Case: Ansar Khan and Kalimulla Shariff Vs Finecore Cables Private Limited, Fazlulla Shariff, Kanees Fathima and State Bank of India. Company Law Board
| Judges | K.K. Balu, Vice-Chairman |
| Issue | Company Law |
| Citation | 2007 (140) CompCas 76 (CLB) |
| Judgement Date | October 05, 2006 |
| Court | Company Law Board |
Order:
K. K. Balu, Vice-Chairman
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The petitioners collectively holding in excess of one-tenth of the issued share capital of M/s Finecore Cables Private Limited ("the Company"), aggrieved on account of certain purported acts of oppression and mismanagement in the affairs of the Company namely - illegal (a) transfer of shares in the name of the second respondent, thereby converting the petitioners into minority shareholders; (b) removal of the petitioners from the office of director; (c) appointment of the third respondent as a director; (d) convening of the board meetings without the required minimum quorum and (e) non-sending of notices to the board and general meetings of the Company have invoked in the present petition the provisions of Sections 397 and 398 of the Companies Act, 1956 ("the Act"), seeking the following reliefs:
(i) to declare that the resolutions passed at the board meeting and the extra ordinary general meeting held on 04.10.2004 and 28.01.2005 respectively are void, illegal and inoperative.
(ii) to remove the respondents 2 & 3 from the office of director and the second respondent from the office of managing director of the Company.
(iii) to restrain the respondents 2 & 3 from holding any board meeting and general meeting and further from operating any bank account of the Company.
(iv) to investigate into the affairs of the Company.
(v) to freeze the voting rights of the respondents 2&3 in respect of the shares held by them in the Company.
(vi) to take appropriate action under Section 406 of the Act against the respondents 2&3 for breach of trust, misfeasance, misappropriation and falsification of records of the Company.
(vii) to give effect to the transfer of 4815 shares of the Company, in the name of the second petitioner, in terms of the resolution dated 04.10.2004 of the board of directors and
(viii) to declare that the annul return made upto 30.09.2004 and other returns filed by the Company with effect from December 2004 with the Registrar of Companies are null and void.
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Sri M.S. Sivasankaran, learned Authorised Representative, while initiating his arguments submitted:
* The Company was incorporated as a private limited Company in June 1989 with the main object of carrying on the business of manufacture and dealing in cables of all types and kinds and was managed by family members of R. Shariff as a family concern with mutual trust inter se the parties. The first petitioner became a director on, 09.11.2001 and continues to be a director and became the Chairman of the Company at the board meeting held on 04.10.2004. The second petitioner appointed as a director on 26.06.1992 continues to be a director and became the executive director of the Company with effect from 04.10.2004. The second respondent became the Managing Director on 04.10.2004. At the board meting held on 04.10.2004 Mr. R. Shariff, N. Shariff and Syed Ilyas had resigned from the office of director of the Company. As at 30.09.2004 the petitioners 1 & 2 were collectively holding 1712 equity shares of the Company. The second petitioner in addition to his holding, had acquired further 4815 equity shares from R. Shariff and his family members for a total consideration of Rs. 48.15 lakhs which has been paid thus: (i) A sum of Rs. 4,00,000/- made on 19.06.2004 to N. Shariff, A/c Unique Enterprises; (ii) An amount of Rs. 18,00,000/- by way of loan withdrawal by R. Shariff, (iii) An amount of Rs. 3,00,000/- by way of cheque drawn in favour of R. Shariff given on 04.10.2004 by the first petitioner; and (iv) An amount of Rs. 23.15 lakhs paid by Unique Associates on 04.10.2004 to R. Shariff on behalf of the second petitioner. The second petitioner had obtained the share certificates together with the transfer deeds from the transferors, upon which the transfer of these shares was approved in his name at the board meeting held on 04.10.2004. The shareholding of the second petitioner pursuant to acquisition of 4815 equity shares got enhanced to 5218 shares representing 65.61% of the paid up share capital of the Company. Though, the transfer of 4815 shares in the name of the second petitioner was approved at the board meeting held on 04.10.2004, the second respondent failed to despatch the share certificates, after effecting necessary endorsement thereof in the name of the second petitioner, in spite of repeated demands made by him.
* According to the second respondent, at the board meeting held on 30.09.2004, 3088 shares out of 4815 shares were transferred in the name of the respondents 2 & 3. But the original minutes dated 30.09.2004 did not contain any approval for the transfer of 3088 shares in their favour which came to be unauthorisedly substituted at a later point of time. When the second petitioner by his letter dated 04.02.2005 questioned the transfer of shares in favour of the second respondent there has been no response whatsoever from him. The board of directors never approved the transfer of shares in favour of the second respondent at the board meeting held on 30.09.2004. The minutes presently produced by the second respondent containing the resolution in relation to the approval for the transfer of shares in the name of the second respondent are concocted and fabricated. The minutes of the annual general meeting dated 30.09.2004 produced for authentication before the Commissioner are different from the minutes of the general meeting signed by the then Chairman of the meeting. Though, the meeting was convened on 30.09.2004 at 9.00 AM, the minutes show that the meeting was held at 12.30 PM. The signature of the then Chairman contained in the minutes of the annual general meeting produced before the Commissioner appears to have been forged and therefore, no reliance can be placed on the minutes of the annual general meeting produced by the second respondent before the Bench. The first petitioner had signed the annual return made upto 30.09.2004 and handed over the same to the Company for filing with the Registrar of Companies, but the annual return produced for authentication before the Commissioner was entirely different from the annual return- signed by the first petitioner. The annual return produced before the Commissioner by the second respondent was signed not by any shareholder or director and the shareholding pattern shown therein is contrary to the actual shareholding pattern which was prevalent as at 30.09.2004.
* The second respondent fabricated the minutes of the board meeting dated 04.10.2004 taking advantage of the loose leaf system of maintaining the minutes book, by insertion of several items therein. Those items were neither transacted nor approved by the board of directors. There was only one board meeting on 04.10.2004 attended by all the directors of the Company including those who had resigned from the office of director. The claim of the respondent that there was first meeting with the entire board, and later on the same date the board meeting was continued by the remaining directors other than those who had resigned from the board by way of a second meeting is totally false. The alleged minutes of the so called first meeting is a fabricated and concocted one.
* By virtue of the resolution passed at the board meeting held on 04.10.2004 any of the two directors namely the petitioners 1 & 2 and the second respondent were authorized to operate the bank account. The first petitioner is residing at Bangalore, while the second petitioner is at Mumbai and therefore, for the purpose of smooth operation of the bank account, the petitioners have caused their signature on blank cheque leaves and other documents and handed over the same to the second respondent reposing confidence and personal trust on him. However, the petitioners came to know during January, 2005 that the second respondent, as the Managing Director resorted to siphoning off funds of the Company, by making use of the blank signed cheques handed over by the petitioners and further adopted several illegal methods to mismanage the affairs of the Company.
* In the meanwhile the petitioners came to know that they were removed from the office of director at the extra ordinary general meeting purportedly held on 28.01.2005 and that the third respondent was inducted on the board of directors of the Company. The petitioners never received any notice for the alleged extra-ordinary general meeting. The meeting without notice to the petitioners is not valid and the resolutions passed at the meeting are not binding on the petitioners. The extra ordinary general meeting was reportedly convened pursuant to the notices dated 29.11.2004 and 01.12.2004 sent under Section 284 of the Act by Aejaz Mehamood and Nasrulla Shariff respectively. The notice of Aejaz Mehmood does not indicate the number of shares held by him. The register of members shows that only Aejoj Ahmed holding 30 shares representing 0.37% of the share capital of the Company is a member of the Company. The said notice refers to one N. Shariff and it is not known whether N. Shariff is a shareholder of the Company. This notice deifeats the provisions of Section 169, 173 and 188 of the Act. The notice of Nasrulla Shariff is dated 01.12.2004 but he is not at all a shareholder of the Company as on 01.12.2004 and his entire shareholding has been transferred to the second petitioner at the board meeting held on 04.10.2004. Nasrulla Shariff has no locus standi to issue any notice under Section 284, as claimed by him. The signature containing in the said notice is forged and is fabricated by the respondents to sub-serve their illegal means. There is no material to indicate as to when the notices dated 29.11.2004 and 01.12.2004 were served upon the Company. The Company did not act on the requisitions, in accordance with the relevant provisions of the Act and the requisitionists neither convened themselves the extra ordinary general meeting. Any meeting convened pursuant to the illegal...
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