COMPANY LAW BOARD, KOLKATA BENCH, KOLKATA

Transcription

1 COMPANY LAW BOARD, KOLKATA BENCH, KOLKATA SUBMITTED BEFORE THE HON BLE BENCH IN EXCERSISE OF THE JURISDICTION CONFERRED UPON IT BY VIRTUE OF SECTION 397 & 398 OF THE COMPANIES ACT In the matter of SHRI SUBHAS CHATTERJEE (PETITIONERS) Vs. M/S BHAGWATI SPONGE PVT.LTD & ORS (RESPONDENTS) COUNSEL FOR RESPONDENT VISHNU TANDI

2 TABLE OF CONTENTS 1. List of Abbreviations.3 2. Index of Authorities Statement of Jurisdiction 5 4. Statement of Facts.6 5. Issues Raised Summary of Pleadings Pleadings Prayer 14 Page 2 of 14

3 LIST OF ABBREVIATIONS Pvt. Co. Ltd. U/s Vs. Hon ble EGM P RN Sec. Art Ors S.C H.C CLB CLJ Private limited company company limited Under section versus Honourable Extra ordinary general meeting Petitioner Respondent number Section Article Others Supreme Court High Court Company law board Company law journal Page 3 of 14

4 INDEX OF AUTHORITIES STATUTES REFERRED: 1. The companies Act The Companies Act 2013 CASES REFERRED: 1. Shri Ranjit Singh And Ors. vs Madan Mohan Cold Storage Pvt.,CLB, Gulabrai Kalidas Naik And Ors. vs Laxmidas Lallubhai Patel And Ors Guj. HC Shri Sarabjeet Singh Mokha vs Marble City Hospital And Research,CLB, 2007 BOOKS AND DICTIONARIES REFERRED: 1. Avtar Singh, Introduction to company law, 10 th edition, Page 4 of 14

5 STATEMENT OF JURISDICTION Counsel for the petitioner humbly approached before this Hon ble bench U/s & of the companies Act Sec.397- Application to Company Law Board for relief in cases of oppression. (1) Any members of a company who complain that the affairs of the company 2[ are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members (including any one or more of themselves) may apply to the 1[ Company Law board] for an order under this section, provided such members have a right so to apply in virtue of section 399. (2)If, on any application under sub- section (1), the 1[ Company Law Board] is of opinion- (a) that the company' s affairs 2[ are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding- up order on the ground that it was just and equitable that the company should be wound up; the 1[ Company Law Board] may with a view to bringing to an end the matters complained of, make such order as it thinks fit. 2 Sec.398- Application to Company Law Board for relief in cases of mismanagement. (1) Any members of a company who complain- (a) that the affairs of the company 3[ are being conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company; or (b) that a material change (not being a change brought about by, or in the interests of, any creditors including deben-ture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of directors, or of its managing agent or secretaries and treasurers 1[ or manager], or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers, or in the ownership of the company' s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company 2[ will be conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company; may apply to the 3[ Company Law Board] for an order under this section, provided such members have a right so to apply in virtue of section 399. Page 5 of 14

6 STATEMENT OF FACTS M/s. Bhagwati Sponge Pvt. Ltd (here in after referred RN 1) was incorporated on February 20, 2OO3 under the provisions of the Companies Act, It is a company limited by shares. Its registered office is situated at Burdwan District in West Bengal. The Authorized Share Capital of the company was Rs. 20 Lakhs divided into 2,00,000 equity shares of Rs 10 each and Issued, Subscribed & Paid Up Share Capital was Rs. 19,17,000 divided into 1,91,17,00 equity shares of Rs. 10 each. The petitioner was a business man and engaged in Sponge lron Plant business for over 20 years. In course of business, the Petitioner and RN.2, Shri Ashok Kr. Sonthalia decided to start a private limited company together in which they would have equal shareholding. It was decided that the Petitioner will devote his experience/expertise and other resources to look after the production aspects of the business and the Respondent no.2 would look after the financial, marketing and administrative part of the business. The petitioner gave land to the company for a nominal consideration and plant and machinery without any consideration. Respondent no.2 was appointed as Managing Director and the petitioner was appointed as Director. Respondent no. 2 allotted 1, 72, 250 shares for himself and shares to the petitioner, in the company. Respondent no. 3 to 7 were introduced and appointed as Directors of the Company. From 2003 until 2007, the business of the company has been carried on by the petitioner along with respondent nos'2 to 7 and there was equal participation in the business of the company by the petitioner and all other respondents. In the year 2008 petitioner falsely alleged that- RN 2 used company s fund for personal his personal business. Page 6 of 14

7 RN 2 has wrongfully utilized the blank signed cheques of the petitioner which were kept under his custody in good faith. RN 2 appointed his brother-in-law for managing his personal business which was formed out of the funds wrongfully derived from the assets of respondent company. Even though RN 2 booked work orders in the name of the company, but intentionally diverted the same for his other business and in the process, the respondent company has suffered loss. RN 2 filed a wrong statement of actual production and sale to the income tax department. He had also not distributed the share certificates to the shareholders and other investors and kept all share certificates in his wrongful custody. Petitioner also did not attend last 3 consecutive meeting of board of Director without taking any leave from business so he was removed from his post by a special resolution. Petitioner approached before this Hon ble bench with allegation of oppression and mismanagement by Respondent NO 2 to 7. Page 7 of 14

8 ISSUES RAISED 1. WHETHER THERE WAS ANY OPPRESSION OR MISMANAGEMENT IN THE COMPENY? 2. WHETHER THE PETITION UNDER SECTION 399 OF THE COMPANIES ACT 1956 IS MAINTAINABLE OR NOT? Page 8 of 14

9 SUMMARY OF PLEADINGS 1. THAT THERE WAS NO OPPRESSION AND MISMANAGEMENT IN THE COMPANY. Affairs of the company were not in a manner prejudice to public interest. Material changes and alteration in BOD and managers were made in the interest of public and company. 2. THAT THE PETITION UNDER SECTION 399 OF THE COMPANIES ACT 1956 IS NOT MAINTAINABLE. Petitioner is not eligible to file a petition under Sec 399 of the Companies Act Page 9 of 14

10 PLEADINGS 1. THAT THERE WAS NO OPPRESSION AND MISMANAGEMENT IN THE COMPANY. This is most humbly submitted before this Hon ble bench that there was no oppression and mismanagement in the company. The law has not defined oppression for purposes of the Section 397 of the Companies Act 1956, and it is left to Courts to decide on the facts of each case whether there oppression under section 397 has been committed or not. Although the word oppressive is not defined in law but it can be explained as majority shareholders, by an abuse of their predominant voting power, are treating the company and its affairs as if they were their own property to the prejudice of the minority share-holders. As per the sec 397 of the Companies Act 1956 there are two conditions where the case of oppression and mismanagement arise- If the affairs of the company have been or are being conducted in a manner prejudicial to public interest, members of the company and company itself or If the material changes are brought or alteration in Board of Directors and managers are made which is not in the interest of public, members of the company and company itself. But in present case there is nothing which indicates the affairs of the company prejudicial to the public, members or company. All the allegations made by petitioner are false and malicious. The petitioner alleged that company s affairs have been run against the interest of shareholders but company is being properly managed in compliance to applicable provisions of law and such compliance to the relevant provisions of law has actually led to the vacation of office by the petitioner. The company has filed all documents and returns which are statutorily to be filed by the company and the petitioner in the instant petition has no locus standi to allege oppression and mismanagement against the respondent. Page 10 of 14

11 Alteration in the Board of the Director and manager was made by special resolution in annual general meeting and the petitioner was removed from his post. This material change was made in the interest of the company and its stakeholders. Some other allegations which were made by petitioner against the respondent, respondent humbly submitted reply as funder- Mishandling the Cheques: It was alleged that RN.2 has intentionally misused the blank cheques of the petitioner, whereby those blank cheques were kept under the custody of the RN.2 in good faith. However, the petitioner has been very casual in his approach towards the management of the company and his sole intention was to siphon off the funds of the company including the loan taken from bank. Since the management of the company did not allow him to mishandle the funds of the company and of the stakeholders, the petitioner with an intention to harm the company wrote damaging letters to the lender bank without serving any such copy of letter to the company. Misusing the Company s Funds: It was also contented by the petitioner that RN.2 engaged his brother-in-law, Mr. Ramnivas Goel to manage his personal business which was formed out of the funds wrongfully derived from the assets. Moreover, the RN.2 has no personal business of mining of Ores and Crusher mill at Burbill, Orissa; hence he has not averted any of the company s funds, therefore, this allegation to be held false. Board Meeting: It has been contented by the petitioner that the Annual Board Meeting which was to be held was not held. But the Board Meetings were conducted on , and and notified to the petitioner and notice for the same was also filed to ROC, whereby, the petitioner did not attend any of such meetings without taking any Page 11 of 14

12 leave from business and also not gave any sufficient reason for not attending those meetings. PROVISIONS IN THE COMPANIES ACT 2013:- As per the Companies Act 2013, Sec 241 to Sec 246 deals with the oppression and mismanagement. Sec 397 of the Companies Act 1956 has been replaced with Sec 241 in the Companies Act It speaks about the application to the tribunal for relief in case of oppression etc. and Sec 242 deals with the powers of tribunal. Contents of both the new sections are same as to the Sections of the Companies Act THAT THE PETITION UNDER SECTION 399 OF THE COMPANIES ACT 1956 IS NOT MAINTAINABLE. It is most humbly submitted before this Hon ble bench that the instant petition is not maintainable being void ab initio because the petitioner does not have eligibility to file petition under section 399 of the Companies Act read with all other provisions of law being applicable. According to Sec 399 (1) of the Companies Act member or members having not less than 1/10 th of issued share capital can file application to the tribunal under Sec 397 and Sec 398 of the Companies Act 1956, but the Annual Returns of the company for the dates of AGM, , and clearly show that the petitioner did not hold the required number of shares to be eligible for filing the petition under Section 397 and 398 of the Companies Act Petitioner even did not hold a single share on the date of filing the instant petition. The share capital of the Company is duly audited by the statutory auditor of the company and is filed with the Ministry of Corporate Affairs (MCA), as prescribed in the Companies Act (1) The following members of a company shall have the right to apply under section 397 or 398 : (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares ; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members. Page 12 of 14

13 In order to maintain a petition under Section 397/398 as per the provisions of Section 399 sub Section (1) the petitioners should hold either 10% or more shares of subscribed capital or should constitute 10% or more of total members in the company. The requisite eligibility under Section 399 Sub-section (1) is also to be seen thereafter. Even that requisite condition is not fulfilled. The petition therefore was dismissed and not maintainable. 4 In the case of Gulabrai Kalidas Naik And Ors. vs Laxmidas Lallubhai Patel And Ors. 5 it was held that the petition was dismissed on the ground that the number of shares held by the other eligible petitioners was not sufficient in number and value for maintaining the petition. At any rate, it becomes further clear from this decision that in order to maintain a petition under sections 397 and 398, the petitioner has to be a member of the company. The petitioner did not attend the last 3 consecutive meetings of Board of Directors. He alleged that notice of such meeting was not issued and such meetings were never held but ROC agreed that such meetings were held and notice for the same was issued. As per the Sec 283(1)(g) 6 if any director does not attend three consecutive meetings of Board of Directors then his post becomes vacant. The establishment of the factum of issue of notices as also the factum of holding Board meetings becomes very relevant in the determination of vacation of office by a director in terms of Section 283(1)(g) of the Act. 7 PROVISIONS UNDER THE COMPANIES ACT 2013:- Power to make application to the tribunal in the case of oppression and mismanagement is given under Sec 244 of the companies Act 2013, as per the Companies Act 1956 such power was given in Sec 399. The contents of the Section are similar to the earlier. 4 Shri Ranjit Singh And Ors. vs Madan Mohan Cold Storage Pvt.,CLB, , Guj.HC. 6 Sec 283(1) (g) he absents himself from three consecutive meetings of the Board of directors, or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board; 7 Shri Sarabjeet Singh Mokha vs Marble City Hospital And Research,CLB, 2007 Page 13 of 14

14 PRAYER Wherefore, in the light of facts stated, issues raised, arguments advanced and authorities cited, the counsel for the Respondent most respectfully prays before this Hon ble Bench that may be pleased to 1. Declare that the affairs of the company are not oppressive and 2. The petition filed by the petitioner is not maintainable and 3. Direct the petitioner to compensate with costs/damages/interest to the respondents for the harassment so suffered by the respondent, or Pass any other order that the Hon ble Bench may deem fit in light of justice, equity and good conscience. VISHNU TANDI COUNSEL FOR THE RESPONDENT Page 14 of 14