ASHOKAN EDACHALI Vs. PROMPT PRINTING PRESS (P.) LTD.

JUDGEMENT

(1.) THE present petition is filed under Section 111(4) of the Companies Act, 1956 ('the Act') by Pradeep Kumar Jain, the constituted attorney of Petitioners praying this Bench to declare transfer of 40 per cent shares of Petitioner No. 1 to Respondent Nos. 2 and 5 and transfer of 5 per cent shares of Petitioner No. 2 to Respondent No. 4, are ab initio void and illegal. Also sought a direction to cancel the impugned shares and restore the said shares in the name of the Petitioners. Further, he also sought a direction to the Respondents to sell the balance 55 per cent shares of Respondent Nos. 2, 4, 5 and 6 to the Petitioners and also sought a declaration that Respondent Nos. 2 and 3 as disqualified directors and prosecute them being involved in misdeeds and misconduct.

(2.) SHRI Rajaratan Bhura, learned Counsel for the Petitioners, submitted the brief facts. Petitioner Nos. 1 and 2 were the subscribers of the memorandum of association and were appointed as the first directors of Respondent No. 1 along with Respondent No. 3 herein, since the date of incorporation, i.e., 27th September, 1988. Respondent Nos. 2 and 3 managed the affairs of Respondent No. 1 in the capacity as directors. Petitioner Nos. 1 and 2 are the shareholders of Respondent No. 1 holding 10,000 and 1,250 equity shares, respectively, which collectively constitute 45 per cent equity shares of Respondent No. 1 and still hold original share certificate Nos. 4, 7 and 8 containing 100 shares, 1,150 shares and 10,000 shares, respectively. The Petitioner have not received the notice of annual general meeting ('AGM') for the past two year's and after getting no response from Respondent No. 1, they approached their legal consultant. The consultants of the Petitioners undertook the search of the records of Respondent No. 1, maintained by the Registrar of Companies ('RoC') on the portal of Ministry of Corporate Affairs. The Petitioners were shocked when they were informed by their lawyers that 10,000 shares of Petitioner No. 1 were transferred equally, to Respondent Nos. 2 and 5 on 13th March, 2006 and 1,250 shares of Petitioner No. 2 were transferred to Respondent No. 4. Certified true copies of the annual return submitted on 30th September, 2006, filed with the RoC, Maharashtra through e -return showing therein the 40 per cent, shares, i.e., 10,000 shares of Petitioner No. 1 have been fraudulently and illegally transferred to Respondent Nos. 2 and 5 on 13th March, 2006, without his consent and knowledge and 5 per cent equity shares, i.e., 1,250 shares of Petitioner No. 2 has been transferred to Respondent No. 4 without their consent and knowledge and the names of Petitioner Nos. 2, 4, 5 are illegally shown as shareholders of Respondent No. 1 in the said annual return. Petitioner Nos. 1 and 2 were shocked when they came to know the above facts that their shares were transferred to Respondent Nos. 2, 4 and 5 without their consent, knowledge and consideration. Furthermore, the Petitioners have never handed over their original share certificates to anybody. Petitioner Nos. 1 and 2 are shown as shareholders in the annual return for the year ending on 31st March, 2005, which was submitted on 30th September, 2005 and filed with the RoC, Maharashtra. However, Respondent Nos. 2, 3, 4 and 5 fraudulently manipulated the shares and misrepresented to the RoC in particular and public in general the annual return for the financial period ending 31st March, 2006, submitted on 30th September, 2006. Respondent Nos. 2, 4 and 5 are illegally holding shares of Petitioner Nos. 1 and 2 due to the illegal transfer carried out with the help of Respondent Nos. 2 and 3 misusing their positions. The so -called transfer of shares are nothing but the acts of cheating and forgery on the part of Respondent Nos. 2 to 6 collectively and violation of statutory provisions of the Act. Respondent Nos. 2 and 3 being the directors of Respondent No. 1 assumed the fiduciary position and are required to act for the benefit of the company in general. Respondent Nos. 2 and 3 not only misused their position, but also committed breach of trust and, hence, are liable to be declared as "disqualified directors" and evicted from Respondent No. 1. Petitioner No. 1 has filed criminal complaint against Respondent Nos. 1, 2, 3 and 5 and Petitioner No. 2 has filed criminal complaint against Respondent Nos. 1, 2, 3 and 4 under Sections 467, 420 and 403 of the Indian Penal Code, 1860, vide complaint dated 20th December, 2007, to the Senior Police Inspector, Boisar Police Station, inter alia, alleging that the purported accused had fraudulently forged the shares and got transferred in names of Respondent Nos. 2, 4 and 5 without knowledge of Petitioner Nos. 1 and 2. The transfer of shares of the Petitioners without their knowledge and consent is a criminal offence and breach of trust on the part of the transferee of the shares and persons who are managing the affairs of the company. Respondent Nos. 2, 3, 4, 5 and 6 are involved in the fraud and thereby committed breach of trust and thereby the Petitioner's interest will be seriously affected. It was held in number of cases that the directors of the company who involved in illegal act, forgery or fraudulent acts are liable to be removed from the directorship. It was held in one leading case that even the group controlling majority shares and managing the affairs of the company detrimentally to the interest of the company and its shareholders, could be directed to sell their shares to the other group. Fortune of Respondent No. 1 may change if it is managed by the competent persons. Petitioner No. 1 who conceived the idea of promoting Respondent No. 1 and put lots of his family's fund to the tune of Rs. 4,70,225 on various occasions. It was held in one leading case that in case of a deadlock, one group of shareholders can be directed to sell its shares to the other group. Since the Petitioner has contributed substantial funds, it would be in the interest of the company also that the management and control of the company is handed over to the Petitioner who is willing to assume all the liabilities of the company also. So it is better to order to transfer the balance 55 per cent holding of Respondent Nos. 2, 4, 5 and 6 to the Petitioner against consideration as the hon'ble Company Law Board ('CLB') so deem fit.

(3.) THE Respondents filed their counter and denied the allegations, averments made in the petition. Shri V Bhaskaran, learned Counsel appearing for the Respondents, submitted that the petition is filed through the constituted attorney of the Petitioners in a haphazard manner without mentioning that he is conversant with the facts of the case and even his identity and authority to represent both the Petitioners. Petitioner No. 1 has no authority to appoint constituted attorney on behalf of Petitioner No. 2 and, therefore, the petition is filed without proper authority. The Petitioners have avoided to subscribe their signatures and representations were made through the agents to avoid their signatures. The signature can be verified from records and compared with the signatures in the disputed documents. Even the complaint which was lodged with the police signed, by the advocate on their behalf, for the said reasons. They have done so in order to avoid the scrutiny of the signatures and comparison with their signature on the alleged transfer documents and the disputed documents. Petitioner No. 1 had subscribed his signature in many documents and even in court proceedings. There was no forgery as alleged at any earlier stage against the Respondents. The allegations are made in a whimsical manner varying from one another. Earlier it was alleged that Mr. P K Arumughan was director, responsible for the transfer of shares. The allegation was proved to be false and, therefore, withdrawn after it was revealed that he was no longer director since 1991.