Company Petition No. 7 of 2002. Case: G.V. Prathap Reddy and Ors. Vs Gvpr Engineers Limited and Ors.. Company Law Board

Case NumberCompany Petition No. 7 of 2002
JudgesLizamma Augustine, Member
IssueCompany Law
Citation2011 (3) CompLJ 192 (CLB), 2011 (109) SCL 115 (CLB)
Judgement DateFebruary 09, 2011
CourtCompany Law Board


Lizamma Augustine, Member, (Additionai Principal Bench At Chennai)

  1. GVPR Engineers Ltd was incorporated in 1997 as a public limited by the family members of the Petitioners 1 and 2 and Respondents 2 and 3 with its registered office at Hyderabad The first Petitioner and third Respondent are the sons of second Respondent. R2 expired on 5.1.2007. The second Petitioner is the wife of the first Petitioner. The third Petitioner, Respondents 8 and 9 are other companies floated by the family. Petitioners 1 and 2 and Respondents 2 and 3 are the original promoters of R1 company. As on 29.6.2001 the authorised capital of the company was Rs. 5,40,00,000 and the paid up capital was Rs. 1,61,24,800 divided into 16,12,480 shares (in favour of Respondents 2 to 9). Out of 16,42,480 equity shares of Rs. 10 each, Petitioners 1 to 3 were allotted 1,49,890 shares as hereunder:


    Shri G.V. Prathap Reddy (P1)



    Smt G. Laxmi Devi (P2)



    Veerabhadra Minerals (P) Ltd (P3)



  2. The petition is filed under Section 397 and 398 of the Companies Act, 1956 (hereafter to be referred as the Act), challenging the allotment of 13,78,200 shares to the Respondents' group. The allegation is that the third Respondent has virtually converted the company as his sole proprietary concern and has committed various acts of oppression and mismanagement affecting the interest of the company. The board of directors of the company originally consisted of Petitioner and Respondents 2 and 3. As on 2.2.2001, the board consisted of first Petitioner, Respondents 2 and 3 and G. Shivashankar Reddy. Currently, the third Respondent is the managing director. On 9.3.2001 the board of directors have allotted 13,78,200 shares to Respondents 2 to 9 and filed necessary Form No. 2 with the Registrar of Companies. The above allotment is illegal since the Respondents have not followed the procedure prescribed under Section 81 of the Companies Act. The first Petitioner who was a director was not served with any notice of the board meeting and, hence, the resolution passed on 9.3.2001 is invalid. An amount of Rs. 63 lakh invested by the third Petitioner towards share application money was not taken into account while allotting shares to the Respondents. The intention of the Respondents is to reduce the Petitioners to a minority, and to take control of the company. The third Respondent has been appointed as managing director without a proper board meeting with effect from 2.7.2001, whereas he signed Form No. 32 as managing director on 10.04.2001. The second Respondent has violated his responsibility in the fiduciary capacity by illegally altottang shares to the Respondents. Petitioners are not represented in the affairs of the company and the third Respondent who is in the helm of affairs is not protecting the interest of the shareholders and there is lack of fair play and probity in the conduct of the affairs of the company. Thus the Petitioners have lost confidence on Respondents. The conduct of the Respondents is harsh, burdensome and wrongful, justifying the winding up of the company. The Petitioners have No. access to the records of the company. Petitioners held more than 10% of the paid up capital of the company before the allotment of impugned shares. Hence the petition is seeking:

    (1) to set aside the allotment of 13,78,200 shares allotted on 9.3.2001,

    (2) to direct the second Respondent to render thorough and proper accounts with supporting documents regarding the money collected on behalf of the company,

    (3) to convene a meeting of the company and direct election of directors,

    (4) to appoint a Chartered Accountant to inspect the accounts,

    (5) to declare that third Respondent is unfit to continue as managing director of the company,

    (6) to refund the share application money paid by the third Petitioner.

  3. Respondents filed a counter with the following averments: The petition is not maintainable since the Petitioners have not fulfilled the criteria under Section 399 of the Act. The first Petitioner is holding only 4,130 shares, R2 and R3, Nil shares. The third Petitioner had not given authorisation to file this petition. Petitioners have failed to make out a prima facie case of oppression and mismanagement. The R1 company, P3 company, R8 and R9 companies were floated by the family members and controlled and managed by the third Respondent, he being the eldest son of the second Respondent. The second Respondent, his wife, sons and daughters-in-law were also shareholders of P3 company. There was an oral arrangement between the family members as per which P3 company and the proprietary concern--G.V Prathap Reddy (Engineers and Contractors) were looked after by the first Petitioner, and the other companies to be taken care of by second and third Respondents. In order to enable the first Respondent company to increase its subscribed capital, an extraordinary general meeting was called on 1.3.2001 and a special resolution passed under Section 81(1A) of the Act, and the subscribed and paid up capital was increased by issuing 13,78,200 equity shares for meeting the working capital requirements. As per the oral understanding, since the company is being managed and looked after by the third Respondent, shares were allotted on 9.3.2001 to the family members of the third Respondent with the knowledge of the Petitioners who attended the board meeting as well as the general body meeting. Thus the allotment of shares is neither oppressive nor mismanagement since the shareholders have decided to increase the issued and subscribed capital of the company. The 1,45,750 shares allotted to the third Petitioner were also transferred to the second Respondent as per the transfer form submitted to the company, and the transfer was effected on 30.11.2001. The board of the company originally consisted of father (R2) and two sons (P1 and R3). Later the son of the third Respondent has been inducted as a director in the board meeting held on 2.7.2001 and the same was intimated to the Registrar of Companies by filing Form No. 32 on 30.7.2001. Currently, the first Petitioner is not a director on the board of directors of the company. The company had allotted 13,78,200 equity shares to Respondents 2 to 9 and filed necessary returns with the Registrar of Companies. The company has called for an extraordinary general meeting on 9.3.2001 for considering the resolution under Section 81(1A) of the Companies Act and passed a special resolution and the same has been filed with the ROC. The Petitioner, who was aware of the agenda of the meeting, participated in the board meeting held on 9.3.2001. It is denied that the third Petitioner advanced money towards shares. The third Petitioner used to advance money as unsecured loans and the same has been shown as loans and advances in the balance sheet of the company. This amount was adjusted against the amount receivables from other concerns that are managed by the first Petitioner, as per the oral understanding. Form No. 2 was filed on 10.04.2001 and due to...

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