TMI Blog1999 (12) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents herein as petitioners before the CLB. 4. The averments made by the petitioners were replied by the respondents by filing a detailed reply and denying the various allegations. It is seen from the proceedings of the CLB that on behalf of the appellants herein, an objection was also raised to the maintainability of the petition on the ground that already a complaint has been registered, alleging certain irregularities and therefore, a parallel proceeding cannot be permitted under law. It was also put forward by the appellants that the respondents herein have also moved the civil court, viz., the Subordinate Judge, Coimbatore. Therefore, as there is already a complaint, alleging certain irregularities, which is pending investigation, and as on identical grounds, the respondents have also filed a suit before the sub court, the present application is not maintainable in law. 5. The CLB held that it was appropriate that the management of the company should be entrusted for some time to an independent person so that the inter disputes between the promoters do not affect the business of the company any further and therefore, the Board appointed one Aghoramurthy, form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred over the interests of any one else irrespective of the position occupied by him. It further held that prejudice to company s interest to be shown only under section 398. While referring to the demand by minority shareholders for additional shares and the refusal of such request, the Court observed that it is not a case of oppression and that the refusal by the managing director of a company to allow publication of certain news items will not affect public interest. 9. In Nurcombe v. Nurcombe [1984] (3) CLJ 163 (CA), it was held that a minority shareholder s action in form, is nothing more than a procedural device for enabling the Court to do justice to a company controlled by miscreant directors or shareholders. Since the procedural device was evolved so that justice can be done for the benefit of the company. Whoever comes forward to start the proceedings, must be doing so far the benefit of the company, and not for some other purpose. It follows that the Court has to satisfy itself that the person coming forward is a proper person to do so. The Court is entitled to look at the conduct of the plaintiff in a minority shareholder s action to satisfy itself that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. If it is a lawful exercise of power by the majority, the minority shareholder is bound by the same. 13. Now, in the background of the pronouncements of law as reported in the decisions referred to above, it would be appropriate to deal with the case of the parties on hand. The main grounds on which the petition was filed are: Irregularity in the allotment of shares to the petitioners; siphoning off funds of the company in the form of alleged loans; irregular removal of petitioners-Directors from the Board; invalidity in the appointment of the managing director. The last accusation is that there is a defalcation. 14. The Commissioner has actually noted excess stock as regards gold ornaments. It is not in dispute that K.R.S. Mani, who is the 1st respondent herein, lodged a complaint on 22-9-1996, which was registered in Cr. No. 28 of 1996 in City Crime Branch, under section 477 of Indian Penal Code, 1860. The complaint against K.R. Loganathan and his two sons is regarding misappropriation of Rs. 3 crores. It appears that after consulting the legal advisor to the Commissioner of Police and after satisfying that a prima facie case under sections 406 and 477A of the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions were not properly proposed or seconded. There was no proper poll taken and the procedure required under law was not followed, and, thus, the Resolutions are invalid in law. 17. It is to be pointed out that the respondents herein has filed this petition before the Board on identical grounds. It is also to be pointed out that there was yet another suit filed with reference to the affairs of the company. Thus, we find that there were proceedings already initiated and pending with reference to the dispute between the parties vis-a-vis , the company of which they were directors and shareholders. A complaint was laid which was registered under sections 406 and 477A. Apparently, the investigation on the said complaint is pending. There was also the suit filed with reference to the Resolution dated 4-9-1996. There was other proceeding by way of another suit between the parties with reference to the affairs of the company. When proceedings have been already initiated, it is really ununderstandable as to why petition was filed before the CLB. It may be that after the initiation of this proceeding, the plaintiffs in the suit might have withdrawn the suit. But that will not erase t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have demonstrated that they are not entitled to maintain an action. 20. With regard to the allegations of discrepancy, in the stock, the Commissioner s report reads as follows : "Physical verification of the jewels jointly conducted by both parties in my presence tallied with the stock statement with negligible difference. No other stock of raw-gold, silver, precious stones etc. was reported in the Coimbatore show room. No stock of any kind was also reported in company s factory at Coimbatore which is housed behind the show-room in the same building. A quantity of 575.490 grams of gold was reported to be with the following artisans as on 16-11-1998 as work-in- progress for making jewels. I called upon Hari Loganathan; Director of the Company to arrange for production of the above quantities of gold for my verification on 18-11-1998 at Coimbatore. The artisans at Sl. Nos. 1 and 2 above turned up. The gold stock brought by the artisan at S. No. 2, above, Nandu was verified jointly by Hari Loganathan and KRS. Anand Kumar in my presence with reference to the carbon copy of the relevant issue voucher. Finally, in view of the extreme positions taken by the parties, the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1996 signed on behalf of A.M. Consultancy, acknowledging the principal sum of Rs. 48.68 lakhs and the accumulated interest of Rs. 7.58 lakhs. The Commissioner called upon the debtor A.M. Consultancy to state the purpose for which the amount in question was borrowed. A reply was sent, stating that the amount was received for the purpose of subscribing the shares of Anugraha Jewellers from the public issue as well as from the market, and they have purchased the shares and requested Anugraha Jewellers to take delivery. In spite of reminders, they have not taken delivery and therefore, they don t have to pay any amount to them. It is to be pointed out that the payment was made by way of two cheques, signed not only by Hari Loganathan, but also by one of the respondents, viz., KRS Anand Kumar. Therefore, it is not open to the respondents to state that they did not know anything about the transaction and that it was done without their knowledge or consent or without their authority. Thus, they are parties to the transactions. To disown any knowledge will be, but futile. The accounts show that interest has been provided upto 31-3-1996. Thus, a sum of Rs. 96.32 lakhs was received back, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 3 lakhs and he has a valid claim for issue of shares for the remaining amount of Rs. 5 lakhs. Such a case has not been even projected by the parties concerned. Thus, we find that there is absolutely no warrant in the peculiar circumstances for the CLB to have intervened at all. The observations of the Commissioner that KRS. Suresh has been issued shares only to the interest of Rs. 3 lakhs and that he has a valid claim for the remaining 5 lakhs is obviously wrong. It is not even an allegation of the petitioners. 25. Even assuming that there is a dispute with regard to issue of shares, the CLB has no authority. Nor, on that ground, it can supersede the Board. There are sufficient provisions in the Company Act, 1956 to take care of it and resolve it. In this connection, it will be fruitful to refer to section 111, sub-sections (4), (5), (6) and (7) and section 113 of the Company Act. With regard to non-issue of shares, the allegations are denied and the Commissioner has himself stated as follows : "No doubt that the statement also mentions return of the said amount to KRS. Suresh by Hari Loganathan on the next day." Therefore, it is not clear how and on what ground, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s aware of the fact that it was treading on slippery ground. For, the CLB has observed that though the petitioners claim that they were not aware of the diversion of the funds, yet, they cannot absolve themselves as the third petitioner has been a signatory to some of the cheques issued in connection with the loans and advances. Again, it has observed that the CLB is of the view that the petitioners are not justified in making this as an issue as the Board find that the one circulated to the Board had been discussed and the Board approved results had been published. The Company Law Board has again pointed out that a decision of the Board in general body in a democratic manner may not be subject to judicial scrutiny. Yet, it did so. It is not known how it can say after all that the AGM was not properly held, yet, how, without any basis, it can say that there is any act of oppression ? 29 . The CLB has, thus, not agreed with the petitioners on main issues. It also concedes that it will not be proper to interfere with the democratic functioning of the company. Yet it in a superficial manner and though conscious of its limitation, has chosen to order this petition. It cannot be conc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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