not their case that the equity shares were purchased by the petitioners and the same were not transferred and registered in the register of members. The petitioners’ case of diluting their shareholding in the annual return of 2004 is made out. In view of the above, the respondents’ contention that P-2 is not a shareholder is not tenable, a defect in the affidavit of P-2 cannot defeat its substantial statutory rights. Annual return of 2002 is a prima facie evidence which the respondents have failed to rebut. No statutory records, giving the pretence of rain (though that too relates to an earlier period) have been produced, no proper procedure has been followed to change the shareholding in the annual returns of 2004, there is no evidence of service of any notice on the petitioners for passing any resolutions, original share certificates have not been produced. When compared with the evidence produced by the petitioners, the respondents’ claim has credential value, nor supported on facts and in law. In view of the above, the change of shareholding as reflected in the annual return of R-1-company for the year 2004 cannot be relied upon.
34. The fiduciary capacity within which directors have to act enjoins upon them a duty to act on behalf of the company with utmost care and skill and due diligence and in the interest of the company. More so, in a family company. They have a duty to make full and honest disclosures to shareholders regarding all important matters relating to the company. Shares issued for maintenance and acquision of control over the company is an extraneous purpose, and, therefore, cannot be upheld. The motive of change in the balance sheet of 2004 in the present case was mala fide. On facts, the shareholding was changed with the sole object of gaining control of the company by becoming majority shareholders was an act of oppression on the part of the respondents. More so, as the meetings passing such resolutions were held at the back of the petitioners without giving proper notices and without following proper procedure Regarding service of notices, it is settled law that the onus to prove service rests on the sender. That onus has not been discharged. In view of above, the changed shareholding in the annual return of 2004 cannot be sustained and is required to be set aside.
35. The petitioners allegations that their group has been converted from a majority to a minority in shareholding and respondents representation in management has substantially been increased are found to be correct. In view of the continuous effects of such oppressive acts, to undo the effects and to regulate the affairs of the R-1-company in future, the present petition deserves to be allowed. A clear case of oppression has been made out, the conduct of the respondents have been harsh, burdensome, against probity and good conduct) Once conduct is found to be oppressive under sections 397 and 398, the discretionary power given to the CLB under section 402 to set right, remedy or put an end to such oppression is very wide. The respondents have been involved in continuous acts of oppression against the petitioners and the present petition deserved to be allowed in favour of the petitioners.
36. In view of the foregoing, CP No. 82 of 2005 stands allowed. The R-1-company is hereby directed to restore the position of shareholding as reflected in its annual returns for the years 2002/2003, allotment of 21,000 shares held by P-1, 9,090 shares held by P-2 20,000 shares held by P-3, 20,000 shares held by P-4, 35,500 shares held by P-5 and 3,000 shares held by P-6 to respondents is hereby set aside, all statements/statute/forms filed in this regard with the RoC are held to be invalid, all resolutions passed in Board meetings/AGM/EGM are hereby cancelled, the R-1-company is hereby directed to rectify its register of members and shares register accordingly. Further, the appointments of R-4 to 11 as directors is hereby set aside giving the majority shareholders in this family company their right of proportionate representation on the Board in accordance with the principle of legitimate expectation, the legitimate representation having been denied, the majority shareholders are, by virtue of being in majority, are entitled to control, manage and run the affairs of the company, this is a benefit or advantage which the members, enjoy and are entitled to enjoy in accordance with the provisions of the company law in the matter of administration of the affairs of the company by electing their own men to the Board of directors of the company/all statements/resolutions/statutory forms filed with the RoC with regard to appointments of R-4 to 11 are hereby held to be invalid. All company applications stand disposed of. All interim injunctions given stand vacated. No order as to cost.