Case: Ajit Singh Deogan and Ors. Vs Sutlej Chit Fund and Financiers (P) Ltd. and Ors.. Company Law Board

Party Name:Ajit Singh Deogan and Ors. Vs Sutlej Chit Fund and Financiers (P) Ltd. and Ors.
Counsel:For Appellant: U. P. Mathur and For Respondents: A. M. Punchhi, Siddharth Bawa, Shailesh Suman and Gurpreet Singh
Judges:Vimla Yadav, Member
Issue:Companies Act, 1956 - Sections 111, 397 and 398
Citation:148 CompCas 18
Judgement Date:May 23, 2008
Court:Company Law Board
 
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Order:

Vimla Yadav, Member, (At New Delhi)

In this order I am considering Company Petition No. 60 of 2005 filed by Shri Ajit Singh Deogan and Others under sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as the "Act") against M/s. Sutlej Chit Fund and Financiers Pvt. Ltd. alleging certain acts of oppression and mismanagement and praying that the board of directors of the company be reconstituted with two representatives of the petitioners or their nominees on the board alongwith respondent No. 2; 250 shares each be ordered to be transmitted in the name of petitioners Nos. 2, 3, 4, 5 and 6, 3,000 equity shares allegedly allotted to respondents Nos. 2 and 3 and their family members be set aside; respondent No. 2 and respondent No. 3 be directed to pay interest at 18 per cent. per annum on the cash in hand kept by the respondents instead of keeping in the bank and appointment of respondent No. 3 as additional director be set aside.

The undisputed facts of the case are: M/s. Sutlej/Chit Fund and Financiers Pvt. Ltd. (respondent No. 1) was incorporated on September 23, 1965, having its registered office at 5, Sutlej Market, Jalandhar, 1440019 (Punjab). The authorised share capital of the company was Rs. 5,00,000 divided into 5,000 equity shares of Rs. 100 each. It is a closely held private company with 15 members who are related/well known to each other. The company initially carried on the business of chit fund which was closed down on coming into force of the Prize Chit and Money Circulation Scheme (Banning) Act, 1978. For some time, the company carried on the business of hire-purchase of vehicles. The company has not been carrying on any business for the last several years.

Shri U. P. Mathur, counsel for the petitioners contended that the paid-up capital of the company has been Rs. 2,00,000 divided into 2,000 equity shares of Rs. 100 each at all relevant times. The company increased its paid-up capital illegally by allotment of 3,000 equity shares to respondents and their family members in 1996-1997 or thereafter which the petitioners (6 petitioners and 3 consenters) have challenged in the present proceedings. It was pointed out that petitioner No. 1 who holds 250 shares is based in Canada, he has filed this petition through petitioner No. 3 as his power of attorney holder, he was one of the promoters of the company; petitioner No. 2 is the son and legal heir of S. Amrao Singh who died on August 25, 1984, he is based in Canada and had requested the company on October 9, 1999, for transmission of 250 shares, he has filed the petition through petitioner No. 3 as his power of attorney holder. Late Amrao Singh was a director of the company. Petitioner No. 3 and petitioner No. 4 are the sons and legal heirs of S. Atma Singh. They had requested the company on October 9, 1999 for transmission of 250 shares. S. Atma Singh was one of the directors of the company; petitioner No. 5 and petitioner No. 6 are the grandsons and legal heirs of S. Prakash Singh who died on May 26, 1984, they had requested the company on March 16, 2000, for transmission of 250 shares. Late S. Prakash Singh was one of the directors of the company. Smt. Kailash Wati Gautam who holds 200 shares is the consenter, in person, she is the widow of late A. N. Gautam who was the managing director of the company. Smt. Kailash Wati Gautam, Mr. C. R. Gautam and Mr. Anwar Gautam are consenters and legal heirs of late A. N. Gautam who died on February 25, 2004, they had requested the company on May 9, 2005, for transmission of 90 shares.

Shri A. M. Punchhi counsel for the respondents contended that the petition filed by the petitioners under sections 397 and 398 of the Companies Act, 1956 is not maintainable, on account of the fact that the petitioners do not satisfy the requirement under section 399(1)(a) of the Act. It was argued that admittedly the issued, subscribed and paid-up capital of the company is Rs. 5.00 lakhs, divided into 5,000 equity shares of Rs. 100 each. The minimum requirement, in order to maintain a petition under sections 397 and 398 of the Act is that the petitioners or the persons giving consent to the institution of the petition must hold not less than 1/10th of the issued share capital of the company. The minimum requirement, therefore, in order to maintain the petition in the instant case is 500 equity shares. Only the first petitioner holds 250 equity shares, which bears 5 per cent. of the shareholding of the company. Petitioners Nos. 2 to 6 are not shareholders of the company, so as to give them right to file the petition. Petitioners Nos. 2 to 6, as per their own showing are not holders of the equity shares, but claim to be legal heirs of the deceased shareholders. In so far as the consenting shareholders are concerned, only Smt. Kailash Wati Gautam holds 200 equity shares, whereas the so called legal heirs of late Shri A. M. Gautam, who held 90 shares have no authority either to file or to give consent to the filing of the petition. Therefore, it was argued, even taking into consideration the consent of Smt. Kailash Wati Gautam, the minimum requirement of one-tenth...

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