Rajeswara Rao Vittanala, Member - (1.) The Company Petition bearing C.P. No. 71 of 2008 (TP No. 29/HDB/2016) is filed by Anand Prakash Sanghi and 6 others U/s. 111, 397, 398, 402, 403 & 406 R/w Schedule XI of the Companies Act, 1956, by seeking the following reliefs: a. Setting aside the resolutions alleged to have been passed at the EGM alleged to have been held on 19/03/2007 for non-recognizing the allotment of 20,00,000 shares that were allotted by the first Respondent company on 01/03/1998 and direct the Registrar of Companies, Andhra Pradesh, Hyderabad not to take on record the Form 23 filed by the second Respondent in this regard; b. Setting aside the resolutions alleged to have been passed at the EGM alleged to have been held on 19/03/2007 for non-recognizing the allotment of 84,99,937 shares that were allotted by the first Respondent company on 01/04/2006 and direct the Registrar of Companies, Andhra Pradesh, Hyderabad not to take on record the Form 23 filed by the Second Respondent in this regard; c. Setting aside the illegal allotment of 45,00,000 shares and 84,99,937 shares that were alleged to have been allotted to the Respondent group on 19/03/2007 and 22/04/2006 respectively and direct the Registrar of Companies, Andhra Pradesh, Hyderabad not to take on record the Form 2 filed by the second Respondent in this regard; d. Directing the first Respondent company to rectify the Register of Members, reinstating the names of the Petitioners and to delete the names of the Respondent group with respect to the shares alleged to have been allotted on 22/04/2006 and 19/03/2007; e. Setting aside the illegal appointment of second, third fourth, fifth, ninth, tenth, eleventh and 12th Respondents as Directors of the sixth, seventh and eighth Respondent companies and direct the Registrar of Companies, Andhra Pradesh, Hyderabad not to take on record the Form 32 filed by the second Respondent in this regard; f. Setting aside the illegal allotment of 40,000 shares that were alleged to have been allotted to the third and ninth Respondent in sixth, seventh and eighth Respondent companies and direct the Register of Companies, Andhra Pradesh, Hyderabad not to take on record the Form 2 filed by the second Respondent in this regard; g. Setting aside the illegal shifting of registered office of the sixth, seventh and eighth Respondent companies and direct the Registrar of Companies, Andhra Pradesh, Hyderabad not to take on record the Form 18 filed by the second Respondent in this regard; etc.,
(2.) The brief facts of the case, as stated in the Company petition, which are relevant to the facts in issue, are as follows: 1) The first Respondent Company was originally incorporated on 18.12.1992 under the name "ABK Publication Limited". Subsequently the company was acquired by way of a slump sale of all the 63 shares that were held by the erstwhile Promoters, were acquired by Sanghi family on 21.10.1994. All the 63 shares were equally divided and 9 shares each were equally divided in the name of Late Mr. Ram Sharan Sanghi, Smt. Kamala Rani Sanghi, Mr. Ravi Sanghi, Second Petitioner, Seventh Petitioner, second Respondent and fourth Respondent. The second Petitioner and second Respondent were inducted into the Board as Directors of first Respondent Company on 15.11.1994 and thereafter on 11.05.1995, the seventh Petitioner was also inducted as a Director of first Respondent Company. During May 1995, the erstwhile Promoters/Directors resigned from the Board and the Board was left with the second, seventh Petitioners and second Respondent as Directors of first Respondent Company. 2) The seventh Petitioner, who was inducted into the Board on 11.05.1995, had to resign from Directorship on 05/10/1996 at the request of the second Respondent. In the casual vacancy created with the resignation of the seventh Petitioner, the fourth Respondent, who is the wife of the second Respondent, was appointed as a Director. 3) The first Respondent Company is basically engaged in the business of publishing Telugu daily newspaper in the state of Andhra Pradesh. The newspaper mainly covered all political issues and it had a reasonable circulation in the state. 4) By virtue of the nature of the business, the second Respondent had the golden opportunity to interact with different people of different sections of the society. As the newspaper was mainly focusing on political issues in the state of Andhra Pradesh the second Respondent had to meet various political leaders of different parties and interact with them for interviews, views and discussions etc. Thus the first Respondent Company was used as a vehicle by the second Respondent to further his personal image which was already on the edifice of 'Sanghi' name. It would not be an exaggeration to say that the family sank huge money in this company mainly to help the second Respondent's political name and career, as till then, he was an unknown person outside the family circle. 5) The second Respondent, who is a boorish braggadocio with, out of the world lifestyle tastes and a mania for authority wanted to become a full time politician and expressed his willingness to the family members, who in turn extended their valuable genuine support and encouragement to the second Respondent with a fond hope that he would spend some time and energy for furthering Sanghi's image and business interests. All the family members, including that of Petitioner group, worked together for the second Respondent to have a good political beginning and career. As a result of hard work and support extended by the family members, the second Respondent became a Member of Parliament, Rajya Sabha and continues to hold the position as on the date of this petition. After becoming a Member of Parliament, the attitude of the second Respondent took a complete "U" turn. The second Respondent in order to retain his status and popularity in the political arena, decided to use the newspaper run by the first Respondent company for his own personal benefits and self-aggrandizement and in the process decided to maroon the Petitioner group and hijack the first Respondent company from the hands of the Petitioner group. The second Respondent was well aware that the Petitioners being equal shareholders holding 50% of the paid up capital, would not allow the misuse of the business of the company for his own personal benefits. 6) It is alleged that in order to hijack the first Respondent Company from the hands of the Petitioner group, the second Respondent wanted to expel the Petitioner group from the first Respondent company. In the process, the second Respondent created a peculiar and odd situations and circumstances for forcing the second Petitioner to resign from Directorship on various occasions. The second Petitioner in order to protect the interest of the first Respondent Company, and who did not want to precipitate the issue further, resigned from the Board on his own on 15.03.2005. Though the second Petitioner resigned from the Board, the Petitioner group decided to retain their respective shares constituting 50% of the paid up capital with them, so that no material and major financial decisions affecting the interest of the first Respondent company can be taken without the knowledge of the shareholders/Petitioners. The second Respondent realizing that 50% ownership still belongs to the Petitioner group, decided to convert the Petitioner group into a mere minority and therefore filed forms 23, 5 and 2 with RoC, AP, Hyderabad with all false contents. The second Respondent taking undue advantage of his position as Managing Director has- a. Filed form 23 on 10/08/2007 with RoC, A.P., and Hyderabad. In the said Form he has falsely claimed that the shareholders at the Extraordinary General Meeting held on 19.03.2007 have passed resolutions (i) amending capital clause in the Memorandum of Association so as to increase the authorized share capital from Rs. 10.50 crores to Rs. 15 crores (ii) for borrowings under the provisions of Section 293(1)(d) of the Act and (iii) for non-recognition of 20,00,000 shares and 84,99,937 shares that were already allotted by the first Respondent company on 01.03.1998 and 01.04.2006. b. Filed form 5 on 12.04.2007 with RoC, A.P., Hyderabad in which he has made a false statement that the shareholders at the EGM held on 19.03.2007 have passed resolution authorizing increase of authorized share capital from Rs. 10.50 cores to Rs. 15 crores. c. Filed Form 2 on 06.04.2007 with RoC, A.P., Hyderabad Hyderabad, alleging that 84,99,937 shares were allotted to Respondent group by the Board of Directors at its meeting held on 22.04.2006. d. Filed Form 2 on 14.08.2007 with RoC, A.P., Hyderabad Hyderabad, alleging that 45, 00,000 additional shares were allotted to him by the Board of Directors at its meeting held on 19.03.2007. 7) It is stated that the first Respondent company did not hold any general meeting on 19.03.2007 as falsely claimed by the second Respondent in the Forms 5 and 23. The Petitioners holding 50% of the paid up capital of first Respondent Company did not receive any notice calling for any EGM on 19.03.2007 and no resolution was passed as falsely claimed by the second Respondent in the Forms. The second Respondent, who has decided to become a major shareholder, has filed this Form completely violating the law and procedure in this regard. The second Respondent ought to have known that shares once allotted by any company cannot be de-recognized or cancelled by the shareholders as it would tantamount to capital reduction. The first Respondent company had allotted shares on two occasions, firstly 20,00,000 shares on 01.03.1998 and 84,99,937 shares on 01.04.2006 to both Petitioner and Respondent groups. The second Respondent himself has signed Form 2 for both the allotments, and has filed the Forms with RoC, A.P., and Hyderabad on 05.03.2007. 8) The above said allotments would place both the Petitioner and Respondent groups on equal footing as both the groups are holding 50% each. The second Respondent, who wanted to grab all the shares of the Petitioners, under the impression that filing of Form 23 would make the allotments invalid, filed the Form 23, falsely alleging that a special resolution was passed by the shareholders at the EGM held on 19.03.2007 for non-recognition of shares that were already allotted only to the Petitioner group. He has also claimed that the non-recognized 20,00,000 shares and 84,99,937 shares were factually allotted by the Board of Directors to the Respondent group. The said special resolution has been filed under the provisions of section 293 of the Act. Even assuming, but not admitting that there was an EGM on 19.03.2007, the special resolution passed for non-recognition and recognition of shares that were allotted by the Board shall not be treated as a valid resolution, for the reason that such a resolution, if at all passed, would be in sheer violation of the provisions of the Act. There is no provision under the Companies Act, 1956 that provides for any de-recognition of shares that were already allotted by any company. Nevertheless, the second Respondent himself has claimed that the de-recognized shares were factually allotted by the Board. The second Respondent ought to have known that the first Respondent Company is a public limited company, and, therefore, the provisions of section 81 of the Act are applicable to the company. He should have also known that as per clause 57 of the Articles of Association the power to issue additional shares vests with shareholders, and not with the Board of Directors. Therefore, the impugned Forms 5 and 23 are illegal and ultra vires the MOA and AOA of the Company, apart from the Company Act. The second Respondent, in the course of making an attempt to show him as a major shareholder has invented a new concept "non-recognition" of shares for which no provision is available under the present Companies Act, 1956. 9) The second Respondent has also filed Form 2 with RoC, Hyderabad on 06.04.2007 and 14.08.2007 claiming that the first Respondent company has issued additional 84,99,937 shares to Respondent group at the Board meeting held on 22.04.2006 and 45,00,000 shares to second Respondent himself at the Board meeting held on 19.03.2007. The first Respondent Company, being a public limited company is also governed by the provisions of section 81 of the Act. The second Respondent, while trying to allot additional shares to himself and his group, has completely failed to realize that no additional shares can be issued without the authority of the shareholders. The second Respondent has neither complied with the provisions of section 81 of the Act nor with Clause 57 of the Articles of Association, for both the alleged allotments on 22.04.2006 and 19.03.2007. No General Body Meeting was held wherein the allotment of 84,99,937 and 45,00,000 shares to the Respondent group was approved by the shareholders. Therefore the said allotment of 84,99,937 to Respondent group and 45,00,000 shares to second Respondent ex-facie illegal and they are liable to be set aside. 10) It is stated that Forms 23, 5 and 2 along with the attachments filed by the second Respondent on 06.04.2007, 10.08.2007 and 14.08.2007 with RoC, A.P., Hyderabad shall be treated as invalid and infructuous as the details contained therein are all false, fabricated and manipulated and are against the provisions of companies Act, 1956 and thus oppressive to the Petitioners. While, filing Forms illegally with RoC, AP, the second Respondent deliberately failed to appoint a Company Secretary in first Respondent Company though it is mandatory under the provisions of the Companies Act, 1956. 11) Apart from indulging in various acts of oppression, the second Respondent has also mismanaged the affairs of the first Respondent Company as detailed below. a) The first Respondent Company being a publisher/member of Audit Bureau of Circulation (ABC) has failed to maintain essential books, documents and records to facilitate a proper audit that is conducted by the Audit Bureau of Circulation an apex organization, on a regular basis and consequentially has not obtained the certificate for several years. ABCs primary objective is to arrive at and certify authentic circulation figures representing "Net Paid Sales of member publications" and disseminate the data for the use of space buyers. The first Respondent company, though being a publisher member of ABC, has failed to co-operate with the ABC and correspondingly has not got its audit certificate for several years. This is mainly on account of the fact that first Respondent company was making a tall and false claim about its circulation of its daily paper without full and proper records and documents to support its false claim. It was afraid that this claim would stand exposed badly if it is allowed/permitted an audit of circulation by ABC. This clearly shows the mala fide intention of the Respondent group who year after year mismanaged the first Respondent company. b) A perusal of the balance sheet as at 31.03.2006 and 31.03.2007 would reveal that the first Respondent company had a huge balance of Rs. 21,78,49,064/- and Rs. 25,65,99,805/- respectively under the Head "Sundry Debtors". The said amounts constitute almost twenty five percent of the turnovers reported in the respective financial years, which is very much abnormal in the industry of this nature. The second Respondent failed to maintain a balance between the turnover and debtors and has allowed the debtors to rise to the level of one fourth of the turnover. Also the reporting of the sundry debtors is not as per the format prescribed under schedule VI to the Act, thereby violating the provisions of section 211 of the act. c) The second Respondent has also diverted huge amounts through "loans and advances" account as is evident from the balance sheet as on 31.03.2007. The balance under the head "loans and advances" show an amount of Rs. 5,75,48,580/-. The first Respondent company is engaged in the business of printing, publishing and circulation of newspapers and not in any financial related activities and therefore, does not warrant such a huge balance under the head "loans and advances". d) The second Respondent has also deliberately suppressed the details of unsecured loans that were accepted by the first Respondent Company. The schedule that is given along with the balance sheet do not contain the breakup of the unsecured loans but instead reflects the total figure which is in violation of the provisions of section 211 of the Act read with Schedule VI. e) A perusal of the auditor's report would reveal that the first Respondent Company has contingent liabilities in the form of disputed income tax demand, to the tune of Rs. 23 lakhs and appeals are pending in various forums. Such a liability has arisen before because of the inability and inefficiency of the second Respondent. This is yet another instance of mismanagement of the affairs of the first Respondent company by the second Respondent. f) Another alarming Head in the books of account is "Sales Commission" under which Head, expenses to the tune of Rs. 12.85 crores has been booked for the year ending 31.03.2007. This single head constitutes about thirty three percent of the total expenditure of the first Respondent company during the said year. Again here there is a huge mismatch between the turnover and the sales commission, which has a direct link to the turnover. The figures reportedly show that the first Respondent Company managed by the second Respondent has paid sales commission @ 12.67% to its vendors. The second Respondent without the knowledge and consent of the Board of Directors has unilaterally decided to pay such a huge percentage as sales commission. g) Further, the balance sheet and profit and loss account do not comply with the following accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI), thus violating the provisions of Section 211 (3A to 3C) of the Act. (i) AS-3: Cash Flow Statements- The first Respondent company failed to prepare and present Cash flow statements for which financial statements were presented. (ii) AS-9 : Revenue Recognition- The first Respondent company failed to disclose the revenue recognition policy followed by the company. (iii) S-18: Related Party Disclosures- The financial statements failed to disclose the related parties relationships and transactions between the first Respondent company and its related parties. h) The illegal acts of the second Respondent did not stop with the Petitioners and first Respondent company but also extended to other entities, where the Petitioners had a huge stake. The sixth Respondent Company is a company registered in the State of Andhra Pradesh. The Petitioners group have huge stake in the sixth Respondent Company through the first Respondent Company. The first Respondent company has entered into few contracts with sixth Respondent company. Third Petitioner and thirteenth Respondent are the Directors of the sixth Respondent Company right from its inception and they are also in charge of the day to day affairs of the sixth Respondent Company. The second Respondent with an ulterior motive of taking control over sixth Respondent company has unauthorizedly filed the following Forms with RoC, AP to show that both the Board and the share capital are under his control. (1) Filed Form 32 on 03/06/2008 to show that second, fourth, tenth, eleventh and twelfth Respondents were appointed as Directors of sixth Respondent company w.e.f. 30/03/2005. (2) Filed Form 32 on 04/06/2008 to show that third, fifth and ninth Respondents were appointed as Directors of sixth Respondent company w.e.f. 01/04/2007. (3) Filed Form 2 on 06/06/2008 to show that 40,000 shares were allotted to third and ninth Respondents at the Board meeting of sixth Respondent company held on 15/05/2008. (4) Filed Form 18 on 09/06/2008 to show that the registered office of sixth Respondent company has been shifted from Bank Street to Lower tank bund road w.e.f. 15/05/2008. (i) It is stated that all the above Forms were filed by the second Respondent without any authority and consent of the Board of Directors and shareholders of sixth Respondent company. From the inception, the Board of sixth Respondent company consists of the third Petitioner and thirteenth Respondent and there has been no change in the composition of Board of Directors. No Director was either inducted or resigned from the Board of sixth Respondent Company all these years. This being the fact, the second Respondent has no locus standi to file the above said forms with RoC, AP falsely stating that new Directors were appointed into the Board, additional shares were allotted and the registered office of sixth Respondent Company has been shifted. (j) The second Respondent ought to have known that sixth Respondent Company is governed by the provisions of Companies Act read together with its Articles of Association and mere filing of forms would not make any person a Director and shareholder of sixth Respondent company. The second Respondent shall be directed to produce evidences to prove that the contents mentioned in all the Forms filed by him on 03/06/2008, 04/06/2008, 06/06/2008 and 09/06/2008 as mentioned above with RoC, Andhra Pradesh, Hyderabad are true and no part is false and misleading. (k) Hence, the appointments alleged to have been made on 30/09/2005 and 01/04/2007, alleged allotment of 40,000 shares on 15/05/2008 and alleged shifting of registered office are invalid and illegal and should not be given effect to, for the reason that the second Respondent who has signed and filed the Forms is no way connected to the sixth Respondent company and its affairs and the Forms have been filed without due compliance of law and procedure. (l) Similarly seventh and eighth Respondents are Companies registered in the state of Andhra Pradesh. In both these companies, the Petitioners Company has entered into few contracts with both the seventh and eighth Respondent companies as well. The second Respondent with an ulterior motive of taking control over both the seventh and eighth Respondent companies has unauthorizedly filed the following Forms with RoC, AP to show that both the Board and the share capital of the seventh and eighth Respondent companies are under his control. (1) Filed Form 32 on 05/06/2008 to show that the second fourth, tenth, eleventh and twelfth Respondents were appointed as Directors of the seventh and eighth Respondent companies w.e.f. 30/09/2005. (2) Filed another Form 32 on 05/06/2008 to show that third, fifth and ninth Respondents were appointed as Directors of both the seventh and eighth Respondent companies w.e.f. 01/04/2007. (3) Filed Form 2 on 06/06/2008 to show that 40,000 shares were allotted to third and ninth Respondents at the Board meeting of both the seventh and eighth Respondent companies held on 15/05/2008. (4) Filed Form 18 on 09/06/2008 to show that the registered office of both the seventh and eighth Respondent companies have been shifted from Bank Street to Lower tank bund road w.e.f. 15/05/2008. (5) It is submitted that all the above Forms were filed by the second Respondent without any authority and consent of the Board of Directors and shareholders of seventh and eighth Respondent companies. The second Respondent has no locus standi to file the above said form with RoC, AP falsely stating that new Directors were appointed into the Board, additional shares were allotted and the registered office of seventh and eighth Respondent companies has been shifted. All the contents mentioned in the above Forms are void ab initio. The second Respondent who has signed himself and filed the Forms with RoC, AP has no authority to file the same as he is a total stranger as far as both the seventh and eighth Respondent companies are concerned. (6) Therefore the appointments alleged to have been made on 30/09/2005 and 01/04/2007, alleged allotment of 40,000 shares on 15/05/2008 and alleged shifting of registered office are invalid and illegal and should not be given effect to, for the reason that the second Respondent who has signed and filed the forms is no way connected to both the seventh and eighth Respondent companies and its affairs and the forms have been filed without due compliance of law and procedure. (7) It is submitted that the second Respondent showed persistent negligence and total disregard for the provisions of Companies act, 1956, Articles of Association in preparation and presentation of its financial statements besides acting in a manner oppressive to the interest of Petitioners. And they shall be treated as null and void. (8) It is submitted that all the resolutions that were alleged to have been passed at the Extraordinary General Meeting alleged to have been held on 19/03/2007 are invalid and illegal and should not be given effect to, for the reason that the said meetings, if at all held, were held without due compliance of law and procedure and the resolutions alleged to have been passed thereat are in fructuous. (m) It is therefore submitted that the second Respondent has not only been mismanaging the affairs of the first Respondent Company by manipulating records but his acts have resulted in oppression and against the interest of first Respondent company. And the balance of convenience will be against the Petitioners if the Hon'ble Bench does not intervene and pass appropriate interim orders in view of the serious allegations of the oppression. It is further contended that the affairs of the first Respondent Company are being conducted in a manner prejudicial to public interest and members of the Company and is fit to wind up under just and equitable ground but if any such an order is passed, it would unfairly prejudice the interest of members. Therefore, the Tribunal is prayed to interfere in the subject matter by passing appropriate orders as it thinks fit and just as to bring to an end the matters complained in the instant case.
(3.) Shri Girish Sanghi, the second Respondent herein, has filed counter/written submissions dated 10th January 2017. The main contents as raised by him are as follows: (1) One of the important qualifications for filing a company petitions U/s. 397 and 398 is that that the Petitioner should have at least 10% of the share capital of the Company as on the date of filing a petition. However, it is alleged that the Petitioners did not hold any shares in the Company as reflected in annual return for the year ended 31-03-2008. So, the claim of Petitioner that they are holdings 43.75% of the paid up capital is totally denied and the petition itself is not maintainable. (2) It is alleged by misusing digital signatures of 2nd Respondent, the Petitioners have been illegally allotted themselves of the shares in Respondent No. 1 Company. It is further alleged that the second Respondent has given his digital signature to Anand Prakash Sanghi (first Petitioner herein) as he is his elder brother in good faith. However, by misusing his digital signature, the first Petitioner has uploaded the fraudulent allotment on 05-03-2007. He has not authenticated list of allottees made on 01-03-1998 and 01-04-2006. The annual returns of the Company as on 29-09-2008 disclose paid up capital is Rs. 15,00,00,000/- divided into 1,50,00,000/- shares of Rs. 10 each and shareholders list does not reflect the shareholding of the Petitioners at all, on this ground itself, the petition is liable to be dismissed without going into details of other contentions made by the Petitioners. As per extant provisions, the said return should have been filed within 30 days with the Registrar of Companies in physical mode. During the years, 1998 and 2006, the facility of filing digital forms in electronic mode was not in vogue. So this itself shows that the alleged Forms filed on 01.4.2006 and 01.03.1998 are fraudulent. The Petitioners have not produced an iota of evidence regarding share certificate, amount remitted to Respondent No. 1 Company towards alleged share allotments to themselves, relevant Board resolution allotting the same etc. (3) It is contented that the question of issuing notice to the Petitioners for general meeting held on 19.03.2007 does not arise, as they are not shareholders at all. (4) Further it is stated that after the advantage of Indian Readership (IRS), Publishers are free to choose either Audit Bureau of Circulation (ABC) or IRS or National Readership Survey (NRS) for the claim of circulation. When there was delay in getting ABC certificate, IRS survey was chosen as a principal source of dissemination information about its readership. He has stated that there was an excellent improvement in the turnover of the Company from 1995-96 to 2007-08. (5) He has furnished the details of Income Tax dues, interest and penalties as detailed below: Interest and Penalties of Rs. 57,600, Rs. 2,56,800 and Rs. 4,80,000 were dropped by the ITAT Order dated 19th December, 2007. Penalty and Penalties of Rs. 14,50,000. The Appeal No. 0374/06-07 is still pending with CIT(A) II, Hyderabad. (6) It is stated that the Petitioner are trying irrelevant issues which cannot be termed as mismanagement. In the general course of business, the business executives and General Managers working for the company are given certain powers and Managing Director will have overall superintendence on the affairs of the company. (7) It is asserted that majority shareholders (Superior printers(R6) are, Gaurav Sanghi and Ms. Aarti Sanghi) holding 99.98% shares and balance shares in the name of some Vartha employees. Moreover, the Petitioners are going beyond the scope of present litigation and they have no locus standi to question the affairs of the Company. (8) It is further stated that Respondent Nos. 7 and 8 had all along independent Directors and their shareholdings is as follows: (9) The actual shareholding pattern as per annual return of the Company as on 20-09-2008 is as follows: ;