ABDUL LATHEEF MEERA SAHIB Vs. TACEL SANITARYWARE P. LTD.

JUDGEMENT

(1.) THE company petition is filed under sections 397/398 and 402 of the Companies Act, 1956. The dispute in the petition revolves around Tacel Sanitaryware P. Ltd. (respondent No. 1), originally incorporated on March 28, 2002, under the name and style Arcot Ceramics P. Ltd., and subsequently changed to the new name with effect from July 21, 2005. According to the petitioner the authorised capital of the company as per the audited balance -sheet as at March 31, 2008, is Rs. 3,20,00,000 divided into 32,00,000 equity shares of Rs. 10 each. The issued, subscribed and paid -up capital is Rs. 3,20,00,000 divided into 32,00,000 equity shares of Rs. 10 each. The respondents had subsequently increased the authorised and paid -up capital to Rs. 5,20,00,000 which is under challenge in this company petition. The company is engaged in the business of manufacture of and dealers in ceramics, sanitary ware, ceramic table ware, ceramic art potteries, etc. The petitioners are two individuals. The first petitioner is chairman of Hercules International Enterprises. The petitioners collectively hold 15,68,000 shares aggregating 49 per cent. of the shares in the paid -up capital of the company as on March 31, 2008. Respondents Nos. 2 to 7 are shareholders/directors of the company who collectively hold the remaining 51 per cent. shares. On November 12, 2007, the petitioners were appointed as directors of the company. The 49 per cent. shares were allotted to the petitioners on August 14, 2008 and the share transfer was duly approved by the board of directors on August 14, 2008. The petitioners got acquainted with the company through respondent No. 3 who is the son of respondent No. 2. On November 12, 2007, a memorandum of understanding was executed between petitioner No. 1 and respondent No. 2 who was the managing director of the company. The memorandum of understanding envisaged an equity participation of the petitioner in the company on the terms detailed in the memorandum of understanding as hereunder:

(2.) COUNTER : Respondent No. 1 filed a counter admitting the execution of memorandum of understanding on November 12, 2007, as per which investment was made by petitioner No. 1 in the company after conducting a feasibility study. The memorandum of understanding was signed under compulsion and not with free will. The sale agreement dated November 12, 2007, is also admitted. Respondent No. 1 says respondents Nos. 2 and 3 were compelled to concede to all the terms dictated by petitioner No. 1 in view of the fact that the company was facing financial problems. Petitioner No. 1 agreed to invest Rs. 5 crores as his investment, but he remitted only Rs. 2,05,17,620 out of which Rs. 1,44,61,220 was required to be treated as equity capital and the balance sum of Rs. 60,56,400 to be treated as unsecured loan. The value of 8.24 acres of land is Rs. 1,23,60,000 but a meagre sum of Rs. 30,00,000 was shown in the agreement as sale consideration and still a reduced sum of Rs. 25,00,000 was paid to respondent No. 3 after adjusting Rs. 5,00,000 as advance lease rent. The 49 per cent. of the total value of the land cost was not paid as contribution of the petitioners, but as unsecured loan to the company. The 8.24 acres of land is under the occupation of respondent No. 1 and there is no question of selling this land to third parties. The land could not be registered in the name of the company for want of money to spend for stamp duty and registration charges. Out of the amount invested by petitioner No. 1, Rs. 1,40,00,000 was adjusted to discharge the bank loan of the company, Rs. 25,00,000 paid to respondent No. 3 towards sale consideration and the balance of Rs. 40,17,620 was utilised for payment to suppliers, salary, wages, etc. When the requirement of the working capital was discussed by respondent No. 2 there was no positive response from the petitioners. By making false statements and assurances, they got 49 per cent. of the equity shares transferred in their name. The above shares were purchased by respondents Nos. 2 and 3 from other shareholders and transferred to petitioner No. 1 with the sole intention to salvage the company. However, petitioner No. 1 had a secret intention to acquire 100 per cent. control of the company. Since the petitioners did not care to pump in money in terms of the memorandum of understanding, respondents Nos. 2 and 3 had to issue fresh shares to the extent of Rs. 2 crores to respondents Nos. 8 and 9 which are the associate companies of respondent No. 1. Provoked by this, the petitioner has filed this petition.

(3.) THE payments of Rs. 25,00,000 and Rs. 18,00,000 were made by petitioner No. 1 on the security of two blank promissory notes and cheques signed by respondent No. 2. It is denied that respondents Nos. 2 and 3 misused the money invested by the petitioners. The petitioners were always expressing their inability to mobilise funds even during critical periods. Respondents Nos. 2 and 3 were interested in protecting and salvaging the company and out of frustration they even agreed to hand over 100 per cent. control of the company on payment of due compensation. The board meeting dated September 4, 2008 and the annual general meeting on September 30, 2008, were held after giving sufficient notice to the petitioners and also they were informed over phone. The provisions of the Companies Act, 1956, have been duly complied with by the respondents. The petitioners preferred to stay away from the board meeting on their own volition, perhaps due to the differences of opinion between the parties. The notices for the board meeting and annual general meeting were despatched on August 16, 2008 and September 5, 2008 (annexures 37 and 41). In the notice to the annual general meeting convened on September 30, 2008, the appointment of the petitioners as directors is shown in the agenda as special business. However, none of the shareholders including the petitioners came forward to comply with section 257 of the Companies Act. The re -appointment of the petitioners as directors was beyond the control of respondents Nos. 2 and 3. The inaction on the part of the petitioners has resulted in their removal as directors. The equity capital was increased to Rs. 5.20 crores and the additional capital was issued to respondents Nos. 8 and 9 in the best interest of and with a view to protect the company from NPA category. With regard to the extraordinary general meeting held on January 5, 2009, all statutory requirements have been complied with by the company. Despite notice despatched on December 27, 2008, the petitioners did not attend the extraordinary general meeting held on January 5, 2009. As the petitioners ceased to be directors from September 30, 2008, there was no necessity to send notice to the petitioners for the board meetings. The petitioners were aware of the entire facts, alleged as oppressive conduct, but those facts are now projected for making out a case against the respondents. The additional allotment was made with the knowledge of the petitioner. There is no pre -emptive right to the existing members at the time of allotment of new shares as per the articles of association. The petitioners were only keen to withdraw their investment from the company rather than attending the board meetings and taking care of the interest of the company. The petitioners could have moved a resolution under section 257 of the Act, for appointing them as directors in the annual general meeting held on September 30, 2008, but that was not done. The alleged acts are neither oppressive nor against the interest of the company. The petitioners have approached the Company Law Board with unclean hands and the company petition is filed with an oblique purpose of pressurising respondents Nos. 2 and 3 to repay the investment of the petitioner. The respondents are contemplating action against petitioner No. 1 for violating the terms of memorandum of understanding. The balance of convenience is in favour of the respondents. The reliefs sought for are entertainable only by a civil court. Respondents Nos. 2 and 3 are willing to pay back the investment of the petitioners at the earliest possible and buy -back the equity shares standing in their name.