NAJMUDDIN R. MEGHANI Vs. M. SQUARE CATERERS & HOSPITALITY (P.) LTD.

JUDGEMENT

(1.) THE present petition is filed by invoking the provisions of sections 111, 397, 398 and 399 of the Companies Act, 1956 ('the Act'), praying this Bench to rectify the register of members by entering the details of equity shares subscribed by the petitioner and set aside the removal of petitioner from the Board of directors and declare that he never cease to be director and investigate into the affairs of the R1 -company and freeze the bank account of the R1 -company operated by respondents 2 and 3. Shri A.G. Shaikh, learned PCS appearing for the petitioner submitted that the petitioner is one of the three subscribers to the memorandum and articles of association of the company and also one of the three permanent directors of the company and that he subscribed to 2,500 equity shares in the company until the fraudulent usurpation of the same by respondent Nos. 1 to 3 against his name vide the annual return as at 31st December 2008. The petitioner is accordingly entitled to file this petition in terms of section 399 of the Act as he is holding 25 per cent of the issued and paid -up capital of the company from its date of incorporation. The petitioner and respondents 2 and 3 incorporated the respondent No. 1 -company as first subscribers to the memorandum and articles of association and subscribed to 2,500, 3,750 and 3,750 equity shares, respectively. They also were the first directors of the respondent No. 1 -company vide article 23 of the articles of association of the company. The petitioner was so instrumental in the formation of the company that the e -mail ID of the company was also that of his professional ID and the company was actually his brain child. It was shocking for the petitioner to realise that the company's first annual general meeting ('AGM') was held on 31st December 2008 as is evident from the Form 20B filed by the company on the MCA Portal behind his back and no intimation for the alleged meeting or the notice was issued to him. It was further shocking to find out that the shares he subscribed as one of the promoters of the company were missing from the annual return attached to the said Form 20B and the other two directors and respondent Nos. 2 and 3 usurped his shareholding in the company. When the promoters subscribed as promoter to the memorandum of association and articles of association, the position was as under for the first 10,000 equity shares in the company upon formation:

(2.) THE main purpose of formation of this company in the name and style of M Square Caterers & Hospitality (P.) Ltd. was to run the affairs of the another company, namely, Chogame Hotels (P.) Ltd. who is proprietor of Royal Park Club Resort at Magdalla, Surat -Dumas Road, Surat in a better and professional way. The respondents gave confidence to the petitioner that they can run the affairs of the said company in a better and professional way and, hence, the said new company in the nature of quasi -partnership was created on 30th June, 2007. Since the aim of the company was to help and run another company in which the petitioner and his family members had deep interest and stake, the agreement was reached among the petitioner and respondent Nos. 2 and 3. The petitioner was instrumental in the formation of the company and had guided the same. A contract in the nature of leave and licence or the management contract was soon signed between Chogame Hotels (P.) Ltd. and the respondent No. 1 as licensed operator of the club facilities and food and beverages from 24th August, 2007. According to the terms and conditions of the said agreement, the respondent -company was to give a deposit of Rs. 75 lakh to the other company Chogame Hotels (P.) Ltd. and 30 per cent share in the profits and 10 per cent in the sales and other receipts. This would suggest that the family members of the said company in which petitioner had interest could benefit but this was in vain and except a paltry amount of Rs. 26,14,809, the respondent -company did not pay anything. The intention of the petitioner to derive benefit from the quasi -partnership company suffered a set -back and, thus, the petitioner was deprived of his legitimate share in the income generated by the respondent -company. The respondent -company has never sent any notice of any meeting of the members of the company or of the Board meetings held subsequent to the issue of certificate of incorporation by Registrar of Companies ('RoC'), Gujarat, Dadra and Nagar Haveli. On this count too, the petitioner suffered and could not exercise his voting right or question the other directors and shareholders in a company formed on the basis of quasi -partnership. All these events are still continuing and the conduct is burdensome, harsh and wrongful and not mere lack of confidence between the majority shareholders and the minority shareholders this lack of confidence springs from oppression of the minority by a majority in the management of the company's affairs, and such oppression does involve an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. Due to various reasons and mismanagement on the part of the respondent Nos. 2 and 3, the Respondent No. 1 -company has been involved into many legal battles with the said Chogame Hotels (P.) Ltd., apart from many civil and criminal cases filed by the respondents on the said Chogame Hotels (P.) Ltd. and their directors and other persons. The 3rd respondents have vide a simple letter dated 26th April, 2009 made a self -made proclamation that the petitioner is neither the shareholder nor the director of the company and, hence, not entitled to any notice of any members meeting or the meetings of the Board of directors. The conduct speaks volume despite their knowledge that a subscriber becomes a member once the person subscribed to not less than one share in the company to its memorandum and articles of association, hence, the acts of oppression are continuing one and since the legitimate share in a quasi -partnership company denied which is established on a footing of a partnership firm concept as held in many cases. The learned PCS relied upon the following citations: (1) In the matter of Mrs. Farhat Sheikh v. Esenel Metalo Chemicals (P.) Ltd. : [1995] 16 CLA 147 (CLB) : : [1996] 87 Comp Cas 290 para 34. (2) unreported judgment of the Karnataka High Court dated 12th August, 2009. In the matter of Mr. Vijayan Rajes v. M.S.T. Plantations (P.) Ltd. [since reported, [2010] 94 CLA 333 (Ker.)]

(3.) IT is submitted that the applicant not having been subscribed to shares undertaken by him or paid any moneys towards shares is not entitled to make petition in view of specific provisions in section 399(1) of the Act. It may be clarified that on failure of petitioner to take up the shares of respondent No. 1 -company the respondent Nos. 2 and 3 were required to take up the shares in order to comply with provisions of section 3(1)(iii) of the Act which stipulates that every private limited company shall have minimum paid -up share capital of Rs. 1.00 lakh or such higher paid -up share capital as may be prescribed by articles of association. It is humbly stated that that rectification of register of members under sub -section (1) of section 111 is applicable in case of refusal to register or transfer of transmission of shares and sub -section (4) of section 111 is applicable if (a) name of the person (i) is without sufficient cause entered in the register of members of company or (ii) after having been entered in register is without sufficient cause omitted therefrom, or (b) default is made or unnecessary delay takes place in entering in the register the fact of any person having become or ceased to be a members. Pursuant to sub -section (3) of section 111 an appeal for rectification of register of members is to be made within two months of intimation or refusal. The respondent No. 1 has informed the petitioner vide letter dated 26th April, 2009 of his not being member of company and in view of limitations for making an appeal the petitioner may be called up to confirm how the petition is within the limitation. The petitioner has also not established how alleged acts of oppression and mismanagement are of continuing in nature. It is further submitted that since the petitioner has failed to take up the shares agreed to be taken by him he is not a shareholder and not entitled to receive the notice. The respondents promptly replied on 26th April, 2009 to the letters of the petitioner dated 16th April, 2009, 20th April, 2009. It is surprising that the petitioner being an advocate waited for a period of about 2 years and he is now making the present petition. It is submitted that the definition of member in section 41 of the Act referred to in paragraph 6.3 of the petition only refers to non -requirement of formal application by applicant and allotment by company in respect of shares to be allotted to subscribers of memorandum of association. The section not in any way exempt the subscribers of memorandum of association to exercise rights as shareholder without taking and paying for the shares undertaken by them. It may further be noted that definition of section 41 of the Act which falls under Part II of the Act relating to incorporation of company and matters related thereto cannot be applied to determine the eligibility of person(s) under section 399 of the Act to make application under section 397 and 398 of the Act as decided by hon'ble Karnataka High Court in Shri Balaji Textile Mills (P.) Ltd. v. Ashok Kavle : [1989] 66 Comp Cas 654 (Kar.). The relevant para of the judgment is reproduced herein: