RADHE SHYAM TULSIAN Vs. PANCHMUKHI INVESTMENT LTD

JUDGEMENT

(1.) THE petitioners claiming to hold, together with their associates, 90% shares in Panchmukhi Investments ltd. (the company) have filed this petition under Sections 397/398 of the Companies Act, (the Act), with the allegations that by virtue of issue of further shares illegally and by denying the fact of transfer of shares to the petitioners, the company contends that the petitioners hold only around 9% shares. Further, they have also alleged that there had been changes in the composition of the Board of directors by which their majority in the Board has been reduced to a minority. Accordingly, the petitioners have sought for cancellation of the further issue/allotment of shares, and also for a declaration that the petitioners hold 90% shares in the company, and also for the restoration of the Board with the petitioners in majority.

(2.) The undisputed facts of the case are that this company was incorporated in August, 1992, with an authorised capital of 25 lakhs divided into 25,000 shares of 100 each. Later on, the authorised capital was raised to 1 crore consisting of 10 lakh equity shares of Rs. 10 each on 1.2.1995. As on 31.7.1995, the paid up capital was Rs. 36 lakhs comprised on 3,60,000 shares and all the shares were entirely held by the 2nd respondent and his family members. With a view to promote a group housing scheme, the company entered into an agreement to purchase 8 acres of land in Bangalore in March, 1992. On 1.8.1995, the petitioners entered into a memorandum of understanding (first MoU) with the company and the 2nd respondent by which the cost of development of the land was estimated at Rs.21.78 crores of which the petitioner were to bear 90% and the 2nd respondent, the remaining 10%. It was also agreed that 90% of the shares held by the respondents would be transferred to the petitioners for a consideration of Rs. 3.24 crores, and that all the directors except the 2nd respondent would resigns directors and the petitioners would have not more than 4 directors on the Board of the company. It was also agreed that the paid up capital of the company would be increased by Rs. 1 crore by issue of fully paid equi-preference shares of Rs. 10 each to be initially subscribed by the 2nd respondent of which 90% would be transferred to the petitioners after expiry of 12 months from the date of allotment. The agreement also provided for termination of the agreement in case of failure of the 2nd respondent to get the land registered in the name of the company, in which case, all the money paid by the petitioners would be refunded with interest at the rate of 24% per annum compounded quarterly. In terms of the MoU, all the then existing directors except the 2nd and the 7th respondents resigned from the Board and the 2nd and 3rd petitioners and the 8th and 9th respondents were appointed as directors. In December, 1996, the petitioners sent a letter terminating the MoU and demanding payment of their investment at 24% interest. After some correspondence on this letter , the parties entered into another MoU on 6th April, 1997 (2nd MoU) by which the investment made by the petitioners was agreed to be refunded together with interest over a period of time. Nothing came out of the MoU. Thereafter, certain proceeding had been initiated by the petitioners in Calcutta High Court and by the respondents in a civil court at Bangalore.

(3.) SHRI Sen, Senior Advocate, appearing for the petitioners, submitted as follows: When the 2nd respondent acquired the land, with a view to perfect the title to the and which needed funds, entered into an MoU with the petitioners on 1.8.1995 (Annexure A-2) by which the petitioners were to acquire 90% of the shares held by the 2nd respondent and his group for a sum of Rs. 3.24 crores. Clause 11 of the MoU specifically stipulates that on payment of Rs.3.24 crores representing full consideration towards acquisition of 90% shares, the management and control of the company together with movable and immovable assets including the land shall be handed over to the petitioners. Accordingly, the entire amount of Rs. 3.24 crores was paid to the 2nd respondent, and 1,25,100 shares were initially transferred to the petitioners on 29.2.1996 and a further 1,94,100 shares were subsequently transferred on 5.4.1997. The shares certificates in respect of all these shares are in possession of the petitioners wherein 2nd respondent, in his capacity as the authorised signatory/director, has endorsed the registration of transfers in the reverse of the share certificates. These shares constitute about 88.6% of the then paid up capital of Rs. 36 lakhs consisting of 3.6 lakh shares of Rs. 10 each. The consideration of Rs. 3.24 crores for 3,19,200 shares would work out to roughly over Rs. 100 per shares. In other words, for getting the control of the company, the petitioners have paid a premium of Rs. 90 per share. This amount was paid in various instalments, including a sum of over Rs. 1 crore by cash. The total amount paid includes a sum of Rs. 75 lakhs paid as a loan to the company, and also Rs. 10 lakhs paid as advance towards the shares. The investment made by the petitioners was utilised by the 2nd respondent to pay for the land.