Vimla Yadav, - (1.) IN this order I am considering Company Petition No. 42 of 2004 filed by Smt Lilly Uppal under Sections 397, 398, 402,403 and 406 of the Companies Act, 1956 (hereinafter referred to as the "Act") against M/s Shiva Cemetech Pvt. Ltd. alleging dilution of the petitioner's shareholding and illegal induction of the relatives of R-2 on the Board of R-1 with an oblique motive to gain control of the business of the R-1 company and mismanaging the affairs of the company allegedly indulging in forgery and fabrication of statutory records and documents.
(2.) The undisputed facts of the case are: M/s Shiva Cemetech Pvt. Ltd. (R-1) was incorporated on 2.11.1995 having its registered office at 1091-92, Pipliwala Town, Opposite Gurudwara, Manimajra, UT, Chandigarh. The authorized share capital of the company is Rs. 20,00,000/- divided into 20,000 equity shares of Rs. 100/- each. The main objects of the company are to produce, manufacture, mine, quarry, treat, process, refine, import, export, purchase, sell and to deal in all kinds of cement, cement products, etc. Shri Ugen Bhutia, Counsel for the petitioner contended that petitioner was the promoter of the company and was one of its two first directors and thus initial subscriber to the Memorandum and was allotted 50% shares with as per the subscription in Articles of Association. He further pointed out that with the object to dilute the shareholding of the Petitioner, the R-2 illegally issued 12,300 shares to his relatives without following the procedure as mentioned in the Articles and also in total contravention of the Act, and in total contravention of Clause V Sub-clause 7 and 8 of Articles of Association of the R-I. The R-2 has nowhere in his reply denied the fact that such shares have been issued and the effect of the same has diluted the shareholding percentage of the Petitioner. The Respondent has without disputing the fact that the shares were not offered to the Petitioner, has sought to state that such an action of issuance of the shares to relatives of the R-2 was permissible as "the respondent is fully entitled to transfer the shares in favour of his relatives as per Clause 8 of the Articles of Association of the Company". My attention was drawn to the Articles of Association as under: 8. No transfer of shares shall be made or registered without the previous sanction of the directors, except when the transfer of the shares is made by any member of the company to another member or to member's wife or child or children or his heirs and the directors may decline to give such sanction without assigning any reason subject to Section 111 of the Act" and it was contended that the respondents have wrongly stated that they had right to issue such share. The said Clause nowhere mentions about any provision for fresh allotment and issue of fresh shares of the company. The said Sub-clause only mentions about the transfer of shares which a shareholder already possesses and which he may transfer to any other member or member's wife of child or children or his heirs. It was contended that even in a case of transfer the member is bound to inform the directors of such transfer being made. The Respondents have failed to show that such act of issuance of the shares to the Petitioner was done with the knowledge of the Petitioner. Reliance was placed on the decision of Pushpa Prbhudas Vora v. Vors Exclusive Tool (P) Ltd. (2000) 3 Comp LJ 271 (CLB); Ashok V. Doshi v. Doshi Time Industries Pvt. Ltd. (2000) 26 SCL 475 wherein in a family company carried on as a quasi-partnership with equal shareholding between two family groups, it was held that the act of one group in issuing more shares to its members to the exclusion of other group and appointment of additional directors without the knowledge or participation of the other group was an act of oppression. It was reiterated that firstly the present case is not a case of transfer but that of allotting and issuing new shares to the relatives of the R-2 which cannot be done as per Clause V(7) of the Articles of Association without any information to the petitioner whatsoever. It was pointed out that the R-2 has wrongly stated that he is eligible to transfer the shares to the remaining respondents in view of the Clause 8 of Article of Association. It was reiterated that firstly the said case is not of case of transfer of shares, secondly even if the said case was that of transfer of shares the R-2 did not have the adequate number of shares to be transferred to his relatives. The Petitioner's allegation is of wrongly issuing of shares and not of mere transfer of shares.
(3.) FURTHER, the Counsel for the petitioner argued that other than wrongly taking the said defence under Articles of Association Respondent has not denied the fact that there has been a dilution of the shares of the Petitioner. It was argued that the Respondents have failed to show that the issuance of the shares was unavoidable and was resorted to as an emergency measure with an object of saving the existence of the company. Reliance was placed on the decision in re: Gluco Series P. Ltd. (1987) 61 Comp Cas 227 (Cal) wherein it was held that it is not open to the Directors to issue and allot shares in a manner by which an existing majority of the shareholders are reduced to a minority, the Court must be satisfied beyond reasonable doubt that such issue was unavoidable and was resorted to as an emergency measure with an object of saving the existence of the company, the Court will not allow the existing balance of power in the company to be disturbed, if the issue of shares disturbs the existing majority of the shareholders and if it is not bona fide, it will amount to oppression and mismanagement and the Court will grant relief. It was contended that in the present case the Respondents have also failed to show that the said issuance of the shares was done in good faith. FURTHER, reliance was placed on the decision in PIK Securities P. Ltd. v. United Western Bank P. Ltd. (2001) 4 Comp. LJ81 wherein it was held that increasing capital by making a further issue is a decision of managerial nature and, therefore, it belongs to the domain of directors and it should be exercised in absolute good faith in the interest of the company as a whole; use of this power for consolidating their own position by those in control and by creating a new majority is improper, in such a case a petition for prevention of oppression and mismanagement would be maintainable.;