A`.IEFoRE - Company Law Board

A'.IEFoRE THE coMpANy tAw BoARD, f{Ew DELHI BENCH,
NEw
l3R6
DELHT.
c.p. irol 6s (No) of 2o1o
Present: Smt. Vimla Yadav, Member
In the matter of Companies Act, 1956 under Sections 397 and 398 of the Act
AND
In the matter of:
Sh. Sunil Kumar
,......Petitioner
Versus
M/s. Punjab Processed Foods A/t. Ltd. & Ors.
......Respondents
PETMONER
Sh. Sunil Kumar
-
-. l.-.
RESPONDENTS
1. M/s. Punjab Processed Foods tut.
2. Sh. Sanjeev Kumar Chaudhary
3. Sh. Jatinder Pal Singh
Ltd.
Present on behalf of the parties:
1.
2.
4
5.
6.
a
Sh. Anil K. Aggarwal, Advocate for petitioner
Sh. Brij Agnihotri, Practicing Company Secretary for petitioner
Sh. Sunil Kumar, -Petitioner in person
Sh. Suman Doval, Advocate for Respondents
Ms. Divya Suman, Advocate for Respondents
Sh. Vineet Kumar, Advocate for Respondents
Sh. Sanjeev Chaudhary, R-2 in person
Sh. J,P. Singh, R-3 in person
ORDER
(Date of Hearing: 30.1.2012)
In this order I am considering c.P. No. 63 (ND) of 2010 filed by the petitioner against
Mis. Punjab Processed Foods hrt. Ltd, & others alleging oppression and mismanagement, The
4
c\2
K
$-
\
Respondent Company is
a Private Limited Company,
incorporated on 10.09.2007 having its
registered office at #22, cF, HIG Flats, A-Block, Ranjeet Avenue, Amritsar.143 001, which is the
residence
of
Respondent No.
2.
The present authorized share capital of the
Respondent
Company is Rs. 2.00 Crores divided into 20,00,000 equity shares of Rs. 10.00 each. At the time
of incorporation, issued and paid up capital of the Company was Rs. 9.00 lacs, divided
into
90,000 equity shares of Rs. 10/- each with equal share holding of 30,000 shares each (33.3olo
each) and the Petitioner, Respondent No. 2 and Respondent No. 3 were the only directors of
the
Respondent Company.
The main objects for which the respondent company
was
incorporated was to carry on the business of manufactures, producers, processors, growers,
impoters, traders, buyers, sellers or otherwise deals in all kind of agro based products, food
products, food processing, hofticulture, sericulture, cultivators, of all kind of food grains' seeds
fruits and vegetables, animal husbandry and garden produce of every description,
frozen
vegetables, fruits, dairy products, all varieties of food and to set up a cold store to preserve all
-
type of vegetables, foods, fruiG, agro and agro products and others, etc. The present activity of
the Company mainly involves manuFacturing of Tomato paste and is also engaged in related
products like Chill puree, Apple Pulp, Carrot Puree, Tomato Ketchup
2.
The Petitioner's case is that
it
/
sauces, etc'
was mutually agreed upon amongst the promoter
directors that they will always have equal share holding and also equal representation on the
Board of Directors of the Company. But in order to gain absolute control over the Company,
Resoondent No. 2 and Respondent no. 3 manipulated the records of the Company by making
fufther disproportionate allotments amongst existing shareholders and allotments to their
been
relatives, without conducting any meeting, by which the shareholding of the Petitioner has
new
reduced from 33.33olo to 13.57olo and thereby the Respondent Nos. 2 and 3 have created a
majority of their group holding more than 75olo shares in the company' The issued, subscribed
15103 Lacs by
and paid up capital of the company has been increased from Rs' 9'00 Lacs to Rs,
to 31'10'2009'
clandestinely showing allotment of shares on various dates from 31'03.2008
Three more shareholders namely Smt. Karuna Chaudhary (wife of Sanjeev Kumar Chaudhary),
(relative of sanjeev
smt. Indu Gupta (sister of sanjeev Kumar Chaudhary), and Sh. Atul lalota
allotted to the
Kumar chaudhary) have been introduced. shares of Rs. 20,50,000/- have been
a||otted in favour
Petitioner, whereas shares of Rs, 94,50,000/- and Rs' 36,03,000/- have been
the impugned
of Respondent No. 2 and his relatives and Respondent No. 3 respectively. After
No. 2 along with his family
allotments, the respondent group holds 86.43010 shares (Respondent
13"? E
^'slds
62.570/o and Respondent No.
L3.57o/o. Thus
3 individually holds 23,860/o) against the Petitioner holding
this allotment has straightway-converted the Petitioner from equal share holder
to a minority and a ndw majority has been created. All this has been done behind the back of
the Petitioner and without his knowledge or consent. No notice of the Board Meetings whereat
the shares were purportedly allotted was given to the Petitioner even though admittedly he was
and still continues to be a Director of the company. No Board Meeting was convened or held for
considering the further .allotnrent of shares. The respondents have not produced before the
Company Law Board any record such as Board Meeting Notices, Dispatch register, proceedings
book of Board of directors, attendance register, etc. The
futher allotments have been made in
contravention of section 286, section 292 and the Aticles of Association of the Respondent
Company. Moreover, under Afticle
4, 5, 6, 18 and 45 of the Articles of Association of
the
Company, the power to allot further shares vests with the shareholders of the Company. The
Board
of
Directors have no power
to allot further
shares. Even the independent auditor
appointed by the Company Law Board vide order dated 27.09.2010 to inspect the records of the
Company has clearly pointed out in the Independent Audit Report that "the Board meetings
approving the allotment of shares is neither supported by attendance register nor proceedings
book was got signed by the present directors". Fudher in the Independent Audit Repot, it has
been clearly mentioned under the head "Capital Structure" that "neither the Board Meeting
calling Extraordinary General Meeting to approve the enhancement nor the Extra Ordinary
General Meeting was supported by attendance register and no each attendance was marked at
the proceeding books and minute books of the particular Board Meeting and Extra Ordinary
General Meeting. As such Quorum of the meeting cannot be verified".
3.
Fufther, the Respondents' casb is that Respondent No. 2 in connivance with Respondent
No. 3 has misused the funds of the ResDondent ComDanv
to make allotments to
themselves
and their relatives. The funds of the Respondent Company have been circulated by Respondent
no.2
and 3 from one account to another and ultimately used for making such fabricated
allotments. My attention was drawn to the documents depicting huge cash withdrawals from
the companyt account and deposit to unrelated accounts and then withdrawals from
unrelated accounts as payments towards share capital
relatives (placed as Annexure A-1 of the Reply
maintainability of the petition.
such
of Shri Sanjeev Chaudhary and
his
to the C.A. No. 49U2010) challenging the
\
+
QO
, '-
..
Drawing my attention to the background of the Respondents, it was pointed out that
.?. ,Respondent
No. 2 was in servrce
tll
the
30.11,2004, at a salary of Rs. 10,7241- p.m. as Accounts'
Manager of N'ljjer Agro Foods Limited, Amritsar. Also, as per the Income Tax Return for the
financial year 2005-06, the Respondent No. 2 had declared an annual income of Rs. 1,79,045/-.
The Respondent No. 3 was employed with Nujer Agro Foods Limited, Amritsar, till July, 2007 as
Works Manager. As per the Income Tax Return filed by the Respondent No. 3 for the financial
year 2006-07, his salary incorne was Rs. 1,92,012/- only. The Respondents did not have any
financial background to make any huge investments in the Company. The Respondents have
manipulated the funds of the Company for showing allotment of the shares to themselves and
their relatives. These allotments are illeqal, null and void.
5,
Further,
it was pointed out by the counsel for the
Petitioner that
till date, no share
certificate have been issued to the Petitioner. He got the information of share allotments from
ROC records, since
the Petitioner has no access to any records of the Company. It was argued
that.the Respondents are guilty of contravention of section 113 u{ the Companies Act, 1956,
according to which the share certificate have to be issued by every company within three
months of the allotment. The Independent Audit Report also points out that neither original
share certificate were produced nor the counterfoils have got receipted by the recipients in
token of having received the share certificates, counterfoils of the certificates as well as the
Members Register have been signed by the two directors namely sh. Sanjeev Kumar Chaudhary
and Sh. Jatinder Pal Singh whereas no authorized signatory has been appointed or authorized
to sign the certificate as well as the members register. Further, it was pointed out that in
of original share cetificates, afixation of common seal cannot be verified and the
share certificates have not been issued in accordance with the Companies (Issue of Share
absence
Certificates) Rules 1960.
6.
It was contended that no Board meeting or general meeting of the Company
has been
held and all the minutes reflecting the holding of the meetings are fabricated. It has been
observed in the Audit Repod that the meetings have been shown as held at regular interuals,
but no attendance record for the Board meeting and general meetings has been maintained, no
was argued
notice calling the Board meeting and general meeting has been properly served. It
law
that this clearlv shows that the records have been created later just to satisfy the company
is no notice or
requirements and in practice, no meeting was ever held and that is why there
^
l3:o
^ttendance record of the meetings. When no meetings have been conducted till date, then the
question as tct how the company could take any corporabe,decision has not been answered.
7.
Further,
it was
argued that the Respondent Company was formed to set up a food
processing unit. The Petitioner was appointed as Director (Quality fusurance), Respondent No.
2 was appointed as Director (Finance) and
(Technical).,It was pointed
Respondent
No.3 was
appointed as Director
!he. .Pelitio_l.gf is a technicat person being Msc. (Food
Science & Technology) from CFTRI, Mysore. His specialization is in the field of fruit & vegetable
9::
lf"l
processing. He is a Director (Quality fusurance) in the Respondent Company. He has a rich
experience
of 12 years of the companies like Pepsi Foods Ltd. (Tomato Processing division),
N'tjjer Agro Foods Ltd. (Tomato Processing division) and Nestle (Co-packing division of culinary
sauces) at executive level in the Quality Assurance department. He had also got the training
from the food scientist of Cedenco Food, New Zealand (one of the largest plant of tomato
processing) during his service at Pepsi Foods. The Petitioner was acting as a "Food Consultant"
to various food industries since 200i. The Pbtitioner was instrumentai in'setting of the factory
and interacted with the Ministry of Food Processing Industries, New Delhi for grant of
Licence. The Board
of Directors authorized him to do so by way of Board
FPO
Resolution dated
30.07.2007. He was instrumental in supplying materials to Dabur Nepal Private Limited, Nepal
in July 2008. He got the supplier audit report conducted by Hindustan Unilever on 25.06.2008.
He further got the supplier audit report conducted by Nestle on 06.08.2009 and 20.07.2009.
Supplier self audit questionnaire issued by Dabur India Limited was also submitted by the
Petitioner on 20.01.2009.
In this
questionnaire
it
was specifically mentioned that technical
contact person is Mr. Sunil Kumar, Director (QA) and commercial contact person is Mr. Sanjeev
Chaudhary, Director (Finance). furin'er, Ingredient Supplier Assessment Questionnaire required
by Nestle and submitted on
27 .07
.2009 mentions the name
of the
petitioner as quality
manager. The company had taken the plant of Punjab Agro Juices Limited at Abohar on short
term lease vide lob Work Agreement dated 07.05.2008 and
it
was successfully run by the
petitioner and 650 tonners of tomato paste was produced which was worth more than Rs. 3.00
Crores. The Respondent Company has sold the product
to reputed companies at very good
margins. All correspondence with Unilever, Dabur, Nestle, etc. have been done by the petitioner
from thb very beginning. Inspite of the active involvement of the Petitioner in the setting up of
the plant and in production, he has not been paid any remuneration, whereas respondent no. 2
has been paid remuneration of Rs. 4.00 Lacs during the financial year 2007-08 and Rs.6.00
j
v
,^
\o
Lacs during the financial year 2008-09. Respondent No.
.2.,50 ,LdcS 'drlring
3 has also been paid remuneration
of ^'
year 200&-'' '' r
the financial year 20G7-O&and-:Rs: 6'00 Lacs during the financial
09'ItwaspointedoutthatRespondentNo.2hasbeenpaidremuneration@Rs.50.000/.per
monthw.e.f.0l.08.2007,whereasthecompanyWasincorporatedon10.09.2007.The
IndependentAuditRepoftmentionsthatSh.SanjeevChaudharyandSh.JatinderPalSingh
2008-09 whereas no salary has ever
have withdrawn salaries for the financial year 2007-08 and
has bee[ mentigned the
. -:;r..; :i!..
b€en paid to the third director i.e. sh. sunil Kumar, the Petitioner'.It
August, 2007
me Auditors' Repoft that the salaries are being withdrawn from
Comments
to
resolution for the same which in itself
whereas there is no Board resolution or general meeting
financial mismanagement on the part of
is an evidence of contravention of companies Act and
theRespondents.ItWasarguedthattheminutesaremere|yfabricatedrecordsandhaveno
|ega|sanctityatpageno.l00oftheAuditRepoftshowsaBoardreso|utionfixingthe
remunerationofRs.50,000/.p.m.ofeachofthethreedirectorswitheffectfrom0l.04.2009
andwherea.sg-t.p?g'eno.l04oftheAuditReport,theBoardresolutionisshowingthefixation
and Sh' Jatinder Pal singh for Rs'
of salaries of the two directors sh. Sanjeev Kumar chaudhary
50,000/-eachWitheffectfromApril,2008.ItWascontendedthattoregu|arizetheirfinancia|
mismanagement,theRespondentshavepassedresolutionforthef]nancia|year2008-09'Had
thisnotbeenthecase,thenthesamereso|utionwou|dnothavebeenpassedfortheyear2009
forthetwodirectorswhowerea|readywithdrawingsalaries,ThattheRespondenbhave
booked,butyetnotpaid,thesalaryofthethirddirector,Sh,suniIKumar,thePetitioner,forthe
financialvear2009-10afterthefilingofthePetitionbeforetheCLB'thisisnothingbutacover
uptoshowbeforethecLBthatthereisnooppressionormismanagementbythegui|ty
Respondents'Surprisingly,evenwhenthePetitionwaspendingbeforetheCLB'the
RespondentshavestoppedtheremunerationofthePetitionerw.e'f.01.04'2011,theseactsof
therespondentsarevio|ativeoftheprincip|eofquasi-partnership,whichissquare|yapp|icab|e
in the Present case'
8.Thecounse|forthePetitionercontendedthattheRespondentshavedoneoverbi|lingin
variousheads,myattentionwasbroughttotheBui|dingA/ctopointoutthatRespondentNos.
the bills and by
of the respondent company by inflating
2 and 3 have embezzled a huge amount
'showingbogusexpenditure.AccordingtothelndependentAuditReport.theva|uationof
bui|dingcomestoRs.g4.56Lacwhichiswe||be|owtheamountbookedinthebooksof
of the
been an overbilling in the structural value
accounts i.e. Rs. 120.gg Lacs, there has
r'
';r'':-
l33L
^uilding by Rs. 26 Lacs by the Respondents. The Auditor has categorically stated that while
going through the buiiding account and the relevant vouthers,
it
was'observed that ceftain
in normal course of practice would not allow credit to anybody.
Further, that some expenses on account of building have been booked through the site
engineer Mr. Sunil Bhatia who was an employee of the Company drawing a salary of Rs.
creditorc were there, who
12000/-p.m. only and that it does not seem feasible that an employee of the Company would
of Rs. 8.97 lacs towards the-Company and that too interest free. My
attention was drawn to the Affidavit by Mr. Sunil Bhatia stating that none of his dues are
pending towards the Company and he was not engaged in any business activity with the
invest a huge sum
Company. There are certain creditors for building material whose balance (Rs.11.3 lakhs) are
still outstanding till date and that is unlikely that small building material suppliers would allow
such a long credit when in actual practice they supply the material on cash basis.
9.
The counsel for the Petitioner pointed out that the Respondent Company was to impot
brand new machinery of tomato paste from M/s. Fenco S.P.A. Italy at a cost of Rs. 3.20 Crores.
But instead of new machinery, the respondents have imported second hand machinery;
the supplier not to mention the second hand machinery in the
The supplier of the main machinery, which clearly indicates that second hand
however they instructed
documents.
machinery has been imported from Italy whereas the machinery has been financed as new
machinery. Thus, huge funds has been embezzled by importing the second hand machinery at a
much lower cost but showing it as new machinery at a higher cost in the books of account of
the respondent company. Further, as per the project report submitted to the Bank, the
Respondent Company was to purchase two Boilers of 6 TPH capacity and these were to be
purchased from M/s. Indcon Boilers Limited for Rs. 40 lacs. In the Independent Audit Report
the auditors have stated that on going through the financial records, it was observed that
locally assembled boilers were purchased from
a local supplier M/s Ronson Enterprises
Rs.
38.89 lacs. The auditors have further stated that on going through the account of the supplier
M/s. Ronson Enterprises, it was observed that certain accommodation entries amounting to Rs.
42 lacs allowed by the supplier in order to convert long term fund to short term funds. Oerm
loan from bank was released through this supplier to adjust the outstanding cash credit limit).
Furthermore, the purchase of SS storage tanks have been over billed. While the order was for
Rs. 8.38 Lacs only, the billing has been done
for Rs. 16.76 Lacs. The Auditors have stated that
they were shown a copy of the purchase order dated 27.03.2008 of certain SS storage Tanks
(\
ft1
q
\'
given
to M/s. Food &
Pharma Engineers, Ambala amounting
to Rs. 8.38 lacs while the
bills
received from that party amounts to Rs. 16.76 lacs (,.nenticned as Rs. 13.19 lacs by mistake).
Similarly the Auditors have stated that they were provided by another email exchanged
between the Company and M/s. Food Engineer and Associate, Faridabad which clearly shows
that the machinery is second hand which has been procured-by the supplier i.e. M/s.
Food
Engineer and Associates, Faridabad, from M/s. SSRB Food Processing (P) Limited (Not being
rnachinery manufactures) for Rs. 43.86 lacs which has been biiled to the Company for Rs"4692
lacs as new machine. Thus huge amount has been embezzled by Respondent Nos' 2 and 3
through over billing of plant and machinery.
It
was argued that the Balance Sheets of the
respondent company have been signed by Respondent Nos. 2 and 3 behind the back of the
Petitioner.
10.
It was pointed out by the counsel for the Petitioner that a loan of Rs. 488.25
lacs was
availed from Bank of Baroda for the Company's project against collateral security of properties
belonging to the Petitioner. and Respondent No.3 though Respondent No. 2 cjid noi pledge any
collateral property on the plea of not owing any such propety. In May, 2008, the Company got
of Rs. 50 lacs form the bank as working capital. With this capital and technical effotts
of the Petitioner, the Company produced 650 tonnes of tomato paste of international quality
CC limit
standards at the plant of Punjab Agro Juices Ltd. and sold it to the big multinational companies
at very good margins. The company made a turnover of Rs. 2.63 crores (2008-2009) just in
one year of the incorporation of the Company. On the basis of technical experience of the
Petitioner and the quality standards of the product produced, the Company got advance of Rs.
72 lacs from M/s, Fun Food (V.R.B. Foods) and Rs. 12 lacs from lt4/s. Sanghavi Foods for the
next year,s supply. Also, the company got an interest free loan of Rs. 27 lacs from the sFAc
(Small Farmers Agribusiness Consortium) being an agro based project The Company made an
annual turnover of Rs. 2.80 crores in 2009-10. Thus, the Company always had abundant funds,
which have been misappropriated by the Respondent to gain unjust enrichment through illegal
allotments, payment of remuneration to themselves.
It
was pointed out the Audit Report
mentions that cash has been withdrawn from the bank when sufRcient cash in hand was
alreadv there in the hands of the company. Huge cash withdrawals have been made even
though the Company was having sufficient funds and tha! these cash withdrawals have been
utilized
circulated by Respondent Nos. 2 and 3 from one account to another and then ultimately
own
to make allotments to themselves and their relatives by passing bogus resolutions on their
(tll
J
)3311
^3hind the back of the Petitioner. It was pointed out that cash withdrawals amounting
to
Rs.
145.99 lacs have'b€dri"ma-d€ fFdlh'time to time, circulation Of'firnlrjS have been made through
the account of Mrs. Sukhwinder Kaur who has no. connection with the
Company and
transactions of more than Rs. 21 lacs have been done throuoh this account.
11.
Further, it was pointed out that as mentioned in the Audit Repod an amount of Rs. 60
..,-lq..t.lgrgqj,.u..,!€,totT-Mr. Atul Jalota
without interest, needs to be looked into with regardto,its
genuineness, worth and capacity of investing such huge funds without any interest. Inspite of
specific observation of the auditors, the respondents have not placed anv document such as the
Balance sheet, Income Tax Return, Bank statement, etc. to show the genuineness, worth and
capacity
of Mr. Atul Jalota for
thereupon.
investing such huge funds, that too without any interest
It is itself dubious and bogus loan outstanding against the company
as a result of
firstly the circulation of funds by the Respondent No. 2 and then connivance with his friend Mr.
Atul Jalota to show that he has granted such a huge loan without any interest. Basically this
'dmolnt of Rs. 60 lacs belongs tij'tfie
Cohpany and should be brought back to the compdny's
Account.
12. It was argued that in order to meet the requirement of the Punjab Pollution Control
Board for disposal of waste water, the Respondent company had taken on lease a piece of land
adjacent to the factory site of the company. The company was required to get the land on
lease for the purpose of plantation of "Eucalyptus Trees" which was basic requirement of
Pollution control Board to run the plant and to get the Noc. This land was accordingly acquired
by the company on lease for a period of 5 years vide Lease Deed dated 13.04.2009. The lease
is to expire on 72.04.2074. It has come to the knowledge of the petitioner that during the
pendency of the lease, Respondent No. 3 indirectly purchased this land through his maternal
aunt vide sale Deed dated 24.12.2009. Again, the same land has been transferred to the
relatives of the Respondent No. 3 on 14.07.2010. The sale Deed dated 14.07.2010 clearly
shows that Mr. Jatinder Pal Singh has signed the deed on behalf of his relatives as a purchaser
of the land. The Respondent Nos. 2 and 3 should have purchased the aforesaid land in the
name of the Respondent company because the respondent company cannot fulfill the
requirement
of Pollution control Board without this piece of lan!. The Respondents
nave,
therefore, acted in breach of trust and have usurped the benefit of purpose of the land unto
themselves at the cost of the Respondent Company.
,
..!,
,.:
L
nnl
o-t
\ 13.
Further, it was argued that the suppliers of the raw material i.e. the poor and innocent
farmers are suffering at the hands of the Respondents, ihe cheques issued by the Respondents
to these formers are continuously bouncing and so they are not being paid the price of their
produce. This is itself a big fraud when the Respondents have already made the Company's
accounts empty through huge cash withdrawals, then why the cheques are being issued to the
parties knowing that the same would be dishonoured. The dishonoring of cheques is itself
a
contravention of law which falls under sect;on 138 of the Negotiable Instruments Act, 1881 and
the Petitioner being a Director of the Company will have to face the criminal proceedings
as
accused even though he is neither a signatory to the cheques nor were cheques issued with his
knowledge or consent. My attention was drawn to the Legal Notices, dated 01.07.2010, issued
by a farmer on account of bouncing of cheques.
14.
The Petitioner pointed out that United Gram Udyog Samiti (Regd.) is a Samiti managed
by well qualified technical professionals and reputed doctors with the help of khadi & Village
'
Industries Commission and the main objective of rhe Sanriti is
development through Gandhian way
villagers.
It is running a cottage
of
to
promote the cause of
Gram Sewa and provide employment
to the
poor
scale food processing plant. The reputation and experience of
the United Gram Udyog Samiti has been encashed by the Respondents in order to get the loan
sanctioned from Bank of Baroda and now they are falsely misusing the name of Samiti to hide
their frauds by making bogus statements before the CLB. The Samiti is a cottage scale KVIC
unit registered under the Societies Registration Act, 1860, with no profit no loss motive. Neither
any remuneration can be paid to any members of its governing body nor profit can
be
distributed amongst the members of the Samiti. The Samiti was registered in the year 1998-99,
whereas the respondent company was formed in the year 2007-08.
It
was contended that to
say that the Petitioner is running a competitive business through the Samiti, is absolutely
baseless and false. Further, the allegation of Respondents that 8895 Kg. of tomato paste was
sold by the Company to the Samiti at a price of Rs. 34l- per Kg. against the market rate of Rs.
43.50
l-
Kg is absolutely baseless and false, because the tomato paste sold to the Samiti was
lower grade
of
24-26 whereas the above said market rate was
of higher grade of
of
28-30.
similarly the sale of 1332 kg of paste by the Company to the society was of lower grade'
15.
Replying to the Respondents' allegation that the Petitioner has made cash withdrawals
of Rs. 2.48 Lacs from the Company, it was pointed out that this cash amount was required for
t: s6
^reeting the expenses relating to purchase
of Chill in the State of Rajasthan. The amount was
used for destalking of Chili zind advance tci the transporters, etc. Moreov6r)'the iheques for
withdrawal of this amount were signed by the Respondent(s) also because the cheques were
required to be signed by atleast tr /o Directors of the Company, no amount could be withdrawn
by the Petitioner without the joint signature of Respondent No. 2 or Respondent No. 3, the
Petitioner spent the amount for the business of the Company and subrllitted the account
statement for the same dt that verv time.
16.
Drawing my attention to the petitioner's contribution to the affairs of the company, it
was pointed out that the project of the Respondent company is also of ..Tomato processing",
the Petitioner put all his technical efforts and previous experience with heart and soul for the
establishment of the said project. The petitioner got the project appraised from the bank for
the required loan of Rs. 488 lacs on the basis of his technical qualification, experience in the
same field, goodwill and market reputation. The Petitioner also provided his land for securiw to
the bank as legal mortgage. In the setting up of thb project, the petitioner played vital role in
the setting up of plant and machinery and other equipments with proper layout plan on the
basis of his previous experience in the same
field. The petitioner played a very important role
in the selection of the variety of tomatoes, best suitable for processing with regard to quality
and the yield. He also developed the network of contract farming by educating the local
farmers. As a result of that, the Respondent Company could procure sufficient quantities of
tomatoes and able to produce best quality of Tomato Paste of international standards at towest
costs. The Petitioner played a vital role in setting up of "TorAL euALITy MANAGEMTN,, in the
Respondent company with regard to (HAccp, cMp, GLp, HYGIENCE, PEST coNTRoL),
PREPAMTION oF DocuMENTs FoR euALITy AUDIT, QUALmy rEST METHODS, Devetopment
of
Formats
for the
Process parameters and Quality parameters, preparation of
Quality
Monitoring Scheme (QMS), Training of the employees and the workers, preparation of
documenb to implement ISo CERTIFICATIoN in the Respondent company. As a result, the
Respondent company got successful in tying up with multinational companies like Nestle,
unilever, Dabur, Fun Foods, Delmonte, G.D. Foods and capital Foods and became caoable of
selling its products to these companies with due clearance of
Quality Audit with the Strenuous
efforts of the Petitioner. The petitioner also played a very important role in the setting up of
MIcRoBIoLocIcAL LAB, ANALYECAL LAB AND RESEARCH
&
DEVELOPMENT LAB
in
the
Respondent company and trained the chemist and microbiologist. As a Result, the Respondent
t
tn
(u
rz
(ul
\,
\
Company could win the confidence of multinational buyers regard to quality Assurance. The
Tomato Pastte project was cnl.y seasonal and could run for only two months (May & June)
which is the general tomato season in a year. The Petitioner put his all efforts in Research &
Development to develop other products like "APPLE PULP, RED CHILL PUREES, CARROT PULP
AND KINNOW JUICE, so that plant could run for the whole of red chill of selected variety from
Rajasthan and development the method of packing, so that Destalked chilli could transport in
fresh condition. As a result, the Respondent Company cor-rlrj proeess,all these products on the
same plant and became able to supply to the esteemed buyers like Nestle and Unilever in good
volumes. The Petitioner also development recipes of the Tomato Ketchup, culinary sauces,
Fruit jams & Fruit Drinks, so that bottling line of the Respondent Company could run for the
whole of the year.
fu a result, the Respondent
Company has tied up with some companies for
the job work as well as company has come up with its own branding in the retail market. Apart
from this, the Petitioner has also given bank guarantee of Rs. 60 lacs from his relatives and
friends.
17,
To support his contention, the counsel for the Petitioner relied upon the cases of:
(a) Kamal Kumar Datta and Anr. Vs. Ruby General Hospital Ltd. and ors. [JT 2006 (7) SC 333]:
wherein, it was held that if the board meeting has been convened without proper service of
notice on the directors, such board meeting cannot be said to be valid.
(b) Hari singh Rathore and ors. Vs. Drishti Media (P) Ltd. And ors. [[2007]3 Comp U
366(CLB)]: wherein, it was held that meetings held without notice to all the directors are
invalid. There was no evidence to show that notice were issued for the Board meeting to the
three directors.
(c) V. Ramesh Kumar vs. shanthini Jayakrishnan ll2oo7l79 scl 520 (CLB-Chennai)l: wherein,
it was held that requirement to issue notice under section 53 (1) to every diredor for a meeting
to
of Board of Director is mandatory. The Company has not produced any material whatsoever
substantiate either dispatch or service of such notice.
Binani Metals Ltd & Another vs. Gallant Holdings Ltd. & others [[2008] 143 Comp Cas
that the onus to
31(CLB): wherein, it was held that regarding service of notices it is settled law
(d)
orove service rests on the sender' Meeting held without notice is invalid'
13
lzs
.e) Haridas (M.K.) Vs. Asal Malabar Beedi Depot (p.) Ltd. [[2002]110 Comp Cas 31 (CLB)I:
wherein, it was held that the allotment of shaies impugned in the company petitioh made for
personal gains and with a view to gain advantage against other shareholders of a closely held
company was neither in compliance with the legal requirements nor ensured the fair play and
probity in corporate management, resulting in the enhancement of the shareholding of the
second respondent, which would constitute an act of oDDresston,
(f) Srichand Bajaj Vs. Bajaj promoters (p.) Ltd. and Ors. [[2007]137 Comp Cas 3a2 (CLB)I:
wherein, it was held that mere statutory retums without being supported by any primary
documents viz; Minutes of the Proceedings of the General Meeting and Board meetings will not
have any evidentiary value, because the Registrar of Companies does only ministerial afis, ano
his taking of statutory forms on record will have no sanctity in regard to validity of such returns.
(g)
Arun Kumar Mohta and Anr. Vs. Ganesh Commercial Co. Ltd. and Ors, [[2006] 6CU 351
(cLB)l: wherein, it was held that allotment of shares with a view to gain advantage against
other sharehoiders is ait act of oppression. in this case, thl. r-espondents were directed to bring
back the misappropriated funds.
(h)
Smt. Ranju Singla & Anr. Vs. M/s Jai Durge Rice Miil Rt. Ltd. & Ors. [CLB, New Delhi,
decided on 24.3.20091: wherein, it was held that the petitioner prayer regarding bringing the
subsidy amount along with interest at the rate of l5o/o per annum back to the account of the R-
1 company is justified and is hereby granted by directing the respondent to bring back the
subsidy amount along with 75o/o per annum interest thereon to the R-1 comDanv's Account
within two months of receipt of this order.
(i) Ajit Singh Ahuja Vs. Saphire India (p) Limited t(2009) 1 COMP Ll 313 (CLBI (Decided on
14.2.2009):, whereiri, it was held that the Petitioners have rightfully invoked the provisions of
these sections. The directors have breached their fiduciary duty and have acted against the
interest of Respondent Company, trying to dupe each other and trying
to grab maximum
benefits out of the transactions of Respondent Company. Equity Prohibits a trustee from making
any profit by his management, directly or indirectly. It is objectionable to use such power simply
or solely for the benefit of directors or merely for an extraneous purpose like maintenance or
acquisition of control over the affairs of the company. Directors are required to act on behalf of
the company in a fiduciary capacity and their acts and deeds have to be exercised for the
benefit of the company. They have a duty to make full and honest disclosure to the
shareholders regarding an important matter relating to the company.
t
\
T4
fr2
l l,'
\
- ,-^,
'
Vivek Bansal Vs. R.M. Ispat P. Limited [2010]154 COMP CAS 60 (CLB) [decided on
9.fi20091: wherein, the Petition vias parily allowed and it was held that the' onus of proof
til
sending the notice of the meeting was on the sender and the meeting held without notice was
invalid. There was no answer as
to how the board met, and new directors were
appointed
without the Petitioner, the Petitioner being the promoter director and the principal shareholder
and one of the two directors of the company. There was no answer as to how the annual return
.,
was filed on the very next day of the daie of return showing.the Petitianer as having ceased to
be director of the company since nine months ante, without any resignation letter and without
holding any board meeting and there was no record available with the Registrar of Companies
to the contrary.
18.
In view ofthe acts of oppression and mismanagement committed by the respondents in
the affairs of the Respondent Company, it was contended that it will be just and equitable to
wind up the respondent company but the winding up will not be in the interest of the Petitioner'
It
was, therefore, prayed that the Respondents be directed
to
transfer the land situated
adjacent to the factory site of the company and leased to the company to meet the requirement
passed
of Pollution control Board in the name of the company; and such other order may be
under section 402 and other provisions applicable under the companies Act, 1956.
19.
The Respondents' case is that there are no specific pleadings on
the
aspects of the
reliefs sought in the Petition.
20,
Replying
to the Petitioner's allegation it was argued that the nature of
Respondent company is such
business of
that it requires huge investment in plant and machinery, including
and R-3
impoted machinery. At the time of incorporation, in september 2007, Petitioner, R-2
effective capacity
estimated that for the proposed project of manufacturing the Products at an
with
of 9000 TPA the Respondent company shall be requiring funds of Rs. 7,36,00,00'000i-.
for paft financial
this projection, Petitioner, R-2 and R-3 approached the Bank of Baroda fBank)
granted only after a techno
of the project. Bank stated that financial assistance, if any, shall be
appointed slA Technical
economic viability test is conducted on the Respondent company and
said project report, Bank
Consultant private Limited for the said purpose. On the basis of the
sanctioned term loan
of Rs. 450,00,000/- on the basis of undertaking from the directors of
RespondentCompanysha||arrangeforequitysharecapita|ofRs'l.86croresandUnsecured
company were
Laon to the tune of Rs. 1 crore. Accordingly, directors of the Respondent
tzro
lquired to mandatorily
1.86
increase its equity share capital from the initial amount of Rs. 9 Lacs to
iiores. At the time of incorporation it was agreed betwedn'the Petitioner, R-2 and R-3 that
all shall contribute equal and the shareholding amongst them shall be maintained equally,
However, when Respondent Company came out with fufther issue of shares, Petitioner showed
his inability/reluctance
to invest such amount so as to maintain equal shareholding amongst the
promoters. Considering the nature of business of Respondent Company, the urgent necessity
of funds and the undeftaking giverr to Bank, R-2'and R-3 were left with no option but to raise
additional funds by allotting shares to others.
It was contended that each and every allotment
which has taken place in the Respondent Company till date is within the knowledge of Petitioner
and with his due consent and paticipation. Whenever further shares were to be allotted, even
though Petitioner subscribed to lesser number of shares or did not subscribe to any share, all
allotments, whether
to the existing
shareholders
or new shareholders, were with his
due
consent. Funds were raised in the Respondent Company only after due deliberation amongst all
the directors including directors in their meeting. The Petitioner not only showed his reluctance
in contributing to the share capital of the Respondent Company but also refused to contribute
towards the reouisite amount
of Rs.l crore as unsecured creditors. Petitioner also at times
mentioned his intention not to comply with the undertaking given to the Bank and suggested to
Respondent No. 2 and 3 that the term loan from the Bank need not be repaid. Thus, R-2 and
R-3 were left
with no option but to arrange for funds on their own, the funds brought in by the
shareholders as well as term loan from Bank has been invested in the Respondent Company
and each and every rupee has been accounted for. Since the nature of business of Respondent
Company requires huge investments in plant and machinery, nearly Rs. 7.50 Crores have been
invested in fixed assets such'as1and, building, plant and machinery.
21.
It was argued that
best of the interest
of
R-2 and R-3 are managing the affairs of Respondent Company in the
Respondent Company and
its investors. On the contrary, it is the
Petitioner who is hampering the working of Respondent Company by making false allegations
and filing the present petition. Further, even though the Respondent Company
incorporated
was
in September, 2007, despite repeated requests from R-2 and R-3, Petitioner
started Participation in the management of Respondent Company only since April, 2009. After
commencement of commercial production at the factory in May 2009, Respondent Company,
because of the investments, efforts and marketing done by R-2 and R-3, has
stated doing good
business and has obtained orders from buyers such as Nestle India Limited, Hindustan Unilever
\N
Limited, Dabur India Limited, Hindustan Unilever Limited, Dabur India Limited and Fun Foods
^
"Privab Liniited. The future projectionS'cif Responcjent Company for the financial year 2010:--:
2011 are also positive. Considering the growth and future potential and profitability of
Respondent Company, Petitioner now wants to have control over the Respondent Company.
is with this intention that the Petitioner has filed the present Petition before the
It
CLB. The
Petitioner has also tried to tarnish the image and goodwill of Respondent Company by writing
':fir'|'' iir:1 :'r'jr''
letters to its customers and Bank, which has very badly and adversdly.rdffectd$ thd bUsiness of
Respondent Company.
It was informed that the Respondents are in the
appropriate legal recourse against Petitioner
for
process of initiating
causing such irreparable damage to
Respondent Company. By bringing in the present petition under false and frivolous grounds is
trying to hamper the normal functioning of the Respondent Company, which is still at an infancy
stages, the Petitioner has leveled baseless, bare and frivolous allegations of oppression and
mismanagement just to malign the image of the Respondent Company to tarnish the goodwill
.
of the ResponCent Company with the malaflde intent of pressurizing the .R.espondents to meet
his malafide intentions.
22. It was argued by the counsel for the Respondents
that the present petition is not
maintainable. From the Independent Audit Report dated November 26, 2010 of M/s
Kundra & Associates, Chartered Accountants appointed by the CLB,
it is absolutely
Lochan
clear that
the affairs of the Respondent Company are carried out in a fair manner and there is nothing
which indicates any embezzlement of funds though overbilling, financial mismanagement or
which supporb other false cl€ims and allegations of the Petitioner. The Company is in due
,
-
compliance with the provisions and procedural requirements
of
Companies Act, 1956 and
applicable rules and regulations there under ("Act') and any inegularity pointed out in the Audit
Report regarding secretarial compliances are non-mandatory in nature and thus, the company
has not defaulted in complying with provisions of the Act. As regard the financial aspects are
concerned
it was pointed out that the audited
balance sheets
of the relevant years are
in
agreement with the books of accounts and vouchers, observations and comments of the auditor
in the Audit Report are sweeping observations based on assumptions and presumptions and not
supported by any documents or records of the Company' An auditor, being an expert,
supposed
to give definitive
is
findings and should not base its findings on conjectures and
surmises, the observations and comments of the auditor on the financial aspect indicate the
auditor has acted in biased manner and has given observations for the sake of it.
! i!':
)3r\
17
23'
It was argued that the Petitioner failed to establish his case that further allotment was
made to 'rdduced hiiii. It was stated that if thd 'petitionei is willing to maintain his 33olo
shareholding he may do so by bringing the money in the Company as the funds are required to
make the company run and give good returns. It was pointed out that the Respondents were
always willing and are keen to issue shares so as to bring petitioner at parity.
:,;_.-*i*,:i=,.r,31'.,.,..$9counsel fortheRespondentscontendedthatno.caseismadeoU!b'ytfrre,P.eJiticner
in terms of Sections 397 and 398 of the Act. To support their contentions reliance was placed
on the case of N.R. Murty v. Industrial Development Corporation of Orissa, wherein it was
observed that the concept of "public interest" takes the company outside the conventional
sphere of being a concern in which the shareholders alone are interested, it emphasized the
idea of the company functioning for the public Aood. It is difficult to sustain an application
under section 397 on the ground of being prejudicial to public interest as the condition in clause
(b) of subsection (2) cannot be satisfied in such case, as conducting the affairs of a company in
a manner prejudicial to public interest cannot be a just and equitable ground for ordering the
winding up of the company, unless it should be considered illegal or opposed to public poliry.
Further, it was argued that in Elder v. Elder and Watson Limited (1952) Scottish cases, it was
observed that oppression implies a lack of probity and fair dealing in the affairs of the company
to the prejudice of some poftion of its members. However, inefficient management will not
amount to oppression though
it may amount to
mismanagement under section 398. Nor will
oppression not relating to the company's affairs but directed towards a third person come under
this section [Kanika Mukherji v. Rameshwar Dayal Dubey refers]. Oppression may take different
It may be due to a desire to
obtain power and control, or be merely vindictive. [Re, H.R. Harmer Ltd.]. Where no private
Agreement or undectanding among members of a private company as to appointment of
forms and need not necessarily be for obtaining pecuniary benefit.
directors is provable, the fact that the majority shareholders appointed all directors does not
amount to oppression. [V.M. Rao
v.
Rajeshwari].
It
was argued that unwise inefficient or
careless conduct of a director in the performance of his duties cannot give rise to a claim for
relief under Section 397. The Person complaining of oppression must show that he has been
constrained to submit
to conduct which lacks in probity, conduct which is unfair to him
which causes prejudice
shareholder.
to him in the exercise of his legal and proprietary
and
rights as
a
_.
-v
n
18
Y ZS. Further, it was argued that the burden lies on those to prove the fact who allege that ^
' polvers have been exercised in personal interest, oi riot in the interest of the company or witli a view
to
injuring the interest
of the complaining shareholders (M.L. Thukral v.
Krone
Communications Ltd.),
26.
Further, that decisions relating to the operation of company's bank accounts are a part
of the managerial powers of the director's. the mere fact that a director is not being associated
with operation of the company's banking accounts does not constitute oppression
and
mismanagement (Sudha M. Singh v. Eagle P. Ltd.).
27.
The counsel for the Respondenb further argued that an isolated and single act of ouster
from directorship would not entitle the aggrieved person to ask for company's winding up by
way of relief against oppression invoking clause (b) of sub-section (2) of Section 397 as there is
appropriate remedy for it by way of company suit (Bagree Cereals A^. Ltd. v. Hanuman Prasad
Bagri).
28.
Fufther, it was argued that mere illegal, invalid or irregular acts by themselves, unless
they are oppressive to any shareholder or prejudicial to the interests of the company or ro
public interest, cannot support a petition under Section 397. lNeedle Industries case, Sheth
Mohanlal v. Shri
Sayajil. A conduct in breach of company law is not necessarily to be regarded
as causative of unfair prejudice. In such cases an alternative company law remedy should be
considered. [Anderson Vs Hogg (2000) Scotland]. In Suryakant Gupta v. Rajaram Corn Product
(Punjab) Ltd. it was held that allotment to one group to the exclusion of the other group was
held to be justiRed because of the company's need for funds and the assurance given to the
Tribunal that the original shareholding percentage to the petitioner group in the company would
be restored. The remedy under section-397 is an alternative to winding up. The interests of the
company are paramount in moulding the relief. Where each side is equally strong, and one is
unable to oppress the other, there may be a deadlock but not oppression.
winding
up,
It
is not case for
Burden lies on the Petitioner to prove his allegations. Where the allegations were
not substantiated with cogent evidence, nor a case of winding-up was made out, which is a
prerequisite for relief, the petition was dismissed.
was argued that good faith and conduct of Petitioner are other impoftant
considerations. The right to Petition is a product of equity and, therefore, there must not be
29. It
t9
/-tvy
iuch conduct as would disqualify the plaintiff from proceeding against the company. For
instance, if he participates in the wrong complained of by hiin, hb woLld be disqualified from
applying for relief.
relevant factor
It
is a settled proposition of law that the conduct of the partres rs a very
to be considered in the equitable
proceedings under section 3971398.
It
was
held that Petitioner seeking equitable relief must come with clean hand and good conduct,
'
'{
failing which the petition would constitute a gross abuse of the process of cou4 and the
Petitiorieii i3 not entitled for any relief under section 3g7l3g1. But as the Responderits bre
willing to allot further shares to the Petitioner or buy her shareholding, thus it was directed to
to
respondents
purchase the shareholding of the Petitioner after getting a fair valuation of it
snares.
30. It
was argued that when
a
party is charged with acts
of
mismanagement,
misappropriation or improper conduct, full particulars of the acts complained of must be set out
in the pleading and unless so set out, such charge should be ignored and no reliance should be
placed on them. Applying this legal requirement to petitions under sections 397-398 in Clive
Mills Company Ltd., Re, the Cout said
- It is not only in the case of fraud, but in case of all
other allegations relating to mismanagement, misappropriation or other improper conduct with
which a party is charged in applications under sections 3997 and 398 of the Act, full particulars
must be set out in order to enable the paty charged to understand what he is charged with,
and also
to
enable him
consistent with
to
answer such charges.
the companyt
It
was argued that bonafide decisions
memorandum and articles are not
to be equated with
if they turn out to be wrong in the circumstances or they cause
losses. Allegations of financial excesses and irregularities which were not
mismanagement even
temporary
substantiated by evidence were not regarded as sufficient either for an order of investigation or
for relief against mismanagement [Picksonic Electronics P. Ltd. v. Indra Singh (1998)].
31.
Further, it was argued that a bonafide shifting of the registered office of a company,
causing no loss to the company, has been held to be as not amounting to mismanagement.-Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri (2001).
32.
Further, the Respondents relied upon the case of Farhat Sheikh Vs. Esemen Metalo
Chemicals pvt. And others and Detinners
pvt Ltd and Ors.(1996 (87) CC 290) wherein the
Petition was filed under section 397,398 of the companies act, 1956 by the Petitioners alleging
that no annual return or balance sheet or meeting were held, that no notice of the meeting and
'
'
{zo
-f
'r
i.f
abo Respondents misappropriating valuable property belonging to the company. The main
allegation.was. tc.issue of additional shares without any justtfication when the business has
been lying closed for long time, and
management
it
was held regarding the raising of finance by the
that it would be wrong for the court to question the correctness of
the
managementt decision if bona fide arrived at.
33.
The counsel for the Respondents drew my attention to the case of Prem Seth & Ors. vs.
National Corporation Ltd & Ors. (AIR 1994 Del 2285) wherein the Petitioners had contended
that Respondents issued fresh right shares in violation of the act without any genuine need for
raising any capital for which necessity could arise for issuing of the fresh right shares, it was
argued that these issues of shares were to dilute the holding of the Petitioner's shares in the
company. It was held that the Petitioners have relied upon the Nanalala Zaver's case in which
it was held that it is a well settled law that in exercising power whether general or
'
special, the
directors must always bear in mind that they hold a flduciary position and must exercise their
powers for the berrefits of the compairy arrd for tnat alone and that ccuil cdn intervene to
prevent the abuse of a power whenever such abuse is proved, but
it is equally
settled that
directors have a discretion and are bona fide acting in the in the exercise and court could not
intervene with them. When the directors decide to increase the capital of the company then the
directors have the discretion to say
to what limit and to what extent they will
increase the
capital and it is also for them to decide how many shares and of what value they will issue. The
Hon'ble Court did not accept the bald contention of the Petitioners that for raising the funds for
the working capital no company had any legal right to raise such funds by issuance of shares
and funds or working capital must be raised by raising loans from the banks.
34.
It
was argued that in the case of Mohta Bros (P) Ltd vs Calcutta Landing & Shipping
(1970 (40) CC 119)
application
of
it
was held that full padiculars must be given by
alleged acts
of
oppression
or
allegations of oppression or mismanagement
a
Petitioner in an
the vague and unceftain
do not entitle a Petitioner to ask the Couft to
mismanagement,
embark upon an investigation into the affairs of a company in the hope that in consequence of
such investigation, something will turn up which will enable the court to grant relief to the
Petitioner. A few specific act of the other party cannot be held as an act of oppression and
mismanagement. Negligence and inefficiency, even assuming such are proved, do not amount
to mismanagement or oppression as contemplated by the act. it was held in the judgment of
.-,.: -1.',
'
27
the
lzut,CI
Supreme Court in Shanti Prsad Jan vs Kalinga Tubes that whether conduct of the majority
was oppressive to the minority nrust depend upon facts proved and also that for the purpose of
providing oppression it must be shown that events happened not in isolation but as part of a
policy and that there were continuous act on the part of the majority showing that the affairs of
the company were being conducted in a manner oppressive to some part of the members. Such
oppression must involve an element of lack of probity or fair dealing and that mere loss of
confidence betv,'eef groups of shareholders was nor enough. Respondent subrnitted that
the
court dealing with the application should confine itself to the allegations in the petition and nor
embark upon a rambling enquiry into indefinite charges of mismanagement and oppression.
Hus it was held that this question is well settled namely that in the petition Uls 397,398 of the
act the court must confine itself to the case as made out in the petition and to the allegation in
the petition itself and suppoting affidavits, if any and not look at other evidence with regard to
events that might have happened subsequent to the petition. Full paticulars must be given by
Petitioners in an application under 397, 398 cf the act on the oppression and mismanagement,
Vague and uncedain allegation of mismanagement and oppression did not entitle petitioners to
ask curt to embark upon investigation.
35.
Relying upon the case
of
P.S. Offshore Land Service
Supplies and Service Ltd. (1992 (75) CC 583)
hn
Ltd Vs. Bombay OfiFshore
it was argued that in a petition under
Sections
397, 398 all material must be set out in the petition itself and allegation of fraud, coercion, mala
fide in any must be suppofted by particulars. Further, relying on the case of M.M. Dua and
others Vs. Indian Dairy and Allied Services Alt. Ltd. And others (1996) 86 CC 657 it was argued
that the Petitioner must set out full particulars of allegations of oppression or mismanagement
to claim relief under Sections 397 /398. It was submitted that mere non-compliance with
.the
to acts of oppression
and
provislons of the Statute and unintended violations cannot amount
mismanagement. Further, relying on the case of Chander Krishan Gupta Vs. Pannalal Girdhari
l-al
h^
Ltd, and others (1984) 55 CC 702 that there must have been continuous acts on the
part of the majority shareholders oppressive to the minority to grant any relief under Section
397 and mere isolated acts and stray illegal acts could not amount to oppression.
36.
I
have considered the rival submissions and the case law cited by the parties. There is
no dispute with the proposition of law laid down in the case law cited, but each case turns on
its own facts. In the facB and circumstances of this case
I find that the respondents
have
.
4zz
un
Y
,u,,.0 to controverl ihe petitioner's contentions. The petitioner's prayers have to be allowed for
the followino reasdns:-''
(i)
It is noted that the act of reduction of the petitioner's
L3,57o/o
shareholding from 33.330/o to
by R-2 and R-3 who created a new majority of their group in this case is
harsh,
wrongful and burdensome, lacks in probity and is oppressive to the petitioner because (a)
without the knowledge and consent an equal 1/3'd share holder has been reduced to minority at
his back (b) the respondents have failed to prove calling of the Board Meeting and general body
meeting by issuing proper notice for increasing the issued, subscribed and paid up capital from
Rs.
9 lakh to Rs. 15103 lakhs and allot shares to three more shareholders related to the other
two 1/3d shareholders, no notice or attendance record of the meetings has been produced, (c)
the increase and allotment of shares has been without proving any proper purpose
and
requirement of the R-1 company (d) allotment has been made in contravention of Sections
286, 292 and Aticles of Association of the R-1 Company (e) in accordance with the Articles
'4,5,6,18
and 45 of the Articles of Association, tire power to ailot further shares vesls with thb
shareholders of the R-1 Company, the Directors have no power to allot fufther shares (f) the
funds of the R-1 Company have been circulated by R-2 and R-3 from one account to another
rand ultimately used for making these allotments.
(ii)
The petitioner's allegations of siphoning off of R-1's funds, manipulation of records stand
confirmed by the investigative Audit Repoft ordered in this case, there is no answer to the
findings that (a) there is overbilling in the structural value of the building by Rs. 26 lakhs (b)
investment
of
interest free sum
of Rs. 8.97 lakhs by an
employee, who has denied the
investment, stands unproved (c) the tomato pasr-e machinery purchased from Italy is a second
hand machinery but cost of a new machinery of Rs. 3.20 crores has been shown in the account
books (d) locally assembled boilers were purchased but cost for 6 TPH capacity Boilers
was
shown in the books (e) billing for SS Storage tanks instead of being Rs. 8.38 is shown as Rs.
16.76 lakhs (f) there is no answer to the purchase of a second hand machinery from
Food Processing
h/t. Ltd. (g) there
SSRB
is no clarification given by the Respondents as to why huge
withdrawals of amounts from banks were made inspite of huge cash is hand being available in
the books.
(iii)
In this case I notice that the
respondents have breached their fiduciary duties as
directors. On the role of directors, the law is well settled. In some respects, directors resemble
23
lzvo
,to
-trrstues,
Equity prohibits a trustee from making any profit by his management, direcfly or
indirectly. The power to issue shares in this case hbs been exercised with an-improper motive.
It
is objectionable to use such power simply or solely for the benefit of directors or merely for
an extraneous purpose like maintenance or acquisition of control over the affairs of the
'-
company. Directors are required to act on behalf of a company in a fiduciary capacity and their
acts and deeds have to be exercised for the benefit of the company. The fiduciary capacity
within which directors'iravc to act dnjoins upon them a duty to act on behalf bf a company with
utmost good faith, utmost care and skill and due diligence and in the interest of the company
they represent, They have a duty to make full and honest disclosure to the shareholders
regarding all important matters relating to the company. The respondents have Deen
oppressive to the petitioner by diluting his shareholding by way of further share allotment and
not allowing him access to the affairs of the R-l company, these are acts of continuous
oppression to the petitioner. The respondents' conduct has been burdensome, harsh and
wrongful. Besides, th,: affairs cf thc cc,-npany hav; bcr:n mismanaged and R-1 Company,s
funds siphoned off and misappropriated.
37.
In view of the foregoing, in the facts and circumstances of this case, in the interest of
the company which is paramount, and to do substantial justice between the three equal groups,
for smooth running of the company, it is hereby ordered that
I.
-
Cancelling the illegal allotment
of additional shares, and cancelling all statutory
filings with the ROC in this regard, equal shareholding of 1/3d shares each as it
stood prior to the dilution of the shareholding of the petitioner is hereby restored.
II.
III.
The petitioner shall have equal representation on the Board of the R-1 Company.
The petitioner shall also be one of the authorized siqnatories to the Bank Accounts of
the R-l Companv.
W.
The Respondents are hereby directed to take steps to shift the Registered Office
either to the initial Registered office of the Company or to a place agreeable to all
the three groups.
V.
The R-2 and R-3 are hereby required to bring back the siphoned olf amounts,
already ascerfained by the Auditors, to the Bank Accounts of the
within three weeks of receiot of this order.
R-l
as
Company
,-ii
tf
24
u.
r rr li:ri:'i"\r.
The Respondents must ensure srat the petitioner is enabled to participate in
he I
afiairs of the Cdifiifrhy anii"i3 allowed access to the accounts and 6$er'd66iii'nents
of the R-l Company.
38.
C.P. No. 63(ND)/2010 is disposed off in the above
terms. All
CAs also stand
disposed off with this order. All interim orders stand vacated. No order as to cost.
S,ll( VIMLA YADAV )
Place : New Delhi
Dated : 1801 April, 2012
MEMBER
sqrFrc stq
cRfrF
CERTIFIED TRUE COPY
Af6q fAF,,VI(R^M $lN(;,r
stlt:::::;.:;
r
rd_ma,r{,/ 3ort
tg t*fis,/
lre,"
r,f
,rrra
rbrr