K.K.Balu, - (1.) IN this company petition filed under Sections 397 and 398 of the Companies Act, 1956 ('the Act') in relation to the affairs of M/s. Bajaj Promoters Private Limited ('the Company') the main grievances of the petitioner, constituting more than one-tenth of total number of members and claiming 99.8% of the paid up capital of the Company, on account of the purported acts of omission and commission of the respondent Nos. 2 & 3 are illegal -(a) interference of the respondent Nos. 2 & 3 in day to day management of the Company; (b) forcible removal of the books of account and statutory records of the Company; (c) usurpation of control of the Company, thereby excluding the petitioner and the fourth respondent from the management; (d) convening of general and board meetings of the Company; (e) increase of the authorised capital of the Company from Rs. 10 lakhs to 21 lakhs; (f) allotment of shares in favour of the third respondent; (g) manipulation of the books of account and other records; (h) take over of the immovable properties of the Company without any valid authority; (i) denying of entry to the purchasers of flats constructed and sold by the Company; (j) sale of flats promoted by the Company without obtaining authority from the board of directors and misappropriating the sale proceeds thereof. Against this background, the petitioner is claiming the following reliefs; i) to declare that the proceedings of all board meetings and general meetings purportedly held by the respondent Nos. 2 & 3 are null and void; ii) to declare that the allotments impugned in the company petition are illegal and invalid; and iii) to supersede the board of directors of the Company and appoint the petitioner and the fourth respondent as directors of the Company.
(2.) Shri A.K. Mylsamy, learned Counsel, while initiating his arguments submitted: • The Company incorporated in March 1988 with an authorised capital of Rs. 10 lakhs divided into 1,00,000 equity shares of Rs. 10/- each is engaged in the business of promoters, developers, builders and residential flats and apartments. The petitioner is the father of the second respondent, the father- in-law of the third respondent and the husband of the fourth respondent. The petitioner and the third respondent being the subscribers to the memorandum of association are the first directors of the Company and not liable to retire by rotation. In May 1989, the petitioner was allotted 2500 shares, the respondent Nos. 2 and 3 were each allotted 100 shares of Rs. 10/- each. The balance sheet for the year ended 31.03.1990 and the annual return for the period made upto 23.09.1991 on record are undisputed, which confirm the shareholding of the petitioner and the respondent Nos. 2&3. This shareholding position remained unchanged till 03.01.1998, when 97,300 shares were allotted to the petitioner, to meet the increase in its assets as well as expenses in terms of Form No. 2 dated 23.01.1998, with which the entire unsubscribed portion of the capital stood issued by the Company and subscribed by the petitioner, especially when the respondent Nos. 2 and 3 were not interested in subscribing to any portion of the additional capital raised by the Company. The respondent Nos. 2 & 3 never evinced any interest and involved in the management of the affairs of the Company. The petitioner on the other hand is solely responsible for the growth of the Company, by acquiring and developing lands, promoting and selling flats. The report of the Commissioner would show that an aggregate amount of Rs. 178 lakhs has been collected from the allottees for the period ended with 31.03.2001 and further that the petitioner has incurred a total expenditure of Rs. 169.80 lakhs towards construction and office expenses. The Company has been in the management of the petitioner since its incorporation till about early 1999. The claim of the second respondent for the office of director is not supported by any primary document and hence his claim for directorship is not sustainable. Form No. 2 dated 24.12.1999 shows as if 1,10,000 shares were allotted on 24.12.1999 in favour of the third respondent, converting the existing majority into minority, but no extraordinary general meeting of the members of the Company was held on 21.12.1999 as claimed by the respondents, increasing the authorised capital from Rs. 10 lakhs to Rs. 21 lakhs. No notice was sent to the petitioner as well as the fourth respondent for the alleged extra ordinary general meeting, and they were not present at the meeting approving the increase of the authorised share capital of the Company. The respondents have not followed the prescribed procedure either for the enhancement of the authorised share capital or for the allotment of shares. The respondents have not produced the minutes book of board meeting or the general meeting and no presumption can be drawn in respect of those minutes, copies of which alone have been produced before the Bench. These acts would constitute oppression against the petitioner in his capacity as member. The disputes between the parties arose during 1999 and therefore, reliance may be placed on the statutory returns available prior to the disputed period, which would indicate that the petitioner held 99.8% of the shares and that he was in the management of the Company. • The petitioner and the third respondent were initially directors of the Company, till the resignation of the third respondent from the office of director with effect from 28.08.1995. Sri Murali Lalchand, who became additional director, had resigned with effect from 01.11.1997, upon which Rohit Bajaj, another son of the petitioner came to be appointed as director with effect from 25.10.1997. The second respondent became director on 03.10.1998, in terms of Form 32 filed on 21.12.1998 with the Registrar of Companies. Later in February 1999 the second respondent and Rohit Bajaj resigned as "directors, and the respondent Nos. 3 and 4 were appointed as directors with effect from 09.02.1999. The respondent Nos. 3 and 4 continued to be directors between 09.02.1999 and 24.02.1999, when the petitioner was appointed as director of the Company on 24.02.1999 and necessary Form No. 32 was filed with the Registrar of Companies. There are no primary documents to support the co-option or resignation of directors and therefore, the returns filed with the Registrar of Companies may be taken into account to determine the validity of appointment of directors. • The petitioner has been running the affairs of the Company until early 1999 by which time serious disputes arose between the petitioner and the fourth respondent on one hand and the respondent Nos. 2 and 3 on the other which resulted in physical violence against the petitioner and the consequent criminal complaint against the second respondent. In this back ground, the second respondent together with the third respondent took unlawful possession of the rear portion of the Company premises and forcibly removed the books of account and other records of the Company and precluded the petitioner from gaining access to the premises and the records belonging to the Company. • The respondent Nos. 2 and 3 are controlling the books of account and other records of the Company, and hence they are in a position to fabricate the records and create documents and mismanage the affairs of the Company. The balance sheets for the year ended 31.03.1999 and 31.03.2000 are fabricated, concocted and prepared after the respondents took control of the books of account and records of the Company in the year 2000 and they are self serving documents and cannot be relied to substantiate their claim. The second respondent by way of a sheer force (a) usurped control of the Company excluding the petitioner from participating in the affairs of the Company; (b) prevented the development and construction of the property in front portion of the premises belonging to the Company; (c) obstructed those persons in whose favour the undivided portions have been sold by the Company from taking possession thereof; and (d) denied the occupants entry to the Hats sold by the Company, thereby preventing the Company from generating revenues from sale of the undivided portion in the aforesaid premises. • The second respondent alienated the flats constructed and sold by the Company unlawfully to enrich himself at the cost of third party bonafide purchasers. The conduct of the respondent Nos. 2 and 3 unfairly prejudiced many members of the public who acquired undivided portions of the land from the Company. This conduct of the respondent Nos. 2 and 3 is highly oppressive and prejudicial to the interest of the Company as well as the public. There is justifiable lack of confidence in relation to the affairs of the Company which will be a ground for winding up under just and equitable clause. However, the order of winding up would cause prejudice to the interest of the Company and its shareholders more so when the Company could make substantial profits in its business venture. • Though the petitioner and the second respondent reached certain understanding as borne out by the minutes of the meeting dated 31.03.1999 and the Memorandum of Understanding dated 01.06.2000, by which the entire shareholding in the Company was to be retained by the second respondent, yet, such understanding was not implemented, as reached between the parties. The second respondent who was to retain the entire shareholding the Company, must necessarily follow the procedure, without which he cannot make any claim in accordance with the memorandum of understanding, which remains only in paper and without being properly acted upon by the parties. The management may be restored back to the petitioner, who will take appropriate steps to safeguard the interest of the allottees and members of Lalchand family and recover the outstanding dues from the allottees. • Sri A.K. Mylsamy in support of his legal submissions relied on the following decisions: • M.G. Mohanraj and Ors. v. Mylapore Hindu Permanent Fund Ltd. by Secretary and Ors. (1990) 1 Comp LJ 73 (Mad) - to show that any general meeting and any resolution passed thereof without proper notice to the generality of shareholders are not valid. • Micromeritics Engineers Pvt. Ltd. and Ors. v. S.Munusamy (2003) Vol. 116 CC 465 - to show that when any person who has not produced the original minutes book and only a copy of the minutes book has been produced before the Company Law Board without carrying any page numbers or initials or the date and signature of the Chairman in the last page of the minutes as required under Section 193 of the Companies Act, no presumption under Section 195 could be drawn. • Kshounish Chowdhury and Ors. v. Kero Rajendra Monolithics Ltd. and Ors. (2002) Vol.110 CC 441 - to show that if further shares are issued only with a view to convert a majority into a minority or for creation of a new majority the same would constitute a grave act of oppression. • Dale and Carrington Invt. P.Ltd. and Anr. v. P.K.Prathapan and Ors. (2004) Vol. 122 CC 161 - to show that if a member who holds majority of shares in a company is reduced to the position of minority shareholders in the company by an act of the company or by its board of directors malafide, the said act must ordinarily be considered to be an act of oppression to such member. • V.G. Sundaraj v. New Theatres Carnatic Talkies Private Limited and Ors.(Judgment dated 18.01.1991 in O.S.A. No. 62 of 1982 on the file of the High Court of Judicature at Madras) - to show that the requisite procedure for rectification must necessarily be followed without which such rectification will not be valid. • Sri A.K. Mylsamy, while arguing the contempt application (CA No. 29 of 2001) submitted that the petitioner has filed, during the pendency of the company petition, an application (C A No. 20 of 2001) for an order of injunction restraining the respondent Nos. 2 & 3 from interfering with construction and sale of undivided portion of the building situated at No. 4A Stringers Road, Vepery, Chennai-600 007 upon which the respondents were restrained from dealing with or negotiating for sale of the property until 18.04.2001 and, thereafter, by an order dated 20.04.2001 the respondents 2 & 3 were restrained from entering into any negotiation or deal with any member of the public for sale of any flat, apart from prohibiting them from carrying on any construction of the building. The respondent Nos. 2 & 3, in violation of the orders dated 18.04.2001 and 20.04.2001, commenced construction activities in respect of the fifth floor and the rear building thereby changing the structure, which is detrimental to the interest of the Company and sold certain flats promoted by the Company to make lawful gain for himself. Shri A.K.. Mylsamy, learned Counsel pointed out that the sale of flats in favour of among others, (1) Savitri Choonilal and Smt. Sarala Sant Kumar (2) Sant Kumar, under the guise of sale agreements and building agreements dated 16.01.2001 is in gross violation of the order dated 20.04.2001. These agreements and transactions are not reflected in the Commissioners' report, thereby it is evident that the sale agreements, builder agreements and other documents entered into with these urchasers are fabricated ones in order to circumvent the order dated 20.04.2001. During the pendency of the present proceedings, the espondent Nos. 2 and 3 has caused an advertisement in the Hindu dated 7.06.2006 for sale of flats belonging to the Company. This unlawful act f the respondents is quite contrary to the order passed on 20.04.2001. Therefore, the respondent Nos. 2 and 3 must be punished for having acted in gross contempt of the order dated 20.04.2001. Shri A.K. Mylsamy, learned Counsel opposed the company application filed by the respondent Nos. 5 to 7 (C.A. No. 69 of 2006) seeking to modify the restraint order dated 20.04.2001 mainly on the ground that if the respondent Nos. 5 to 7 are allowed to deal with the flats independently as claimed by them it will cause enormous prejudice to the Company and therefore, the order dated 20.04.2001 is not to be modified by the Bench. Sri Karthik Seshadri, learned Counsel while opposing the company petition submitted: • The petitioner has approached the CLB with malafide intention of grabbing the Company for himself. The petitioner having committed gross irregularities in the affairs of the Company is not entitled to any equitable remedy and therefore, the reliefs claimed by the petitioner must be declined by the Bench. • There were no disputes till February 1999 between the parties in relation to the affairs of the Company. Form No. 32 dated 25.02.1999 signed and filed by the fourth respondent would categorically show that while the respondent Nos. 3 and 4 were appointed as directors with effect from 09.02.1999, the petitioner and his two sons, who are not parties before the Company Law Board, had resigned from the office of director with effect from 12.02.1999. Thereafter, the petitioner had abandoned the Company and never showed any interest in its affairs in view of his serious financial problems. The petitioner had received advance from the respondent Nos. 5 to 7 aggregating Rs. 91 lakhs and other customers as borne by the balance sheet for the year ended 31.03.1997, which has also been signed by the petitioner. • The petitioner had collected an amount Rs. 204 lakhs from the allottees till February 1999 as borne out by the report of the Commissioner appointed by the Bench and thereafter, further collected an amount of Rs. 268 lakhs, petitioner is, therefore, accountable for these amount collected from the allottees. • The petitioner though collected monies from the allottees failed to deliver the flats and further indulged in second sales of the flats even after vacating the office of director, thereby causing irreparable loss to the genuine purchasers, particulars of which are reflected in the report of the Commissioner. The petitioner has not chosen to produce any of the original records and therefore, no reliance can be placed on copies of the records produced before the Bench. The original records are not in his custody. • By virtue of the arrangement entered into between the petitioner and the second respondent as borne out by the minutes of the meeting dated 31.03.1999 and the Memorandum of Understanding dated 01.06.2000, the second respondent was to retain the entire shareholding of the Company in lieu of his claim of Rs. 1.40 crores due from the petitioner and his group companies, as envisaged therein. The second respondent as per this understanding reached between the parties became director of the Company in March 1999 in terms of Form No. 32 dated 25.02.1999 filed with the Registrar of Companies and came to manage the affairs of the Company. The date of form 32 is very close to the minutes of the meeting dated 31.03.1999 evidencing the arrangement between the parties. The second respondent took necessary initiative to construct the fourth and fifth floors after regularisation by the Competent Authority, in order to meet the claim of the rival allottees, with the financial facilities availed from Bank of India by him as director of the Company. The report of the valuer appointed by the Bench would show that fourth and fifth floors of the building were constructed during the year 1999-2000. • The petitioner as admitted in para 6.14 in the company petition has resigned from the office of director with effect from 12.02.1999. Form No. 32 showing the appointment of the petitioner as director with effect from 24.02.1999 was filed after a delay of nearly two years on 04.01.2001 by the fourth respondent, whereas company petition has been filed on 13.03.2001. There has been no explanation for the delayed filing of Form 32 with the Registrar of Companies. The claim of the petitioner for directorship, by virtue of form No. 32 filed on 04.01.2001 with Registrar of Companies, without supported by the minutes of the board meeting cannot legally be entertained. Therefore from No. 32 showing the appointment of the petitioner as director has no legal sanctity to establish his claim. This shows the malafide intention of the petitioner to usurp control of the Company. The petitioner pursuant to his alleged appointment as director executed sale deeds in favour of several of the allottees with ulterior motive to make unlawful gain, which resulted in double sale of the flats namely, the same flat has been sold in favour of more than one allottee. This malafide act of the respondent must be remedied in the interest of the Company. • The balance sheets for the years between 1995-96 and 2000-01 would show construction expenses aggregating Rs. 1.47 crores, whereas the valuers' report would indicate the construction expenses at Rs. 1.23 crores. These expenses towards construction were not personally incurred by the petitioner, but they were met from the funds belonging to the Company. The petitioner has collected monies to the tune of Rs. 204 lakhs prior to 12.02.1999 and thereafter an aggregate amount of Rs. 268 lakhs, out of which a sum of Rs. 45 lakhs have been spent towards construction expenses as could be seen from the statement produced before the Bench. The petitioner failed to account for the balance amount of Rs. 426 lakhs and has not chosen to settle the dues of the respondent Nos. 5 to 7 and other allottees. The second respondent never collected any monies from the allottees, yet he is prepared to meet the obligations of the Company, provided the management of the Company is entrusted to him, the accounts are rendered and the amounts retained by him are refunded by the petitioner. The entire grievances of the petitioner and the reliefs claimed in the company petition are confined to the front building namely 4-A, Stringers Road, Vepery. Chennai-600 007 and do not relate to the rear building namely 4-B, Stringers Road, Vepery, Chennai-600 007. • The allotment of 9,73,000 shares were purportedly made on 03.01.1988 in favour of the petitioner for valuable consideration. However, this allotment of shares is not reflected in the balance sheet for the year ended 31.03.1988, according to which the share capital accounts for only Rs. 27,000/-. There has been no further issue of shares on 03.01.1988 as claimed by the petitioner, whereas 97,300 shares were allotted on 16.04.1998 and further 1,10,000 shares were issued on 24.12.1999 to the third respondent, after increase of the authorised capital pursuant to the memorandum of understanding, which is duly reflected in the balance sheet for the year ended 31.03.2000. The consideration for the allotment in favour of the third respondent is supported by the bank statements produced before the Bench. The additional capital was required for the purpose of completing the construction in the front building in order to complete and hand over the Flats to various allottees. Thus, the increase in the authorised capital was in the best interest of the Company. • The acts complained of by the petitioner are past acts, which are not amenable to the jurisdiction of the CLB in view of the decisions of several of the High Courts and the Supreme Court.
(3.) SHRI M. Shreedhar, learned Counsel, representing the third respondent submitted that the company petition has been filed on 13.03.2001, whereas the petitioner has managed to file Form No. 32 on 04.01.2001 with the Registrar of Companies to show as if he was appointed as director of the Company. The claim for directorship is not supported by any primary documents and mere reliance on Form No. 32, in disputed circumstances cannot establish the fact that the petitioner has been validly appointed as director of the Company. At the same time, the petitioner collected huge amounts from the allottees as evidenced from the statement made by all witnesses examined in the criminal proceedings launched against the petitioner and the second respondent. The petitioner must refund the entire amounts collected from the allottees and in such an event this respondent will be in a position to reach settlement with the allottees. The balance sheet for the year ended 31.03.2000 shows a loss of Rs. 34.33 lakhs, in which case the expenses of Rs. 31.26 lakhs reportedly incurred by the petitioner for the year ended 31.03.2000 can never be true. These expenses are not reflected in the report of the Commissioner. This establishes the fact that the petitioner could not have constructed the flats, as claimed by him. The petitioner is making such false claim in order to wriggle out of the criminal proceedings pending against him. SHRI M. Shreedhar, learned Counsel while opposing the contempt application reiterated that the second respondent was constrained to execute the sale deeds in favour of (i) Savitri Choonilal and Smt. Sarala Sant Kumar (ii) Sant Kumar, on account of the orders passed by the District Consumer Disputes Redressal Forum. Therefore, the respondent has not wilfully violated the order of the CLB, but was compelled to comply with the order of District Consumer Disputes Redressal Forum in terms of its orders. The petitioner has come out with the contempt application exerting pressure on the respondents in order to yield to his requirements. The terrace rights over the third floor in the front building have been sold to the third respondent for valuable consideration, in terms of the arrangement reached between the parties even prior to institution of the company petition. The fifth floor was constructed even at the time when local inspection of the property was under taken in the course of the present proceedings. There are no construction activities being carried at the fifth floor as falsely contended by the petitioner. The fifth floor belongs to the third respondent who carried out interior work, which would not amount to violation of the restraint order of the Bench.;