Company Petition No. 13 of 2011. Case: Dr. Francis Cleetus and Others Vs Rashtra Deepika Ltd. and Others. Company Law Board

Case Number:Company Petition No. 13 of 2011
Party Name:Dr. Francis Cleetus and Others Vs Rashtra Deepika Ltd. and Others
Counsel:For Appellant: Dr. K.S. Ravichandran, Practising Company Secretary and For Respondents: K. Manoj Menon and Swarnam J. Rajagopalan for Respondents Nos. 1 to 4, 6 and 9 and P. Neelakantan for Respondents Nos. 7, 8, 10 to 15
Judges:Kanthi Narahari, Member (J)
Issue:Companies Act, 1956 - Sections 111, 16, 166, 17, 237(b), 256, 257, 260, 269, 283(1)(i), 283(2A), 287, 297, 299, 299(4), 300, 302, 302(5), 31, 397, 398, 53(1), 628, 94; Indian Trusts Act, 1882 - Section 20
Judgement Date:November 26, 2012
Court:Company Law Board
 
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Order:

Kanthi Narahari, Member (J), (Chennai Bench)

  1. The present petition is filed under sections 397 and 398 of the Companies Act 1956 ("the Act") alleging certain acts of oppression and mismanagement in the affairs of respondent No. 1 company by the respondents and sought various reliefs as prayed in paragraph 8 of the petition. Shri Ravichandran, the learned practising company secretary for the petitioners narrated the brief facts of the case. He submitted that petitioner No. 1 is a director of the company with effect from January 10, 2008. He is also the chairman appointed by the board of the company in the board meeting held on September 29, 2009, till the conclusion of the 21st annual general meeting. The board of the company on September 29, 2009, passed a resolution to this effect taking into consideration and in view of the understanding with the board of the company due to the fact that the first petitioner is the largest single shareholder of the company holding 4,15,000 equity shares of Rs. 100 each which represents more than 14 per cent. of the total issued and paid-up share capital of the company. The present board of the company became an illegal board and therefore not entitled to manage the affairs of the company since there is an illegal ouster of respondents Nos. 16 to 18 and with the intrusion of respondents Nos. 7 to 15 claiming themselves as having been appointed by the board of the company as additional directors with effect from January 6, 2011. In fact, respondents Nos. 7 and 8 had already resigned as directors of the company with effect from December 22, 2010 and Form No. 32 to this effect was filed before the Registrar of Companies on December 24, 2010. The tenth respondent was appointed as an additional director of the company by the board in its meeting held on May 28, 2010, under section 260 of the Companies Act, 1956. He could hold the office of additional director only up to the date of the 21st annual general meeting which fell due on September 30, 2010, but got extended by the Registrar of Companies, Kerala under section 166 up to December 31, 2010. His subsequent appointment as additional director of the company on January 6, 2011, is a fraud on the company and its members.

  2. The first respondent-company does not have a valid board since the validly appointed members of the board are not allowed to function as directors of the company and the company is now run by certain individuals who, in blatant violation of the Act, usurped the offices of the directors styling themselves as the directors on the board of the company. Form No. 32 to this effect has also been filed before the Registrar of Companies, Kerala containing false information and they are liable to be prosecuted under section 628 of the Act. The second respondent is now illegally acting as the chairman of the company and he has filed Form No. 32 claiming a change in his designation. The post of the chairman is not created under the Act, but the said post in the first respondent-company is a creation by the articles of association of the company. It is to state that so far no resolution has been passed by the board of the company to remove the first petitioner from the post of chairman and therefore the petitioner is entitled to continue till the conclusion of the next annual general meeting of the company as decided by the board in its meeting held on September 29, 2009. The share register of the company is in a state of total mess and disorder and requires extensive rectification. As per the order passed by this hon'ble Bench on December 30, 2008, any allotment of shares or transfer of shares will be subject to the outcome of C.P. No. 69 of 2007. By the said order, the earlier order dated March 25, 2008, made in C.P. No. 69 of 2007 directing the company to maintain the shareholding pattern until further orders, was modified to the above extent. On account of the said order, the first respondent-company could not have enhanced the existing authorised share capital of the company. Even the allotment or transfer was (to be) made subject to the outcome of C.P. No. 69 of 2007, which is still pending before this Bench. However, without seeking permission of this hon'ble Bench and in violation of the order to maintain the shareholding pattern, the authorised share capital of the company was increased from Rs. 20,00,00,000 (rupees twenty crore) consisting of 18,00,000 equity shares of Rs. 100 each and 2,00,000 preference shares of Rs. 100 each to Rs. 30,00,00,000 (rupees thirty crore) consisting of 28,00,000 equity shares of Rs. 100 each and 2,00,000 preference shares of Rs. 100 each by amending the capital clause of the memorandum of association and articles of association of the first respondent-company at the 18th annual general meeting held on March 31, 2008. Even when the authorised equity share capital of the company was Rs. 18,00,00,000 (rupees eighteen crore), the shares were allotted in excess of the said Rs. 18,00,00,000. However, subsequently an amendment was brought in at the 20th annual general meeting of the company held on September 29, 2009, by passing two special resolutions as follows for the purpose of amending the articles of association and memorandum of association:

    (i) Resolved that the existing clause 3 of the articles of association of the company as to share capital be and is hereby deleted and in its place the following clause be substituted: The authorised share capital of the company is Rs. 30,00,00,000 (rupees thirty crore) divided into 30,00,000 equity shares of Rs. 100 each with power to increase, reduce consolidate, divide or re-arrange the share capital for the time being into several classes with preferential rights or privileges as may be decided by the company.

    (ii) Resolved that the existing clause 5 of the memorandum of association of the company as to share capital be and is hereby deleted and in its place the following clause be substituted: The authorised share capital of the company is Rs. 30,00,00,000 (rupees thirty crore only) divided into 30,00,000 equity share of Rs. 100 each with power to, increase or reduce the same.

  3. It is respectfully submitted that the above amendments are illegal and invalid for two reasons. The memorandum of association cannot be amended or altered by a special resolution and can be altered by the mode prescribed under section 16 of the Companies Act, 1956, except in respect of matters coming under section 17 of the Act. Further, the above process of amendment for enhancement of the equity shares from twenty eight lakhs to thirty lakhs involves the cancellation of 2,00,000 preference shares of Rs. 100 each without reduction of share capital and thereafter enhancement of the existing authorised equity share capital from Rs. 28,00,00,000 to Rs. 30,00,00,000 requires a separate special resolution. Therefore, necessarily the procedure is to be followed under section 94 of the Act which has not been done in the present case of the first respondent-company making the said amendment a nullity in the eyes of law. As per the latest return in Form No. 2 filed by the company on July 7, 2010, it is shown that the equity share capital issued and paid-up as Rs. 29,59,99,000 divided into 29,59,990 equity shares of Rs. 100 each. Therefore, the first respondent-company has issued 1,59,990 shares in excess of the total authorised 28,00,000 equity shares of Rs. 100 each. These excess shares allotted are liable to be struck off along with excess shares allotted when the equity share capital of the company was Rs. 18,00,00,000 (rupees eighteen crore). It is also seen from Form No. 2 filed on March 22, 2009, September 24, 2009 and July 7, 2010, that equity shares were allotted to several public charitable trusts and private charitable trusts. To cite an example on August 28, 2009, equity shares worth Rs. 4,50,00,000 (rupees four crore and fifty lakh) was allotted to Deepthi Media Trust, Kakkanad, Kochi and equity shares worth Rs. 1,00,00,000 was allotted to Chavara Media Trust, Kakkanad, Kochi. Apart from these instances, lesser number of equity shares was also allotted to several charitable trusts, both private and public as in the case of Archeparchy Charitable Trust, Changanacherry, Kottayam. In the case of public trusts unless the instrument by which the said trust is created authorises investment in the equity shares of a public company, the first respondent-company cannot allot its shares as it goes against the terms of the constitution and objects of the trusts. In the case of the private trusts, the investment of trust money can be made only in accordance with section 20 of the Indian Trusts Act, 1882. Hence the allotment made by the company in favour of trusts is contrary to law, the shares allotted in favour of both private and public trusts are liable to be struck off and the share register of the company is liable to be rectified accordingly. Unless the legally valid shareholders of the first respondent-company as it exists now are identified properly after removing the names of those shareholders whose names are illegally entered in the share register, it is not feasible either legally or factually to call any of the general meetings including the annual general meeting of the first respondent-company. The 21st annual general meeting of the first respondent-company fell due on September 30, 2010 and got extended up to December 31, 2010. The additional directors appointed by the board of the company under section 260 of the Companies Act, 1956, cannot hold office beyond the due date of the 21st annual general meeting which fell on December 31, 2010. The said statutory embargo cannot be overridden by making fresh appointments of additional directors by the board of the company after the due date of the annual general meeting since the additional directors cannot continue beyond the due date of the annual general meeting and therefore the...

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