COMPANY LAW BOARD, NEW DELHI BENCH
Smt. Hema Singh
ANC Construction (P.) Ltd.
Smt. Vimla yadav, MEMBER
C.P. NO. 20 OF 2007
MAY 24, 2012
1. C.P.NO.20 of 2007 filed u/s 397/398 of the Companies Act,1956 (hereinafter referred to as “the Act”) in the case of M/s ANC Construction Private Ltd. & Ors, the Petitioner Smt. Hema Singh has alleged: (a) Illegal appointment of R-3 as Additional director; (b)Illegal allotment of 75,000 shares to R-2 and R-3 on 10-05-2005; (c) Illegal appointment of R-4 to R-12 as Additional Directors; (d) Removal of Petitioner as_director on 03-07-05; (e) Non-recovery of Rs. 176,20,582 from M/s Target Constructions Private Ltd.,:(f) Manipulation of accounts and misappropriation of funds of the company; (g) not accounting of Payment made by PWD; (h) Involvement of R-13 in the day-to-day affairs of the Company; (i) Refusal to allow inspection of statutory record to Petitioner.
2. The Petitioner’s case is that as per Form No. 32 signed by R-2, R-3 was appointed as Additional Director on 21-11-03, the said appointment is illegal, bad in law and non-est because: (i) The appointment of R-3 was made in the board meeting held on 20-10-03, as per alleged minutes signed by R-2, Petitioner’s signature on blank letter head has been misused by Respondents, Petitioner never received any notice nor attended any such board meeting. Her appointment is stated to have been made on 20-10-2003, but as per alleged board minutes, as per Form No. 32 filed with ROC by R-2, her appointment was allegedly made on 21-11-03; (ii) As per annual return made up to 30-09-2004 filed belatedly by Respondents on 11-5-05, signature of Petitioner has been obtained by fraud at the end of the return, without disclosing appointment of R-2 as M.D. and R-3 as a director and these names were added afterwards; (iii) Section 260 of the Companies Act, 1956 provides that Additional Director can be appointed in a company if so authorized by its Articles. In this case, Articles of the Company do not provide for appointment of Additional directors. Thus, the company has no power to appoint Additional directors; iv) Articles 18 and 19 provide for appointment of directors by proportional representation etc. but no such procedure was followed for appointment of R-3; v) R-3 is the daughter of R-2 and R-13 and was a student in Engg. College at Gaziabad at the relevant time and she could not have been appointed as a director of the company; vi) This was done to secure supremacy and majority on the Board of directors of the company and vii) The alleged appointment of R-3 was never intimated to the company’s bankers.
3. Further it was argued by the counsel for the petitioner that on 10-05-05, 75,0.0 shares were allotted as under as per Form No.2 signed by R-2 as Managing Director of the company and filed with ROC on 11-05-2005 along with covering letter dated 11.05.05 signed by R-2 allotting shares to Petitioner 50,000 shares; to R-2 10,000 shares; to J. B. Singh 15,000 shares; totalling 75,000 shares and on the same date on 10-05-05, R-2 allegedly allotted shares to herself and R-3 as under as per Form No.2 showing allotment of 73,500 to R-2 and 1500 shares to R-3 (thus totalling 7500 shares). This is a fabricated document and was filed with ROC on 1-6-05, as an after thought, without any board meeting or consent of Petitioner and deserves to be set aside by the CLB.
4-5 It was argued that R-2 allegedly appointed 9 Additional directors, being R-4 to R-12 on 16-05-05 in terms of Form No.32 signed by R-2 and Annual Return made upto 09.06.05 signed by R-2 and R-3 filed with the ROC, the appointments are illegal, bad in law and be set aside by the CLB because: (i) Alleged board meeting dated 16-05-05 is false, no notice of any such meeting was given to the petitioner in terms of Article 17 and Section 286 of the Act; (ii) Articles of the company do not empower the board of directors to appoint Additional Directors in terms of section 260 of Act. Further, these appointments were never approved by the general meeting in terms of Articles 18 and 19; (iii) R-4 to R-12 are near relatives/friends of R-2, R-3 and R-13 and they do not hold any share in the company and have no knowledge of the working of the company; (iv) There was no need to appoint as many as 9 directors at a time and the only purpose ostensibly is to have supremacy over the petitioner; (v) As per copy of minutes of board meeting held on 30-04-06 and board resolution dated 29-04-06, furnished to PWD authorities, R-4 to R-12 ceased to be directors by resignation on 30-04-06, but this fact was never brought out by the Respondents in their reply to the petition. As per affidavits filed with the reply, R-4 to R-12 have stated on oath on 20-08-07 that they are Additional directors of the company and have verified the reply.
6. The counsel for the petitioner pointed out that the petitioner was removed as per Form No.32 filed with ROC by R-2, Petitioner is stated to have ceased to be a director on 3-07-05, the manner or reason of his cessation has not been stated. In the reply to the petition, Respondents have alleged that Petitioner ceased to be a director under section 283(l)(g) of the Act for absence from 3 consecutive board meetings relying on the alleged board meeting held on 3-7-05. Petitioner’s counsel contended that her alleged cessation as a director is illegal, bad in law and deserves to be set aside by the CLB because: (i) No notice of the alleged board meeting dated 3-7-05 was given to the Petitioner in terms of Article 17 and Section 286 of the Act; (ii) In the reply, respondents have not even indicated the dates of 3 board meetings not attended by the Petitioner as also service of notice of the meetings, Minutes of such board meetings have also not been filed. Apparently, Respondent Nos.2 and 13 have fabricated the statutory record of the company; (iii) As per alleged minutes of board meeting held on 16-05-05 produced along with the reply of Respondents, it is stated that leave of absence was granted to Petitioner, thus this meeting cannot be taken as one of the 3 alleged board meetings for purposes of section 283(l)(g) of the Act. According to the Petitioner, no such meeting was convened or held and no notice of any such meeting was received by the Petitioner. Accordingly, there can be allegedly two meetings in between 16-05-05 and 13-07-05 and this period is less than 3 months, as such, on the face of it the alleged cessation under Section 283(l)(g) of the Act is illegal. In this regard, complaints were duly made to the ROC by the petitioner; (iv) This is a serious act of oppression in a closely held company in which the petitioner holds 60% shares and she is the promoter-director of the company.
7. Further, it was pointed out that the Respondent Company entered into agreement with M/s Target Construction Pvt. Ltd., a sister company of R-2, whereby contract of highway at N.H.56 was sub-let to respondent company and the work was completed. However, Target Constructions Pvt. Ltd. failed to pay Rs. 80,70,582 to respondent company. Further, as per another agreement a similar contract was sub-let to respondent company in respect of construction of highway at H.N. 76 but Target Constructions Pvt. Ltd. failed to pay Rs.95,50,000/-. In the reply to the petition, Respondents have falsely stated that the aforesaid amounts were not paid as work was not done on account of disputes raised by petitioner. However, the fact remains that work assigned to the respondent company was duly completed. Thus, a total amount of Rs. 176.21 lacs was not recovered from Target Constructions Private Ltd. in which Resp.No.2 is MD and holds substantial shares.
8. The counsel for the petitioner alleged manipulation of accounts and misappropriation of funds of the company. It was pointed out that the Bank account of the company in State Bank of India, Rajapur, Allahabad was operated singly by R-2 during December, 2002 to November 2003 when R-2 withdrew cash amounting to Rs.1.069 crores and her husband, R-13 withdrew cash amounting to Rs.0.53 crores and for the remaining period during 2003-04, R-2 withdrew cash amounting to Rs. 1 crore and R-13 withdrew cash from the bank amounting to 0.30 crores. R-2 and R-13 have, thus, misappropriated large sums of money of the company for their personal benefits. In this regard, petitioner has placed reliance on the statement of Account of the Company’s bankers for the period 25-1-03 to 1-02-05.
9. In reply to the petition, except denying the allegation, respondents have not rendered any account and have also not finalized/audited the Accounts for the year 2003-04 and onwards. It was pointed out that the Respondents have been using 4 Dumpers, 2 Rollers, Hot Mix Plants, etc. of the company for undertaking the works of other parties including Target Constructions Pvt. Ltd. Further Dumper No. UP 70X9799 was purchased by R-2 from M/s Tata Motors Ltd., Allahabad for Rs. 8,56,203 in her own name. However, the margin money of Rs. 2,24,000 was paid by the respondent company vide cheque No.608876 dated 4-4-03 of SBI, Rajapur, Allahabad. The balance amount of Rs. 6,56,203 and other charges was paid in cash from the resources of the respondent company.
10. The counsel for the petitioner pointed out that payment made by the PWD Authorities amounting to Rs.3,60,597 vide Bank draft No.409542 dated 28-8-06 and Rs.4,85,249 vide D.D.No.409588 dated 1-09-2006 have not been accounted for by the Company. No reply to the letter dated 4-9-06 of Petitioner to the Respondent Company in this regard was ever given. In reply to the petition, it is only stated by respondents that receipts and payments are duly recorded in the books of the company. Respondents have, however, not produced copy of Bank statement in which both the drafts have been deposited. It is likely that R-2 and R-13 have misappropriated the amounts by operating a separate bank account in the name of the company and only an investigation can reveal the correct facts.
11. It was pointed out that the affairs of the company are being run by R-13, nusband of R-2. He is a Junior Engineer, Rural Engg. Dept, Mirzapur (U.P) and cannot carry on business as per Government rules. In reply to the petition, R-13 denied the allegation stating that he is neither a shareholder nor a director of the company. In the rejoinder, Petitioner has referred to several documents to show that R-13 is, in fact, involved in the affairs of the company: (i) Form No. 1 filed with ROC at the time of incorporation of the company bears the signature of R-13 as a witness; (ii) Agreements entered into by respondent company with M/s Target Constructions Pvt. Ltd., a sister concern of Respondents bears the signature of Resp.No.13 as a witness; (iii) Letter dated 27-09-06 addressed to PWD Authorities at Lucknow regarding no dues certificate of sales tax signed by R-2 is in the handwriting of Resp.No.13; (iv) Details of expenditure during the period 04-03-04 to 30-07-04 in respect of Rs.16 lakhs withdrawn from the bank is in the handwriting of R-13; (v) Bank statement for the period 25-01-03 to 1-2-05 filed along with the Rejoinder makes it abundantly clear that R-13 has withdrawn substantial amounts in cash from the bank account of the company from time to time on several dates; (vi) To hide his identity, the name of R-13 has been stated as ‘Mr.Subodh Singh’ as husband of R-2 in Form No.32 filed at the time of incorporation of the company, although his name is ‘Mr. Subhash Chandra Singh’.
12. The counsel for the petitioner pointed out that despite the CLB’s orders dated 08-01-07 and 1-3-07 whereby the company was directed to give inspection of statutory record, no such inspection was allowed. Last attempt was made on 15-7-07 as advised by counsel of respondents, but nobody was present at the registered office of the company on that date. It was pointed out that the Respondents have falsely claimed that Petitioner was actively involved in the management of the Company. It is alleged that family members of the Petitioner (Shri J. B. Singh and P. V. Singh) were controlling the affairs of the company and aforesaid persons collected a sum of Rs. 17 lacs from the parties/departments and Petitioner sold the grit of Hot Mix Plant at Jagdishpur for Rs. 10 lacs. It is also alleged that Petitioner is still in possession of 2 Hot Mix Plants, one Paver Finisher Machine, one Vibrator roller, 2 Diesel Gen. Set since February 2005 and that Petitioner is collecting hire charges in respect of these machines. The fact of the matter is that as per Board resolution dated 20-12-02, R-2 was authorized to represent and sign documents on behalf of the company. The said authority was misused by R-2 and was later on withdrawn on 28-05-05. Petitioner was not a working director and no remuneration was paid to her. Shri J. B. Singh and P. V. Singh assisted R-2 and acted according to her instructions and directions. An authorization letter dated 16-3-04 was given by R-2 in favour of Shri J. B. Singh in this behalf. The allegation of collecting Rs. 17 lacs and sale of hot mix plant and possession of machines etc. is being made for the first time, without producing any evidence. Respondents have never made any protest in the past. Petitioner has addressed several letters dated 25-5-05, 11-07-05 and 19-12-05 to R-2 regarding company assets which are with R-2 but there has been no response. The allegations now made by Respondents are patently false, as a counterblast to the various complaints made by Petitioner against R-2.
13. The R-1 to R-12’s case is that the petition is not maintainable on the ground of misjoinder of the parties as Shri Subhash Chandra Singh who has been named as R-3 is neither a shareholder nor a director of the company and he is not concerned in any way with the affairs of the company, mere remote facts that the R-12 is the husband of R-2 who is a director of the company cannot be a ground to implead him as one of the respondents. The condition precedent for filing a petition under Sections 397 and 398 of the Act has not been satisfied in this case, firstly according to the petitioner’s own admission the petitioner company was a glorified partnership and consequently no public interest is involved. Minor infraction of some provisions of the Act mentioned by the petitioner in the petition cannot be a ground for oppression of the petitioner. The petitioner herself has been the first director of the company under Article 13 and has been responsible for management and control of the affairs of the company. According to the admitted version of the petitioner there was an unwritten agreement that both of them have equal say in the management and all decisions were taken unanimously. The petitioner herself has been actively involved in the management and affairs of the company and was one of the signatories to the bank account and thus the alleged mismanagement would squarely rest on the shoulder of the petitioner also.
14. It was pointed out that the petitioner with the help of her family members i.e. Shri J. B. Singh and P.B.Singh was controlling the affairs of the company and was also responsible to collect payment from the parties and departments. The aforesaid persons after collecting a sum of Rs. 17 Lakhs from the parties and departments had retained the money in their own account and have not deposited the same with the company. Further, the petitioner had sold the grit of Hot Mix Plant at Jagdishpur without any permission of the company for a sum of Rs. 10 Lakhs and apart from that she also sold along with her family members the grit of Hot Mix Plant at Sultanpur to one Shri R. B. Singh and other parties for a sum of Rs. 10 Lakhs and amount of Rs. 20 Lakhs received by them by selling the two grit of Hot Mix Plants were appropriated by Shri J. B. Singh and P. B. Singh and deposited in their personal account. Apart from that the petitioner still has some machinery of the company since 2005 and has been collecting the hire charges of the same and misappropriating the amount to herself.
15. The Respondents’ case is that the petitioner has not been attending the meeting of the Board of Directors regularly and the company had to remove her from the Board of the Company by a resolution dated 3.7.2005. It was pointed out that the petitioner is not holding 75000 equity shares as alleged. The petitioner was holding initially 5000 equity shares of Rs. 10 each and thereafter her shareholding was increased to 25000 equity shares of Rs. 10/- each by allotment of 20000 equity shares of Rs. 10 each vide return of allotment filed vide Form No.2 dated 29.3.2003. In the annual return made up to 30.04.2004 the shareholding of the petitioner has been shown as 25000 equity shares of Rs. 10 each. The R-2 is also one of the promoters of the company and had subscribed for 5000 equity shares of Rs.10/- each and at present her shareholding is 98500 equity shares of Rs.10/- each (a) Initial allotment at the time of incorporation of Company – 50000); (b) Shares allotted on 29.3.2003 – 20,000 and (c) Shares allotted on 10.5.2005 – 73,500). The allotment of shares was made strictly in terms of provisions of Act and written allotment was duly filed with the ROC. R-2 never manipulated the records of the company in any manner.
16. Further, it was argued that the R-3 Ms. Sweta Singh was appointed as additional director of the company w.e.f. 20.10.2003 vide Board of Directors of the Company in terms and provisions of Section 260 of the Act, and the said meeting was also attended by the petitioner herself. In the said resolution the signatures of the petitioner are self evident. The R-3 was also allotted 1500 shares of Rs. 10 each vide written of allotment dated 10.5.2005. The appointment of R-4 to R-14 as additional directors of the Company was also made in terms of provisions of Section 260 of the Act and was approved by the Board of Directors in their meeting held on 16.5.2005. R-3 is not involved in day-to-day affairs of the Company in any way since she is neither a shareholder nor a director in the company. Further, it was pointed out that R-13 is an employee of the State Government and he cannot by Rule of Conduct involved himself in the affairs of the Company in any manner. The mere facts that he is the husband of respondent No.2 who is director of the company cannot be a ground to implead him as one of the respondents and to level unsubstantiated allegation against him.
17. The respondents claimed that Form No.32 dated 9.12.2012 was filed at the time of incorporation of the Company by the Chartered Accountant and it appears that inadvertently typing error scripting and petitioner have knowledge of the same for the last so many years cannot raise this objection at this later stage. As regards the Annual Return made up to 30.09.2003, it was contended that AGM was held on 30.09.2003 and not on 30.06.2003 as alleged, the annual return has been signed by the petitioner herself as one of the signatories and thus it reflects the malicious and false intention of the petitioner. The allegations with regard to Balance Sheet and Profit & Loss Account ending 31.03.2003 is absolutely false and malicious. The Balance Sheet and Profit & Loss Account of the Company for the year ending 31.3.2003 was signed by both the directors including the petitioner. There has been no violation of the provisions of Section 215 of the Companies Act as alleged by the petitioner. It was pointed out that the R-3 Ms. Sweta Singh was appointed as additional director by the board of directors under Section 260 of the Act in the meeting held on 20.10.2003 wherein the petitioner was also present. The allegations with respect to Annual Return made up to 30.09.2004 are false and malicious, the falsity is patent from the fact that the returns were signed and filed by the petitioner herself as one of the directors of the Company. It is specifically denied that the signatures of the petitioner were obtained by fraud by the R-2. Such an allegation is inconceivable and is not sustainable which is being raised after a lapse of about three years. The allegation with respect to Form No.2 dated 10.5.2005 are false, page 2 of the form has been replaced/changed by the petitioner after forging the signatures of the R-2 and the said forgery is visible to the naked eye if the signatures at page No. 1 and page No.2 are compared. As regards filing of Form No.32 dated 18.5.2005, it was contended that the directors were appointed under Section 260 of the Companies Act. 1956 vide meeting held on 16.5. 2005. It was pointed out that the petitioner had vacated her office as director of the company by oppression of law as she had not been attending three consecutive meetings of the board of directors without taking leave of absence, Form 32 dated 5.7.2005 was filed in this regard. The counsel for the respondents pointed out that the Respondent No.2 was appointed as MD of the Company by board of directors in the meeting held on 20.10.2003.
18. Further, the counsel for the respondents pointed out that in respect of contract dated February 2003 for Rs. 3,80,28,804/- the Company has received full payment from M/s Target Construction (P) Ltd. except security deposit of Rs. 34 Lakhs. The amount of Rs. 18,17,582/- alleged to have not received is in respect of work not done on account of disputes raised by the petitioner. The security amount of Rs. 14 Lakhs has also been realized by M/s Target Construction (P) Ltd. Because of the default committed by the petitioner the security of M/s Target Construction (P) Ltd. was forfeited by the PWD. Similarly in respect of sub-contract of November 2003 the Company has received its full payment in respect of work completed by it and the amount of Rs. 95,50,000/- alleged to be outstanding against Target Construction (P) Ltd. relates to the work not completed by the Company on account of default committed by the petitioner and M/s Target Construction (P) Ltd. had to suffer forfeiture of its security and for that reason M/s Target Construction (P) Ltd. has not realized the security of the company. This fact is in full knowledge of the petitioner. It was further pointed out that the operation of the bank account was being done in accordance with the authorization given by the board and none of the machineries was being used for undertaking the work of the other parties contrary to this the petitioner is withholding the machineries of the Company appropriating herself the rental and other income derived from there.
19. I have considered the rival submissions and the case law cited by the parties. In the facts and circumstance of this case it is noted that the respondents have failed to meet the petitioner’s contentions which remain uncontroverted. The petitioner has succeeded in making out a case of oppression and mismanagement in the affairs of the R-1 Company. There is no answer to the illegal appointment of R-3 and R-4 to R-12. (Besides non-compliance of the prescribed procedures and provisions of the Act, the respondents have proceeded to oust the petitioner completely from the affairs of the R-I Company in a mala fide manner the petitioner has been removed from the directorship and has even not been allowed access to the accounts and documents of the R-I Company.
20. The petitioner’s specific contention regarding illegal Appointment of R-3 as additional director (as contained in para 2 above) have not been met by the Respondents. Further, the petitioner’s specific contentions regarding illegal appointment of R-4 to R-12 ( as contained in para 5 above) have not been met by the Respondents. Appointments are held to be ab initio void and are hereby cancelled, restoring status quo ante.
21. Further, it is noted that the Respondents have failed to make out a case of Petitioner’s cessation as a director in terms of the provisions of section 283(1)(g) of the Act. There is no answer to the petitioner’s contentions in this regard as contained in para 6 above. The petitioner shall continue to be a director on the Board of R-I Company and all statutory filings in this regard are hereby cancelled.
22. It is noted that the allotment of 75000 shares to R-2 (73500) and 1500 share to R-3 is an afterthought done through manipulation. The petitioner’s contentions in this regard have not been met. Form 2 filed in this regard on 1-6-2005 is hereby cancelled, restricting the shareholdings as per Form 2 filed with the ROC on 11-5-2005.
23. In the facts and circumstances of this case, to ascertain the amounts misappropriated, there has been no explanation for non-accounting of receipts from PWD, there is no reply as to non-recovery of huge amounts passed on to connected concerns and by R-2 and R-13, I hereby direct the R-I Company to appoint an auditor and recover the amounts so ascertained into the Accounts of the R-I Company within one month of receipt of Auditors’ Report to be got by the Company within two months of receipt of this order.
24. The R-I Company is hereby directed to allow the Petitioner, who is also a promoter director, access to the accounts/documents of the R-I Company and give at least 7 days notice for the Board Meetings.
25. C.P. No.20 of 2007 is disposed off in the above terms. All interim orders stand vacated. All Company Applications stand disposed off. No orders as to cost.