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CORPORATE LAWS – Company Law Update
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CORPORATE LAWS
Company Law Update
[2015] 188 Comp Cas 485 (CLB)
2.
Respondent No. 1 is a Company where as
respondent Nos. 2 to 4 are the shareholders
and directors of the Company.
3.
Respondent no 4 holds around 37.39%
of the shareholding of the company. She
resigned as director of the Company.
4.
The two directors of the company as per
MCA websites were related to respondents
holding shares of the company.
[Before the Company Law Board – Mumbai Bench]
Ms. Varshaben S. Trivedi vs. Shree Sadguru Switch
Gears P. Ltd and Others.
The act of oppression may be fully permissible
under the law as legal, however, when said
action is against the probity, good conduct,
burdensome, harsh and is mala fide or for a
collateral purpose, then it would amount to
oppression under section 397 of the Companies
Act, 1956.
Brief Facts
The Petitioner has refiled this petition under
sections 397 and 398 read with section 402 of
the Companies Act, 1956 (“Act”). The said
petition is for certain acts of oppression and
mismanagement purportedly committed by
respondents. The said petition was originally
heard and decided by the CLB member at
that time and had granted certain reliefs. The
petitioner being aggrieved had filed petition
before the Hon. High Court Gujarat. The Hon.
High Court has set aside the judgment and
directed the CLB to hear the case afresh.
The facts as submitted in the original petition
are as follows.
1.
Petitioner holds around 62.36% equity
shares of the Company.
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The allegations made by the petitioner are as
follows:
1.
The appointment of respondent Nos. 2
and 3 as directors were illegally made and
without her knowledge. As she was one of
the two directors of the board. No notice
was received by her for proposed board
meeting, where the two directors were
appointed. It was submitted that form
32 filed with RoC mentioned the board
resolution is “00” thus, it shows that no
board meeting was held and the director
who has ſled has no authority.
2.
The director can be appointed by the
shareholders in Extra Ordinary General
Meeting (“EGM”) only and board
of director has limited powers for the
appointment of an additional director or
alternate director.
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CORPORATE LAWS – Company Law Update
3.
Registered Ofſce of the Company has been
shifted by illegally constituted board of
directors. Petitioner has not received any
notice for such board meeting.
4.
Petitioner was illegally removed as a
director under section 284 of the Act in the
alleged EGM. Further, no board meeting
was held before holding EGM, which is
must. The petitioner has not received any
notice for said board meeting or EGM.
5.
The funds of the Company were siphoned
by the respondent No. 2 and 3 for their
personal beneſt.
The following relief has been sought in the
petition.
1.
That petitioner be restored as a director of
the Company.
2.
The two respondent directors should
vacate the office as their appointment is
null and void.
3.
The petitioner is allowed to appoint
additional director form the quorum for a
board meeting.
4.
The two respondent directors should repay
back the siphoned fund.
5.
All actions taken by the two respondents
directors should be declare as null and
void.
From respondent sides, the above allegations
were refuted. They have provided the evidence
by of Certificate of Posting for sending notice
for calling EGM under section 169 of the Act.
They have also claimed that since the petitioner
has failed to call EGM as requisitioned, they
have called the EGM as provided in said
section 169.
Judgments and Reasoning
1.
The CLB has set aside the appointment of
two respondent directors.
ML-375
The CLB has reviewed the various
decided case on oppression and mismanagement. The judgments in the case
of Needle Industries (India) Ltd. vs. Needle
Industries Nerwey (India) Holding Ltd. [1981]
51 Comp Cas 743 (SC); 1981 3 SCC 333 ; M.
S Madhusoodhanan vs. Kerala Kaumudi P. Ltd
[2003] 117 Comp Cas 19 (SC); [2009] 1 SCC
212; Dale and Carrington Invt. P. Ltd v. P.K.
Prathapan [2004] 122 Comp Cas 161 (SC);
[2005] 1 SCC 212; Sangramsinh P. Gaekwad
vs. Shantadevi P. Gaekwad [2005] 123 Comp
Cas 566 (SC); [2005] 11 SCC 314 to decide.
a.
Where the conduct is harsh,
burdensome and wrong.
b.
Conduct is mala fide and is for
collateral purpose.
c.
Action is against probity and good
conduct.
d.
Even though the action is legally
permissible, if same is otherwise
against probity, good conduct or is
burdensome, harsh or wrong.
The CLB has relied on various decisions
on delivery of notice through “certiſcate
of
posting”
including
Supreme
Court Judgment in the case of M.
S Madhusoodhanan vs. Kerala Kaumudi
P. Ltd. where it was observed that the
…”evidence by certiſcate of posting was
not reliable when relationship between
the parties is already embittered…”.
Further, in case of Dankha Devi Agarwal.
Tara Properties P. Ltd [2006] 133 Comp Cas
236 (SC) it was held by Supreme Court
that …. a decision taken in a meeting
without due notice of such meeting for
removal or induction would be instance
of oppression and mis-management.”
The decision in Zora Singh vs. Amrik Singh
Hayer [2009] 149 Comp Cas 328 (P&H), it
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CORPORATE LAWS – Company Law Update
was held that. ”when the receipt of all the
notices were denied by the respondent, the
mere production of such certiſcates do not
satisfy the requirement of law.”
2.
3.
4.
5.
CLB has also set aside the resolution for
shifting of registered ofſce. CLB has noted
that upon contention of respondents and
analysis of facts and documents, same are
not to be relied upon.
On removal of petitioner under section 284
of the Act, CLB has set aside the decision
taken in EGM and declared the same
is also set aside. The CLB has verified
both sides of argument including that
same is very much applied to even a
private company. However, CLB has
accepted the contention of a petitioner
as to illegal removal without any valid
reason. CLB accepted that when company
is not working for last so many years and
that company has surrendered its tax
registration certificate thus there was no
logic for respondent to remove her as a
director which it is nothing but gaining
control over the company. CLB has relied
upon the judgment in V. G. Balasundaram
vs. New Theatres Carnatic Talkies P. Ltd.
[1993] 77 Comp Cas 324 (Mad.)
On Siphoning of fund, CLB has noted
that as per respondents, the said amount
was paid to certain creditors, which were
not paid by petitioner, while she was
running the company. CLB has directed
that Board should get the accounts audited
and decided upon such allegation.
CLB has also rejected other contention
respondents as to illegal allotment of
shares by petitioner earlier and that
petitioner has not come with clear hand.
Further, respondent claimed that petitioner
has not ſled any submission for winding
up of the company etc., both the above
pleas were rejected.
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[2015] 188 Comp Cas 1 (SC)
[In the Supreme Court of India]
I.P. Holding Asia Singapore P. Ltd and Another vs.
Securities and Exchange Board of India.
The perception of the risk and threat in the
business is to be decided from the perspective
of the acquirer and same cannot be decided on
the basis of the hindsight of the SEBI.
Brief Facts
This application is made by the appellants
against the order of the Securities Appellate
Tribunal (“SAT”) at Mumbai. As per SAT
order, the appellants were directed to pay a
non-compete fee to the public shareholders
of the target company as paid to outgoing
promoters.
The appellant No. 1 is a Singapore based
company. Appellant No. 2 is its India based
subsidiary. The appellants had agreed to
purchase shares from the out-going promoters
(“Bangur Grup”) of Andhra Pradesh Paper Mills
Ltd. (“Co.” or “Target Co.”). The appellants had
entered into two agreements with the Bangur
Group to acquire their 53.46% shareholding in
the company at a price of ` 523/- per share. The
appellant also agreed to pay additional ` 21.20
per share as exclusivity fee. Thus, total amount
to be paid was ` 544.20 per share. Appellant also
entered into a non-compete and business waiver
agreement for which they have paid additional
amount to Bangur Group.
As per the Regulation 10 of the SEBI (Substantial
Acquisitions of Shares and Takeovers)
Regulations, 1997 (“Code”), appellant have an
open offer to remaining shareholders of the Co.
to acquire up to 21.54% equity shares at a price
of ` 544.20/- per share.
On open offer letter, SEBI has made an
observation to offer a share price of ` 674.93
by adding the non-compete fee paid to Bangur
Group.
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CORPORATE LAWS – Company Law Update
The contention of the SEBI is that out of total
number of members of Bangur Group consisting
of companies and individuals, only some of the
promoters entities were eligible for non-compete
fee. With regards to 13 promoter entities, as per
SEBI, none of them are eligible for non-compete
fee payment as they were not in the business of
Target Co.
Being aggrieved with the SEBI’s contention, the
appellants had ſled application with SAT. The
SAT also agreed to the SEBI’s contention.
of offer price, then the jurisdiction of SAT
is triggered. In the present situation, the
fee is less than 25% and thus, SAT has no
jurisdiction. Court has noted the decision
in G.L. Sultania vs. Securities and Exchange
Board of India [2007] 137 Comp Cas 658 (SC);
[2007] 5 SCC 133. In this it was noted that
“for the acquirer the decision to acquire
shares is a commercial decision.”
2.
On the non -payment to one of the
individual, after going through his
degree, his working with Target Co.
and his holding indirect shareholding
in another promoter entities, Court has
opined that it is odd that SEBI and SAT
concluded that he did not have sufſcient
information, access or ability to be in a
position to compete with the Target Co.
business.
3.
Court has also observed that other
individuals have the master degree in
business administration and also a director
of the company and thus can not be said
that she lacked experience to offer any
competition.
4.
The perception of the appellants as to risk
and threat from such promoters’ entities.
From their perspective, such individual
holding directly or indirectly shares in the
Target Co. and having business experience
and same can not be decided on the basis
of the hindsight of the SEBI.
5.
Second error on splitting the payment of
non-compete fees to only certain promoter
entities and excluding other entities is
an error on the part of SAT. If the noncompete fee is a sham, then the entire
agreement would have to be held as
a sham and not only a part of it being
treated as sham.
SAT view is that payment of non-compete fee is
a sham to deprive the other shareholders their
rightful claim, SAT decision was based on the
followings:
1.
2.
3.
SAT relied on its earlier three appeals, that
it had jurisdiction to decide on whether an
excessive amount of non-compete fee paid
to promoter entities and that some of them
were not capable to compete with business
of the Target Co.
Two individuals not having any
experience or expertise in such business
were paid such fee only because they are
part of promoter’s entities.
For other 13 non-individual promoters’
entities, SAT has observed that none of
them are in the business of the Target Co.
and thus, cannot offer any competition to
its business.
Judgments and reasoning
The Supreme Court has upheld the appeal. The
following were the points considered by the
Court.
1.
As per Regulation 20(8) of takeover code,
for non-compete fee, if exceeds above 25%
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