As we know its statutory provision under Section 284 of the Companies Act, 1956t that gives shareholders of every company the right to remove any director from his office, by ordinary resolution, not being a director appointed by the Central Government in pursuance of Section 408 of the Companies Act, 1956, before the expiry of his period of office.
The right given by section 284 is the statutory right which cannot be abrogated by the MOA, AOA or under an agreement. If it is sought to be abrogated in any way that will be against the provisions of 284 and shall be void ab initio.
Further The section 284 applies to all directors except the directors appointed by the Central Government under section 408.
Further COMPANY LAW BOARD has decided the matter and I am pasting the decision for your references.
BEFORE THE COMPANY LAW BOARD, PRINCIPAL BENCH, NEW DELHI
CP 65 OF 2001
In the matter of the Companies Act, 1956(1 of 1956) Sections 397/398
In the matter of M/s Aar Gee Board Mills Pvt. Ltd.
In the matter of:
Shri Girdhar Gopal Gupta
Shri Amit Gupta
Shri Sachin Gupta
Shri Satish Chand
Shri Lokesh Chand Sharma
Shri Ashok Bajaj ..Petitioners
M/s Aar Gee Board Mills Pvt.Ltd
Shri Guru Charan Dass Marg
Smt. Krishna Garg
Shri Parmanand ..Respondents
Present on behalf of the parties
Shri U.P. Mathur, Advocate ..for petitioner
Shri D.D. Pande, Advocate ..for petitioner
Shri R.K. Jain, Advocate ..for respondent
Shri G.C. Garg, Advocate ..for respondent
O R D E R
1. Shri Giridhar Gopal Gupta and Ors. (petitioners) have filed this petition under Section 397/398 against M/s Aar Gee Board Mills Pvt. Ltd. and Ors.(Respondents). The respondent company was incorporated on 4.10.1985 with main object inter-alia to manufacture Mill Board out of waste paper and pulp. The petitioner No.1 Shri Giridhar Gopal Gupta and Respondent NO.2 Shri Gurcharan Das Garg had jointly purchased a sick unit from UPFC 1985 consisting of a plot of land at GT Road Industrial Area Ghaziabad and measuring 7215 sq. yards alongwith the plant and machinery. The shareholding of petitioners group was 1722 equity shares of Rs.100 each consisting (50.9%) and that of respondent group was 1662 equity shares of Rs.100 each constituting on the said paid up capital of (49.1%) total equity shares numbering 3384. To begin with the petitioner group and respondent group had two directors each in the respondent company.
2. The units was closed down in Oct.1994 due to alleged non cooperation and mismanagement including persistent losses and non installation of water treatment plant for pollution control. At the time of closing down the unit in 1994, there was no outside liability as dues of UP Financial Corporation except some amount of Government dues. When the dispute arose between the both the parties, they appointed arbitrator with mutual consent who gave three awards. Both the parties have alleged that the awards given by arbitrator were not complied by each other.
3. The learned counsel for petitioner submitted that the respondents have acted in a planned and systematic manner after the final award of the arbitrator dated 18.4.1998 and indulged into the acts of oppression and mismanagement. The first issue taken up by the learned counsel for petitioner is of illegal allotment of 9507 equity shares of Rs.100 each. It is alleged that respondents have allotted 9507 shares on different dates in 1994 and 1995. No notice of any Board meeting was received by the petitioner who is also director in the company. The return of allotment (Form No.2 has been filed in one lot for all the shares on 20.8.1998 with the Registrar of Companies after a delay of about 4 years. The petitioners have alleged that these shares were never allotted in 1984 and 1995 as the fact had not been brought out to the notice of arbitrator as the arbitrator had stated that in their award that investment by both the groups is equal. The respondents have increased capital from Rs.3.38 lakhs to 12.89 lakhs by allotment of 9507 new shares of Rs.100 each when the operation of the company has come to stand still and there was no need to generate more funds. It is further alleged that allotment of new shares of 9507, which is three times of the existing 3384 shares, not a single shares had been allotted to the petitioners group and all the said shares were allotted to persons belonging to respondent group, thereby the shareholding of the petitioner group was reduced from 50.9% to 13.4% which is a serious act of oppression. The petitioners have also submitted that the entire records of the company is with petitioners. The learned counsel for petitioner further alleged that shares have been allotted to minors (students) and a firm M/s Ram Kishan and sons. It is alleged that unsecured loans of minors aggregating to Rs.3,64,320 was shown as application money besides existing Rs.30,000 appearing as share application money. Assuring that the shares were to be allotted against share application money of Rs.3,94,320 but respondents have further allotted share for Rs.5,56,380 for which no explanation is given and it is not known whether cash amounting to Rs.5,56,380.00 was ever received by the company against allotment of these shares and how this money has been used after the closure of the unit.
4. The learned counsel for petitioner also submitted that respondent No.4 Shri Paramanand who is brother of respondent –2 and respondent no.3 has been appointed as additional director wef 20.10.1994 and the return in form 32 has been filed with the ROC on 20.8.1998 after delay of four years. No notice or minutes of the Board meeting allegedly held on 20.10.1994 has been filed. The minutes of any AGM in this behalf has also not been filed by the respondents.
5. The third oppression alleged by the petitioner is removal of petitioner No.1 Shri Giridhar Gopal Gupta and Shri Ram Narain Gupta as directors on 16.9.1998 without notice of any board meeting allegedly held on 16.9.1998. The respondents have also not followed the procedure of removal of directors as laid down in Section 284 of Companies Act, 1956. A director can be removed only in a general meeting and not in Board Meeting. Form No.32 was also filed with the ROC after a delay of two years on 3.11.2000. The petitioners have alleged that only three Board Meetings were held on 14.7.1998, 10.8.1998 and 16.9.1998 for which notice has been issued under UPC. The learned counsel for petitioner submitted that UPC has been procured and cannot be relied upon in the absence of dispatch register and books of accounts showing expenses incurred. The petitioners relied their argument on case law (1955) CLA page 170 Bhankerpur Simbhoali Beverages Pvt. Ltd.and Anr. Vs. P.R. Pandya and Ors V.K. Jhanji, J It is held that “there is a presumption of valid service but it is rebuttable – Where dispatch register showing dispatch of the relevant notices, and books of account showing the expenses incurred in the posting of the letters are not produced, and service is denied by members concerned, presumption cannot be drawn in terms of section 114 of the Evidence Act, 1872.”
6. The counsel for petitioner has further submitted that the respondent company has not complied with the provisions of Section 283 (1)(g) of the Companies Act 1956 as the gap between three consecutive board meetings held by them is less than three months. Accordingly the petitioners have prayed that allotment of 9507 shares, appointment of respondent NO.4 as additional director and removal of petitioner no.1 and his brother as directors be set aside.
7. The learned counsel for respondent in reply submitted that the present petition is time barred . The petitioners have filed the present petition in 2001 and the company has been closed on 1994 and more than three years have passed . The petitioners therefore cannot question the acts and deeds of respondent No.1 after a period of three years under Article 137 of the Limitation Act as the same applies to Application under Section 397 and 398 of the Companies Act. The respondents are submitted that the company was closed in 1995 because of acts and deeds of the petitioners and not in 1994
8. It is further submitted by the learned counsel for respondents that respondent No.1 had allotted 9507 equity shares of Rs.100 each on three dates i.e. 25.6.1994, 20.10.1994 and 9.1.95 legally and under due process of law and the petitioner was fully aware of the allotments of share and even notice of General Body Meeting of 1.9.1994 was signed by the petitioner Shri Giridhar Gopal Gupta. The balance sheet on 31.3.94 was signed on Shri Giridhar Gopal Gupta in which share application money was received of Rs.3,94,320 has been shown. As such the petitioner was fully aware of the allotment of 9507 equity shares and he has signed the balance sheet of 31.3.94 showing the share application money received for the allotment of shares. The respondents have alleged that the petitioner has intentionally not filed the copy of the balance sheet for the period ending 31.3.94 and 31.3.95 wherein he has signed the balance sheet showing the receipt advance of share money.
9. The learned counsel for respondents have further stated that except for the appointment of respondent NO.4 as the director of the company which cannot be treated as a serious act of oppression of the petitioner group, it is wrong to say that there were two nominee each on the Board of Company at all relevant time belonging to petitioners group. Shri Ram Narain Gupta had left the company from 1.9.1989. Shri Ram Narain Gupta is not even a petitioner in the present petition which shows that they do not have two nominee of each group at all relevant time. Shri Ram Narain Gupta had not attended any meeting of the Board inspite of service of notice after 1.9.89 The respondents have further stated that it is wrong to say that no Board Meeting was held but the entire record of the company is with the petitioner NO.1 and he is deliberate withholding the records to abuse the process of Hon’ble Court. The last AGM held on 4.9.1996 and the appointment of respondent NO.4 as director of the company is in order.
10. I have carefully gone through the records of the case as well as the averments made by learned counsel of both the sides. It is observed that the parties have gone for arbitration three times after mutual understanding. There is nothing on record in the Articles and Memorandum of Association of the company to indicate any provision for arbitration. The three awards given by the arbitrator have not been implemented by either parties. I am, therefore, not inclined to go into the awards of the arbitrator as they do not find any course of law.
11. On the merit of the case the first question is that of removal of directors from the company of Shri Giridhar Gopal Gupta and Ram Narain Gupta. The memorandum and articles of association of the company indicate that there were four directors at the time of incorporation of the company namely, Shri Girdhar Gopal Gupta, Ram Narain Gupta , Gurcharan Das Garg and Smt. Krishna Garg. I am therefore, not inclined to accept the plea of learned counsel for respondent that there were never equal directors from both the sides. The minutes of the board meeting placed on record held on 15.6.1998 indicate that this board meeting had been called as per telephonic notice and the petitioners have denied that they have received any notice. There is nothing on record to indicate that any proper notice had been given to the petitioners. Both the sides have alleged the holding of documents by each other in their affidavits filed with the written statements. In the absence of full documents, I have to rely on the documents placed during the arguments by both the parties. The respondents have merely denied and stressed that both the directors had been removed by due process of law but they have failed to produce any records. It is also contrary to their statement that there were never equal directors from both sides. I have therefore no hesitation in accepting the plea of learned counsel for the petitioner that both the Shri Giridhar Gopal Gupta and Ram Narain Gupta have been removed from the directorship without following proper procedure as per the provisions of Companies Act, 1956. Similarly the appointment of respondent NO.4 Shri Parmanand purported to have been appointed as additional director on 20.10.1994 for whom the return in form 32 has been filed with the ROC only on 20.8.1998, after four years the respondents have also failed to give any evidence of notice or minutes of the board meetings held on 20.10.1994.
12. The last point for consideration is the allotment of 9507 equity shares which have been allotted on 25.6.1994, 20.10.94 9.1.95. The respondents have failed to produce notice/minutes of the board meeting in which 9507 shares were allotted . The return of allotment of shares in Form No.2 has been filed in one lot on 20.8.98 with the ROC after a delay of 4 years. The respondents have submitted that in the balance sheet signed of 1993-94 by the petitioner indicated application money of Rs.3,94,320 and accordingly the petitioner were aware of allotment of 9507 shares . It is true that a sum of Rs.3,94,320 has been shown in the balance sheet of 1994-94 which has been signed by the petitioner indicating share application money. But the respondents have allotted further shares of Rs.5,56,380 for which no explanation has been given. It is also not known whether any money amount to Rs.5,56,380 was ever received by the company and how the same has been utilized in a company which was closed down in 1995.
13. In the light of the above discussion, I am of the view that the board meetings purported to have been held to remove the two directors and to appoint the additional director are bad in law and not inconformity with the procedures laid down in Companies Act, 1956. I accordingly, set-aside the removal of Shri Giridhar Gopal Gupta and Shri Ram Narain Gupta from the Board of Director. Consequently, they are restored to their original position of 1994. Regarding allotment of 9507 equity shares, I am inclined to give benefit of doubt for allotment of 3943 shares as share application had been received which were in the knowledge of the petitioners as application money for allotment of these shares. However, the allotment of remaining 5564 shares have been allotted for which no explanation had been given by the respondent parties. Accordingly, I declare allotment remaining 5564 share as illegal and accordingly same is set-aside.
14. Either party being equal partners is given liberty to buy or sell the shares of each other. Either party can approach this bench for fixing valuation of the shares on the base line of 1995 when company was closed after getting evaluation from the independent valuer and sell the shares.
15. The petition is disposed of with the above directions and there are no orders as to cost.