Case Law Details
COMPANY LAW BOARD, NEW DELHI BENCH
Daksha Infra Build (P.) Ltd.
versus
Rochees Resorts (India) (P.) Ltd.
JUSTICE D.R. Deshmukh, CHAIRMAN
C.P. NO. 76 (ND) OF 2009
Date of pronouncement: 03.10.2012
ORDER
1. The Petitioner, a real estate company has filed this petition under section 397, 398 r/w. Sec 402 & 409 of the Companies Act, 1956 (henceforth the Act) alleging acts of oppression and mismanagement in the Respondent No. 1 (henceforth the Company).
2. Admittedly the Petitioner held 24% shares in the company prior to the Board Meeting and the EOGM held in July 2009. It is also not in dispute that prior to the alleged cessation u/s. 283 (1)(g) of the Act the Petitioner had two Directors on the Board of the Company, i.e. Mr. Yashpal Agnihotri and Mr. Y.C. Kaushik. Undisputedly the Petitioner Directors did not have notice of the Board Meeting of the company held on 10/07/2009 which allotted 10 lac equity shares to the Respondents and their friends. During the course of arguments the Respondents produced a letter dated 05/09/2007 written by Mr. Yashpal Agnihotri stating that notice of the Board Meeting dated 03/09/2007 were actually received by the Petitioner Director on 04/09/2010 and therefore praying that leave of absence be granted to them.
3. Mrs. Meenakshi Arora, Ld. counsel appearing for the Petitioner conceded the well established position in law that in the present petition the Petitioners cannot seek enforcement of the MOU dated 18/05/2007.
4. The Petitioner alleges that its Directors had no notice of the Board Meetings held on 03/09/2007 & 05/12/2007 while admitting notice of the Board Meeting held on 25/01/2008 which the Petitioner Directors did attend at Jaipur. It is alleged that the Petitioner Directors were not allowed to sign the attendance sheet on the ground that all the documents would be got signed by them on complete implementation of the second MOU dated 18/05/2007. Form No.32 intimating the ROC Jaipur about the vacation of office by the Petitioner Directors under section 283(1)(g) of the Act for not attending 3 consecutive Board Meetings on 03/09/2007, 05/12/2007 and 25/01/2008 was filed by the Respondents as late as on 10/07/2009. On the same day in a Board Meeting the Respondents allotted 10 lac equity shares of Rs. 10 each to Respondents and their friends, relatives and associates pursuant to a resolution passed at an EOGM held on 03/07/2009 increasing the authorized share capital from Rs. 50 lacs to Rs. 1 crore 50 lacs for which the Petitioner Directors had no notice. Due to such allotment the shareholding of the Petitioner was reduced below 10%. On the above grounds the Petitioner has prayed that allotment of 10 lac equity shares of Rs.10 each by the company on 10/07/2009 be declared illegal. A stay of the operation of the Board of Directors of the company in view of the illegal removal of the nominee Directors of the Petitioner under section 283(1)(g) of the Act is also prayed inter alia.
5. According to the Respondents on failure to attend three consecutive Board Meetings on 03/09/2007, 05/12/2007 and 21/01/2008 despite notice the Petitioner Directors vacated their office under section 283(1)(g) of the Act. The decision to raise the authorized share capital was taken by the company with a view to raise further capital required by the company on an urgent basis to complete the hotel/resort project at the earliest. Notice of the EGM for the said purpose was received by the Petitioner on 30/06/2009. According to the Respondents the Petitioner Directors had ceased to hold office on account of not attending three consecutive Board Meeting held on 03/09/2007, 05/12/2009 and 25/01/2008. Since Mr. Yashpal Agnihotri and Mr. Y.P. Kaushik were no longer on the Board of Directors the decision taken by the Board of the Company on 10/07/2009 to allot 10 lac equity shares of Rs. 10 each cannot be assailed by the Petitioner on the ground that it was done with a view to reduce the shareholding of the Petitioner to an abject minority. Since the Petitioner did not hold the requisite share qualification u/s. 399 of the Act the petition was liable to be dismissed.
6. I have considered the arguments advanced and case law cited by either parties and perused the record with utmost circumspection.
7. In view of the well settled legal position conceded by the ld. counsel for the Petitioner and recorded by me in para-3 of this order, I shall not delve into the allegation relating to the MOU dated 30/12/2006 and 18/05/2007. In my considered opinion the issue of reduction of the shareholding of the Petitioner on 10/07/2009 without legal notice to the Petitioner Directors, if established, squarely constitutes an oppressive act by the Respondents. The issue of the automatic cessation of the Petitioner Directors u/s. 283(1)(g) of the Act is co-related with the above issue because admittedly the Petitioner Directors had no notice of the Board Meeting dated 10/07/2009. Therefore even though the non-performance of the MOU dated 18/05/2007 is completely excluded from consideration the issue whether by fresh allotment of 10 lac equity shares the shareholding of the Petitioner was reduced on 10/07/2009 below 10% is germane and relevant for the purpose of deciding the allegation of oppression against the Respondents.
8. Under section 283(1)(g) of the Act the office of a Director falls vacant if he absents himself for 3 consecutive meetings of the Board of Directors or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board. In this case, the Respondents have produced a letter dated 05/09/2007 written by Mr. Yashpal Agnihotri stating that the Petitioner Directors had no prior notice of the Board Meeting dated 03/09/2007 as such notice was received only on 04/09/2007. Since this document is filed by the Respondents at the time of arguments its authenticity cannot be disputed. It is thus obvious that the Respondents had knowledge on 05/09/2007 that the Petitioner Directors had no notice of the Board Meeting held on 03/09/2007. The Respondents have also filed a letter dated 13/09/2007 written by them to the Postmaster, Speedpost Centre, Jaipur clearly stating that the above-said speedpost dated 30/08/2007 has not been delivered to the addressee till date. It is surprising to note that for all the three Board Meetings the Respondents had issued similar letters to the Postmaster stating that the letter sent by speedpost containing the said notice has not been delivered to the addressee. For the Board Meeting held on 05/12/2007 such letter was sent on 07/01/2008 and for the Board Meeting held on 25/01/2008 such letter was sent on 11/02/2008. In all the three letters dated 13/09/2007, 07/01/2008 and 11/02/2008 the Respondents have categorically stated that the speedpost letter had not been delivered to the addressee. If the Respondents had knowledge that the letters containing the notice had not been delivered to the addressee, the deliberate attempt to seek a certification from the Postmaster clearly smacks of foul play. In any case the Respondents had knowledge on 05/09/2007 (upon receiving a letter from the Petitioner Director) that notice of the Board Meeting dated 03/09/2007 was received by the Petitioner Directors on 04/09/2007. As a natural human conduct, the Respondents ought to have granted leave of absence to the Petitioner Directors for not attending the Board Meeting dated 03/09/2007. Instead, they wrote letters to the Postmaster after every Board Meeting in a mechanical way to create a ground that the Petitioner Directors did not attend Board Meeting despite notice on three consecutive dates. The letter dated 05/09/2007 written by Mr. Yashpal Agnihotri clearly shows that the Petitioner Director would not have abstained from attending the Board Meeting if they had notice. The letters of the Postmaster, Jaipur dated 27/09/2007, 29/01/2008 and 06/02/2008 therefore clearly appear to have been manipulated by the Respondents with the object of creating a ground u/s. 283(1)(g) of the Act against the Petitioner Directors.
9. There is no allegation that the Petitioner Directors were not regular in attending Board Meetings prior to the above-mentioned three consecutive Board Meetings. There is no reason why the Petitioner Directors would have abstained from the Board Meeting without seeking leave of absence if they had prior notice of any such Board Meeting. No explanation is forthcoming from the Respondents as to why they did not file Form No. 32 relating to cecession of office by the Petitioner Directors under section 283(1)(g) of the Act within time as provided in the Act. The date of submission of the Form 32, i.e. 10/07/2009 coincides with the date of Board Resolution for allotment of 10 lac equity shares of Rs. 10 each by the Respondents. Even the Annual Return of the Company had not been filed till such date. This was solely with an object to prevent the Petitioner Directors from having any idea as to what was happening behind their back. The Respondents did not even care to respond to the letter dated 05/07/2009 of Mr. Yashpal Agnihotri to say that notice of the Board Meeting dated 03/09/2007 had been received by the Petitioner Directors on 01/09/2007. The conduct of the Respondents clearly smacks of mala fide.
10. So far as the increase in the authorized share capital from Rs.50 lacs to Rs. 1 crore 50 lacs on 03/07/2009 the Respondents have pleaded that the increase in the share- capital was necessitated as the company required further capital on an urgent basis to complete the hotel/resort project at the earliest. Had it been so the company would not have, in the year ending 31/03/2010, granted a loan/advance to Motilal Watch Company to the tune of Rs. 1,74,20,000/- and that too without interest as projected in its Annual Return for the year ending 31/03/2010. Thus the increase in the authorized share-capital of the company from Rs. 50 lacs to Rs. 1.50 crores was not with a view to raise further capital as funds were required to complete the hotel/resort project. In this manner the seeking of a certificate each time from the postal authorities for three consecutive Board Meetings despite clearly mentioning in its letters that the addressee had not received the letter, the deliberate and unexplained huge delay in filing Form no.32 and the granting of loan to the tune of Rs. 1,74,20,000/- to Motilal Watch Company completely projects the mala fide of the Respondents in raising the authorized share capital of the company and allotting 10 lac equity shares on 10/07/2009.
11. I am thus of the considered opinion that the Petitioner Directors had no valid notice for the Board Meetings dated 03/09/2007 or 05/12/2007. There is a clear assertion in the petition that the Petitioner Directors had attended the Board Meeting dated 25/01/2008 but were not allowed to sign the Attendence Register which is rendered plausible in view of the mala fide attempt of the Respondent Director to oust the Petitioner from the Board of the Company and to dilute their shareholding below 10%. I, therefore, hold that the Petitioner Directors did not vacate the office of the Director u/s. 283(1)(g) of the Act and continued to be on the Board of Directors of the Company. Under Article 44 of the Articles of Association of the Company, a Director of the company was not liable to retire by rotation unless otherwise decided in the General Meeting. Article 50 saves section 283 of the Companies Act. Thus the only way to get rid of the Petitioner Directors was under section 283(1)(g) of the Act as there was no other allegation of misconduct against the Petitioner Directors. Therefore, the Respondents in furtherance of their mala fide design of ousting the Petitioner Directors indulged in the correspondence with the Postmaster despite receiving a communication from the Petitioner Director on 05/09/2007. Since the Petitioner Directors admittedly had no notice of the Board Meeting dated 10/09/2007 the allotment of 10 lacs equity shares by the Respondents is rendered illegal.
12. As regards the EOGM of 03/07/2009 the Petitioner has specifically denied having notice of such EOGM. The Postmaster, Jaipur appears to have acted in collusion with the Respondents as despite the fact that there was a clear assertion by the Respondents in their letter dated 04/07/2009 that the notices of the EOGM had not been delivered to the Petitioner, the Postmaster certified that the speedpost letter had been delivered on 30/06/2009. It is very strange and contrary to natural human conduct that every time a notice is sent for the EOGM or the Board meeting a certificate is obtained immediately from the Postmaster that the letter was delivered while the Respondents mentioned clearly in its letter that the letter had not been delivered to the addressee.
13. The case of Chatterjee Petrochem (I) (P.) Ltd. v. Haldia Petrochemicals Ltd. [2011] 110 SCL 107 is clearly distinguishable as in that case when the company was in dire need of funds the Chatterjee Group had failed to keep its promise of providing funds as it obtained a loan raising the debt equity ratio of the company. These circumstances were taken into consideration for reduction of Chatterjee group into a minority. In the present case firstly the enforcement of MOU dated 18/05/2007 is not in consideration in the present order and secondly the facts borne out from the record clearly show that raising of authorised share capital was not on account of raising immediate funds for the completion of the hotel/resort project but was mainly for reducing the shareholding of the Petitioner to an abject minority. Therefore, Haldia Petrochemicals Ltd. (supra) does not help the Respondents in any manner. Similarly, even though the main dispute between the parties as projected in the petition paragraphs 40 is the enforcement of the MOU dated 18/05/2007 ( which is not being considered in this order) the mala fide increase in the authorised share-capital and reduction of the share-holding of the Petitioner by issuance of fresh equity is, in the facts and circumstances of the present case oppressive in character and would form the basis for granting relief to the Petitioner under section 397, 398 of the Act. Therefore, the case of Bagree Cereals (P.) Ltd. v. Hanuman Prasad Bagri [2001] 105 comp. Cas. 465 (Cal.) also does not help the Respondents because in the present case the issue of cecession of the Petitioner Directors u/s. 283(1)(g) of the Act is not only supplemental but also correlated with the issue of raising the authorized share-capital and diluting the Petitioner’s share-holding without any legal notice which is per se an act oppressive to the Petitioner. Since the collateral purpose, i.e., enforcement of the second MOU 18/05/2007 is totally removed from consideration in this order the case of Bellador Silk Ltd., In re [1965] 1 All ER 667 also does not help the Respondents in any manner. The manner in which without issuing any notice to the Petitioner and its Directors, after increasing its authorized share-capital by 1 crore rupees and issuance of ten lac equity share of Rs. 10 each, the company granted an interest-free loan of Rs. 1,74,20,000/- to Motilal Watch Company renders the resolutions passed at the EOGM dated 03/07/2009 and the Board meeting dated 10/07/2009 per se oppressive in character and consequently null and void.
14. However, instead of at once declaring the resolution at the EOGM dated 03/07/2009 raising the authorized share capital and issuing 10 lac equity shares in the Board Meeting dated 10/07/2009 as null and void and to balance the equity I deem it appropriate to give a time-bound opportunity to the Respondents to further raise the authorized share capital of the company in such a manner that equity shares are allotted in such number to the Petitioner on the same terms on which 10 lac equity shares of Rs. 10/- each were issued on 10/07/2009 so as to restore status quo ante of the shareholding of the Petitioner in the company to 24%. If the Respondents fail to do so within time allotted by me, the resolution for raising the share-capital of the company to Rs. 1 crore 50 lacs on 03/07/2009 and allotment of 10 lac equity shares of Rs. 10 each on 10/07/2009 will automatically stand set aside as null and void being contrary to law, mala fide and without notice to the Petitioner Directors.
15. In the result I hold that the Petitioner Director Mr. Yashpal Agnihotri and Mr. Y.P. Kaushik did not vacate the office of Director u/s. 283(1)(g) of the Act. I grant time till 30th November, 2012 to the Respondents to hold an EOGM of the company for raising the authorized share capital of the company in such a manner so as to facilitate issuance of requisite number of equity shares of Rs. 10/-each at par to the Petitioner to restore status quo ante of their shareholding at 24%. The allotees of 10 lac equity shares of the company on 10/07/2009 shall not exercise any voting rights at such EOGM. Thereafter, within time granted by me, a resolution shall also be passed, at a Meeting of the Board of Directors of the company for allotment of such number of .equity shares of Rs. 10 each at par only to the Petitioner so as to restore the shareholding of the Petitioner in the company to 24%. If the Petitioner fails to contribute to such equity within 30 days from the date of communication of such resolution to be passed by the Board it shall not only loose its right to claim restoration of status quo ante on its shareholding at 24% but also loose its right to be on the Board of Directors of the Company because in such a situation the Petitioner would cease to be entitled to any relief in this petition as the Petitioner would fail to satisfy the eligibility criteria under section 399 of the Act. If the Respondents comply with the above directions the voting rights of the allottees of 10 lac equity shares shall stand restored at any subsequent EOGM. If the Respondents fail to comply with the above directions before 30th November, 2012 the resolution dated 03/07/2009 passed at the EOGM for raising the authorized share capital of the company to 1 crore 50 lacs and the subsequent allotment of 10 lac equity shares of Rs. 10/-each to the Respondent group shall be rendered null and void.
16. The petition is disposed off with the above directions.
There shall be no order as to cost.
