Sachchidanand Singh & Ors. vs ABM Developers Pvt Ltd and Ors

Harish Chander Suri, Member (Technical)

The Petitioners have filed this CP No. 1738/KB/2019 alleging fraudulent removal of Petitioner No. 1, 2 and 3 from directorship of the Company by attaching false resignation letters bearing forged signatures of the Petitioners in e-Form DIR-12 filed by the respondents. The Petitioners have also cited several instances of oppression and mismanagement perpetrated by Respondent No. 2 and 3 in the Respondent Company, which led to their removal from directorship of the Respondent Company by shareholders under Section 169 of the Companies Act, 2013. Prayer has been made to nullify DIR-12 filed by the respondent No. 2 and 3 for cessation of Petitioner No. 1, 2 and 3; to restore directorship of Petitioner No. 1, 2 and 3 with MCA as it stood as on 05th June, 2019; to direct the Registrar of Companies, Bihar to give effect to the said restoration and to uphold the removal of Respondent No. 2 and 3 by shareholders of the Company.

The facts of the case, in a nutshell, are that the Petitioner No. 1, 2 and 3 are directors (Petitioner No. 1 is Managing Director) and shareholders in the Respondent Company holding 60% (Sixty percent) shares of the Respondent Company together with other petitioners and few Kith and Kin. Whereas, Respondent No. 2 and 3 are also directors of the Respondent Company holding 40% (Forty percent) shares.

It is submitted that the Respondent Company was incorporated on 03.07.1992 with the main object to carry on the business of Construction, Development and Real Estate activities. On 18.10.1995, the Respondent Company entered into a Development Agreement with Baptist Church Trust Association for development of residential and commercial project at Patna. Due to illegal and prolonged encroachment on the land, the development work could not take place and the Respondent Company ran into financial crisis. In view of the said financial crisis, Petitioner No. 1 on behalf of the Company approached Respondent No. 2 and 3, amongst others to meet capital requirements of the Respondent Company. For the said purpose, the Respondent Company entered into an Agreement with Respondent No. 2 on 12.11.2010. In adherence to the said agreement, Respondent No. 2 and 3 were inducted as directors of the Company w.e.f. 12.11.2010 and were also allotted 40% shares in the Company (20% each to Respondent No. 2 and 3).

The Petitioners have further contended that though Respondent No. 2 and 3 initially infused some funds in the company, however, they failed to infuse promised capital in the Respondent Company. In 2013, Respondent No. 2 and 3 introduced Mr. Krishna Kumar Rungta as their friend and requested Petitioner No. 1 to induct him on Board of the Respondent Company. The said respondents also requested to allot/transfer shares to KRISHNA KUMAR RUNGTA on the pretext that KRISHNA KUMAR RUNGTA shall infuse required funds as and when required by the Respondent Company. Relying on the aforesaid commitments of the said respondent, the Petitioners inducted KRISHNA KUMAR RUNGTA on Board of the Company w.e.f. 12.01.2013 and shares were also allotted and transferred by the Petitioners to KRISHNA KUMAR RUNGTA. The Petitioners have further contended that Respondent No. 2 and 3 during this process of induction of KRISHNA KUMAR RUNGTA in the Respondent Company made certain assurance to KRISHNA KUMAR RUNGTA and extorted huge sum of money from him as a precondition to induct him in Respondent No. 1 Company. All this was done at the back of petitioners and Respondent No. 1 Company. The Petitioners came to know about this act of Respondents No. 2 and 3 only when KRISHNA KUMAR RUNGTA wrote a letter to the Respondent Company dated 4th February, 2016 vide which he informed about the commitments made to him by Respondent No. 2 and 3.

It is further the case of the Petitioners that on perusal of the said letter the petitioner came to know that Respondent No. 2 had entered into a Memorandum of Understanding dated 12th January, 2013 with KRISHNA KUMAR RUNGTA without any authority from the Respondent Company and at the back of the petitioners. Respondent No. 2 and 3 had not only assured KRISHNA KUMAR RUNGTA to induct three new individuals (to be referred by KRISHNA KUMAR RUNGTA) on the Board of the Respondent Company but also committed KRISHNA KUMAR RUNGTA to increase his shareholding in Respondent Company upto 50% of the total paid-up share capital. In lieu of the aforesaid, Respondent No. 2 took unaccounted consideration from KRISHNA KUMAR RUNGTA. The petitioners upon finding out the aforesaid from KRISHNA KUMAR RUNGTA informed him that Respondent No. 2 and 3 had entered into the MOU behind their back and without any authority from the Respondent Company and that they should settle their claims and counter claims mutually. However, the Respondents did not settle the matter with KRISHNA KUMAR RUNGTA leading to bitterness, dispute and losses to Respondent Company. As a consequence of such bitterness, KRISHNA KUMAR RUNGTA resigned from the Respondent Company w.e.f. 10.08.2016 and consequent upon his resignation he executed a MOU with Petitioner No. 1 on 17.11.2016 for transfer of his shareholding. The aforesaid transfer was effectuated and approved on 08.04.2019 by majority directors of the Company at a duly convened Board Meeting.

The Petitioners have also contended that due to efforts of the Petitioners, sometime around 2016, the land was freed from illegal encroachment and the development work could be commenced. They have alleged that this development combined with the price appreciation of the land led to greed in minds of Respondent No. 2 and 3 and they started acting against the interest of the Respondent Company and its stakeholders.

Due to the aforesaid unwarranted acts of Respondent No. 2 and 3, Shareholders of the Company on 20.04.2019, sent a Special Notice to the Respondent Company in pursuance of Section 115 read with Section 169 of the Companies Act, 2013 for removal of Respondent No. 2 and 3 from Directorship of the Respondent Company. The Company, thereafter, served copy of special notice so received to Respondent No. 2 and 3 seeking their representations against their proposed removal. Respondent No. 2 and 3 submitted their representation against the said notice vide their letters dated 13.05.2019. Thereafter a notice dated 28.05.2019 for convening Board Meeting to be held on 09.06.2019 was issued to all directors including Respondent No. 2 and 3 for the purpose taking on record the special notice and calling the necessary general meeting.

It is the case of the Petitioners and pertinent to mention that Respondent No. 2 and 3 apprehending their removal, on 06.06.2019, that is just a couple of days before the scheduled Board Meeting, filed with MCA, purported e-form DIR 12 for cessation of Petitioner No. 1, 2 and 3 by attaching their false resignation letters having forged signatures to the said e-form. Said DIR 12 e-form being a "Straight Through Process" form got immediately taken on record without any scrutiny of records by the ROC. The Petitioners have contended that had it been a matter of removal of director then in that case DIR-12 filed for removal get approved only after scrutiny of the form by the ROC and hence, Respondent No. 2 resorted to the convenient and illegal means of false resignations to deprive the Petitioners to continue with the removal procedure. It is further the case of the Petitioners that Petitioner No. 1, 2 and 3 came to know about aforesaid illegal act through auto generated e-mail from Ministry of Corporate Affairs. Thereafter, on the very next day i.e. on 07.06.2019, the said Petitioners filed written complaint with Registrar of Companies, Bihar, and lodged Police Complaint. Thereafter Serious Complaint E-Forms were filed by petitioners with ROC.

The Registrar of Companies, Bihar took cognizance in the matter and issued a show cause notice dated 20.06.2019 to the Respondents seeking their reply within 15 days. However no representation has been made by the respondents in this regard. Thereafter the ROC marked the R1 Company as "having management dispute".

The Petitioners have submitted that since, Petitioner No. 1, 2 and 3 had never resigned from directorship of the Company and hence, considering their fiduciary duties, they duly convened the Board Meeting on 09.06.2019. Thereafter, in due compliance of all provisions of the Companies Act, 2013, an Extra Ordinary General Meeting was convened on 08.07.2019 (notice of which was duly served to Respondent No. 2 and 3 also) and shareholders (representing 59.20%) unanimously approved the resolution under Section 169 for removal of Respondent No. 1, 2 and 3 from directorship of the Respondent Company.

The Respondents have challenged the shareholding of the Petitioners. They have challenged the transfer of shares from KRISHNA KUMAR RUNGTA to Petitioner No. 1.

The Respondents have also contended several instances of oppression and mismanagement by the Petitioners. The Respondents have alleged that the land was encroached and occupied in due course and that too due to negligence of the Petitioners.

The Respondents have alleged that Respondent No. 2 had made a payment of Rs. 6,82,14,194/- (Rupees Six Crore Eighty-two Lacs Fourteen Thousand One Hundred and Ninety-four only) to Petitioner No. 1.

The Respondents have also contended that petitioner No. 1 surreptitiously and clandestinely approached a developer M/s Azalfa Building Construction Private Limited and illegally transferred the development work to them. The Respondents have further contended that Petitioner No. 1 had taken a sum of Rs. 04.00 Crore for the said developer on behalf of the Respondent Company but never accounted the same in books of accounts. The Respondents have also alleged that the Petitioners in connivance with Azalfa Building Construction Private Limited have sold portions of the land without any authority. The Respondents have also contended that the Petitioners have misappropriated funds of the Company.

In defence to the aforesaid contentions/allegations of the Respondents, the Petitioners have submitted the following:

(a) That the shareholding of the Petitioners is just and proper. The transfer of shares from KRISHNA KUMAR RUNGTA to the Petitioner No. 1 was approved by majority directors of the Company and effectuated at a Board Meeting held on 08.04.2019, which was attended by Respondent No. 2 and 3 themselves.

(b) The land was already occupied and encroached at the time of entering the development agreement and the Landlord i.e. Baptist Church Trust Association had undertaken to get the land vacated. The Respondent No. 2 and 3 were very well aware of the said circumstance at the time of entering into the agreement dated 12.11.2010 with the Respondent Company.

(c) The Respondents have not submitted any evidence in respect of their alleged payment of Rs. 6,82,14,194/- to Petitioner No. 1. The Respondents have already filed an F.I.R. in the said matter with court of A. C. J. M.-VII, Patna. The Hon’ble Court has already granted bail with the following observation:

“Perused the record, case-diary and materials available on the record. From perusal of the same, I find nothing cogent incriminating evidence against the petitioners to connect their involvement in the offence alleged.”

(d) The development work was assigned to M/s Azalfa Building Construction Private Limited upon due consent of Respondent No. 2 and 3 through a validly held Board Meeting of the Respondent Company. The Petitioners have submitted relevant copy of resolution duly certified by Respondent No. 2 and 3.

(e) The amount of Rs. 04.00 Crore taken by Petitioner No. 1 from M/s Azalfa Building Construction Private Limited was taken by the Petitioner in his personal capacity as loan/advance for personal purpose and not on behalf of the Respondent Company.

[The Petitioners have submitted Audited Annual Accounts of M/s Azalfa Building Construction Private Limited evidencing the said amount being recorded in the name of Petitioner No. 1 and not the Respondent Company.]

(f) The Petitioners have submitted certified copy of resolutions and minutes of Board Meetings vide which Petitioner No. 1 was authorized to enter into sale agreement and other arrangements in respect of development of land and hence, disputed the allegation of the Respondents that the Petitioners have sold portions of land without any authority.

(g) The Petitioners have denied the allegation of misappropriation of fund of the Respondent Company by the petitioners. The Petitioners have contended that Respondent No. 2 and 3 have attended Board Meetings of the Respondent Company wherein the Financial Statements and Board Report were approved and both of them voted in favour of the resolutions for such approvals, signed such Financial Statements and Board Report, attended Annual General Meetings of the Respondent Company wherein such Financial Statements along with reports thereon were adopted and voted in favour of such adoptions.

(h) The Petitioners in their rejoinder have additionally submitted that the company was/is being smoothly and efficiently managed/run by Petitioner No. 1 in the capacity of a Managing Director along with Petitioners No. 2 and 3 as directors. Respondent No. 2 and 3 have always been a sleeping director in the Respondent Company and they never took part in day to day activities of the Respondent Company. The Petitioners have further submitted that ever since their false resignation, Respondent No. 2 and 3 failed to perform their duties.

On the basis of contention of both the parties following issues arises for determination:

(a) Whether the alleged act of the Respondents amounts to oppression and mismanagement against the Petitioners?

(b) Whether e-Form DIR-12 filed for the cessation of Petitioner No. 1, 2 and 3 from directorship of the Respondent Company is illegal?

(c) Whether transfer of shares from Mr. Krishna Kumar Rungta to Petitioner No. 1 is legal?

(d) Whether the removal of Respondent No. 2 and 3 from directorship by shareholders of the Respondent Company under Section 169 of the Companies Act, 2013 is legal?

Admittedly, in this case, Petitioner No. 1, 2 and 3 are promoter directors (Petitioner No. 1 is Managing Director) and shareholders in the Respondent Company holding 30% (Thirty percent) shares of the Respondent Company together with other petitioners and few Kith and Kin, whereas, Respondent No. 2 and 3 are also directors of the Respondent Company holding 40% (Forty percent) shares. Rest 30% (Thirty percent) shares were held by Mr. Krishna Kumar Rungta, which the Petitioners claim to have been transferred to the Petitioner No. 1 w.e.f. 08.04.2019 but the same has been challenged by the Respondents.

Respondent No. 2 and 3 were inducted by Petitioners as Directors of the Respondent Company and shares were also allotted to them pursuant to an Agreement dated 12.11.2010. Respondent No. 2 and 3 introduced Mr. Krishna Kumar Rungta to the Petitioner No. 1 and got him inducted as Director and Shareholder of the Respondent Company on the pretext of infusion of funds and expedition to get the aforesaid parcel of land free from illegal encroachment. Respondent No. 2 and 3 went behind the back of the Respondent Company and the Petitioners and entered into an unauthorized Agreement with Mr. Krishna Kumar Rungta with a promise to provide him representation in Board of Directors and shareholding of the Respondent Company and also extorted funds from him. The same is evident from the letter of Mr. Krishna Kumar Rungta dated 04.02.2016, copy of which has been submitted by the Petitioners.

Thereafter, Mr. Krishna Kumar Rungta resigned from the Respondent Company w.e.f. 10th August, 2016. Consequent upon his resignation, Mr. Krishna Kumar Rungta executed an MOU with Petitioner No. 1 on 17th November, 2016 for transfer of his shareholding. The Petitioners have contended that the transfer was approved and effectuated on 08th April, 2019 at a duly convened meeting of Board of Directors of the Company. The Petitioners submitted attendance sheet and minutes of the said Board Meeting to evidence that Respondent No. 2 and 3 were also present in the Board Meeting and are aware of the fact that the said transfer of shares was approved by majority director of the Company. It is evident from minutes of the said meeting that although Respondent No. 2 and 3 had voted against the said transfer of shares, but the resolution got approved in the ratio of 3:2.

Subsequent to the final hearing in the instant case on 08.04.2022, this Tribunal directed the Petitioners to show original share certificates to the Court Officer. Petitioners submitted the necessary certificates. When these certificates were placed before us in original, they were seen and returned and comes retained in the record by orders of this Tribunal. The Shares Certificates being conclusive evidence of shareholding have been found to be in order. Respondent Nos. 2 and 3 did not produce the Resignation letters with original signatures of petitioner nos. 1,2 and 3 , which are supposed to be with Respondent Nos. 2 & 3,even on specific directions during the course of hearing.

The main subject matter of the Petition is the fraudulent removal of Petitioner No. 1, 2 and 3 from directorship of the Respondent Company. The Petitioners have contended that the Respondents have filed false resignation letters of Petitioner No. 1, 2 and 3 with the Registrar of Companies, Bihar. They have alleged that no resignation letter was ever submitted by any of the said Petitioners and that the Respondents have forged their signatures.

In the instant case, no evidence has been submitted by the Respondents in relation to compliance of procedural aspects while giving effect to the said resignation. No document relating to meetings of Board of Directors for taking note of the resignations has ever been produced by the Respondents. Moreover, on receipt of complaint from the Petitioners, the Registrar of Companies, Bihar took cognizance in the matter and issued a show cause notice dated 20.06.2019 to the Respondents seeking their reply within 15 days. However, no representation is stated to have been made by the respondents in this regard. Thereafter the ROC marked the R1 Company as "having management dispute".

Another matter, which was submitted in the instant Petition is removal of Respondent No. 2 and 3 from directorship of the Respondent Company by shareholders of the Respondent Company under Section 169 of the Companies Act, 2013. In the instant case, the Petitioners have submitted that taking cognizance of the detrimental acts of Respondent No. 2 and 3 against the interests of the Respondent Company and its stakeholders, the shareholders of the Company vide Special Notice dated 20.04.2019 proposed to remove Respondent No. 2 and 3 from Board of Directors of the Respondent Company. Upon receipt of the said Special Notice, opportunity of being heard was provided to Respondent No. 2 and 3 and they replied to the said Notice vide their letter dated 13.05.2019 refuting the grounds of their proposed removal. Thereafter, notice dated 28.05.2019 was issued for convening a Board Meeting of the Respondent Company on 09.06.2019 for taking note of the Special Notice and calling Extra-Ordinary General Meeting. The notice aforesaid were issued to all the directors of the Respondent Company including Respondent No. 2 and 3.

The Petitioners have submitted copies of all the aforesaid documents before this Tribunal and such documents seem to be in order and in due compliance of Section 169 of the Companies Act, 2013. The resignations of the Petitioners were filed with the Registrar of Companies, Bihar on 06.06.2019 i.e. just a couple of days before the scheduled Board Meeting.

The Petitioners have contended that since they had never resigned from directorship of the Respondent Company and therefore, despite being cheated and betrayed by Respondent No. 2 and 3, they reached the venue of scheduled Board Meeting on 09.06.2019. Both Respondent No. 2 and 3 were absent from the said Board Meeting. Petitioner No. 1 chaired the meeting and it was, inter alia, decided to hold the Extra-Ordinary General Meeting on 08.07.2019 for proposed removal of Respondent No. 2 and 3. Notice of said EOGM was served to all shareholders including the Respondent No. 2 and 3. The Extra-Ordinary General Meeting was then convened on 08.07.2019 and shareholders (representing 59.20%) present thereat unanimously approved the resolution under Section 169 of the Companies Act, 2013 for removal of Respondent No. 2 and 3 from directorship of the Company. Also, the Petitioners vide letter dated 19.07.2019, informed the Registrar of Companies about the said removal of Respondent No. 2 and 3 from directorship of the Respondent Company.

The Petitioners have submitted following documents evidencing the compliance of Section 169 in removal of Respondent No. 2 and 3 from directorship of the Respondent Company:

(a) Copy of Special Notice dated 20th April, 2019 along with proof of service to the Respondent No. 2 and 3.

(b) Copy of representation letter dated 13th May, 2019 of Respondent No. 2 and 3 received by the Respondent Company.

(c) Copy of notice of Board Meeting dated 29th May, 2019 along with proof of service to Respondent No.2 and 3.

(d) Minutes of Board Meeting held on 09th June, 2019

(e) Copy of notice of Extra-Ordinary General Meeting to be held on 08th July, 2019, along with proof of service to Respondent No. 2 and 3.

(f) Minutes of Extra-Ordinary General Meeting held on 08th July, 2019

Upon perusal of the aforesaid documents, this Tribunal is of the view that due compliance of Section 169 of the Companies Act, 2013 has been done in removal of Respondent No. 2 and 3 from directorship of the Respondent Company. On the above basis, it is proved that the Respondent No. 2 and 3 have committed acts of oppression and mismanagement against Petitioners as well as the Respondent Company. This Petition deserves to be allowed.

ORDER

C. P. No. 1738/KB/2019 is allowed with following relief to the Petitioners:

(a) We order that DIR-12 filed by the Respondent No. 2 and 3 for cessation of Petitioner No. 1, 2 and 3 from directorship of the Company is nullified.

(b) We order the Restoration of directorship of Petitioner No. 1, 2 and 3 with MCA as it stood as on 05th June, 2019.

(c) We further order the removal of Respondent No. 2 and 3 by shareholders of the Company at EOGM held on 08.07.2019 in compliance of Section 115, 169 and other applicable provisions of the Companies Act, 2013 is hereby upheld.

The Registrar of Companies, Bihar is directed to take necessary steps for giving effect to the aforesaid order.

As regards forging of signatures of the petitioner nos. 1,2 and 3 by the respondent nos. 2 and 3, the petitioners may exercise the other remedies available to them, if so advised.

Accordingly, C.P.No. 1738/KB/2019 is disposed of.

Let a copy of the order be sent to the Registrar of Companies, Bihar for compliance with above direction.