Lizamma Augustine, Member - (1.) THIS is a petition filed under Sections 235, 237, 397 and 398 read with Sections 402 and 403 of the Companies Act, 1956 (hereinafter referred to as "the Act") seeking a direction to the first Respondent -company to issue duplicate share certificates representing 3,880 shares of the company and consequential reliefs. The first Petitioner is holding the power of attorney of Petitioners Nos. 2 to 11. The averments in the petition can be briefly stated as follows: The sixth Respondent was the promoter of the erstwhile first Respondent -company. The land on which the factory is located belonged to him. The first Petitioner and Respondents Nos. 2 and 3 jointly took over the first Respondent -company on the understanding that all the three would invest equally in the venture and carry on the affairs of the company jointly. Accordingly an agreement was entered on March 27, 1995, between the first Petitioner and Respondents Nos. 2 and 3 on the one side, and the sixth Respondent on the other side, for taking over the first Respondent -company together with land, plant, machinery and other assets for a total consideration of Rs. 60 lakhs. Rs. 1 lakh was paid as advance from the personal account of the Petitioner on the date of execution of the agreement, and the balance was agreed to be paid within one month. The Petitioner and Respondents Nos. 2 to 5 opened a joint current account with the Indian Bank, Variety Hall Road, Main Branch, Coimbatore for depositing the money to be paid to the sixth Respondent. Accordingly, the Petitioner deposited a sum of Rs. 19 lakhs, and Respondents Nos. 2 and 3 deposited Rs. 37,50,000. A copy of the bank statement is produced as annexure 8. In respect of the contribution made by the Petitioner, the sixth Respondent had transferred to the Petitioners 3,880 equity shares worth Rs. 100 each, having distinctive numbers 151 to 4,030 for a total value of Rs. 3,78,000. The vacant land measuring an extent of 64.65 cents was purchased by the first Petitioner and Respondents Nos. 2 and 3 on April 19, 1995, under two separate sale deeds. The land was registered in the joint names of the first Petitioner, Respondents Nos. 2, 3, 4 and 5. After taking over the company, the Petitioner was appointed as the managing director and Respondents Nos. 4 and 5 were appointed as directors. Respondents Nos. 2 and 3 had the ulterior motive of taking exclusive control of the company and thereby to throw out the first Petitioner and his family members. For the above purpose the third Respondent managed to enter his name in the property tax records pertaining to the company, maintained by the Panchayat. On a complaint filed by the Petitioner the ownership of the property was restored in the joint names of first Petitioner and Respondents Nos. 2, 3, 4 and 5. The order of the executive officer along with tax receipt is filed as annexure 12. Since the first Petitioner found it difficult to manage the affairs of the company as the managing director, he filed a suit before the Munsif Coimbatore (O.S. No. 3346 of 1996) seeking to restrain the Respondents from interfering with the functioning of the Petitioner as the managing director. In the suit, the Respondents contended that the Petitioner had been removed from the board in an extraordinary general body meeting held on August 11, 1995. They also contended that the civil court has no jurisdiction to entertain the dispute. Hence, the suit was withdrawn by the Petitioner reserving his right to approach the appropriate forum. In view of the contention of the Respondent that the Petitioner had been removed from the board, the Petitioner filed yet another suit (O.S. No. 49 of 1998) to declare that the extraordinary general body meeting and resolutions passed therein is null and void. The Petitioner was not served with a notice before holding an annual general meeting as provided under Section 284 of the Act. On October 15, 1995, a memorandum of understanding was signed for an amicable settlement of the dispute between the Petitioners and the second Respondent, as per which the second Respondent agreed to restore the first Petitioner's right as a director as well as the managing director. However, Respondents Nos. 2 to 5 fabricated another agreement wherein the first Petitioner purported to have agreed to transfer his one -fifth share in the land of the company in favour of Respondents Nos. 2 to 5. The Respondents have manipulated the above agreement on a non -judicial stamp paper purchased while executing the agreement dated October 15, 1995. The agreement is fabricated just to prevent the first Petitioner from claiming any right over the land. Based on this fraudulent agreement, Respondents Nos. 2 to 5 have filed a suit O.S. No. 1638 of 1995 seeking specific performance of the so called agreement. The first Petitioner had denied the execution of the alleged agreement. He has not received any advance of Rs. 1,50,000 as stated in the suit. The Respondents have come forward with false agreement in order to defraud the Petitioners and to take absolute control over the management of the company. The share certificates along with transfer deeds representing 20 per cent. shares transferred in the name of the first Petitioner and his family members were duly lodged with the company and the register of members reflect the shareholding. The company had issued the share certificates in the name of the Petitioners. However, on May 25, 1996, those share certificates were lost from the custody of the Petitioner, following which a complaint was given to the police. On December 23, 1996, the Petitioner submitted a letter to the first Respondent -company requesting to issue duplicate share certificates. However, taking advantage of the situation the Respondents had proceeded to alter the register of members and also the share certificates in order to make it appear that those shares have been transferred in the name of Respondents Nos. 2 to 5. Thereupon the Petitioners filed a third suit O.S. No. 201 of 1999 seeking a declaration that the Petitioners are the shareholders of 3,880 shares. In the above suit, the sixth Respondent herein filed a written statement confirming the transfer of the disputed shares in favour of the Petitioners. The Respondents have removed the statutory register of members when the Commissioner appointed by the court visited the premises of the company. At the time when the Petitioner was appointed as the managing director, all the bank transactions were done under the joint signatures of the Petitioner and the third Respondent. The Respondents have initiated various actions in the affairs of the company to defraud the Petitioners. Since the Petitioners have been ousted from the company by fraud and cheating, all the actions taken by them are in violation of the Petitioner's right as a shareholder as well as the right to participate in the management and administration of the company. The Petitioner has been pursuing his remedies in a bona fide manner before the civil courts. The allotment of shares to the first Petitioner has been admitted by the sixth Respondent who is the promoter of the company. The comprehensive remedies following the fraud and violation of the Petitioner's right can be adjudicated only before the Company Law Board. Hence, the Petitioner has withdrawn the civil suits with liberty to approach the Company Law Board for appropriate relief. The paid -up capital of the company is Rs. 68,03,000. As per the agreement dated March 27, 1995, the Petitioner and the Respondents are bound to run the company as partners, and hence the company is in the nature of a quasi partnership. After ousting the first Petitioner the Respondents have increased the share capital of the company. It is liable to be set aside. The Petitioners hold the required qualification of shares in terms of the issued capital of the company as on 1995. There is complete lack of probity in the management of the company by the Respondents. The act of oppression and mismanagement complained of is of a serious nature and calls for interference by this Board. The statutory records of the company are not maintained properly. The records are being manipulated for the personal interest of the Respondents. The Respondents may be directed to produce the statutory register of the company. The first Petitioner has intimated the bank about the various acts of fraud committed by the Respondents, following which the bank had directed to submit a reply. The Registrar of Companies had on August 4, 2003, requested the first Petitioner to submit copies of the documents. The first Petitioner had enclosed copies of the documents as per letter dated August 12, 2003. On January 20, 2004, the first Respondent sent a letter to the Petitioner requesting to furnish copies of the documents. The steps taken by the Respondents to defeat the right of the Petitioners will be clear from the records of the Registrar of Companies. Despite several requests for inspection the first Petitioner was unable to obtain copies of the records from the Registrar of Companies. It is therefore prayed to issue the following orders: (a) For a direction to the first Respondent -company to issue duplicate share certificates representing 3,880 shares in the share capital of the first Respondent -company and the consequential rectification in the register of members to this effect; (b) For a declaration that the removal of the first Petitioner as managing director of the first Respondent -company at the purported meeting held on August 11, 1995, as illegal, null and void; (c) For declaration that the increase in the authorised share capital and the paid -up capital of the first Respondent -company in the year 1996 and thereafter to the exclusion of the Petitioners as illegal, null and void and a consequential direction to the Respondents to allot proportionate shares in the first Respondent based on the agreement dated March 27, 1995; (d) For superseding the board of directors of the first Respondent -company, appoint independent persons in order to administer and manage the first Respondent -company ; (e) To restore the Petitioner as the managing director of the first Respondent -company or alternatively for a direction, directing the Respondents to purchase the shares of the Petitioners at a fair value ; (f) To surcharge Respondents Nos. 2 to 5 for their misfeasance, fraud and cheating committed, and for a direction to investigate the affairs of the first Respondent -company under Section 235 of the Companies Act, 1956 ; and (g) For such other reliefs as this hon'ble Board may deem fit and proper in the circumstances of the case.
(2.) RESPONDENTS Nos. 1 to 5 filed a counter affidavit, and the averments in the counter affidavit can be briefly extracted as below: The first Petitioner (Shri Palanisamy) was an employee of M/s. Lakshmi Machine Work, Periyanayakanpalayam, Coimbatore, when the Respondents purchased the first Respondent mill. Respondents Nos. 2 to 5 wanted to purchase the first Respondent mill which was originally named as G.S.S. Spinners P. Ltd. The first Petitioner was negotiating the deal. It is admitted that Respondents Nos. 2 to 5 and the first Petitioner jointly purchased the land comprised in S.F. Nos. 404/1A2 and 402/2 of Goundanpalayam Village, Coimbatore Taluk measuring an extent of 64.65 cents in which the company was located. Thereafter, Respondents Nos. 2 to 5 purchased the shares of G.S.S. Spinners P. Ltd. The Petitioner did not purchase any shares from the company. Considering the fact that the first Petitioner negotiated the purchase of the company, he was nominally taken as one of the directors of the company. He never contributed any money as his share capital. Since Palanisamy (Petitioner No. 1) did not subscribe his qualification shares, he was removed as director at the general body meeting dated August 11, 1995, after discussion in its board meeting dated July 20, 1995, after complying with all legal formalities. The second Respondent who is the chairman of the company is looking after the entire administration of the company with the help of other directors. Palanisamy never exercised his right as the managing director. He has acted against the interest of the company by misappropriating a sum of Rs. 5 lakhs withdrawn by him on April 28, 1995, from the company's account. Respondents Nos. 2 to 5 has purchased the entire shares of the company from the sixth Respondent (V.R. Govindarajalu) and others. Fully knowing that the first Petitioner has only one -fifth share in the land, he started filing civil and criminal cases against Respondents Nos. 2 to 5. He filed O.S. No. 1056 of 1995 in the District Munsiff Court, Coimbatore seeking to restrain the Respondents from interfering with his functioning as the managing director. The Respondents filed the written statement contenting that he never functioned as a managing director and that he was removed from the directorship on August 11, 1995. Thereupon, he filed another suit O.S. No. 49 of 1998 seeking a declaration that extraordinary general meeting held on August 11, 1995 and his subsequent removal as director is invalid. There also the Respondents filed a written statement contending that the meeting was held as per the provisions of the Companies Act, 1956. The Petitioners filed a third suit O.S. No. 201 of 1999 before the Sub -Court, Coimbatore for a declaration that the Petitioners are the shareholders in respect of the 3,880 equity shares with distinctive numbers from 151 to 4,030. The Respondents filed a detailed written statement stating that the Respondents have originally purchased 80 per cent. shares from the sixth Respondent and others, and subsequently purchased the remaining 20 per cent. on December 19, 1997. When the three suits became ripe for trial, the first Petitioner filed applications in the three suits seeking permission to withdraw the suits with liberty to approach the appropriate forum, which was objected by these Respondents. After considering the objection of these Respondents the respective courts granted permission to the first Petitioner to withdraw the three suits, but without reserving the first Petitioner's right to move before the appropriate forum. The first Petitioner is trying to mislead this Board by stating that the right to move the Company Law Board has been reserved in the civil suits. The present petition is an abuse of the process of law. During the pendency of the civil suit, on October 15, 1995, the first Petitioner executed an agreement in favour of these Respondents agreeing to release his one -fifth share in the property purchased as per sale deed dated April 19, 1995. The first Petitioner filed a criminal complaint before the Judicial Magistrate, Coimbatore alleging cheating and another complaint alleging that these Respondents have forged his signature and manipulated an agreement for sale dated October 15, 1995. The above complaints were dismissed after considering the oral and documentary evidence, and these Respondents were acquitted as per judgments dated May 27, 2002 and March 30, 2005. These Respondents have filed a suit O.S. No. 1638 of 1995 before the Sub -Court, Coimbatore seeking specific performance of the agreement for sale dated October 15, 1995, for the conveyance of one -fifth share of the Petitioner in the property therein, and the suit is still pending. Since the Petitioners are not shareholders, the petition is liable to be dismissed as not maintainable. Hence, the question of challenging the further issue of shares does not arise for consideration. The attempt of the Petitioners in moving the Company Law Board on the same cause of action is only to harass the Respondents. It is denied that the share certificates along with share transfer deed were lodged with the first Respondent -company. If that is so the question of altering the register of members and manipulation of share certificates does not arise. The alleged loss of share certificates is a false claim without any valid evidence. In the written statement filed by the Petitioner in O.S. No. 1638 of 1995, there is no such mention. The Petitioners were aware of the transfer of shares in favour of the Respondents as early as in 1996. They have filed the company petition after a period of ten years and hence liable to be dismissed for the long delay and laches. The sixth Respondent has not transferred the disputed shares to the Petitioners. Since the first Petitioner vacated his office due to disqualification for not holding the required number of shares, the question of his participation in the management does not arise. The role of the first Petitioner was only as a mediator in the purchase of mill and property from the original promoters. The agreement dated March 25, 1995, relates to the purchase of land, building and machinery, and not for the shares of the company. The original company (G.S.S. Spinners P. Ltd.) did not own any land and building as mentioned in the agreement and hence the agreement cannot have any legal bearing in this case. The parties did not act as per the said agreement. If there is any violation of the terms of the agreement the remedy of the first Petitioner is a civil suit. Towards the surrender of the first Petitioner's one -fifth right in the land and building a sum of Rs. 1,92,000 was paid to the first Petitioner. Later he refused to act as per the agreement following which a suit for specific performance was filed by these Respondents. The issues raised by the first Petitioner in this petition are identical to the issues in O.S. No. 1638 of 1995 pending before the Sub -Court, Coimbatore. The sixth Respondent was the owner of the disputed shares till December 19, 1997, on which date he has transferred the same for a consideration of Rs. 3,88,000 to the second and third Respondents. The wealth tax return of the sixth Respondent for the years 1996 -97 and 1997 -98 and income -tax return for the year 1997 -98 will substantiate the above facts. The returns filed by Respondents Nos. 2 and 3 and their bank statements will further support this fact. The minutes of the board meeting of the company from May 5, 1995 to December 19, 1997, will also prove the same facts. The sixth Respondent filed written statement in the original suit O.S. No. 209 of 1999 in his personal capacity. The names of the second and third Respondents are duly entered in the register of members of the company. These Respondents have produced all the documents before the advocate -commissioner. The Petitioners cannot rely on the pleadings in the suits which were withdrawn by him before deciding the issues involved therein. Since the Petitioner has alleged fraud, cheating and fabrication, such issues cannot be adjudicated in summary proceedings before the Company Law Board. The Respondents are maintaining all the statutory records as per the provisions of the Companies Act, 1956. The Petitioners are strangers to the company. The Petitioner's right to the disputed shares can be decided only after the disposal of the suit filed by these Respondents before the Sub -Court, Coimbatore. There is no merit in the petition and the allegations are false and frivolous. It is therefore prayed to dismiss the petition with costs. The Petitioner filed a rejoinder denying the allegations in paragraphs 1 to 21 in the counter affidavit filed by Respondents Nos. 1 to 5. The Petitioners approached the civil court for bona fide reasons, and the same were withdrawn for prosecuting the same before the appropriate forum. The acts of oppression and mismanagement are continuing, and hence there is no delay in filing this petition. The hon'ble High Court while disposing of the appeal filed against the order of this Board has held that the Petitioner has a statutory right to approach the appropriate forum for which no leave from the civil court is required. The fact that the original share transfer certificates were lost is proved by the application before the company for the issue of duplicate certificates, and also by the complaint lodged with the police. Further, the transfer of shares to the Petitioners has been confirmed by the sixth Respondent itself in his written statement filed in O.S. No. 209 of 1999. As evident from the sale agreement dated March 27, 1995, the consideration paid included the share value also. The alleged agreement dated October 15, 1995, is not a genuine document. It has been concocted by the Respondents as a counter blast to the suit filed by the Petitioner. The purchase of shares was not an issue in the suit filed by the Respondents. It is false to allege that the first Petitioner vacated his office due to not holding the qualification shares. The sixth Respondent has confirmed the transfer of the disputed shares to the Petitioner. The alleged misappropriation of funds of the company is denied. The first Petitioner has been removed from the management in gross violation of law. He was not given notice of the board meeting. It is denied that the role of the first Petitioner was as a negotiator in the purchase of the land and building by Respondents Nos. 2 and 3. The agreement dated March 27, 1995, clearly refers to consideration being paid for the purchase of the company's shares. The Respondents cannot disown the agreement in which they are also parties. The first Petitioner neither agreed to surrender his right in the land nor received a consideration of Rs. 1,92,000. On October 15, 1995, the parties entered into an understanding to withdraw the respective civil suits and to restore the first Petitioner as the managing director of the company. But, the Respondents did not withdraw their suit. It is denied that the consideration paid to the sixth Respondent as per the sale deed was not inclusive of the consideration for the transfer of shares. The chartered accountant of the first Respondent -company as well as the sixth Respondent admitted that shares have been transferred to the Petitioners. The tax returns filed by the sixth Respondent and other Respondents will be of no avail against the admissions made by the sixth Respondent. The issue involved in this petition and the suit filed by the Respondents are totally different.
(3.) ON the basis of the above pleadings and following issues arise for consideration: (i) Whether the Petitioners hold 3,880 equity shares in the first Respondent -company by way of transfer by the sixth Respondent, in order to entertain an application under Sections 397 and 398 of the Act ; (ii) Whether the first Respondent is liable to issue duplicate share certificates representing the above mentioned shares ; (iii) Whether the removal of first Petitioner as managing director of the first Respondent -company is legal or not; (iv) Whether the increase in the authorised share capital and paid -up capital of Respondent No. 1 company in 1996 is legally sustainable ; (v) Whether the Respondents are liable to allot proportionate shares to the Petitioners based on the agreement dated March 27, 1995 ; and (vi) To what relief and costs.;