Company law moot

COMPANY LAW -MOOT

BEFORE THE HON’BLE NATIONAL COMPANY LAW TRIBUNAL

MR. SINCHI AND ORS

VS.

MEDEX CO. LTD

IN THE CASE CONCERNING

Contending oppression and mismanagement being the minority

shareholders in the company

SUBMITTED TO SUBMITTED BY:

Miss Preeti Swami Khushi Agarwal

ASST. Professor B.B.A.LLB(Hons)

SSLG 6th SEM

MEMORANDUM ON BEHALF OF PLAINTIFF

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TABLE OF CONTENTS

TITLE PAGE NO.

1. List of abbreviation 3
2. Index of authorities 4
3. Statement of jurisdiction 5
4. Synopsis of Facts 6
5. Issues Raised 8
6. Summary of Arguments 9
7. Arguments Advanced 10
8. Prayer 19

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LIST OF ABBRIVIATION

HC: H.C

SC: S.C

C.P.C: CIVIL PROCEDURE CODE

SEC: SECTION

P.: PAGE

NO.: NUMBER

V. VERSES

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INDEX OF AUTHORITIES

STATUTES REFERRED:

1. The companies act 2013

2. The companies rule 2014.

CASES REFERRED:

 Anguri Jagdish Agarwal and others vs. Aja Residency Private Limited and
others

 Chiranjivi Rathnam vs Ramesh

 Crystal Energy and foods ltd.,
 Focus Energy ltd. Vs. Reebok India Ltd

 Kuldeep Singh vs Sainis cold Retraders Pvt. Ltd

 Loganmoy Limited Matheson Trust Co. Ltd. Vs Safeco Hygiene Films Pvt. Ltd
 Patanjali Kumar and Ors vs. Concur Pharmaceuticals Pvt. Ltd.
 Shanta Prasad Chakravarty vs Bochapathar Tea Estate Private Ltd
 Vikram Jairath and ors vs. Middleton Hotels Private Ltd

BOOKS REFERRED:

3. Gower and Davies, principles of modern company law

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STATEMENT OF JURISDICTION

Application to Tribunal for Relief in Cases of Oppression, etc 1

2241. (1) Any member of a company who complains that—

(a) the affairs of the company have been or are being conducted in a manner prejudicial to public
interest or in a manner prejudicial or oppressive to him or any other member or members or in a
manner prejudicial to the interests of the company; or

(b) the material change, not being a change brought about by, or in the interests of, any creditors,
including debenture holders or any class of shareholders of the company, has taken place in the
management or control of the company, whether by an alteration in the Board of Directors, or
manager, or in the ownership of the company’s shares, or if it has no share capital, in its membership,
or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of
the company will be conducted in a manner prejudicial to its interests or its members or any class of
members,may apply to the Tribunal, provided such member has a right to apply under section 244, for
an order under this Chapter.

(2)The Central Government, if it is of the opinion that the affairs of the company are being conducted
in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this
Chapter.

1
Kuldeep Singh vs Sainis cold Retraders Pvt. Ltd
Chiranjivi Rathnam vs Ramesh
Vikram Jairath and ors vs. Middleton Hotels Private Ltd

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SYNOPSIS OF FACTS

1. Medex Co. Ltd was incorporated in the State of Rajisthan, Country Indie on 19 th of
September, 2019 having its registered office in Jipur as a Company Limited by Shares
having an Authorized capital of Rs 20 crores. The Company is in the business of
Organic Cosmetic and Personal Care products.
2. Initial Public Offer was made in January, 2020. Company issued its Equity Shares
worth Rs 5 crores.
3. Mr. Sinchi and his wife along with their two sons applied for the shares worth Rs 50
lakhs in the Company.
4. The subscription money of Rs 10 lakhs was duly paid by them. They were sent a
Letter of Allotment by the Company for the applied shares.
5. The Company issued a notice to all the shareholders providing 2 months time for the
payment of allotment money and receive their Share Certificates.
6. During this period the Directors of the Company got infected by Covid 19 Virus and
Share Certificates to some shareholders could not be sent.
7. After recovery of the Directors, on the basis of received Letters of Allotment and
payments remaining Share Certificates were sent.
8. In the month of May, 2020 an Extraordinary General meeting was conducted wherein
certain properties of the Company were proposed to be sold due to lack of funds.
9. It was unanimously decided in the meeting to sell properties worth 50 lakhs to Mr.
Rajul and in return he would be allotted Equity shares in the Company. The shares
that were earlier allotted to Mr. Sinchi and his family were allotted to Mr. Rajul.
10. Mr. Sinchi and family sent various mails and contacted at the office of the Company
regarding their Share Certificates stating that even after making all the payments and
submitting the Letter of Allotment they did not receive their Share certificates, but all
went in vain.
11. They got information later in May that the Company has conducted a meeting and
certain properties were sold. They did not receive any notice regarding the meeting.
They were assured by a clerk at the office of the Company that they will receive their
Share Certificates soon.

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12. The Company incurred profits in the first year itself and hence, in the month of March
2021, the Company distributed Dividends to the Shareholders. Mr. Sinchi and family
did not receive any dividend either.
13. Mr. Sinchi and family approached the National Company Law Tribunal, Jipur
contending Oppression and Mismanagement being the minority shareholders in the
Company.

(Note: Laws of Indie are in pari materia to the Laws of Republic of India).

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ISSUES RAISED

1. Whether an emergency situation of Covid 19 infection justified to

the delay and error in the issuance of share certificate?
2. Whether allotment of the equity shares of the company to Mr.
Rajul appropriate?
3. Whether the meeting followed all the necessary norms?
4. Whether Mr. Sanchi and his family are entitled to get dividends?

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SUMMARY OF ARGUMENTS

ISSUE 1:

During such emergency the company must issue some notice to its applicants informing the
emergency situation. And once the situation settles they must take necessary actions to
complete the incomplete actions before the emergency to avoid any mismanagement from the
companies side.

ISSUE 2

Section 245 of the Companies Act, 2013 mentions about Class Action Suits.

Class action suits are the ones which can be filed by a group of persons, instead of them
filing different individual suits on the same subject matter. Whenever the shareholders or
creditor/depositors feel that the management of a company is conducting affairs which are
prejudicial to the interests of the shareholders or depositors or both, they can together file a
class action suit by few people representing the whole group of aggrieved persons.

So Mr. Sanchi and others have been victims to the actions of the company causing trouble to
the interest of the members

ISSUE 3:

The members may requisition convening of an extraordinary general meeting in accordance

with sub section (4( of section 100, by providing such requisition in writing or through
electronic mode at least clear 21 days prior to the proposed date of such bextraordinary
metting. This meeting did not follow the above guidelines and so can be called as invalid and
so the sale following the meeting.

ISSUE 4

Section 123 provides that company should pay the dividend only to

1. Shareholder of such share registered with the company.

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2. The person to who the registered shareholder requires to

3. The banker
In this case the plaintiffs being the shareholder of the company did not receive any
kind of dividend earned by the company in the last financial year.

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ARGUMENTS ADVANCED

Issue 1. Whether an emergency situation of Covid 19 infection justified to

the delay and error in the issuance of share certificate?

As given in the facts that some of the directors were infected with covid 19 and therefore the
company remain closed for some period of time and when the company opens, they started
giving allotment letter and payments of remaining share certificates to the shareholders and
this was sent to every shareholder then if it is sent to every shareholder why it is not sent to
Mr. Sinchi and his family. They further didn’t get a notification about receiving the payment
of allotment letter and issue of Shares certificate.

Being the shareholders they were entitled to receive the certificate and if any delay was done
then they were along with the others shareholders must have been given a notice of delay
stating the proper reasons.

The company should consider them as the owner as most of the shares are being purchased
by them only and also, they made it a legal purchase by following each and every step for
purchasing the shares. This resulted in the mis management of the company and led to the
oppression of minority shareholders. This act from the company side is higly unprofessional
as they left out the interest of the minority shareholders and acted unprofessionally.

According to the recent research made by the covid warriors covid virus damages the liver
and chest of a human body and not the brain and if company members have got affected so
much that they could forgot about one man who has made everything possible to invest in
this company then there is no harm in saying that yes, the company has already been
infected and because this infection goes into their brain therefore, they got delayed and
also didn’t issue the shares certificates on time.

So, at conclusion it could be considered as a conspiracy that one person invest huge amount
and the company made fools by saying that covid has got our directors and therefore they just
simply forget about the minority true owners of the company that is the shareholders of the
company.

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This could have been surpassed or taken lightly even any notice were given earlier or after
the recovery of directors the minority shareholders would have received their share
certificates on time.

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Issue 2. Whether allotment of the equity shares of the company to Mr.

Rajul appropriate?

If any members or depositors are of the opinion that management or conduct of affairs of a
company are being conducted in a detrimental manner as against the interests of such or
members or depositors then, they can file an application on behalf of all such aggrieved
persons before the Tribunal for seeking the following orders under Section 245(1). They are:

1. Restraining the company from acting ultra vires (beyond one’s legal power or
authority) to articles or memorandum of the company
2. Restraining the company from committing a breach of any provisions of the articles
or memorandum of the company
3. Declaring the alteration to memorandum or articles of the company as void because it
was done by suppressing the facts and misleading the members or depositors
4. Restraining the directors of the company from acting on such falsely obtained
alteration
5. Restraining the company from acting against the provisions of the law in force
6. Restraining the company from taking action against the resolution passed by the
members
7. Claiming damages or compensation from or against
 The company or its directors for a fraudulent, unlawful or wrongful act or omission or
order
 The auditor including his audit firm for furnishing improper and misleading financial
statements for the commission of fraudulent, unlawful or wrongful activity in relation
to the company
 The expert or advisor or consultant for giving incorrect or misleading statements to
the company for doing any fraudulent or unlawful or wrongful activity

Seeking any other remedy as opinionated by the Tribunal

Sub-section (2) of Section 245 states that whenever such members or depositors seek
damages or compensation from the audit firm which is responsible for the fraudulent
furnishings of accounts of the company, then the liability is not only of the firm, it also
extends to every partner who took part in such unlawful, wrongful, fraudulent activity.

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In this case the shares issued to Mr. Rajul were owned by Mr. sirinchi and others but while
selling it , they were neither informed nor called out. Being the owner of those shares only
t6thhey had the right to sell their share and interest over their share to Mr. Rajul.

The shares were transferred to Mr. Rajul without any information to the shareholders of that
share. The act resulted in a fraudulent action done by the company which went against the
member of the companies.

In the case of Shanta Prasad Chakravarty vs Bochapathar Tea Estate Private Ltd 2, the
auditors were charged with acts of oppression and mismanagement, under section 245.

In this case since the interest of the members are harmed the sale of the shares to Mr Rajul
should be declared invalid.

In the case of Focus Energy ltd. Vs. Reebok India Ltd.,3 the company neglected the interest
of the shareholders leading to a circumstance of clashing of interest between the members
and the BOD.

Similarly in this case the interest of the shareholders are harmed and due to the mis
mangement of the company the minority shareholders have faced oppression in actions.

2
6 -03-2017, National Law Tribunal
3
12-03-2020 National law Tribunal

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ISSUE 3- Whether the meeting followed all the necessary norms?

Calling of Extraordinary General Meeting.

Section 100.

1[(1) The Board may, whenever it deems fit, call an extraordinary general meeting of the
company.]

2[Provided that an extraordinary general meeting of the company, other than of the wholly
owned subsidiary of a company incorporated outside India, shall be held at a place within
India.]

**(2) The Board shall, at the requisition made by,—

(a) in the case of a company having a share capital, such number of members who hold, on
the date of the receipt of the requisition, not less than one-tenth of such of the paid-up share
capital of the company as on that date carries the right of voting;

(b) in the case of a company not having a share capital, such number of members who have,
on the date of receipt of the requisition, not less than one-tenth of the total voting power of all
the members having on the said date a right to vote, call an extraordinary general meeting of
the company within the period specified in sub-section (4).

(3) The requisition made under sub-section (2) shall set out the matters for the consideration
of which the meeting is to be called and shall be signed by the requisitionists and sent to the
registered office of the company.

(4) If the Board does not, within twenty-one days from the date of receipt of a valid
requisition in regard to any matter, proceed to call a meeting for the consideration of that
matter on a day not later than forty-five days from the date of receipt of such requisition, the
meeting may be called and held by the requisitonists themselves within a period of three
months from the date of the requisition.

(5) A meeting under sub-section (4) by the requisitionists shall be called and held in the same
manner in which the meeting is called and held by the Board.

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*(6) Any reasonable expenses incurred by the requisitionists in calling a meeting under sub-
section (4) shall be reimbursed to the requisitionists by the company and the sums so paid
shall be deducted from any fee or other remuneration under section 197 payable to such of
the directors who were in default in calling the meeting.

In this case Mr. Sirinchi and others were neither called or communicated through any
electronic mode , nor within the notice of 21 days or earlier. Without any prior notice to all
the mebers of the company the matting can itself be termed as invalid.

In the case of Loganmoy Limited Matheson Trust Co. Ltd. Vs Safeco Hygiene Films Pvt.
Ltd4, in this the respondants were asked not to hold EOGM and they did it anyway without
informing the members.

Similarly in the case of Anguri Jagdish Agarwal and others vs. Aja Residency Private
Limited and others5, although the notice was sent it was not a valid one according to the
section 100 of the companies act, 2013.

In the case of Patanjali Kumar and Ors vs. Concur Pharmaceuticals Pvt. Ltd. 6, in this
case the 3 petitioners were also not given the notice of 21 clear days as per the law under sec
101 of the companies act, so the meeting was held as inappropiate.

Section 101 shall apply to a private company unless otherwise specified in respective
sections or the articles of the company provide otherwise ,

A general meeting of a company may be called by giving not less than clear twenty one days
notice either in writing or through electronic mode in such manner as may be prescribed.

The notice in this meeting was not issued neither via writing or an email.

The plaintiff being the 1/10th owner of the paidup capital had right to be given a notice and
called but they were omitted for it.

4
National Company law , 2-02-2018
5
National Company Law Tribunal, jan 7, 20121
6
National Company Law Tribunal , CP-56/241/242/ND/2018

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Similarly in the case of Crystal Energy and foods ltd., the petition was filed under a special
resolution and was admitted that notice to legal representation was not issued in accordance
to the requirements of sec 101 of the companies act.

So in the above case it can now be said that as the notice of 21 days were not given also the
shareholders having 1/10th share were not called in the meeting. Resulting in the harm of their
interest.

The decisions in the meeting became questionable as well as the meeting itself as it did not
follow the rules and requirement in the section 100 and 101 of the companies act.

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Issue 4 -Whether Mr. Sanchi and his family are entitled to get dividends?

As per given in the facts it states that every possible step is been taken by Mr. Sinchi as a
shareholder and so they are now entitled to the profits at the time when the company earns
and gets paid in name of dividends.
The company is entitled to pay the dividend as the shareholders are considered as the true
owners of the company and therefore being a true owner of the company, they are entitled to
get the dividends as per the written agreement made by the company.
The company should have a logo and they should believe that the company is for the people,
by the people and made by the people and if they refuse to give the dividends then they
themselves made the company a situation which is in company law is considered as the wind-
up situation.

So, at the conclusion the company should pay the dividends to Mr. Sinchi as they have paid
every possible value to get the shares worth rs.50 lakh and could be considered the true
owner of the company as given in every book of law and therefore the company should given
there dividend as per the given on the written agreement.

Section 123 provides that company should pay the dividend only to

1. Shareholder of such share registered with the company.

2. The person to who the registered shareholder requires to
3. The banker
In this case the plaintiffs being the shareholder of the company did not receive any
kind of dividend earned by the company in the last financial year.

No dividend shall be declared or paid by a company for any financial year except—

(a) out of the profits of the company for that year arrived at after providing for depreciation
in accordance with the provisions of sub-section (2), or out of the profits of the company for
any previous financial year or years arrived at after providing for depreciation in accordance
with the provisions of that sub-section and remaining undistributed, or out of both or; both

The profit earned are from the last financial year so all the shareholders are entitled to profits
and so Mr. Singhi and others with him.

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PRAYER

It is most humbly prayed before this Hon’ble Tribunal, in the light of the issues raised,
arguments advanced and authorities cited, the court may adjudge and declare that:

1.The meeting set by the company in month of may must be declared as an invalid
one.

2. the sale of shares to Mr. Rajul must be declared as void.

3. the dividends earned by the company must be distributed among the plaintiffs.

4. Mr. Sirinchi and others must be given their shares back and the share certificates as
well.

All of which is respectfully affirmed and submitted.

The court may also be pleased to pass any other order, which this Hon’ble Tribunal
may deem fit in the light of justice, equity and good conscience, for which the plaintiff,
shall in duty bound, forever pray.

(Council on behalf of plaintiff)

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