C.P. No. 124 of 2006. Case: M.L. Arora Vs Green Valley Frozen Food Ltd. and Ors.. Company Law Board
| Case Number | C.P. No. 124 of 2006 |
| Counsel | Virender Ganda and Santosh Giri, M.L. Arora, Present-in-Person and For Respondents: Rajesh Yadav and Ruchira Arora |
| Judges | Vimla Yadav, Member |
| Issue | Companies Act, 1956 - Sections 397 and 398; Companies (Court) Rules, 1959 - Rule 6; Civil Procedure Code - Order 7, Rule 14 |
| Citation | 83 CLA 333, 142 CompCas 320 |
| Judgement Date | November 01, 2007 |
| Court | Company Law Board |
Order:
Vimla Yadav, Member, (New Delhi)
In this order I am considering Company Petition No. 124 of 2006 filed by Shri M.L. Arora ("the petitioner") under sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as "the Act") against Green Valley Frozen Food Ltd. and Others ("the respondents") alleging:
(a) illegal/fraudulent transfer of the petitioner's shareholding;
(b) illegal/fraudulent removal of petitioner as director; and
(c) illegal/fraudulent adjustment of unsecured loan.
The undisputed facts of the case are: Green Valley Frozen Food Ltd. and Others, respondent No. 1 was incorporated on April 20, 2000, having its registered office at 14, Industrial Area, Kala Amb, District Sirmor, Himachal Pradesh. The authorised capital of the company is Rs. 2,00,00,000 divided into 20,00,000 equity shares of Rs. 10 each. Subscribed and paid-up share capital of the company as on September 30, 2004, is Rs. 1,00,00,000 (Rs. one crore only) divided into 10,00,000 equity shares of Rs. 10 each of which ordinary shares of Rs. 10 each were issued as fully paid-up. The main objects of the company are:
(a) to carry on all or any of the business of processors, growers, exporters, buyers, sellers, agents, merchants and dealers in all kind of fresh and processed mushrooms, canned mushrooms, frozen mushrooms, dry freezed mushrooms, fruits, vegetables, flowers, herbs and forest products and their stems, roots, leaves and seeds and their various products and by-products like squashes, concentrates, juices, ready beverages, etc. The company was jointly promoted by respondents Nos. 2 and 3 with Mitruka family having representation of two directors each on the board. The company approached banks and financial institutions for credit facilities which could not be sanctioned due to the lack of adequate financial and technical credentials of Mitruka and family. During December 2000, Mitruka and family accordingly offered to sell their shareholding to the petitioner, respondents Nos. 4 and 5. The petitioner was appointed as consultant of the company on April 20, 2000. On December 11, 2000, he became a shareholder and director and gradually acquired 20 per cent. of the equity of the company till September 30, 2002, like other directors. The petitioner was appointed as managing director on April 1, 2002. The petitioner further purchased 25,000 equity shares each from respondents Nos. 2 and 3 and thereby holding 2,50,000 equity shares being 25 per cent. of the paid-up equity share capital before the impugned transfer of shares on September 27, 2003. The board of directors of the company was also reconstituted with the resignation of representatives of Mitruka family and the appointment of the petitioner, respondents Nos. 4 and 5 as directors. The company then applied for term loan to the Indian Bank, Chandni Chowk, New Delhi, for setting up the project of frozen food plant at Kala Amb in Himachal Pradesh, with a cost of Rs. 468 lakhs. The bank sanctioned a loan of Rs. 240 lakhs and a cash credit limits of Rs. 50 lakhs.
|
| The project was funded as fallows : | Rs. (in lakhs) |
| 1. | Equity | 100 |
| 2. | Unsecured loan | 53 (Approx.) |
| 3. | Bank loan | 240 |
| 4. | Grant from Government of | 75 |
|
| Total | 468 (Approx.) |
The company became operational and put up a plant for frozen foods, which came in production in the year 2001-02. There was a stipulation in the loan agreement that the petitioner along with respondents Nos. 2 to 5 were not to sell their shares and further not to withdraw the unsecured loans till the pendency of the term loan. There was a further stipulation that the constitution of the board of directors shall remain unchanged until the loan is repaid and unless the consent of the bank is obtained. On April 1, 2003, respondents Nos. 2 to 5 suddenly resigned from the directorship of respondent No. 1 and a few days later, i.e., on April 11, 2003, transferred their entire shareholding to Mr. Anand and family without the consent of the bankers.
Shri Virender Ganda, counsel for the petitioner pointed out that on and around early 2003 all the shareholders decided to exit from the business and, accordingly, everyone was authorised to look for a prospective buyer. Each of the groups signed and executed the share transfer deed(s), resignations as director(s) and other related documents and handed over the same to each other, only to reinforce the already existing mutual trust.
The petitioners' case is that on representation of the respondents, he had agreed to sell his shareholding for a consideration of Rs. 50 lakhs, he signed the letter of resignation from directorship and the share transfer deeds in respect of his shareholding; on September 27, 2003, the petitioner's shareholding was transferred to respondent No. 7; the original share certificates are still with the petitioner; the transfer of shareholding of the petitioner in the name of respondent No. 7 is mala fide, unfair and illegal; the petitioner has not received full consideration; the petitioner's unsecured loan has not been paid; he has not received any notice of board meeting and general meeting. Hence his prayer for restoring him as director with retrospective effect and declare the transfer of his 2.5 lakhs shares as illegal and bad in law. Investigation into the affairs of the respondent-company has also been sought.
It was contended that the petitioner has the requisite qualification under section 399 of the Act. The petitioner is admittedly holding 25 per cent. of the equity share capital before the impugned transfer of shares. Reliance was placed upon the various judgments/decisions of the Company Law Board, being consistently followed over a period, including Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 Comp Cas 566 (SC); AIR 2005 SC 809, wherein it was held that "Moreover, in the given case the court despite holding that no case of oppression has been made out may grant such relief so as to do substantial justice between the parties (paragraphs 181 and 199)", N. K. Mohapatra v. State of Orissa [1999] 96 Comp Cas 49 (Orissa) and Rajiv Mehta v. Group 4 Securitas Hindustan P. Ltd. [2000] 99 Comp Cas 57 (CLB).
As regards the illegal/fraudulent transfer of shares, it was argued that the blank share transfer deed(s) duly signed by the respondents are in possession of the petitioners. These documents were shown in original during the course of hearing and it was contended that the original blank share transfer deed(s), duly signed by the petitioners were in the possession of the respondents. Further, it was pointed out that the petitioner is in the possession of original share certificate(s) in respect of his entire shareholding to the extent of 25 per cent. Despite an affidavit/statement on oath, the respondents have not been able to produce the original share certificate(s) claimed to have been in their possession. It was contended that a bald/oral submission by the respondents that the share certificates produced by the petitioner were fake, cannot be accepted, more so, when there is no denial of signatures on the share certificate(s), and no allegation of forgery, etc.
Further, it was argued by counsel for the petitioner that indemnity bonds/undertakings were signed as blank and handed over to the respondents on the receipt of an advance of Rs. 2.50 lakhs. It was pointed out that it is not understood as to how these documents had been placed on records by respondent No. 1 company, who is not expected to possess these. It was contended that the date of transfer of shares has been intentionally chosen as September 29, 2003, so as to take the said information in the annual return of the following year and consequently continue to hide the information from the petitioner/public for another one year. It was argued that the impugned transfer of shares being in violation of section 108 of the Companies Act, 1956, is liable to be set aside.
As regards illegal/fraudulent removal as director, it was argued that a blank/undated letter of resignation was handed over to the respondents, and a blank/undated...
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