Abdul Wahid Abdul Gaffor Khatri ... vs M/S.Safe Heights Developers ... on 24 February, 2018

Abdul Wahid Abdul Gaffor Khatri … vs M/S.Safe Heights Developers … on 24 February, 2018

corporate

Reliance was placed by the Appellants on paragraph 115 of M.S.Madhusoodhanan (supra) to contend that when the relationship between the parties was embittered the proof of service of notice by a certificate of posting must be viewed with suspicion. It is pertinent to note that in the present case, after the meeting of 14 th March 2007 as set out later, in which the Appellants have participated in raising the share capital, and until the issuance of the show cause notice on 5 th November 2007, (during which time the notices were sent by UPC) 13 (1994 SCC Online Mad 552) KJ 22/33 CA22.13.doc there is no record whatsoever to show that the relationships between the parties was in any manner embittered. During this period between March 2007 and November 2007 there was no embitterment whatso- ever and it was during this period that the rights issue took place cul- minating on 22nd September 2007, as also the shifting of the re- gistered office in April 2007 and July-August 2007. Hence, the notices sent for these meetings under UPC during this period, cannot possibly be required to be viewed with any suspicion on the ground of purpor- ted embitterment, or otherwise.

23 Before the CLB, the case of the Appellants was that the UPC no- tices were infirm and should not be relied upon because relations be- tween the parties were embittered. Before this Court, it was urged that the UPCs could not be relied upon in respect of Board Meetings and that the presumption under Section 53 applied to general meet- ings of the company. This contention is misleading. While Section 53 does raise a presumption in respect of notices for meetings of mem- bers of the company, under Section 286 of the Companies Act, 1956, there is no format provided for service of notices to Directors. The CLB has dealt with the argument which was urged, namely that the notice through UPC should not be presumed as sufficient proof of ser- vice; this argument of UPC notice for Board Meeting does not appear KJ 23/33 CA22.13.doc to have been urged before the CLB. Even otherwise, under Section 286 of the Companies Act, 1956 no specific mode of service is provid- ed for. The UPC proofs were duly produced before the CLB even for meetings of the Board of Directors, and there was nothing placed on record by the Appellants to show that they were either not available at the time when the notices were served or that they could not or were not in a position to receive the same. Even otherwise, the CLB has rightly held that after knowledge of those resolutions being passed by November 2007 – January 2008, no steps were taken by the Appel- lants to approach the CLB for redressal of their grievances for close to four years. On the contrary, the Appellants held their own meetings without even attempting to send notices thereof to the Respondents; what has weighed with the CLB therefore is the inequitable conduct on the part of the Appellants and this factual finding cannot to be in- terfered with.

24 Even otherwise, the rights issue having been done in the in- terest of the Company with a view to infuse funds into the Company, can under no circumstances be said to be an act of oppression. The Hon’ble Supreme Court in the case of 14Needle Industries (India) Limited v. Needle Industries Newey India Holdings Limited – relied upon in V. S. Krishnan (supra), has held that if the shares are issued in 14 AIR 1981 SC 1298 KJ 24/33 CA22.13.doc the larger interest of the Company and bonafide with a view to enable capital to be raised, the rights issue cannot be termed as oppressive. 25 In the present case, in the meeting of the Board of Directors held on 14th February 2007 and confirmed in an EGM held on 14 th March 2007 it was decided to raise the authorised share capital of the Company from Rs. 5,00,000/- to Rs. 55,00,000/-. The explanatory statement for the meeting held on 14 th March 2007, placed on record by the Appellants themselves , bearing Appellant No.1’s digital signa- ture, expressly records that the shareholding was being increased as the Company “wishes to enhance its current business greatly”, and that the present authorised capital of the Company was “very small and would be a constraint to the growth of the Company”. Admittedly, validity of these meetings which were referred to in paragraphs ii(a) and (b) of the Respondents’ Reply , and the Appellant Nos. 1 and 2’s presence have been accepted in paragraph 6 of the Appellants’ Rejoin- der .

26 The rights issue was thus obviously contemplated as being the avenue for increasing the funds of the Company and for the growth of the Company. The CLB has recorded a finding of fact (in paragraph

28) that the rights issue was necessary for the growth of the Company and therefore the action of issuing the shares could not be termed as KJ 25/33 CA22.13.doc oppressive to the Appellants and/or mismanagement of the affairs of the Company.

27 Pertinently, despite being party to the above meetings, at no point did the Appellants seek to subscribe to the rights issue, and did not even make such enquiries for several years prior to filing the present Petition. The reason for this was clearly because the rights is- sue which commenced from April 2007, was not of interest to the Ap- pellants, as the Appellants had received back the sum loaned by them to the Company to the tune of Rs.73,00,000/- . The Appellants had accepted back the loan as they did not desire to partake in the func- tioning of the Company.

28 The Appellants have no explanation for their having taken back their loan, save and except to contend that this was not reflective of their disinterest in the company. In this regard, the CLB has arrived at a finding of fact, based on the conduct of the Appellants and this finding ought not to be interfered with in exercise of jurisdiction un- der Section 10-F. As a matter of fact, after accepting their loan amounts back in or about March 2007, at no point did the Appellants write a single letter or demand to participate or show any interest in participating in the company until issuance of the show cause notice on 5th November 2007. If the Appellants truly desired to partake in KJ 26/33 CA22.13.doc the management of the company and felt that they had been wrongly prevented from doing so, any reasonable person would have ap- proached the appropriate forum, i.e., the CLB in 2007 itself. Howev- er, no such steps were taken by the Appellants until July 2011. 29 In the circumstances, even on merits it cannot be said that the rights issue was either oppressive or done behind the back of the Ap- pellants.

Shifting of registered office:

30 The Appellants have sought to raise certain factual contentions as to where the notices for the Registered Office shifting were posted from. These are all factual matters, which would turn on evidence as to where Respondent No.2 resided and where he posted the notices from. It is not necessary that the notices be posted only from the Post Office adjacent to the Registered Office of the Company. Be that as it may, this factual analysis is beyond the scope of this Court’s jurisdic- tion under Section 10-F of the Companies Act, 1956. 31 The Appellants raised a grievance that the registered office of the Company was shifted from Jogeshwari to Sir P. M. Road in April 2007 and thereafter from Mumbai to Nashik in July – August 2007.



KJ





                                         27/33                     CA22.13.doc

32         It has  to  be  noted   that  the  jurisdiction   of  the  ROC  was not 

changed, and there was no prejudice whatsoever caused to the Com- pany by virtue of the change of the registered office. The sequence of events relating to the shifting of the registered office have been set out in paragraphs (i) to (iii) of the Reply filed by the Respondents in the CLB .

33 As laid down by the Hon’ble Supreme Court in 15Hanuman Prasad Bagri v. Bagress Cereals Private Limited, shifting of the re- gistered office by itself may not be a reason or a ground to be raised in a Petition under Sections 397 / 398 as long as the Company did not suffer much loss on account of the shifting and no case was made out to show that such exercise was undertaken to put oppressive pres- sure or pain upon the Petitioners. As in the case that was before the Hon’ble Supreme Court, there is nothing in the present case to show that any prejudice was/is caused to the Appellants or that any waste- ful expenditure amounting to mismanagement was incurred on behalf of the Company by shifting of the registered office. 34 Pertinently, it is the admitted position that the UPC amount paid was Rs.3/-. It is more than sufficient for service on Appellant Nos.1 and 2; the other Directors and Shareholders being part of the 15 [2001] 33 SCL 78 (SC) KJ 28/33 CA22.13.doc Respondent Group, may well have been served by other means – they have raised no objection as to service or receipt of the notices. Once again this aspect is purely factual and is being dealt with only in light of the contentions raised by the Appellants. The crucial factor re- mains that shifting of the Registered Office has caused no prejudice to the Company, and is not oppressive in the least. There is nothing to show that the shifting was done to prejudice the Appellants. 35 Thus this contention does not constitute oppression or misman- agement.

Directorial disputes 36 The Appellants have relied upon an RTI Application of 2012 to contend that no notice was received of the meeting for removal of the Appellants as Directors. It appears from the impugned judgment that this issue of the RTI Reply was not pressed before the CLB. Even oth- erwise, it is pertinent to note that in all the various allegations of not having received notice for various meetings, the Appellants have not sought to obtain any RTI on the delivery of notices for all the meet- ings which are the subject matter of dispute between 2007 and 2010, but have only purported to obtain an RTI for a meeting held in 2011. Be that as it may, the Appellants have been removed by resolutions KJ 29/33 CA22.13.doc and with appropriate Form 32’s filed, to the satisfaction of the ROC. It is nobody’s case that the ROC has thereafter raised any objections to the filing of the Forms or indeed to the manner of removal of the Ap- pellants.

37 As held by the Hon’ble Supreme Court in Hanuman Prasad Bagri v. Bagress Cereals Private Limited(supra) directorial disputes are bey- ond the jurisdiction of the CLB under Sections 397 and 398. Thus, the same cannot be raised before the CLB as rightly held by the CLB in paragraph 35 of the judgment.

38 Further the Company is not under any circumstances either a family company or a closely held quasi partnership, in which circum- stances potentially directorial disputes may be raised. The judgments relied upon by the Appellants in this regard will have no application to a company such as Respondent No.1. Further, it does not appear that this issue of ‘quasi-partnership’ was pressed before the CLB, and was not pressed in arguments before this Court. 39 The judgments placed in the Written Submissions, are, to a sub- stantial extent, on points not raised before the CLB or before this Court in the arguments canvassed by the Appellants. The said judg- ments pertain to several aspects which were neither pressed before the CLB or before this Court, and to the extent that the same are KJ 30/33 CA22.13.doc placed in reliance of a case not pressed before the CLB or this Hon’ble Court, the judgments ought to be disregarded. Nevertheless, the said judgments are broadly dealt with hereinbelow: 40 As regards 16Dushyant D.Anjaria Vs. M/s.Wall Street Finance Ltd. ; 17Yogendra Kumar Maheshwari Vs. Registrar of Companies; and 18P.Natarajan V/s. Central Government, of the Compilation are in cases which were not under Section 397/398. 41 As regards Dushyant D.Anjaria (supra), Yogendra Kumar (supra); P.Natarajan (supra) ; 19 Sishu Ranjan Dutta Vs. Bhola Nath Paper House Ltd.,; 20Harikumar Rajah V/s.Sovereign Dairy Ltd. (Mad) ; 21Hindusthan Co-operative Insurance Society Ltd. In re ; 22Sintex Industries Ltd., In re, pertain to appointment of (Addi- tional) Directors and the tenure thereof. The appointment and dura- tion of Directors is a matter beyond the scope of jurisdiction of the CLB, and in any case is not the grievance urged before this Court. 42 As regards 23Zora Singh V/s. Amrik Singh Hayer; 24Rajiv Ku- mar Singh V/s. Shree Narayan Developers P. Ltd. and Ors.;

Ashok Kumar and Ors. V/s. Shree Janki Cold Storage P. Ltd. and 16 2001(1)Mah. L.J.701 17 2011 SCC Online Gau 143 18 (2004) 1 CTC 340 19 (1983) 53 Comp Cas 883 20 (1999) 19 SCL 391 (Mad) 21 (1961) 31 Comp Cas 193 (Cal) 22 (2010)156 Comp Cas 367 23 (2009) 149 Comp Cas 328 (P&H) 24 (2010) 153 Comp Cas 370 (CLB) 25 (2010) 153 Comp Cas 222 KJ 31/33 CA22.13.doc Ors.; 26Swapan Dasgupta Vs. Navin Chand Suchanti, pertain to notices for meetings and the issue of UPC. This issue has been dealt with above. The judgments turn purely on the facts of their respective cases. In the present case, the CLB has arrived at a conclusion that the notices appear to have been served on the Appellants, and even in respect of the Board Meetings, it cannot be disputed that there are UPC proofs of the notices.

43 As regards Needle Industries India Ltd. (supra) ; 27Mrs.- Farhat Sheikh V/s. Esemen Metalo Chemicals Pvt. Ltd. ; 28Rashmi Seth V/s. Chemon India Pvt. Ltd. ; 29Ram Babu V/s. Target Con- structions Pvt. Ltd. and Ors. ; and 30Mrs.Gurpreet Gill V/s. Pump- kin Studio P. Ltd. & Ors., the same pertain to issue of shares. As set out earlier, the impending Rights Issue was to the knowledge of the Appellants; even otherwise, at no point had they sought to exercise their purported right of pre-emption as is now sought to be contended in the Appellants’ Written Submissions. The Appellants in fact had ac- cepted repayment of their loan by March 2007 and were clearly not interested in the functioning of the company. Pertinently, even after having full knowledge, as per their own case, in November 2007, the Appellants did not take steps to challenge the Rights Issue or to seek 26 (1988) 64 Comp Cas 562 (Cal) 27 (1996) 87 Comp Cas 290 CLB 28 (1995) 82 Comp Cas 563 (CLB) 29 (2009) 151 Comp Cas 71 (CLB) 30 (2010) 158 Comp Cas 195 (CLB) KJ 32/33 CA22.13.doc allotment of shares to them in the ensuing several years. In any event, the judgments relied upon take the position that if the Rights Issue is not bonafide but is only for the purpose of enabling a party to obtain a majority, then such action will constitute oppression; this is not so in the present case. The CLB has concluded that funds were re- quired for which the Rights Issue was carried out, and therefore it cannot be said that the same was not bonafide. 44 As regards 31Sanjay Paliwal and Anr. Vs. Paliwal Hotels Pvt. Ltd., ; 32Rajesh Patil V/s. Moonshine Films Pvt. Ltd. ; 33M.L.Arora V/s. Green Valley Frozen Food Ltd. & Ors. ; and 34A.Kalyani V/s. Vale Exports P. Ltd., the same pertain to the allegation of continuous oppression and mismanagement, to justify the delay in filing of the Company Petition. As set out above, the contention of continuous op- pression and mismanagement culminating in the removal of the Ap- pellants as Directors in 2011, was not the ground urged before the CLB to justify the delay. The ground urged was as to the pendency of proceedings before the ROC, and it is in that context that the CLB has rightly held that the explanation for the delay is unjustifiable. Even otherwise, the explanation given by the Appellants cannot be counte- nanced, as the events of which they complained, had to a material ex- 31 (2008) 141 Comp Cas 270 (CLB) 32 (2008) 141 Comp Cas 482 (CLB) 33 (2008) 142 Comp Cas 320 (CLB) 34 (2004) 119 Comp Cas 974 (CLB) KJ 33/33 CA22.13.doc tent, culminated in 2007 itself, and there is no justification for the de- lay in approaching the CLB.

45 In the circumstances, the Appeal ought to be dismissed as it does not give rise to any question of law. The factual findings are strictly matters which were within the province of the CLB. The CLB having exercised its discretion after analysing the evidence before it, this Court cannot to replace the discretionary order passed by the CLB with any contrary order.

46 Even otherwise, on the findings of delay/laches and unclean hands, the present Appeal ought to be dismissed as the CLB has rightly declined to exercise its equitable jurisdiction in favour of the Appellants.

47 As noted earlier, even on the merits, the Appellants’ case is un- tenable and contrary to the record.

48 No case of oppression or mismanagement has been made out, and the Appeal ought to be dismissed, with costs which is fixed in the sum of Rs.2 lakhs. Appellants to pay this amount within 4 weeks by way of cheque drawn in favour of the advocate on record for Re- spondents.

(K.R.SHRIRAM,J) KJ

Commercial law experienced an eventful year in 2014, but what were the most significant cases? Read our run-down of some of the biggest cases from the past 12 months to see if you agree with us:

1. Apple Inc. wins decade-long anti-trust class action

In December 2014, Apple won a long-running class action that was brought against them in 2005. The company was accused of monopolizing the digital music market and violating U.S. anti-trust statutes by reconfiguring its DRM system, which prevented mp3 compatibility with competitors. After 10 years of no judgement, and a recorded video statement from the late Steve Jobs, a jury ruled in Apple’s favour.

2. Russian oligarchs in mining row

A dispute between Russian aluminium businessman, Vasily Anisimov and the late Badri Patarkatsishvili’s family was settled in March 2014. The family alleged that they were entitled to 20% of Mr Anisimov’s mining company, claiming that the two businessmen agreed Mr Anisimov would invest in mining company Metalloinvest’s forerunner, Mikhailovsky. A deal was reached over the $1.8bn case just days before it was to go to trial.

3. Burwell vs. Hobby Lobby

A landmark decision made by the U.S. Supreme Court has allowed for-profit corporations to be exempt from certain laws on the grounds of religious beliefs held by company owners. The lawsuit was filed by Hobby Lobby owners, David and Barbara Green, who objected to having to provide contraceptives to employees through a health insurance plan, which they felt contravened their religious beliefs. The court ruled in their favour in June. This is the first time a court has recognised a for-profit corporation’s claim of religious beliefs.

Hobby Lobby in Mansfield, Ohio, by Nicholas Eckhart. CC-BY-2.0 via Flickr.

4. Accolade Wines in construction strife

In what was a huge £170m case in the Technology and Construction Court, Accolade Wines claimed

Leave a Reply

Your email address will not be published. Required fields are marked *