Case: Abdul Wahid Abdul Gaffor Khatri Director &amp; Others Vs. M/S. Safe Heights Developers Private Limited &amp; Others

2. The brief facts as it appears from the appeal memo are as under :(i) On 4.7.2005 respondent no.1 company was incorporated. The authorized, issued and paid up equity share capital of respondent no. 1 Safe Heights Developers Pvt. Ltd. (the Company) at the time of incorporation was Rs. 2,00,000/divided into 20,000 equity shares of Rs. 10/each. Appellant no. 1 and appellant no. 2 and respondent no .2 and respondent no. 3 were the first directors and shareholders of the company at the time of incorporation and account was opened in the name of the company on 7.7.2005 with Samata Sahakari Bank Ltd. in which appellant no.1 and respondent no.2 were the signatories.(ii) On 27.6.2006 an account was opened in the name of company with HDFC Bank, Goregaon branch in which appellant no.2 and respondent no.2 were joint signatories. Respondent no.2 resigned from office of director on 2.11.2006 which was accepted by Board and form 32 was filed accordingly with Registrar of Companies (ROC).(iii)On 6.11.2006 an Extraordinary General Meeting was called in which the authorized capital of the company was increased from Rs. 2,00,000/On 14.3.2007 in another Extraordinary General Meeting the authorized share capital of the company was increased from Rs. 5,00,000/to Rs. 55,00,000/.(v) On 3.9.2007 form 32 was filed by the company for appointment of respondent nos.3,45 as additional directors. On 3.9.2007 form no.2 was filed by respondent no.2 for allotment of 2,30,000 equity shares of Rs. 10 each at par and 25,000 preference shares at par of Rs. 10 each to himself.(vi)On 3.9.2007 Resolution was passed by the company to shift the registered office of the company to a Fort office by filing form no.18. Thereafter registered office was shifted to Nasik.(vii) On 7.9.2007 it is alleged by appellants that respondent no.2, to bring appellants share holding under minority, allotted 2,26,000 equity shares of Rs. 10 each at premium of Rs. 120 and 25,000 preference shares of Rs. 10 each at par by filing form no.2 w.e.f 23.8.2007 to the family members and company in which respondent nos. 45 were interested and this allotment was without any notice, meeting, knowledge and consent of Board of Directors. It is also alleged that on 15.12.2007 respondent no. 2 again filed form no. 2 for allotment of 24,000 equity shares of Rs. 10 each at a premium of Rs. 120 per share w.e.f. 22.9.2007 to one Geeta Constructions Pvt. Ltd. wherein respondent no. 5 is an interested director.(viii) On 5.11.2007, appellants caused a Show Cause Notice issued to respondent nos. 23 calling upon them to explain their misconduct and activities detrimental to the interest of the company and to return the books of accounts, correspondence, original agreements, records and registers of the company.(ix)On 7.11.2007 respondent no.2 replied stating that appellants had sold their stake in the Company and the matter was settled, with one Mr. Deepak M. Mehta, who was acting as mediator/escrow agent for the purpose.3. It should be noted that the appellants counsel made oral submissions and followed it with 49 pages of written submissions. I have to note that the written submissions filed on behalf of appellants far exceed what was argued before the court and raises new points which were not pressed before the court. Reliance has been placed on several new judgments on points which were neither urged before the Company Law Board nor pressed before this Court when the matter was argued.

Reasoning: In the present case, under no circumstances can it be said that the judgment of the CLB is either perverse or cursory or based on no evidence. The Appellants are attempting to treat the present proceedings as a First Appeal and are in effect seeking that this Court delve deeply into the facts and exercise its discretion to replace the discretionary judgment of the CLB. This is impermissible in law and is contrary to the judgments of the Honble Supreme Court and High Courts which were cited on behalf of the Respondents.9. In my view, the order of the CLB in the present case can in no circumstances be said to be either perverse, based on no evidence or arbitrary. The CLB has analysed the factual and legal position in depth and has arrived at a conclusion on facts that no case of oppression and/of mismanagement has been made out by the Appellants.The CLB has, after a detailed consideration of the Appellants conduct, arrived at a finding of fact that the Appellants had suppressed material facts and had not come with clean hands, having indulged in various acts of misconduct as set out in the order, including running a parallel Board of Directors, holding meetings without any notice (as opposed to the Respondents having shown UPC records for service of notice for their meetings) and appointing/removing directors at their whim. The CLB has rightly noted that a party seeking relief in an equitable jurisdiction must itself act equitably (i.e., a person who wants equity must do equity), and has arrived at a conclusion that the Appellants have not acted equitably.17. In their submissions, the Appellants have sought to deflect attention from their own defaults by alleging defaults on the part of the Respondents. The Appellants have not been able to deny the illegalities committed by them, but have simply alleged that the same yardstick was not applied to the Respondents. This stand is factually incorrect in as much as the Appellants did not give any notice for their meeting, whereas the Respondents had given notice by UPC. Even otherwise, it is the Appellants who have approached the CLB in the exercise of its equitable jurisdiction, and it is the Appellants who must show that they have acted equitably and with clean hands. It is no answer to contend that their illegalities are justified by alleged illegalities on the part of the Respondents, which in themselves have been denied.In these circumstances, on this ground also, I see no reason to interfere in factual findings of theA grievance was raised by the appellants that the UPC proofs at pgs. 351 and 354 appear to be identical. While this is purely a factual matter which ought not to detain this Court, the Appellants ought to have pointed out that the UPCs at pgs. 351 and 354 pertain to communications both dated 19th February 2007, and therefore potentially the same UPC proof would be sufficient if both communications were forwarded under the same UPC certificate and/or in the same packet. These are factual matters, which if had been pressed before the CLB would duly have been answered by the CLB after hearing both sides, but this aspect was not urged, as is apparent from the judgment of the CLB.21. In this context, the CLB has rightly held on the basis of Section 53 of Companies Act, 1956, that there arises a rebuttable presumption that the documents were served on the Appellants under certificate of posting. As held by the Honble Supreme Court in the case of V.S. Krishnan (supra) relying on the judgment of the Honble Supreme Court in (2004) 9 SCC 204 M. S. Madhusoodhanan v. Kerala Kaumudi Private Limited, the burden was on the addressee, i.e., the Appellants herein, to rebut the statutory presumption and show that the notice had not been received by them. Admittedly in the present case no such attempt has been made by the Appellants to show that the notice was in fact not received by them. In the circumstances, it cannot be said that the CLB judgment is perverse or unreasonable or arbitrary on this score.22. The Appellants have sought to rely upon certain judgments on the aspect of service of notice for meetings. Broadly stated, the said judgments only lay down the accepted proposition that notice of a meeting ought to be given to the shareholder/director. The said judgments have no application in the present case, as it is not the case of the Respondents that no notice was given, but in fact notices were sent by post under certificate of posting (UPC). As aforesaid, the rebuttable presumption under Section 53 having arisen, and having not been rebutted by the Appellants, the CLB has rightly held in favour of the Respondents in thisis pertinent to note that in the present case, after the meeting of 14th March 2007 as set out later, in which the Appellants have participated in raising the share capital, and until the issuance of the show cause notice on 5th November 2007, (during which time the notices were sent by UPC) there is no record whatsoever to show that the relationships between the parties was in any manner embittered. During this period between March 2007 and November 2007 there was no embitterment whatsoever and it was during this period that the rights issue took place culminating on 22nd September 2007, as also the shifting of the registered office in April 2007 and2007. Hence, the notices sent for these meetings under UPC during this period, cannot possibly be required to be viewed with any suspicion on the ground of purported embitterment, or otherwise.23. Before the CLB, the case of the Appellants was that the UPC notices were infirm and should not be relied upon because relations between the parties were embittered. Before this Court, it was urged that the UPCs could not be relied upon in respect of Board Meetings and that the presumption under Section 53 applied to general meetings of the company. This contention is misleading. While Section 53 does raise a presumption in respect of notices for meetings of members of the company, under Section 286 of the Companies Act, 1956, there is no format provided for service of notices to Directors. The CLB has dealt with the argument which was urged, namely that the notice through UPC should not be presumed as sufficient proof of service; this argument of UPC notice for Board Meeting does not appear to have been urged before the CLB. Even otherwise, under Section 286 of the Companies Act, 1956 no specific mode of service is provided for. The UPC proofs were duly produced before the CLB even for meetings of the Board of Directors, and there was nothing placed on record by the Appellants to show that they were either not available at the time when the notices were served or that they could not or were not in a position to receive the same. Even otherwise, the CLB has rightly held that after knowledge of those resolutions being passed by November 2007January 2008, no steps were taken by the Appellants to approach the CLB for redressal of their grievances for close to four years. On the contrary, the Appellants held their own meetings without even attempting to send notices thereof to the Respondents; what has weighed with the CLB therefore is the inequitable conduct on the part of the Appellants and this factual finding cannot to be interfered with.24. Even otherwise, the rights issue having been done in the interest of the Company with a view to infuse funds into the Company, can under no circumstances be said to be an act of oppression. The Honble Supreme Court in the case of AIR 1981 SC 1298   Needle Industries (India) Limited v. Needle Industries Newey India Holdings Limitedrelied upon in V. S. Krishnan (supra), has held that if the shares are issued in the larger interest of the Company and bona fide with a view to enable capital to be raised, the rights issue cannot be termed as oppressive.25. In the present case, in the meeting of the Board of Directors held on 14th February 2007 and confirmed in an EGM held on 14th March 2007 it was decided to raise the authorised share capital of the Company from Rs. 5,00,000/The explanatory statement for the meeting held on 14th March 2007, placed on record by the Appellants themselves, bearing Appellant No.1s digital signature, expressly records that the shareholding was being increased as the Company "wishes to enhance its current business greatly", and that the present authorised capital of the Company was "very small and would be a constraint to the growth of the Company". Admittedly, validity of these meetings which were referred to in paragraphs ii(a) and (b) of the Respondents Reply, and the Appellant Nos. 1 and 2s presence have been accepted in paragraph 6 of the Appellants Rejoinder.26. The rights issue was thus obviously contemplated as being the avenue for increasing the funds of the Company and for the growth of the Company. The CLB has recorded a finding of fact (in paragraph 28) that the rights issue was necessary for the growth of the Company and therefore the action of issuing the shares could not be termed as oppressive to the Appellants and/or mismanagement of the affairs of the Company.27. Pertinently, despite being party to the above meetings, at no point did the Appellants seek to subscribe to the rights issue, and did not even make such enquiries for several years prior to filing the present Petition. The reason for this was clearly because the rights issue which commenced from April 2007, was not of interest to the Appellants, as the Appellants had received back the sum loaned by them to the Company to the tune of Rs.The Appellants had accepted back the loan as they did not desire to partake in the functioning of the Company.28. The Appellants have no explanation for their having taken back their loan, save and except to contend that this was not reflective of their disinterest in the company. In this regard, the CLB has arrived at a finding of fact, based on the conduct of the Appellants and this finding ought not to be interfered with in exercise of jurisdiction under SectionAs a matter of fact, after accepting their loan amounts back in or about March 2007, at no point did the Appellants write a single letter or demand to participate or show any interest in participating in the company until issuance of the show cause notice on 5th November 2007. If the Appellants truly desired to partake in the management of the company and felt that they had been wrongly prevented from doing so, any reasonable person would have approached the appropriate forum, i.e., the CLB in 2007 itself. However, no such steps were taken by the Appellants until July 2011.29. In the circumstances, even on merits it cannot be said that the rights issue was either oppressive or done behind the back of the Appellants.Shifting of registered office:30. The Appellants have sought to raise certain factual contentions as to where the notices for the Registered Office shifting were posted from. These are all factual matters, which would turn on evidence as to where Respondent No.2 resided and where he posted the notices from. It is not necessary that the notices be posted only from the Post Office adjacent to the Registered Office of the Company. Be that as it may, this factual analysis is beyond the scope of this Courts jurisdiction under Section10F of the Companies Act, 1956.1956.31. The Appellants raised a grievance that the registered office of the Company was shifted from Jogeshwari to Sir P. M. Road in April 2007 and thereafter from Mumbai to Nashik in JulyAugust 2007.32. It has to be noted that the jurisdiction of the ROC was not changed, and there was no prejudice whatsoever caused to the Company by virtue of the change of the registered office. The sequence of events relating to the shifting of the registered office have been set out in paragraphs (i) to (iii) of the Reply filed by the Respondents in the CLB.33. As laid down by the Honble Supreme Court in [2001] 33 SCL 78 (SC) Hanuman Prasad Bagri v. Bagress Cereals Private Limited, shifting of the registered office by itself may not be a reason or a ground to be raised in a Petition under Sections 397/398 as long as the Company did not suffer much loss on account of the shifting and no case was made out to show that such exercise was undertaken to put oppressive pressure or pain upon the Petitioners. As in the case that was before the Honble Supreme Court, there is nothing in the present case to show that any prejudice was/is caused to the Appellants or that any wasteful expenditure amounting to mismanagement was incurred on behalf of the Company by shifting of the registered office.34. Pertinently, it is the admitted position that the UPC amount paid was Rs.It is more than sufficient for service on Appellant Nos. 1 and 2; the other Directors and Shareholders being part of the Respondent Group, may well have been served by other meansthey have raised no objection as to service or receipt of the notices. Once again this aspect is purely factual and is being dealt with only in light of the contentions raised by the Appellants. The crucial factor remains that shifting of the Registered Office has caused no prejudice to the Company, and is not oppressive in the least. There is nothing to show that the shifting was done to prejudice the Appellants.35. Thus this contention does not constitute oppression or mismanagement.Directorial disputes36. The Appellants have relied upon an RTI Application of 2012 to contend that no notice was received of the meeting for removal of the Appellants as Directors. It appears from the impugned judgment that this issue of the RTI Reply was not pressed before the CLB. Even otherwise, it is pertinent to note that in all the various allegations of not having received notice for various meetings, the Appellants have not sought to obtain any RTI on the delivery of notices for all the meetings which are the subject matter of dispute between 2007 and 2010, but have only purported to obtain an RTI for a meeting held in 2011. Be that as it may, the Appellants have been removed by resolutions and with appropriate Form 32s filed, to the satisfaction of the ROC. It is nobodys case that the ROC has thereafter raised any objections to the filing of the Forms or indeed to the manner of removal of the Appellants.37. As held by the Honble Supreme Court in Hanuman Prasad Bagri v. Bagress Cereals Private Limited (supra) directorial disputes are beyond the jurisdiction of the CLB under Sections 397 and 398. Thus, the same cannot be raised before the CLB as rightly held by the CLB in paragraph 35 of the judgment.38. Further the Company is not under any circumstances either a family company or a closely held quasi partnership, in which circumstances potentially directorial disputes may be raised. The judgments relied upon by the Appellants in this regard will have no application to a company such as Respondent No.1. Further, it does not appear that this issue ofwas pressed before the CLB, and was not pressed in arguments before this Court.39. The judgments placed in the Written Submissions, are, to a substantial extent, on points not raised before the CLB or before this Court in the arguments canvassed by the Appellants. The said judgments pertain to several aspects which were neither pressed before the CLB or before this Court, and to the extent that the same are placed in reliance of a case not pressed before the CLB or this Honble Court, the judgments ought to be disregarded. Nevertheless, the said judgments are broadly dealt with hereinbelow:40. As regards 2001 (1) Mah. L.J. 701 Dushyant D.Anjaria v. M/s. Wall Street Finance Ltd. ; 2011 SCC Online Gau 143 Yogendra Kumar Maheshwari v. Registrar of Companies; and (2004) 1 CTC 340 P.Natarajan v. Central Government, of the Compilation are in cases which were not under Section 397/398.41. As regards Dushyant D.Anjaria (supra), Yogendra Kumar (supra); P.Natarajan (supra) ; (1983) 53 Comp Cas 883 Sishu Ranjan Dutta v. Bhola Nath Paper House Ltd.,; (1999) 19 SCL 391 (Mad)Harikumar Rajah v. Sovereign Dairy Ltd. (Mad) ; (1961) 31 Comp Cas 193 (Cal) Hindusthan Cooperative Insurance Society Ltd. In re ; (2010) 156 Comp Cas 367 Sintex Industries Ltd., In re, pertain to appointment of (Additional) Directors and the tenure thereof. The appointment and duration of Directors is a matter beyond the scope of jurisdiction of the CLB, and in any case is not the grievance urged before this Court.42. As regards (2009) 149 Comp Cas 328Zora Singh v. Amrik Singh Hayer; (2010) 153 Comp Cas 370 (CLB) Rajiv Kumar Singh v. Shree Narayan Developers P. Ltd. and Ors.; (2010) 153 Comp Cas 222 Ashok Kumar and Ors. v. Shree Janki Cold Storage P. Ltd. and Ors.; (1988) 64 Comp Cas 562 (Cal) Swapan Dasgupta v. Navin Chand Suchanti, pertain to notices for meetings and the issue of UPC. This issue has been dealt with above. The judgments turn purely on the facts of their respective cases. In the present case, the CLB has arrived at a conclusion that the notices appear to have been served on the Appellants, and even in respect of the Board Meetings, it cannot be disputed that there are UPC proofs of the notices.43. As regards Needle Industries India Ltd. (supra) ; (1996) 87 Comp Cas 290 CLB Mrs. Farhat Sheikh v. Esemen Metalo Chemicals Pvt. Ltd. ; (1995) 82 Comp Cas 563 (CLB) Rashmi Seth v. Chemon India Pvt. Ltd. ; (2009) 151 Comp Cas 71 (CLB) Ram Babu v. Target Constructions Pvt. Ltd. and Ors. ; and (2010) 158 Comp Cas 195 (CLB) Mrs. Gurpreet Gill v. Pumpkin Studio P. Ltd.Ors., the same pertain to issue of shares. As set out earlier, the impending Rights Issue was to the knowledge of the Appellants; even otherwise, at no point had they sought to exercise their purported right of preemption as is now sought to be contended in the Appellants Written Submissions. The Appellants in fact had accepted repayment of their loan by March 2007 and were clearly not interested in the functioning of the company. Pertinently, even after having full knowledge, as per their own case, in November 2007, the Appellants did not take steps to challenge the Rights Issue or to seek allotment of shares to them in the ensuing several years. In any event, the judgments relied upon take the position that if the Rights Issue is not bona fide but is only for the purpose of enabling a party to obtain a majority, then such action will constitute oppression; this is not so in the present case. The CLB has concluded that funds were required for which the Rights Issue was carried out, and therefore it cannot be said that the same was not bona fide.44. As regards (2008) 141 Comp Cas 270 (CLB) Sanjay Paliwal and Anr. v. Paliwal Hotels Pvt. Ltd., ; (2008) 141 Comp Cas 482 (CLB) Rajesh Patil v. Moonshine Films Pvt. Ltd. ; (2008) 142 Comp Cas 320 (CLB) M.L. Arora v. Green Valley Frozen Food Ltd.Ors. ; and (2004) 119 Comp Cas 974 (CLB) A. Kalyani v. Vale Exports P. Ltd., the same pertain to the allegation of continuous oppression and mismanagement, to justify the delay in filing of the Company Petition. As set out above, the contention of continuous oppression and mismanagement culminating in the removal of the Appellants as Directors in 2011, was not the ground urged before the CLB to justify the delay. The ground urged was as to the pendency of proceedings before the ROC, and it is in that context that the CLB has rightly held that the explanation for the delay is unjustifiable. Even otherwise, the explanation given by the Appellants cannot be countenanced, as the events of which they complained, had to a material extent, culminated in 2007 itself, and there is no justification for the delay in approaching the CLB.