M V SATHYANARAYANA Vs. GLOBAL DRUGS PVT LTD

JUDGEMENT

(1.) THIS is a petition filed under Section 111 of the Companies Act (hereinafter referred to as "the Act") against Global Drugs Private Limited (hereinafter referred to as "the company") and two others being directors of the company for a declaration that the allotment of 1,75,000 equity shares each in favour of respondents Nos. 2 and 3 is illegal and for rectification of the register of members of the company by deleting the names of respondents Nos. 2 and 3 in respect of the impugned shares.

(2.) The facts as stated in the petition and reiterated by Mr. T. K. Seshadri and Mr. T. K. Bhaskar, counsel for the petitioner, are that the petitioner is a shareholder of the company holding Rs. 4.29 lakhs equity shares. As per the balance-sheet of the company for the year ended March 31, 1996, the authorised and paid-up capital of the company for the year ended March 31, 1995, are shown as Rs. 75 lakhs and Rs. 98,50,000, respectively. The paid-up capital of the company exceeds the authorised capital which is prima facie ultra vires the memorandum of association of the company. The annual return made upto August 27, 1996, reveals that shares of the value of Rs. 17.50 lakhs each were allotted to respondents Nos. 2 and 3 on March 18, 1993. The allotment made to respondents Nos. 2 and 3 as reflected in the annual return is contrary to the provisions of the Act. The paid-up capital of the company for the year ended March 31, 1992. as well as March 31, 1993, is shown as Rs. 12,90,000. Accordingly, there was no issue of capital between April 1, 1991, and March 31, 1993. Thus, the allotment of shares of the value of Rs. 17,50,000 each in favour of respondents Nos. 2 and 3 is fictitious. The aforesaid sum of Rs. 55 lakhs is nowhere reflected in the balance-sheet or accounts of the company. There has been no evidence to show that the amounts received towards share application money and unsecured loans were adjusted towards the share capital. Respondents Nos. 2 and 3 failed to produce any document including the bank statement or pass-book evidencing the payment of consideration for the impugned shares. The ledger extracts of the first respondent-company have not been produced. Prior to March, 1993. respondents Nos. 2 and 3 were holding each 43,000 equity shares. The excess shares held by respondents Nos. 2 and 3 each to the extent of 1,75,000 equity shares is in violation of the memorandum and articles of association of the company. The proceedings of the board meeting held on March 18, 1993, allotting the impugned shares in favour of respondents Nos. 2 and 3 are concocted. They have not been prepared in accordance with Section 193 of the Act, inasmuch as each page has not been initialled or signed under Section 193(1A). Consequently, the presumption that attaches to the minutes under sections 194 and 195 does not arise. The minutes cannot be relied upon to establish the allotment on March 18, 1993. No notice was sent for the board meeting said to be held on March 18, 1993. Form No. 2 was neither filed under Section 75 of the Act in respect of the impugned allotments. The first respondent had neither convened any annual general meeting nor issued any notice to the petitioner relating to such meeting, from the time respondents Nos. 2 and 3 assumed management of the company. Certificates of posting produced under suspicious circumstances by the respondents subsequent to conclusion of the arguments cannot be received in evidence, in the light of several decisions of various courts. The mistake with regard to the paid-up capital of the company was neither qualified by the auditors in the balance-sheet nor approved by members of the company in a general body meeting. The balance-sheet purported to be for the year ending March 31, 1993, produced by the respondents is not a certified copy filed before the Registrar. The balance-sheet filed on July 10, 1997, after the date of the petition cannot be relied upon. It throws light on the lapses of the respondents. The letter dated March 18, 1997, relied upon by the respondents is created for the purpose of the case and is not produced. The receipts produced by the first respondent do not relate to the documents said to have been filed before the Registrar. There is no evidence on record to show that the letter of Mogli Shridhar and Co. was sent to the ROC. Form No. 2 produced by the respondents is not a certified copy obtained from the ROC. There is no provision under law enabling the first respondent to file a provisional balance-sheet with the ROC. Moreover, there is nothing in the balance-sheet produced by the first respondent to show that the said balance-sheet for the year ending March 31, 1993, is provisional. Section 220 of the Act prescribes an obligation upon companies to file three copies of the balance-sheet laid before the general meeting within 30 days from the date of the annual general meeting. This provision does not contemplate filing of the balance-sheet that has not been laid before a general body meeting. There has been no evidence to show that the corrected balance-sheet was laid before the general meeting and the same cannot, therefore, be acted upon. No importance shall be attached to the affidavit dated May 20, 1998, filed by the statutory auditors, after conclusion of the arguments. In the circumstances, counsel for the petitioner submitted that the impugned allotments must be set aside and that the register of members be rectified by deleting the names of respondents Nos. 2 and 3 in respect of the impugned shares.

(3.) WE have considered the pleadings and arguments of counsel for the petitioner and written submissions of counsel for both the petitioner and the respondents. The following issues arise for our consideration :