S VARADARAJAN AND P LOGUSUNDARAM Vs. UDHAYEM LEASINGS AND INVESTMENTS PRIVATE LIMITED

JUDGEMENT

(1.) THIS company petition is filed under Sections 397, 398, 402 and 403 of the Companies Act, 1956 ('the Act') alleging that the affairs, of M/s Udhayem Leasings and Investments Private Limited ('the Company') are being conducted in a manner oppressive to the petitioners and prejudicial to the interest of the Company and claiming the following reliefs:

(2.) Shri R. Vidhya Shankar, learned Counsel appearing for the petitioners while initiating his arguments submitted that the Company was promoted in November, 1990 with main object of carrying on Non Banking Financial Companies (NBFC) activities by the first petitioner and the second respondent along with S. Kasthuri Swamy and C. Dhandapani, being subscribers to the Memorandum and Articles of Association and the first directors of the Company. The authorised share capital of the Company is 3,00,000 equity shares of Rs. l0/- each and the validly issued, subscribed and paid up share capital is only 2,50,000 equity shares of Rs.10/- each. The shares of the Company have been allotted and transferred from time to time ensuring parity among the three groups viz., the first petitioner group, the second petitioner group and the second respondent group. Consequently, as at 28.03.1997 each group came to hold 70,000 shares of Rs. 10/- each. Later in March, 1998 the Company had purchased certain immovable property from the fifth respondent and towards sale consideration, the Company allotted 40,000 equity shares of Rs.10/- each in favour of the respondents 5 to 8. The Board of directors of the Company was initially comprised of the four promoters. With the demise of C. Dhandapani, his wife became director, but resigned with effect from 28.02.1995. Thereafter, with the second petitioner securing the interest of Kasthuri Swamy group, he was inducted into the Board with effect from 14.11.1996. While the first petitioner was the Managing Director since the inception till 23.11.1994, the second respondent functioned for a short period till 13.02.1997 and thereafter the first petitioner again became the Managing Director of the Company. However, the second respondent not only failed to attend the Board meetings consecutively held on 12.03.2001, 18.06.2001, 17.09.2001, 28.12.2001 and 01.02.2002 in spite of the notices sent to him by the first petitioner but also did not seek leave of absence for not attending the Board meetings, forcing the Board of directors at the meeting held on 04.02.2002 to record the vacation of the second respondent from the post of director pursuant to Section 283 (1)(g) of the Act, as borne out by Form No. 32 filed before the Registrar of Companies, Tamilnadu, Coimbatore. The second respondent leased out the immovable property belonging to the Company without any authority and consent of the petitioners in favour of third parties, prejudicing the interest of the Company, resulting in a civil suit filed by the first petitioner on 11.07.2002 in O.S. No. 823/2002 before the District Munsif Court of Coimbatore to restrain the respondents 2 & 3 from interfering with possession and enjoyment of the immovable property of the Company and from inducting any third party as a tenant in property. In the meanwhile, the petitioners came to know about the allotment of 50,000 equity shares of Rs. 10/- each on 08.04.2000 in favour of the respondents 2 & 3, as seen from Form No. 2 dated 18.04.2000, but filed belatedly after expiry of 19 months with the Registrar of Companies on 12.12.2001 and the removal of the petitioners under Section 284(1) from the office of director at the extraordinary general meeting purportedly held on 08.07.2002, in terms of Form No. 32 filed before the Registrar of Companies on 17.07.2002. The allotment of 50,000 shares is claimed to have been made on 08.04.2000, on which date even according to the respondents the petitioners were on the Board of the Company. Therefore, the second respondent, a lone director could not have convened any Board meeting allotting the impugned shares. Moreover, the second respondent, being an interested director in the matter of allotment of shares could not legally allot shares in his favour. According to learned Counsel, the Board meeting was a concocted one and no notice of the Board meeting was either sent by the second respondent. The allotment is neither supported by any consideration. Though cash consideration is disclosed in Form No. 2 for the allotment of shares, the same is not reflected in the Company's bank account. The Company is a closely held Company, managed on partnership principles with transparency and utmost good faith maintained in respect of all acts and transactions. There was absolutely no justification on the part of the second respondent to allot the entire unissued share capital to his own group, behind the back of the petitioners. The alleged removal of the petitioners from the post of directors is in gross violation of the Act and against the quasi-partnership principles. The petitioners did not receive any notice at any point of time for any Board meeting or extraordinary general meeting said to have been held on 08.07.2002 for their removal from the Board. The mandatory requirements of Sections 284, 188 and 190 have not been complied with before the purported removal of the petitioners from the office of director. The certificates of posting on record to prove service of notice on the petitioners do not have any evidentiary value and such a practice has been strongly condemned by the Supreme Court. The transfer of 40,000 equity shares by the respondents 5 to 8 to the ninth respondent who is none other than daughter of the second respondent is in gross violation of the pre-emption clauses contained in the articles of association of the Company. The transfer of shares was not approved by the Board of directors. By virtue of the allotment of 50,000 shares in favour of the respondents 2 & 3 and the transfer of 40,000 shares to the ninth respondent belonging to the second respondent group, the second respondent enhanced his group holding from 70000 equity shares to 1,60,000 equity shares, thereby converting himself and his group into a majority and further usurped the Company from majority control of the petitioners by illegally removing them from the office of directors, which are illegal, oppressive lacking probity and fair play and are liable to be set aside. Shri. Vidhya Shankar in support of his legal submissions relied on following decisions:

(3.) SHRI Vidhya Shankar, learned Counsel, in his reply submitted that the respondents failed to produce the minutes of the Board meeting reportedly held on 08.04.2000 allotting 50,000 shares in favour of the respondents 3 & 4. The petitioners do not have any objection for the second respondent to be on the Board and consequently not pressed the prayer made under para VIII (4) of the company petition. The second respondent being a party to the statutory records and having had signed the share certificates, cannot point out any irregularity or defect in the share certificates issued by the Company. Though the minutes of certain annual general meetings were signed by minor members, the minutes have never been questioned till date and even without the minors, the minutes could not become invalid as they were approved by the minimum required number of members. The second petitioner is shown as director in all the balance sheets and annual returns for the period subsequent to the year 1997 and he is a signatory of the balance sheet and annual returns during some of the years. In these circumstances, status quo in regard to the shareholding of the parties may be restored by setting aside the impugned allotment as well as transfer. In the alternative, the parties may be allotted equal number of shares maintaining parity between them, upon which the members may elect their directors and the accounts of the Company may be duly verified with reference to the investments made by the parties by way of discharge of the deposit liability of the Company, expenses incurred by each of the groups on behalf of the Company etc, safeguarding the interests of the Company and the shareholders.