CP 8, 16 of 1998. Case: 1. Smt. Namita Gupta And Ors., 2. Ajit Kumar Goswami And Anr. Vs Cachar Native Joint Stock Company Limited and Others.. Company Law Board
| Case Number | CP 8, 16 of 1998 |
| Judges | A K Doshi & S Balasubramanian, Chairman |
| Issue | Companies Act, 1956 - Sections 397, 398, 89, 108, 179 |
| Citation | 1999 (34) CLA 287 |
| Judgement Date | June 01, 1999 |
| Court | Company Law Board |
Judgment:
Balasubramanian, Chairman
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In this order we are considering two petitions, viz., CP 8/98 ('first petition') and CP 16/98 ('second petition') filed under section 397 /398 and other related sections of the Companies Act, 1956 (hereinafter 'the Act') in the matter of Cachar Native Stock Co. Ltd. (hereinafter 'the company'). Since the cause of action in both the petitions has arisen on the same sets of facts, both the petitions were heard together and are being disposed of by this common order.
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Before dealing with the allegations in these petitions, it is essential to sum up certain essential facts. This company was incorporated in 1876 under the provisions of the Indian Companies Act, 1860. Presently there seem to be three groups of shareholders in the, company. Gupta group, Tusnial group and other shareholders group. While Gupta group and Tusnial group are the petitioners in the first petition, they are the respondents in the second petition. Before the disputes started, there were three directors on the Board of the company representing the Gupta and Tusnial groups. The capital of the company consists of 2, 900 equity shares of different denominations with subscribed and paid-up as indicated below:
Rs.
1, 800 equity shares of Rs. 25, each fully paid-up 45, 000
500 equity shares of Rs. 30, each fully paid-up 15, 000
227 equity shares of Rs. 40, each fully paid-up 9, 080
400 equity shares of Rs. 50, each called up and
paid-up Rs. 10 each 4, 000
2, 927 73, 080
27 Less: forfeited shares 690
72390
Add: Amount received towards forfeited shares 515
2, 900 Equity shares and paid-up 72, 905
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Even though, as per the provisions of section 89 of the Act, the company ought to have brought the voting rights in respect of all shares to a uniformity within a year from the commencement of this section in 1956, yet the same has not been done. Out of these 2, 900 shares, 1, 085 shares constituting 37.41 per cent are inoperative as the shareholders are not traceable and as such, exercise of voting rights in respect of these shares is not possible. 400 shares of Rs. 50 each which are partly paid at Rs. 10 are held by one Surma Valley Stock Ltd. ('Surma'). Surma was incorporated at the initiative of the Board of the company in 1929 and 400 shares in the company were allotted to Surma in 1936 as partly paid at Rs. 10 each with the stipulation that till the shares were fully paid, Surma would be entitled to one-fifth dividend and voting rights like any other shareholder in accordance with article 80 of Table A. The issued, subscribed and paid-up capital of Surma is 7, 027 equity shares of Rs. 10 each, of which the company holds 2, 000 shares and 3, 400 shares are reportedly dormant due to the whereabouts of the shareholders not being available. 816 shares are reportedly owned by Gupta/Tusnial groups. Gupta group was controlling one B. C. Gupta & Sons Ltd. ('BCGL'), which holds 448 equity shares in the company. By acquisition of majority shares in BCGL some time in 1983, Tusnial group is in a position to vote on 448 shares in the company in addition to 93 shares held in their own names. 177 shares held by Gupta group were transferred to Tusnial group sometime in 1997 and when they were lodged with the company for registration, the Board of the company, in its meetings held on 10th June, 1997 and 26th August, 1997 decided to place the matter before the annual general meeting (hereinafter 'the AGM') convened on 29th September, 1997 as item No. 8 for consideration. Gupta group filed a suit in the Alipore court seeking certain prayers in regard to the general body meeting. The court, by an order dated 25th September, 1997, directed that the resolution under item No. 8 was not to be taken and that the plaintiffs to the suit not to be restrained from participating in the proceedings of the AGM and casting their votes by poll. When an uncertified copy of the order of the court was produced before the chairman of the meeting, he rejected the same on the grounds that no certified copy of the order had been produced and that the Alipore court had no jurisdiction in the matter. (Later, in August 1998, the Alipore court dismissed the suit for want of jurisdiction). In the AGM two directors from Gupta and Tusnial groups who had sought re-election were not re-elected and in their place, two other directors from other shareholders group were elected as directors.
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According to the petitioners in the first petition, they hold 820 shares of the paid-up value of Rs. 23, 425 constituting majority of the effective voting power in the company as many of the shareholders are untraceable and as such, the shares held by them are dormant. With an ulterior motive, the respondents are perpetrating wrongful acts against the petitioners by refusing to register 177 shares transferred by petitioner Nos. 1 to 4 in favour of petitioner Nos. 11 to 18 and by declaring that petitioner Nos. 1 and 4 were not re-elected as directors in the AGM which was not properly conducted on 29th September, 1997. According to the petitioners, these alleged wrongful acts by the respondents have prevented the majority shareholders from having a say in the management of the company. On the basis of these allegations, the petitioners have sought various reliefs, inter alia, including directing the company to register the transfer of 177 shares as sought for, declaring that petitioner Nos. 1, 4 and 17 continue to be the directors of the company, declaring that the AGM held on 29th September, 1997 and various resolutions passed thereat as illegal and void, injuncting Surma from exercising any voting rights in respect of the shares held by it in the company.
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In respect of the first petition, separate replies have been filed by respondent Nos. 1, 5 and 7 to 10. According to these respondents, some of the petitioners are not shareholders of the company. According to them, the Tusnial group is trying to take control of the company by clandestine acquisition of shares in the company. Tusnial group controls one Narsingpore Tea Co. (P.) Ltd. ('NTPL') with which the company was having business transactions right from 1976. The business transaction included, inter alia, sale of green tea to NTPL, purchase of stores/machinery from NTPL. NTPL was also charging substantial unjustified finance commission/ interest from the company for various transactions. Over a period of time, Tusnial group decided to gain control of the company and, therefore, started acquiring shares in the company. In addition to 93 shares acquired by them, they also acquired majority control of BCGL from Gupta group in 1983, which holds 448 shares in the company. The Gupta group directors induced the Board to induct Shri Brij Ratan Tusnial-petitioner No. 17 as a special director into the Board, thus, ensuring that Tusnial group had representation on the Board. Further, the Gupta group transferred 177 shares to Tusnial group without following the provisions of section 108 of the Act. The share transfer instruments do not indicate the consideration for the shares nor the date of execution and as such, the same are invalid. If the registration of the transfer is approved, then in view of a large percentage of shares being inoperative, Tusnial group would have about 45 per cent of the effective voting rights. According to the respondents, if Tusnial group were to gain control of the company, they would be diverting the business of the company to their own group companies, thus, acting against the interests of the company. The Board of directors, in its meeting, which was attended by the petitioner Nos. 1 and 4 on 10th June, 1997, kept the transfer of 177 shares in abeyance and decided to refer the same to the general body and in the Board meeting held on 26th August, 1997 in which they were again present, the agenda for the AGM convened on 29th September, 1997 was adopted in which item No. 8 related to the transfer of shares. However, this item was dropped in the AGM at the suggestion of petitioner No. 17. In the same AGM, respondent Nos. 7 and 8 were appointed in place of petitioner Nos. 1 and 4 ', as they were not re-elected. Therefore, these respondents have averred that there is no cause of action for the petitioners to file this petition.
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In the second petition, the allegations are similar to what have been stated by the respondents in their reply to the first petition. On the basis of these allegations, the petitioners in the second petition have sought for various reliefs, inter alia, including declaration that registration of transfer of 177 shares in favour of a single group is illegal and void, that none from Tusnial/Gupta group would be entitled to be appointed as a director of the company, that none of the companies of Tusnial group would have any dealings with the company, restraining both the groups from exercising their voting rights in any AGM, etc.
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Shri Mukherjee, advocate appearing for Gupta and Tusnial groups, initiating his arguments submitted that the company owns one tea estate which was financially as well as commercially assisted for a long period by NTPL controlled by Tusnial group and but for such support, the company would have not survived for so long. He submitted that of the total voting power in the company, 37.41 per cent comprising of 1, 085 shares are dormant. Further, Surma-respondent No. 9, which holds 400 partly paid equity shares can vote only to the extent of the paid-up value in terms of section 87 read with article 56 of Table A. He further submitted that the company has not complied the provisions of section 89 of the Act and as such, the provision of section 87 will apply. On this proposition, he relied on Juvansinhji Balu Sinhji v. Palbhatrasinhji Indrasinhji 1962 (32) CC 1162 (Guj.). According to him, of the paid-up capital of Rs. 70, 270 in Surma, Rs. 34, 110 is dormant. Of the balance...
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