V G COELHO Vs. SILVER CLOUD ESTATES P LTD

JUDGEMENT

(1.) THE petitioners together with the consenting shareholder constituting more than one-tenth of the total members of Silver Cloud Estates Private Limited ('the Company') as well as holding more than 10 per cent of the shares have filed this petition under section 397/398 of the Companies Act, 1956 ('the Act') alleging oppression and mismanagement in the affairs of the Company.

(2.) The main acts of oppression and mismanagement relate to the allotment of 9,900 equity shares and 36,000 preference shares made on 15-6-1991 in favour of respondent Nos. 2, 3 and 5 to 10 and non-election of the first petitioner as a director of the Company at the annual general meeting held on 26-3-1993.

(3.) SHRI R. Vidhya Shankar, Advocate for the respondents, while refuting the allegations of oppression and mismanagement in the affairs of the Company, has submitted that the impugned shares were duly allotted on 15-6-1991 and that the first petitioner was not elected to the Board of directors of the Company in the normal course at the annual general meeting held on 26-3-1993. The petition has been filed in the year 1998, after a delay of 5 to 7 years, which remains unexplained. The petitioners were inactive for several years till the respondents filed company petition in the affairs of South India Tea and Coffee Estates Ltd. There are no bona fides on the part of the petitioners in filing the present petition. SHRI Vidhya Shankar denied the theory of management of the Company based on mutual faith and trust and relationship governing partners. According to SHRI Vidhya Shankar, the business and affairs of the Company are being conducted in accordance with the provisions of the Act and not on any partnership principles. At no point of lime, the Company was considered as a partnership concern and there is no such agreement among the parties of carry on the business of the Company on partnership basis. The theory of the partnership is not applicable by virtue of the fact that the petitioners were never having majority shareholding and there is no question of majority shareholding converted into minority holding. In this connection, he relied upon the decision in Kilpest (P.) Ltd. v. Shekhar Mehra [1996] 87 Comp. Cas. 615', wherein it has been held by the Apex Court that the promoters of a limited company having elected to avail of the advantages of forming a limited company, the plea that a limited company should be treated as a quasi-partnership should not easily he accepted. SHRI Vidhya Shankar has, therefore, submitted that the plea of quasi-partnership made out by the petitioners should be rejected. SHRI Vidhya Shankar invited our attention to the resolution passed on 31-5-1986 by the Board of directors authorising the Company to take deposits from directors and other members of the Company with liberty to issue shares in the Company in discharge of such deposits. Accordingly, the Company was accepting deposits from directors and other members of the Company from time to time which are reflected in the balance sheets for the years ended 31-3-1987 to 31-3-1991. As at 31-3-1992, the total loan amount advanced and the aggregate amount outstanding to the credit of the account of the director members inclusive of interest comes to Rs. 66,74,950. The Company made use of these deposits to run the business, especially when the equity of the Company is to the tune of only Rs. 4 lakhs. Mr. Vidhya Shankar pointed out that the debt equity ratio of the Company was rather unsatisfactory and that the company's banker was constantly pursuing the Company to raise the capital and in this connection he referred to a series of correspondence exchanged between the Company and its banker, (viz.) Exhibits R-8 to R-14. Consequently, the Board of directors of the Company was constrained to pass the resolution on 15-6-1991 to increase the capital base to Rs. 50 lakhs and issue new shares to the existing deposit holders at par on conversion of the outstanding balances to their credit on loans/deposits within permissible limits of the authorised capital of the Company. Pursuant to decision of the board to allot shares against the deposits outstanding in the name of the depositors, written consent was obtained from such shareholder-depositors. Accordingly shares were allotted proportionately to each of the shareholder-depositors upto the full extent of the authorised capital. The company was constrained to make the impugned allotments on account of the pressure from the bank to regularise the debt equity ratio by converting the amount of the credit of the shareholder-depositors towards loans advanced by them. There is nothing inequitable about the impugned allotment to the shareholder-depositors. In this connection SHRI Vidhya Shankar relied upon the decision in New Carnatic Theatres (P.) Ltd. wherein the CLB has upheld the allotment of shares in favour of one group excluding the other group. In the present case the company could not allot shares to the petitioners as they have not contributed any money by way of deposit, SHRI Vidhya Shankar brought to our notice that the company had allotted shares to every shareholder who had kept deposit with the Company including the 10th respondent who is supporting the petitioners. According to SHRI Vidhya Shankar the Company did not discriminate while allotting the impugned shares. Moreover the minutes of the board meeting resolving allotment of the impugned shares was confirmed at the subsequent meeting of the board held on 11-7-1991, after recording the first petitioner's objection to confirmation of the minutes. SHRI Vidhya Shankar has, therefore, urged that non-allotment of shares in favour of the petitioners is not an act of oppression. Articles 4 and 5 empower the Board of directors to allot the shares, in exercise of which the impugned shares were duly allotted in favour of the respondents. With regard to the claim of the first petitioner that his non-election as a director of the company at the annual general meeting held on 26-3-1993, SHRI Vidhya Shankar contended that the provisions of section 397/398 cannot be invoked by a director and therefore it does not amount to an act of oppression. SHRI Vidhya Shankar pointed out that the petitioners cannot claim any relief in respect of the 11th respondent, in view of the fact that the petitioners do not satisfy the requirements of section 399. The petitioners are not shareholders of the 11th respondent-company. Section 399 does not empower shareholders of a holding company with requisite qualifications to maintain any action against its subsidiary company. SHRI Vidhya Shankar has therefore categorically submitted that the claim against the llth respondent should be rejected. While concluding his submissions, SHRI Vidhya Shankar reported that the entire sale consideration in respect of Silver Cloud Estates stands paid by the company and that no amount is outstanding on account of sale consideration.