9911796707
TMI Blog2004 (1) TMI 381X X X X Extracts X X X X X X X X Extracts X X X X ..... d by late Sivaramkrishna Iyer. Petitioners 1 to 5 and second respondent are children of Sivaramkrishna Iyer. 7th petitioner is the wife of the second petitioner and other petitioners are grand-children. Respondents 3 and 4 were the directors of the first appellant company. The Kantimathy Company was formed in 1968 and all the shares of the said company were acquired by Sivaramkrishna Iyer. During the life-time of Sivaramkrishna Iyer, second appellant (second respondent) was managing the first appellant-company. Ramakrishna Sharma, another son, and five sisters were manag- ing one Travancore Rubber and Tea Company Limited owned by Sivar- amkrishna Iyer. 5th respondent company was managed by second peti- tioner. Sixth and seventh respondent companies were managed by first petitioner and they were all designated as General Managers. On 14 October, 1985, director Board of Kanthimathy Company decided to sell the shares held by it in Peermade Tea Company Ltd. (5th respondent). On 24 May, 1988, 20,000 shares were sold to Peninsular Plantations Ltd. (7th respondent). On 19 May, 1990, petitioners 3 to 5 resigned from the director Board of the Kantimathy Company. On 14 February, 1998, wife o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... convene a general body meeting of the company on 27-6-2001 at the registered office of the company at 11.00 a.m. to elect five directors for which nominations will be filed before the starting of the meeting. Shri A.M. Sridharan, Bench Officer, CLB, will preside over the meeting; all arrangements for his travel and lodging will be made by the company. Once the new Board is constituted the old Board will cease to function." 2.1 Second appellant was not elected in the general body meeting held as per consent of the directions of the Company Law Board. Petitioners 1 to 5 were elected as Board members. The report of the observer appointed by the Company Law Board to chair the meeting shows that votes polled for five directors (petitioners 1 to 5) were 67,610, whereas votes polled by second appellant (second respondent) was 52,670. The Company Law Board passed by the following order on 6-7-2001. "Heard counsel for the petitioners as well as respondents. It is observed that in terms of the consent order, dated 7-6-2001, the company convened a general body meeting on 27-6-2001, wherein the petitioners 1 to 5 were elected as directors of the company. In the light of the consent order, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6) and 3,300 equity shares of M/s. The Peninsular Plantations Ltd. (respondent No. 7) held by the Kantimathy Company in favour of the second respondent. We agree with the view of the Company Law Board that in view of the holding of shareholders meeting as per the consent and election of five directors after their election, it cannot be contended by the second appellant now that he continues to be the managing director. The old Board ceased to exist when the new Board was elected in the general body meeting covened for the election of directors itself and second appellant was not elected, and he was only inducted into the Board as per the advice and as per the consent as can be seen from the order of the Board dated 7-6-2001 and 17-8-2001. 4. The only contested question is regarding the allegations with respect to transfer of shares. The Company Law Board found as follows : "Therefore, the consideration paid by the second respondent for the shares does not appear to represent the true value of the impugned shares. Admittedly, the company has enormous bank deposits. The respondents have not established any necessity for sale of the shares. There is also no record to show that any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . According to the petitioners, there was no necessity to sell the shares of these companies by Kanthimathy, because Kanthimathy was running on profit. But, the accounts show that income from the estate operations was not sufficient to pay the dividend. According to the second respondent, major income of the company was from interest on fixed deposit; and the company was not earning any dividend from these three companies. If the shares are sold, the money also can be invested in a profitable manner. It is an admitted fact that all the three companies (respondent Nos. 5 to 7) were not paying any dividend for the last five years and as decided by the Board on 28-6-2000 when Sivaramkrishna Iyer was alive, the Board meeting decided to sell the shares in Peermade Tea Company and Breamnore to the second respondent for the following reasons. We extract the above minutes of the above Board meeting here. "Tabled the files relating to the purchase and sales. The same was perused and the transaction approved. The Chairman referred to the minutes of the Board meeting held on 30 August, 1999, authorising the sale of shares held in the capital of the following companies : 1.The Breamnore Esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y authorised to arrange for the sale of the said shares and do all that is necessary in furtherance of the above resolution including signing of the transfer deed on behalf of the company under the common seal of the company." 5.1 Reasons are stated in the Board resolutions which show that the shares were sold with good intention on business consideration by unanimous decision of the then existing Board, and when second respondent (second appellant) was not a member of the Board. Further, before finding the value of shares, accounts of the three companies have to be perused. A perusal of the accounts and evidence show that Peermade Tea Company was running on a heavy loss and net assets are minus. But the particulars relied on the valuation report made by PKR and Company, Chartered Accountants, according to which valuation of each share of the fifth respondent company is Rs. 755.44 and sixth respondent is Rs. 643.84. A perusal of that report would show that PKR and Co. valued the land and no scientific assessment was given and the worth of the company was taken into account by the land valuation. According to appellant, net asset value per share of the fifth respondent company as o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30-8-1999. Second respondent was not a member of the Board at that time. How shares of a limited company can be valued was also not considered and finding regarding under-valuation of these shares without considering the balance sheet and profit and loss account of the three companies, is clearly illegal and it is a mixed question of law and fact. But, no relevant materials were considered by the Company Law Board for coming to the opinion that there is gross under-valuation of shares. The Company Law Board also did not consider the fact that the decision to sell the shares was taken at a time when the second appellant was not a member of the Board. No dividend was received by the company from the above fifth, sixth and seventh respondent companies. What is the operating profit of Kanthima- thy, the nature of profit earned by it from those companies, etc., also have to be considered while setting aside the decision of the director Board to sell the shares of the company, especially, when the decision to sell the shares was taken before second respondent was inducted as a director. The decision of the director Board to sell the shares on business consid- eration cannot be interfered ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
