SATISH CHANDRA SANWALKA Vs. TINPLATE DEALERS ASSOCIATION P LTD

JUDGEMENT

(1.) THE petitioners claiming to hold 4,132 partly paid ordinary shares of Rs. 100 each and 3,065 fully paid preference shares of Rs. 100 each in Tinplatc Dealers Association (P.) Ltd. (the company) have filed this petition under section 397/398 and section 111(4) of the Companies Act, 1956 ('the Act') alleging various acts of oppression and mismanagement in the affairs of the company and seeking rectification of the register of members. THE main allegations relate to issue of further shares in the company in exclusion of the petitioners, issue of bonus shares contrary to the provisions of law, removal of the petitioners 1 and 2 as directors of the company, appointment of new directors on the Board etc. and they have sought for consequential reliefs.

(2.) This company was incorporated in 1948 with registered office at Calcutta. The authorized capital of the company was Rs. 10 lakhs consisting of 4,000,6 per cent tax free redeemable cumulative preference shares of Rs. 100 each and 6,000 ordinary shares of Rs. 100 each. The paid up capital of the company, before issue of new and bonus shares, consisted of 4,132 ordinary shares of which Rs. 45 was partly paid and 1,868 fully paid ordinary shares and 3,065 fully paid preference shares. These 4,132 partly paid shares were originally held in the name of one Gupta Brothers on which Rs. 25 had been paid. In the year 1966, these shares were forfeited and the petitioners became the shareholders in respect of these shares in 1986 on reissue of these to them. According to the respondents, these shares were issued to the petitioners on account of Gupta Bros, and, therefore, they were liable to pay the interest attributable to Gupta Bros, for non-payment of the calls made on them, while according to the petitioners, these shares were held in their own names for their own benefits. It is alleged by the petitioners that without notice to the petitioners, the authorized capital was increased in July, 1994 to Rs. 5 crores. The company had revalued its only asset, namely, an industrial plot in Okhla Industrial Area, New Delhi by over Rs. 3 crores and the company had issued bonus shares against this revaluation reserve at the rate of 60 ordinary shares for every preference shares as well as ordinary shares, which were fully paid. No bonus shares were allotted to the petitioners. In August 1995, the company issued 3,065 equity shares to the preference shareholders in discharge of the preference shares held by them, against the provisions of the Act. In February 1996, the company had issued 25,000 partly paid equity shares at Rs. 40 per share, to the respondents group in exclusion of the petitioners. By these acts, the petitioners who were majority shareholders, were reduced to a negligible minority. Such conversion of majority into minority is a grave act of oppression. The 2nd petitioner was appointed as a director in the AGM held in October, 1986 and the first petitioner was co-opted on the Board from 4-5-1991 and was confirmed in the General Body Meeting held on 1-7-1991. It is further alleged that petitioners have not been receiving any notice for the Board Meetings as well as General Body Meetings after 1-7-1991. However, an inspection of the ROC records showed that both these petitioners have ceased to be directors 1-7-1991 and that in the year 1992, 4th and 5th respondents had been appointed as directors. Later on when the respondents filed their replies, it transpired that the 4,132 partly paid shares held in the names of the petitioners had been forfeited and the said shares had been restored in the name of Gupta Bros. At the last stage of hearing, it further transpired that Gupta Bros, had further transferred these shares to someone else. During the proceedings a number of applications were filed, the important one being that, the respondents had illegally leased out the only land of the company to their own sister concerns on terms which are prejudicial to the interest of the company and the shareholders. With these allegations, the petitioners have sought for restoring their names in the register of members, cancellation of the allotment of bonus shares as well as the further issue of 25,000 shares to the respondents group, cancellation of the lease agreements entered into with the sister concerns of the respondents and restoration of the petitioners as directors.

(3.) SHRI U.K. Chaudhary, the senior Advocate appearing for the petitioners submitted as follows: The main contention of the respondents is that the petitioners held the shares on behalf of Gupta Bros, and that the petitioners had no beneficial interest in the shares. This contention is wrong both in law as well as on facts. Referring to the copies of the share certificates enclosed with the petition, he pointed out that all the share certificates contained the name of the petitioners and there is no indication that these shares were held on behalf of Gupta Bros, Further, at the time when the shares were issued, the petitioners had paid Rs. 25 as application money and Rs. 10 each as allotment money and first call on 21-5-1986 and 7-8-1986, respectively. The face value of the shares is also shown as Rs. 100 each. Once shares are forfeited, the name of the earlier shareholder is deleted from the Register of Members and the shares become the property of the company. It is for the Board of Directors to decide the terms and conditions under which the shares are to be re-issued/re-allotted. Such shares should be issued at par, at premium or at a discount. In the present case, the shares were issued at par as is evident from the share certificates itself. Therefore, the contention of the respondents that by an agreement between Gupta Bros. and the petitioners, the later undertook to take over the liabilities towards interest on the amount of call made on Gupta Bros, does not hold water. Further, nothing has been produced before this Bench that there was any written agreement to this effect. It is also wrong to contend that Gupta Bros, whose shares had been forfeited as early as in 1966 should have voiced their grievance about the forfeiture in 1986 resulting in the alleged agreement between the petitioners and Gupta Bros. He also pointed out that the petitioners had, as early as on 16-3-1986, at the time of making the payment towards application and allotment money of Rs. 35 specifically indicated in that letter that balance Rs. 65 was due 'ON CALL'. Thereafter, on a call of Rs. 10 made, the same was paid by the petitioners. Thereafter, no call was made by the company on the petitioners to pay up the balance. The very fact that the company had also not asked for compliance with the provisions of section 187C of the Act would indicate that the shares were allotted/issued to the petitioners in consideration of the money invested by them and therefore the question of the petitioners holding the shares on behalf of the Gupta Bros. does not arise. Referring to Page 183 of Volume 1, wherein a copy of the directors' report dated 6-9-1986 is annexed, he pointed out even in this report, the directors had stated that the forfeited shares have been reissued to the petitioners and the balance sheet as on 31-3-1986 also indicates the fact of forfeiture of shares. He also pointed out that while the forfeited amount is shown in the balance sheet as on 31-3-1987, the same is not found in the balance sheet as on 31-3-1988 indicating very clearly that the said amount had been refunded to Gupta Bros, and if it is so, then, the question of the petitioners holding the shares on behalf of Gupta Bros, does not arise since with receipt of their investment back, Gupta Bros, had no further interest in the shares. He also pointed out that the respondents have not furnished any proof to show that any interest was demanded from the petitioners in respect of the forfeited shares.