C.P. No. 63 (ND) of 2010. Case: Sunil Kumar Vs Punjab Processed Foods (P.) Ltd. and Others. Company Law Board
| Case Number | C.P. No. 63 (ND) of 2010 |
| Counsel | For Appellant: Anil K. Aggarwal, Brij Agnihotri and Sunil Kumar and For Respondents: Suman Doval, Ms. Divya Suman, Vineet Kumar, Sanjeev Chaudhary and J.P. Singh |
| Judges | Vimia Yadav, Member |
| Issue | Companies Act, 1956 - Sections 113, 286, 292, 308, 397, 397, 398, 398, 402; Negotiable Instruments Act, 1881 - Sections 133, 53(1) |
| Judgement Date | April 18, 2012 |
| Court | Company Law Board |
Order:
Vimia Yadav, Member, (New Delhi Bench)
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In this order I am considering CP No. 63 (ND) of 2010 filed by the petitioner against Punjab Processed Foods (P.) Ltd. and others alleging oppression and mismanagement. The respondent-company is a private limited company, incorporated on 10th September, 2007 having its registered office at #22, GF, HIG Flats, A-Block, Ranjeet Avenue, Amritsar-143 001, which is the residence of respondent No. 2. The present authorised share capital of the respondent-company is Rs. 2 crore divided into 20,00,000 equity shares of Rs. 10 each. At the time of incorporation, issued and paid-up capital of the company was Rs. 9 lakh, divided into 90,000 equity shares of Rs. 10 each with equal shareholding of 30,000 shares each (33.3 per cent each) and the petitioner, respondent No. 2 and respondent No. 3 were the only directors of the respondent-company. The main objects for which the respondent-company was incorporated was to carry on the business of manufactures, producers, processors, growers, importers, traders, buyers, sellers or otherwise deals in all kind of agro-based products, food products, food processing, horticulture, sericulture, cultivators, of all kind of food grains, seeds fruits and vegetables, animal husbandry and garden produce of ever/description, frozen vegetables, fruits, dairy products, all varieties of food and to set up a cold store to preserve all type of vegetables, foods, fruits, agro and agro products and others, etc. The present activity of the company mainly involves manufacturing of Tomato paste and is also engaged in related products like chill puree, apple pulp, carrot puree, tomato ketchup/sauces, etc. The petitioner's case is that it was mutually agreed upon amongst the promoter directors that they will always have equal shareholding and also equal representation on the Board of directors of the company. But in order to gain absolute control over the company, respondent No. 2 and respondent No. 3 manipulated the records of the company by making further disproportionate allotments amongst existing shareholders and allotments to their relatives, without conducting any meeting by which the shareholding of the petitioner has been reduced from 33.33 per cent to 13.57 per cent and thereby the respondent Nos. 2 and 3 have created a new majority of their group holding more than 75 per cent shares in the company. The issued, subscribed and paid-up capital of the company has been increased from Rs. 9.00 lakh to Rs. 15103 lakh by clandestinely showing allotment of shares on various dates from 31st March, 2008 to 31st October, 2009. Three more shareholders, namely, Smt. Karuna Chaudhary (wife of Sanjeev Kumar Chaudhary), Smt. Indu Gupta (sister of Sanjeev Kumar Chaudhary), and Sh. Atul Jalota (relative of Sanjeev Kumar Chaudhari) have been introduced. Shares of Rs. 20,50,000 have been allotted to the petitioner, whereas shares of Rs. 94,50,000 and Rs. 36,03,000 have been allotted in favour of respondent No. 2 and his relatives and respondent No. 3, respectively. After the impugned allotments, the respondent group holds 86.43 per cent shares (respondent No. 2 along with his family holds 62.57 per cent and respondent No. 3 individually holds 23.86 per cent) against the petitioner holding 13.57 per cent. Thus, this allotment has straightaway-converted the petitioner from equal shareholder to a minority and a new majority has been created. All this has been done behind the back of the petitioner and without his knowledge or consent. No notice of the Board meetings whereat the shares were purportedly allotted was given to the petitioner even though admittedly he was and still continues to be a director of the company. No Board meeting was convened or held for considering the further allotment of shares. The respondents have not produced before the Company Law Board ('CLB') any record such as Board meeting notices, despatch register, proceedings book of Board of directors, attendance register, etc. The further allotments have been made in contravention of section 286, section 292 and the articles of association of the respondent-company. Moreover, under article 4, 5, 6, 18 and 45 of the articles of association of the company, the power to allot further shares vests with the shareholders of the company. The Board of directors have no power to allot further shares. Even the independent auditor appointed by the CLB vide order dated 27th September, 2010 to inspect the records of the company has clearly pointed out in the independent audit report that "the Board meetings approving the allotment of shares is neither supported by attendance register nor proceedings book was got signed by the present directors". Further in the independent audit report, it has been clearly mentioned under the head "capital structure" that 'neither the Board meeting calling extraordinary general meeting ("EGM") to approve the enhancement nor the LGM was supported by attendance register and no each attendance was marked at the proceeding books and minute books of the particular Board meeting and EGM. As such quorum of the meeting cannot be verified'.
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Further, the respondents' case is that respondent No. 2 in connivance with respondent No. 3 has misused the funds of the respondent-company to make allotments to themselves and their relatives. The funds of the respondent-company have been circulated by respondent Nos. 2 and 3 from one account to another and ultimately used for making such fabricated allotments. My attention was drawn to the documents depicting huge cash withdrawals from the company's account and deposit to unrelated accounts and then withdrawals from such unrelated accounts as payments towards share capital of Shri Sanjeev Chaudhary and his relatives (placed as Annexure A-1 of the Reply to the CA No. 491/2010) challenging the maintainability of the petition.
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Drawing my attention to the background of the respondents, it was pointed out that the respondent No. 2 was in service till 30th November, 2004, at a salary of Rs. 10,724 PM as accounts manager of Nijjer Agro Foods Ltd., Amritsar. Also, as per the income-tax return for the financial year 2005-06, the respondent No. 2 had declared an annual income of Rs. 1,79,045. The respondent No. 3 was employed with Nijjer Agro Foods Ltd., Amritsar, till July 2007 as Works Manager. As per the income-tax return filed by the respondent No. 3 for the financial year 2006-07, his salary income was Rs. 1,92,012 only. The respondents did not have any financial background to make any huge investments in the company. The respondents have manipulated the funds of the company for showing allotment of the shares to themselves and their relatives. These allotments are illegal, null and void.
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Further, it was pointed out by the counsel for the petitioner that till date, no share certificate have been issued to the petitioner. He got the information of share allotments from Registrar of Companies ('RoC') records, since the petitioner has no access to any records of the company. It was argued that the respondents are guilty of contravention of section 113 of the Companies Act, 1956 ('the Act'), according to which the share certificate have to be issued by every company within three months of the allotment. The Independent Audit Report also points out that neither original share certificate were produced nor the counterfoils have got receipted by the recipients in token of having received the share certificates, counterfoils of the certificates as well as the members, register have been signed by the two directors, namely, Sh. Sanjeev Kumar Chaudhary and Sh. Jatinder Pal Singh whereas no authorised signatory has been appointed or authorised to sign the certificate as well as the members, register. Further, it was pointed out that in absence of original share certificates, affixation of common seal cannot be verified and the share certificates have not been issued in accordance with the Companies (Issue of Share Certificates) Rules, 1960.
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It was contended that no Board meeting or general meeting of the company has been held and all the minutes reflecting the holding of the meetings are fabricated. It has been observed in the audit report that the meetings have been shown as held at regular intervals, but no attendance record for the Board meeting and general meetings has been maintained, no notice calling the Board meeting and general meeting has been properly served. It was argued that this clearly shows that the records have been created later just to satisfy the company law requirements and in practice, no meeting was ever held and that is why there is no notice or attendance record of the meetings. When no meetings have been conducted till date, then the question as to how the company could take any corporate decision has not been answered.
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Further, it was argued that the respondent-company was formed to set up a food processing unit. The petitioner was appointed as director (quality assurance), respondent No. 2 was appointed as director (finance) and respondent No. 3 was appointed as director (technical). It was pointed out that the petitioner is a technical person being MSc. (Food Science & Technology) from CFTRI, Mysore. His specialisation is in the field of fruit and vegetable processing. He is a director (quality assurance) in the respondent-company. He has a rich experience of 12 years of the companies like Pepsi Foods Ltd. (tomato processing division), Nijjer Agro Foods Ltd. (tomato processing division) and Nestle (co-packing division of culinary sauces) at executive level in the quality assurance department. He had also got the training from the food scientist of Cedenco Food, New Zealand (one of the largest plant of tomato processing) during his service at Pepsi Foods. The petitioner was acting as a "food consultant" to various food industries since 2001. The petitioner was instrumental in setting of the factory and...
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