Shri Sanjivbhai Kirtibhai Patel & Ors vs M/S Biocare Remedies Private Limited & ...

judgement passed by National Company Law Tribunal, 2

Ahmedabad Bench (hereinafter referred to as the "Tribunal").

They were heard together and are decided by this common

judgement.

2. For the sake of convenience, we have described the appellants of

Company Appeal (AT) No.59 of 2017 as appellants and the

appellants of Company Appeal (AT) No.110/2017 as the

Respondents, they being the respondent in the earlier appeal.

3. This appeal has been preferred by the appellants against order

dated 16.01.2017 passed by the Tribunal in TP No. 58/397-

398/NCLT/AHM/2016(NEW), whereby and where under the

tribunal while held that the respondents committed an act of

oppression to petitioner/ appellant, granted the following reliefs: -

a. The second Respondent is directed to deposit a Demand

Draft drawn on a Nationalised Bank in the name of the

Petitioners for an amount of Rs. 16,95,000/- with 12%

interest per annum from the date of filing of this petition,

i.e. 28th October, 2013, till the date of Demand Draft,

before the Court Officer of this Tribunal on or before 17th

March, 2017 under intimation to the Petitioners.

b. The Petitioners shall deposit the original Share Certificates

of all the Petitioners and their group persons along with the

Share Transfer Forms duly signed by the Petitioners and

their group persons in favour of the second Respondent

with the Court Officer of this Tribunal on or before 17th

March, 2017, under intimation to the second Respondent. 3

c. The Court Officer shall list the matter before this Tribunal

in the last week of March, 2017 for passing appropriate

orders for return of the Demand Draft and for return of the

original Share Certificates along with the duly signed Share

Transfer Forms. The registry shall send notice of date of

hearing to both parties.

4. The company petition was filed by Appellants/ Petitioners under

section 397/398 of companies act 1956 before the erstwhile

company law board alleging oppression by reducing the

shareholding of the appellants/ petitioners and their group

froml00% to 49.91% without giving notice to the Appellants and

without following the procedures laid down under the Companies

Act and Articles of Association.

5. The case of the Appellants/ Petitioners of appeal No. 59 of 2017

before the tribunal is as follows:

5.1 The first respondent company was incorporated as M/s Mentac

Pharmaceuticals Pvt. Ltd. on 12.5.1988 with authorised share

capital of Rs. 10 lakh divided into 100000 equity shares @ Rs 10

each. The name of the company was changed as M/ s Biocare

Remedies Pvt Ltd. w.e.f. 24.2.1994. Since incorporation of

company several changes took effect in the constitution of the

board of directors which stood as under as on 31.03.1999 : -

DIRECTORS

Shri Sanjivbhai K. Patel 4

Shri Pankajbhai C. Patel

Shri Rajendra Kumar N. Arora

5.2 As on 22.11.2001 an MOU was signed between Appellants 1, 3

and Rajendra Kumar Arora(seller) and their relatives holding

collectively 100% of the paid up capital of the Respondent

Company on one side and Respondent no 2 (the buyer) on the

other side. As per MOU the seller agreed to transfer the entire

shareholding in the name of the buyer at the time full & final

payment of Rs. 50 lakh to the sellers any dispute to which

shall be resolved by arbitration as per clause 10 of MOU. On

the next day of the execution of the MOU i.e. on 23.11.2001

respondent 2,3, and Smt Rupaben Gorania were appointed as

additional directors whereas on request of 2nd Respondent

and in good faith the Appellants 1, 3 and Shri Rajendra Kumar

Arora resigned from board on 01.1.2002.

5.3 In consideration of purchasing entire shareholding for Rs 50

lakh the 2nd Respondent out of total consideration admittedly

paid 33,05,000 between 11.1.2002 and 25.08.2002

subsequently between 25.03.2002 and 25.11.2002 Respondent

no. 2 gave cheques for Rs. 16,95,000 (Rupees Sixteen lac

ninety five thousand only) but were dishonoured on

presentation for payment against which appellants and others

had filed 12 criminal cases under Section 138 of Negotiable

Instrument Act. The Respondent number 2 filed Special Civil 5

Suit No 18 of 2003 in the court of Civil Judge (Sr Division)

Gandhinagar alleging to have breached the terms and

conditions of the MOU by the Appellants! Petitioners claiming

short realisation from debtors of the company and shortfall in

the stocks and inventories, the suit was dismissed holding that

the plaintiff has failed to prove the suit in his favour and if any

dispute arises in respect of breach of conditions mentioned in

MOU and there is an arbitration clause in MOU then civil court

has no jurisdiction, the respondent filed first appeal no 2782 of

2010 in Hon'ble high court of Gujrat in Ahmedabad and which

was allowed to be withdrawn with observation that if an

arbitrator is appointed rights and contentions of both side on

merit of the case will remain open.

5.4 During the course of time from 1.09.200 to 22.11.2012 the

respondent no 2 increased authorised share capital without

giving any notice to the general meeting and allotted shares to

his relatives in following manner without giving notice to the

appellants! petitioners: -

SR. DATE TRANSACTION Effect on % of shareholding NO. Appellants

1. 0 1.09.2002 Allotment of 36400 Reducing from 100% to shares to R-2 85.44%

2. 13.08.2003 Increased in authorised share capital from 25 lacs to 50 lacs 6

3. 30.09.2003 Allotment of 90000 Reduction of shareholding shares to R-2 and his from 85.44% to 68.12% wife

4. 1.10.2008 Allotment of 79000 68.12% to 50.98% Shares

5. 22.11.2012 Allotment of 9000 shares 50.98% to 49.91 %

6. The learned tribunal below while considering the above facts gave

the following finding and granted above mentioned reliefs :-

"57. The finding of this Tribunal is that increasing the authorized share capital and allotment of shares to R-2 and to his group persons without giving any notice to petitioners and without the consent of the Petitioners more so after second Respondent raised disputes in payment of balance amount to Petitioners group in the pretext of alleged breach of clauses 2(g) and (i) are acts of oppression and detrimental to the rights of the Petitioners and their group. But considering the fact the second Respondent purchased the entire shareholding of the Petitioner group in the first Respondent-company and the second Respondent and his group persons are in the management of the first Respondent-company for the last 16 years and considering the fact that the allotment of shares took place from 2002 to 2012, there is no justification to set aside those allotment of shares"

7. Aggrieved by the impugned order passed by the learned tribunal

below the appellants filed the present appeal and prays for the

following reliefs:

a) Set aside the impugned order dated 16.01.2017 passed

by the Hon'ble NCLT, Ahmedabad Bench in C.P. NO.

11/397-398/CLB/MB/2014/OLD, TP No. 58/397/398/

NCLT/AHM/20 1 6(NEW) 7

b) Declare the allotment of 36400 equity shares of Rs. 10

each allotted on 01.9.2002 as illegal and void and to

direct Registrar of Companies, Ahmedabad to deregister

and put the form No. 2 dated 5.09.2002 off the records

of the Respondent No. 1 Company.

c) Declare the increase in authorised capital of the

company from 25 to 52 lakh made on 13.08.2003 as

illegal and void and direct ROC Gujrat, Ahmedabad to

deregister and put the form No 5 dated 1.09.2003 off the

records of the Respondent No. 1 Company;

d) Declare the allotment of 90000 equity shares of Rs. 10

each allotted on 30.9.2003 as illegal and void and direct

roc Ahmedabad to deregister and put the form no. dated

6.09.2003 off the record of the respondent no. 1

company

e) Declare the allotment of 790000 equity shares of 10

each allotted on 1.10.2008 as illegal and direct roc

Ahmedabad to deregister and put the form no 2 dated

1.10.2008 off the records of the respondent no 1

company

I) Declare the allotment of 9000 equity shares of 10 each

allotted on 22.11.2012 as illegal and void and direct the

roc Ahmedabad to deregister and put the form no 2

dated 22.1 1.20 12n off the record of the respondent

company 8

g) Direct the respondent 1 company to rectify its register of

members by removing the names of allottees of illegal

allotment made during the period from 1.9.2002 to

22.11.20 12

h) Pass such order and further orders as this Hon'ble

appellate tribunal may deem fit and proper in the facts

and circumstances of the case

Alike relief were sought for by the appellant before the tribunal

below.

8. Whereas the Respondent to the Company Appeal (AT) No 59 of

2017 and appellant in company appeal (AT) no 110 of 2017 has

come before the Appellate Tribunal seeking inter-alia following

reliefs: -

a. That this Hon'ble Appellate Tribunal may be pleased to

quash and set aside the impugned order dated

16.1.2017 passed by the Hon'ble National Company Law

Tribunal, Ahmedabad Bench in CO No 11/397-

398/CLB/MB/2014/OLD, TP No. 58/397/398/ NCLT/

AHM/2016(NEW), in the interest of justice.

b. That this Hon'ble Appellate Tribunal may be pleased to

pass such other orders as this Hon'ble Appellate

Tribunal may deem fit and proper in the facts and

circumstances of this case.

9

9. The learned advocate for the appellants submitted while

presenting their case that the Tribunal below returned the finding

that allotment of shares without offering them to the Petitioners

and without the knowledge of the petitioners' group and thereby

reducing the petitioners to minority from 100% shareholding to

49.91% shareholding clearly amounts to an act of oppression. The

advocate of appellants further submitted that the NCLT also gave

a finding that there is no material on record to substantiate the

plea of the second respondent that they have invested more than

Rs.2 crores to augment the business of the company therefore,

direction by the impugned order to the petitioners to transfer their

shares to the respondents on payment of just 12% interest on the

unpaid amount from 28.10.2013 only whereas as per the MOU

full amount of Rs.50 lakhs was to be paid by 25.12.2002 and

personal guarantee given by the petitioners to the Bank for

working capital was to be replaced before transfer of share is itself

oppressive, unjust and harsh to the petitioners. Further, the

advocate for the appellants submitted that the directions are in

violation of Article 300A of the Constitution and Section 402 of the

Companies Act, 1956 which requires consent of the parties even

for modifying agreement between the company and third parties

whereas the MOU is between third parties only and the company

is not party to it. The directions are also against the principles of

reasonableness and fairness in the facts of the case in view of the

galloping value of real estate during the last 16 years and the 10

delay involved caused due to litigation thrust by the second

respondent with mala fide intention which caused loss of

opportunity cost and litigation cost to the petitioners.

10. The advocate for the appellants further contented that

though the articles of a company generally vest the shares in the

Board of Directors for allotment. But the allotment of shares, as

held in various cases by the Hon'ble Apex Court, cannot be made

to reduce the shareholding of other shareholders or for the benefit

of the directors on the Board of Directors but in the interest of the

company. They are in a fiduciary position. Further, allotment of

shares can be made within the authorized capital only. If the

increase in authorized capital itself is invalid for want of

compliance with the statutory provisions of taking approval of

general meeting with proper notice to all existing shareholders

under Section 94 of the Act, any allotment made of such increased

share capital would be invalid besides being oppressive to other

shareholders.

11. The Respondent's counsel while presenting case before this

Appellate Tribunal argues that allotment and increase in Share

Capital has been done as per provisions of law and in

confirmation with Clause of AOA which provides for increase in

capital and allotment of shares by Board of Directors. The counsel

further argued that Section 8 1(3) of Companies Act, 1956 specifies

that Sec.8 1 is not applicable to private company. Thus, findings

at para 55 of the order pass by the Tribunal for not offering such 11

shares to original appellants/ petitioners amounts to oppression is

perverse, arbitrary and bad in law. Moreover, Oppression must be

burdensome, harsh and wrongful; none of such condition exist in

present case, the interest of the appellants is limited to extract

money, after MoU they only tried to demand more money than the

agreed as per MoU for transfer of their shares despite of accepting

2/3rd of the agreed amount as for the remaining 1/3rd of the

agreed amount the parties are before arbitral tribunal since the

stock as per MoU was expired and they failed to discharge

recovery from debtors and breached the condition 2(g) & 2(i) of the

MOU. Thus, such allotment and increase of share capital did not

hamper their limited interest in the company. It is vehemently

argued by the counsel respondent that the subject issue and

allotment of shares happened in normal course of business at a

time span of 10 years and the appellants never filed any complaint

for not receiving of AGM notices from 2002 till 2013, thus, neither

shows the ulterior motive of the Board of Directors nor it forms an

act of oppression.

12. Having heard the learned counsel for the parties at length

this Tribunal concludes and make following observations:

a. The MOU was signed between parties as on 22.11.2001 and

appellants resigned from board on 1.1.2002 in furtherance of

terms and condition of MOU, as per the MOU the seller agreed

to transfer the entire shareholding in the name of the buyers

on full and final payment. 25 cheques aggregating Rs 3305000 12

were given between 11.1.2002 and 25.08.2002 and duly

honoured whereas the cheques aggregating Rs. 1695000

issued between 25.03.2002 and 25.11.2002 were dishonoured.

The first allotment of 36400 shares of Rs 10 each in the

Respondent No. 1 company was made by the respondent group

after assuming board management as on 1.9.2002 whereas the

suit for cheque dishonour has been filed on 13.1.2003. The

allotment of 36400 shares by the respondent group after

assuming office to the board as further allotment can be said

to be in the course of business, with due authority, to infuse

the necessary capital to run the business hence the allegation

of oppression cannot be substantiated on this transaction of

the Respondent. Further, the respondents increased the

authorized share capital on 13.8.2003 from 25 lakh to 50 lakh

and allotted as many as 179000 shares in aggregate without

notice to the appellant who remain shareholders of the

company. While continuing with the litigation of dishonor of

cheques filed under section 138 of Negotiable Instrument Act,

on the part of appellant pending under prosecution, and civil

suit which ultimately transferred to arbitration filed on the part

of the respondent in respect of alleged breach of clauses 2(g)

and 2(i) of the MOU whereby the second respondent made

claim of Rs 1321670, is left to be decided by the appropriate

forum i.e. arbitrator whereas the company petition was filed as

on 28.10.2013. This Appellate Tribunal while appreciating the 13

relief sought for and the facts and circumstances in has to take

regard of the interest of the company.

b. it is undisputed that the jurisdiction of the Court to grant

appropriate relief under Section 397 of the Companies Act

indisputably is of wide amplitude. It is also beyond any

controversy that the court while exercising its discretion is not

bound by the terms contained in Section 402 of the Companies

Act if in a particular fact situation, a further relief or reliefs, as

the court may seem fit and proper, is warranted (Bennet

Coleman & Co. v. Union of India [(1977) 47 Comp Case 92

(Bom)J and Syed Mahomed Ali v. R. Sundaramoorthy [AIR 1958

Mad 587: (1958) 2 MLJ 259 : (1958) 28 Comp Case 5541). The

purpose and object of sections 397 and 398 is to put an end to

acts of "oppression and mismanagement" promptly and

speedily rather than allow the parties to be involved in a costly

and protracted litigation.

c. Looking to the circumstances of the present case while holding

that the oppression has been proved against the minority it is

not in the interest of the company to declare the increase

authorised share capital as illegal and cancel all the allotment

made after increasing the authorized share capital, as the

company has taken benefit with the infused money. Further, If

the reliefs prayed from (a) to (g) is granted and all the

allotments made are cancelled the Appellant group will become

100% owner, to consequence of which appellant group will 14

have to bring all the money already put in the company as

share capital through respondent group at the same time will

have to return back Rs. 33,05,000 paid between 11. 1.2002 and

25.08.2002 the amount received in part consideration in

furtherance of MOU between parties. Keeping the fact in mind

that the appellant group was always pursuing for realisation of

the payment not paid as per the MOU in consideration of

selling the entire shareholding in the company, the direction to

the appellants to purchase all the shares of the respondent

won't be appropriate as neither the appellants approached to

the tribunal with such prayer nor shown any such interest or

made such offer to the respondent group during the litigation.

d. Section 402 of Companies Act, 1956 gives wide range of powers

to the Tribunal without prejudice the generality of the powers

of the Tribunal under Section 397/398 pass an order in the

interest of the company vis-a-vis the shareholders. Thus while

granting relief under the aforementioned provision of

Companies Act keeping the interest of the company in the

uppermost mind in the given facts and circumstances to grant

such relief so as to do substantial justice between the parties

we agree to the reasoning given by the court below and not

inclined to set aside the entire judgement but we are not

satisfied with the order awarding interest @12% per annum on

the unpaid amount from the date of filing of company petition

thus modify it to the extent that:-

15

i.The second respondent is directed to deposit a

Demand Draft drawn on a nationalised bank in the

name of the appellants/ petitioners for an amount of

Rs 1695000/- with 15% rate of interest compounded

annually from date 25.11.2002 till the date of

Demand Draft, before court officer of the Learned

Tribunal below. The Tribunal will reschedule the date

of listing for passing of appropriate order for return of

demand draft and for return of share certificate along

with the duly signed share transfer forms, and give a

suitable timeline and manner to the parties to

implement the order of this Appellate Tribunal.

ii.

The appellants shall deposit the original share

certificates of all the appellants and their group

persons along with the share transfer forms duly

signed by the appellants/ petitioners and their group

persons in favour of the second respondent with the

tribunal below as per the direction as may be issued

by the tribunal below on date of listing of the matter,

under intimation to the second responded. 16

Both the appeals are disposed-off accordingly, however, there

shall be no order as to cost.

(Justice S.J. Mukhopadhaya) (Mr. Balvinder Singh) Chairperson Member (Technical)

NEW DELHI

23rd May, 2017