Judgment:
1. In this order I am considering Company Petition No. 11 of 2007 filed by Sh. Sergey Ivanov under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as the "Act") against Artlibori Resorts Pvt. Ltd (R-1) and Ors. alleging illegal increase in the share capital; illegal allotment of shares; fabrication of resignation letters of the Petitioner and manipulation and fabrication of other documents and records of the Respondent No. 1 company resulting in mismanagement of the affairs of the company and causing oppression to the petitioner.
2. The undisputed facts of the case are: M/s Artlibori Resorts Pvt.
Ltd. (R-1) was incorporated on 17.3.2005 having its registered office at House No. 467, Temmar Vaddo, Assagao, Bardez, Goa-403507. The authorized share capital of the company was Rs. 1,00,000/- divided into 1000 equity shares of Rs. 100 each. The objects of the company was to construct or to acquire/purchase, lease or otherwise for the purpose of business of the company, any immovable or movable property and any right or privilege, which the company may think necessary or convenient for the purpose of its business and in particular any land, building, warehouses, godowns, easements, right to way, licenses, concessions, privileges and stock in trade and either to retain any property so acquired for the purpose of the company's business or to turn the same to the account as may seem expedient.
3. Sh. Santosh Paul, Counsel for the petitioner contended that the respondents had illegally increased shares capital which constitutes oppression. It was pointed out that on 17.3.2005 the capital was Rs. 1 lakh consisting of 1000 shares of Rs. 100 each. The two shareholders in the company were the petitioner having 999 shares and the R-2 held 1 share. The R-1 in his reply states "respondent No. 1 admits that the petitioner's claim of having the initial controlling shares of the respondent No. 1 company is true". In para 6 of the petition the petitioner has stated that he owned 999 shares and the R-2 owned one share. My attention was drawn to the pleadings of the Respondents and it was contended that the R-l admits to the contents of para 6 of the petition. Further, it was pointed out that on 23.2.2006 dispatch of notice for special general meeting is shown to have been sent on 23.2.2006 as per Form 23, but the Respondents have not filed the notice or proof of having sent the notice. Purported special resolution dated 3.3.2006 was contended to be illegal because - resolution was passed behind the back of the petitioner; general body meeting can be held only with more than one shareholder; the only shareholder present is R-2; the respondent has not produced any notice; the respondent has not produced the attendance register; the respondent has not even produced proof of sending notice; the minutes of the meeting do not bear the signature of the petitioner; Section 190 of the Companies Act requires 14 days notice to be given for a special resolution [Form 23 contains the following statement: "date of dispatch of notice 23.2.2006" "date of passing of the resolution 3.3.3006"] On the face of it only 8 days notice has been given; the respondent has not produced the notice or the proof of service of notice. Section 172 required the notice to specify the place, the date, the hour of meeting and a statement of the business to be transacted thereat. In the absence of proof of the same the resolution is invalid. Further, it was contended that the respondents had fabricated resolution manifest as there are two resolutions on record showing different places of the meeting of 3/3/2006. The special resolution dated 3.3.2006 filed along with Form 23 shows that the meeting took place at Assagao in Bardez Taluka, the minutes produced show the place of the meeting at Morjim in Pernem taluka. The petitioner produced the map showing these two places to be 10 kms apart divided by the Chapora River.
4. Further, the Counsel for petitioner contended that the respondents had increased share capital illegally as per decisions of Supreme Court and Company Law Board. The respondent has not even pleaded leave alone prove the necessity of increase in share capital. The respondents have not produced anything on record to prove the necessity for such an increase. The respondent has not placed on record anything to show the need of the company for further investment and hence need for further allotment of additional shares. The R-2 as a director owed a fiduciary duty to inform the shareholders of the company to issue shares for a proper purpose and in the interest of the company as laid down in: Needle Industries case (1982) 1 comp LJ (SC) Punt v. Symons (1903) 2 Ch 506; Moonshine Films (P) Ltd. and Shri. Rajesh Patil v. Moonshine Films (P) Ltd. and Ors.Arun Kumar Mohta and Anr.
v. Ganesh Commercial Co. Ltd. and Ors. (2006) 6 Comp LJ 351 (CLB); Dinesh Sharma and Anr. v. Vardaan Agrotech (P) Ltd. and Ors. (2007) 1 Comp LJ 155 (CLB).
5. Coming to the next act constituting alleged oppression, the Counsel for petitioner contended that purported resignation letter of the Petitioner is a fabrication to oust the Petitioner from the management of the company. The respondents allege that the petitioner tendered his resignation on 12.6.2006. It was argued that this is absolutely false because the petitioner left India on 4.3.2006; the resignation letter shows (at Page 182 of the petition) shows that he was residing at Temp Vaddo Morjim Goa on 12.6.2006; the resignation letter uses the words "Hereby submit my resignation" and "with immediate effect" which means that he at that point of time was residing in Goa and was tendering his resignation immediately; in their reply the respondents say "the resignation letter of the petition was received"; the Form 32 was filed on 14.6.2006, the Petitioner was in Croatia on 12.6.2006 and the letter could not have reached Goa on 14.6.2006. My attention was drawn to the copies of all the petitioner's passport pages submitted along with the rejoinder as Annexure A-22 (Rejoinder P-53), the R-2 in his reply has admitted all the travel dates declared by the petitioner. The counsel for petitioner contended that the respondents had fabricated minutes dated 5.6.2006 to cover up absence of petitioner in India on 12.6.2006.
In order to cover up the fact that the petitioner was not in India, the respondents fabricated minutes of a board meeting purportedly held on 5.6.2006 in Moscow, the minutes are fabricated because it confirms the minutes of the last board meeting allegedly held on "23.2.2006" whereas the last board meeting as per the respondents' own records is shown to be held on the 3.3.2006; the minutes of 3.3.2006 and 5.6.2006 do not bear the signatures of the petitioner; in fact none of the minutes bear the signatures of the petitioner nor of Pramod Walke even though their presence is shown; the fabricated minutes of 21.8.2006 refer to the purported last meeting held on 5.6.2006; this again contradicts the resolution of 12.6.2006 indicated in Form 32; there are two fabricated resignation letters on record; the minutes of 5.6.2006 states "Mr Ivanov Sergey also submitted resignation from the office of Director"; this implies that only one resignation letter was submitted by the petitioner but there are two resignation letters on record which clearly establish fabrication by the respondents Resignation letter No.1 allegedly obtained by the petitioner from the website of the Ministry of Corporate Affairs, the Petitioner is shown residing at House No. 562 in Morjim, Pernem- addressed to the Board of Directors in Assagao, Bardez, there is no letterhead, signature of the petitioner is on the left hand side, resignation letter No. 2 (submitted by the R-2 to the police authorities) the petitioner is shown residing at House No. 326 in Morjim, Pernem, addressed to the Board of Directors in Morjim, Pernem, it bears a letterhead, signature of the petitioner is on the right hand side. Despite the purported resignation letter of the petitioner, Yulia Yaskova, the R-3 continued to send emails to the petitioner. If the petitioner resigned there was no need for the R-3 to send emails to the petitioner.
6. Further, the Counsel for the petitioner contended that the respondents have also fabricated two forms Form No. 32. Form 32 No. 1 (Obtained from the Ministry of Corporate Affairs) shows the office's registered address at Morjim Pernem Goa; shows the resolution date as "12.6.2006". No resolution with this date is on record in the minutes produced by the respondents. Form 32 No. 2 filed by the respondents has registered address shown as Assagao Bardez- does not have a date; does not have a resolution date; has no signature of a managing director.
This conclusively shows fabrication of Form 32.
7. As regards allegedly illegal allotment of 99000 shares in favour of the R-2 which constitutes oppression it was pointed out that on 17.3.2005 the petitioner held 999 shares; the R-2 held 1 share as admitted by the respondents; on 21.8.2006 Form 2 showed purported allotment of 99000 shares in favour of R-2; the minutes of board meeting held 21.8.2006 whereby the allotment of 99000 shares takes place in favour of the R-2 is shown to be attended by Mr. Yulia Yaskova (R-3) and Pramod Walke; does not bear the signature of Mr. Pramod Walke; no notice of meeting is given; no proof of notice is produced; Mr. Pramod Walke has in his sworn affidavit stated that he has not attended any board meetings, this has not been denied. The Counsel for petitioner contended that resolution contradicts the documents produced by the R-2 before the police inspector, Panaji Police Station. Before the police authorities, the R-2 handed over a fabricated memorandum and Articles of Association which shows the R-2 holding 99999 shares as on 18.3.2005 and R-3 holding 1 share; in the fabricated articles submitted to the police, the respondent shows the amended authorized shares capital of one crore, the petitioner is not shown to hold any shares; the 999 shares held by him have vanished into thin air, no explanation is given yet about this document, no rebuttal of the funding of the company to the tune of Rs. 1.67 crores has been done. It was contended that the petitioner has set out in complete detail the entire funding of the company by him, there is no rebuttal of funds sent by the petitioner, the petitioner in para 9 of the petition has set out the complete details of the funds sent by him or by entities who sent monies on his behalf; the petitioner has also filed the affidavit of Aleksey Alekseevichi Khabirov, Ermikhina Oksana Vladimirovna and the Petitioner has also shown the source of the funds, the sending bank, the intermediary bank, the date of transfer of funds, the amount of funds, the purpose of remittance and the beneficiary in the destination bank, there is no averment made by R-1 denying para 9 of the petitioner, instead in response to para 10 of the petition a bald allegation is made that the respondent company "has neither any interest nor the legal rights to verify the origin of funds into the private savings accounts of any of its shareholders", there is no averment that the funds belong to the R-2 or R-3. Sh. Santosh Paul, Counsel for petitioner contended that a bald denial is no denial at all. Order VIII rule 3 Code of Civil Procedure specifically lays down "Denial to be specific- It shall not be sufficient for a defendant in his written statement to deny generally the grounds alleged by the plaintiff, but the defendant must deal specifically with each allegation of fact of which he does not admit the truth, except damages". The Rule 5 to order VIII states - "Specific denial - Every allegation of fact in the plaint, if not denied specifically or by necessary implication, or stated to be not admitted in the pleading of the defendant shall be taken to be admitted except as against a person under disability".
8. Sh. Santosh Paul, Counsel for petitioner contended that the respondents in their reply admit controlling shares of the petitioner.
They admit that the petitioner had initial controlling 999. They admit para 5 of the petition. The Memorandum of Association and Articles of Association show that the petitioner had 999 shares out of 1000. Para 6 of the petition has been admitted, the Petitioner had 999 shares, R-2 had 1 share. There is no rebuttal of funds sent by the petitioner. The petitioner in para 9 of the petition has set out the complete details of the funds sent by him or by entities who sent monies on his behalf.
No denial of pleading that resignation was fabricated on blank signed paper. Para 19, 20 of the petition, para 25 of the petition have not been denied. All the documents submitted to the police authorities which form part of Annexure A-12 of the petition stands admitted. Para 25 of the petition not controverted. Further increase of share capital of Rs. 10 lakhs is not supported by notice of special resolution, proof of notice, offer to existing shareholders, justification of requirement of additional capital. It was contended that fabrication of documents is manifest as Form 2 shows the date of allotment as on 21.8.2006 and the list of allotment shows the date of allotment as 20.8.2006. It was reiterated that the respondents had illegally transferred the shares of the petitioner. The minutes of the board meeting held on 22.8.206 does not bear the signature of Pramod Walke, no notice of meeting is given; no proof of notice is given; Pramod Walke has in his sworn affidavit stated that he has not attended any board meeting, share transfer form of the petitioner have not been produced by the respondents. The consideration for transfer of 999 equity shares has not been produced by the respondents.
9. Shri Vikram Varma, Counsel for the respondents pointed out that in February 2005 the Petitioner approached R-2 claiming to be a respectable businessman with vast international experience and suggested that R-2 should invest in the tourism sector in Goa. The Petitioner offered to oversee all formalities for formation of the company. On March 2005 R-1 Company was incorporated with Authorised capital of Rs. One lakh. R-2 put the entire value of paid up capital of Rs. One lakh from his personal account vide cheque No. 113103 dated 17^th March 2005. Subsequently, R-2 put an additional amount of Rs. fifty five lakhs, from his personal account vide cheque No. 113106 dated 19^th March 05 for purchase of properties Nos. 1 and 2 for the Company. In May 2005 R-2 discovered to his shock, that in the Memorandum of Articles submitted to the ROC, he was being shown as owning only one share while petitioner was shown as having 999 shares, R-2 confronted petitioner on this serious and unlawful anomaly wherein while it was R-2 who had factually provided the entire capital, he was being palmed off as holding only 1 share in contrast to the petitioner holding 999 shares. The Petitioner smoothly informed R-2 that it was a minor anomaly and would be corrected shortly by Mr Pramod Walke. In February 2006 all directors including Petitioner and Pramod Walke discussed about raising of Authorised share capital and correction of the wrong and unlawful allotment of shares in favour of R-2. Petitioner left for Moscow on 4^th March 06 never to return again. In May 2006 R-2 went to Moscow and confronted the Petitioner, who till then had not corrected the so called minor anomaly in the original share holding.
The petitioner handed over a resignation letter dated 12^th June 06 and formally stepped out of the company. The resignation was handed over to the Company Secretary for onward submission to the R.O.C. Subsequently on instructions from the Company Secretary, a fresh resignation was sent by the Petitioner on letter head of the company to the Company Secretary. The then Company Secretary has since expired. In August 2006 the Petitioner signed the share transfer forms of 999 shares for correction of anomaly in original allotment of shares and the same were duly submitted by the Company Secretary to the R.O.C. This was with full knowledge of all the concerned parties, including the petitioner and Mr. Walke (whose residence was the company's office). In September 2006 R-2 informed the petitioner about substantial increase in value of real estate in India. In October 2006 the Petitioner appointed and sent his Power of Attorney to deceptively and forcibly take away many original documents of company. It was pointed out that on 29 January 2007 Outlook magazine carried an article on Russian Mafia in Goa, naming R-2 as a player and seriously damaging his personal reputation while causing irreparable damage for the future health of the company.
And then on 5 February 2007 the Petition was filed with the CLB claiming that the petitioner is a single/sole contributor to the capital of the company having invested more than 1.67 crores.
10. Shri Vikram Varma contended that the petitioner is not a businessman but a criminal as confirmed in the report of the "Moscow Centre for Economic Security", which is a prestigious body and whose reports are accepted and acted upon by the authorities in the Russian Federation. The petitioner with his knowledge of law has duped thousands of investors to invest in his companies and bank in Russia, siphoned off the funds and subsequently declared himself bankrupt. His excellent knowledge of law ensured that while his investors were duped of their hard earned money, no charges could be framed against him for violation of law. On the other hand, the R-2 is a person of good character and this has been certified by the Hon'ble Consul General of the Russsian Federation in Mumbai. Drawing my attention to the case of Moonshine Ltd, the Counsel pointed out that the Hon'ble Court has shown adequate light on the depth of perspective required to be applied on matters of oppression. Among the various components needed to classify an act/omission as oppression, malafide intent has been identified as a requisite. While the respondents have denied the contentions of the petitioner, a bare reading of the relevant provisions of CPC would clearly show that even denial by implication is perfectly acceptable in law. Further, the proviso to Section 52 of the Evidence Act throws light on the clear intent of the legislature to provide for Courts in appropriate cases, to look into the character of a person even in civil cases. It was contended that the petitioner has come to this Hon'ble Court with unclean hands and repeatedly lied about himself being the sole/single contributor to the capital of the company as well as repeatedly stating that he has pumped in more than Rs. 1.67 crores to the capital of the company whereas records and summaries submitted by the petitioner himself reveal that the petitioner has put in only Rs. 7,15,945 or $ 16,906 into the company against which a luxury vehicle was purchased exclusively for his use. My attention was drawn to the summary of accounts. It was contended that the accounts submitted by the petitioner reveal that it was not the petitioner but the R-2 who had singularly invested in the original paid up capital of Rs. 100,000 as well as the subsequent funds of more than Rs. 81,00,000 required for purchase of the properties. It was contended that after repeatedly lying about being the single contributor to the capital of the company and having put in more than Rs. 1.67 crores into the company, the petitioner in his additional affidavit has taken a totally different stand, he has stated that the personal loans received by R-2 from Fintime Ltd and the Brophy Group Ltd (funds which R-2 subsequently invested in the company) were sanctioned by the financing companies on the recommendations of the petitioner. He has provided two affidavits from Bogus and Unlawful power of attorneys in support of his claim. The first power of attorney on behalf of "Fintime Ltd" is not supported by any board resolution, it is not signed by either the principal or the agent and is not registered at the Indian High Commission and fails the test of judicial scrutiny. The second affidavit on behalf of the "Brophy Group Ltd." is not supported by the requisite power of attorney and hence unacceptable.
11. Further, the Counsel for the respondents argued that it is unbelievable that the petitioner with vast international business experience would sign blank documents and blank cheques to a mere acquaintance. The petitioner being in charge to oversee the paper work for formation of the company, manipulated and fabricated the documents right from the stage of inception with a malafide intent to subsequently oust the R-2 through his agents and conspirators and finally usurp control over the company. Such an intention is visible in his act of awarding himself 999 shares and the R-2 only 1 share in one copy of the MOA and in another copy of the MOA showing himself as holding 1 share with the R-2 as having 999 shares (which was shown to R-2 to gain his confidence).
12. Further, it was argued that the R-2 has acted in a bonafide manner throughout and his only fault was in reposing complete faith in the petitioner and Mr. Pramod Walke despite whatever factually transpired from the beginning due to their malafide intentions against the interests of the company. The petitioner has admitted on record that with regard to the further increase in Authorised capital to one crore, he was frilly informed and aware of the need. He participated in the discussions on this matter as early as in February 2006. However, in a complete turnaround in the final hearing he has argued that inadequate notice was provided and he was unaware about the need for increase in the Authorised Capital. Until his resignation from post of director in November 2006, Mr Pramod Walke oversaw most of the paper work of the company through the company secretary and the chartered accountant. The records of the company were kept at his office at 467 Temmar Waddo, Assagao, Bardez, Goa. Evidence of Pramod Walke being part of the board meetings is submitted by the petitioner himself. Despite the above evidence on record, Mr Pramod Walke has under oath, gone on affidavit to say that "no board meetings were ever held" and "he was just doing menial tasks in the company". Such brazen and perjurious lies were stated under oath by the Petitioner and Mr Pramod Walke from as early as 5^th February 2007, with the absolute confidence that the lies would not be scrutinized and subsequently exposed, because the R-2 would be unable to present himself in court with the facts at the time of final hearing.
13. Shri Vikram Varma further pointed out that an unlawful deportation order was issued by the Government of Goa on the 14th September 2006 on the R-2, providing him no reasons for this action. Despite being informed in writing, that the R-2 was a defendant in a case before the Hon'ble C.L.B in New Delhi, as well as a formal protest by the Russian Consulate in Mumbai, the Govt. of Goa did not review the order.
Finally, it was the Judiciary which came to the rescue of the R-2. The Panjim High Court after examining the facts of the case, quashed the deportation order. Despite the plans and machinations of the Petitioner, the R-2 could remain in India and stand in the hearing of the Hon'ble Company Law Board to expose the lies and conspiracy of the Petitioner and Mr. Pramod Walke.
14. I have considered the pleadings and arguments and the case law relied upon by the parties. The Petitioner's case is that the R-2 allegedly a person with an impeachable character and not fit to preside over the affairs of the company; from inception it was the petitioner, who invested the entire amount of capital in the company; the petitioner is the single contributor to the capital of the company; the petitioner has pumped in more than Rs. 1.67 crores to the capital of the company; the petitioner being the sole contributor to the capital of the company, has been divested of his controlling shares in the company by deceptive and oppressive actions of the respondents; the respondents have been siphoning off Rs. 1.67 crores wherein the petitioner had invested in the company; the company was not being run as per law that no Board meetings were ever held or minutes recorded to run the affairs of the company. Hence, the increase in authorised capital from Rs. One lakh to one crore should be quashed on grounds of deviation from the legal procedure; that further increase in authorised capital from Rs. One lakh to one crore Ten lakhs should be quashed on the grounds of deviation the resignation of the petitioner is false and the petitioner should be reinstated as director of the company; the petitioner should be granted absolute control of the company by being awarded 999 shares of the total of 1000 shares in the original paid up capital of Rs. One lakh, of which he is the single contributor; the respondents have not specifically denied pleadings of the petitioner (Order VIII, Rule 5 CPC) nor can a reference be made to evidence imputing character of a person in a civil case (Section 52, Evidence Act,). The respondents' case is that the petitioner has defrauded the respondents on the day of the incorporation of the company itself as instead of showing the shareholding of the respondents at 999 out of 1000 the petitioner showed it the reverse way making his own shareholding at 999 and that of the respondent at 1 share only, despite repeated request and despite making promises to correct such serious anomaly, the petitioner simply kept putting it off and instead made allegations of oppression and mismanagement with an oblique motive to gain control and management of the company holding only 1 share, in fact, and contributing only $ 16,906 equivalent to Rs. 7,15,745 and falsely claiming investment of Rs. 1,67,00,000 with malafide intention; the petitioner had of his own when confronted with the manipulation of the shareholding withdrawn from active participation in the affairs of the company after 4.3.2006 he had himself submitted his resignation from the directorship and confirmed that verbally as well on telephone before his resignation and even thereafter, in fact, from the date of his resignation in June 2002 the petitioner never participated in any manner as a director in the respondent company even for a day, the character of the petitioner has been very dubious having a criminal record as confirmed in the report of the "Moscow Centre for Economic Security" he has resorted to filing of even fabricated and false affidavit before this Hon'ble Board, the first power of attorney on behalf of "Fintime Ltd." is not supported by any board resolution, it is not signed by either the principal or the agent and even the second affidavit on behalf of the "Brophy Group Ltd." is not supported by the requisite power of attorney; the petitioner being incharge to oversee the paper work of formation of the company manipulated and fabricated the documents right from the stage of inception with a malafide intention to subsequently oust the R-2 through his agents and conspirators and finally usurped control over the company; the petitioner has breached his fiduciary duty; the prayer of such a petitioner to wind up the company holding one share is neither just nor equitable, his statements about being the major financial contributor to the company being false and malafide, holding only minuscule shareholding and praying for the winding up of the company would only serve his diabolic design of vendetta; instead of proving his case of oppression and mismanagement he has relied on only certain procedural irregularities.
15. In the facts and circumstances of this case wherein there are claims and counter claims as regard to shareholding, there are vide variations in the pleadings with respect to the amounts invested, there are no audited financial statements showing fund flow position, share certificates have not been produced, only summary accounts certified by the Chartered Accountant have been annexed and relied on, to do justice in the matter I am of the considered view that Investigative Audit of the Accounts of the R-1 company for the Financial Years ending as on 31.3.2005, 31.3.2006 and 31.3.2007 is imperative to reveal the true and correct state of affairs. For that purpose an independent Chartered Accountants Firm, namely Koshi & George, Chartered Accountants, D-4/4059, Vasant Kunj, New Delhi-110070, Contact Nos. 9811571572 and 011-26133847 who has given its consent is hereby appointed to carry out Investigative Audit for the relevant period (Financial Years ending as on 31.3.2005, 31.3.2006 and 31.3.2007) within four weeks of receipt of this order by the Respondent No-1 company. The R-1 company is hereby directed to facilitate Investigative Audit by providing the requisite records and any other assistance required in the matter by the Firm appointed for the purpose. An advance payment of Audit fee amounting to Rs. 1 lakh be paid to the Firm-besides T.A and DA to be paid as per the actual expenses incurred.
16. The Auditors are hereby directed to submit their detailed Investigative Audit Report specifically including the Fund Flow Statements and Ledger Accounts of the parties to the Respondent Company within the prescribed period. Bench Officer to issue notices for hearing of the company petition on receipt of the Audit Report.