TMI Blog2007 (1) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of respondents 3 to 4 as Directors since the same not only altered the structure of the Board but was intended to exclude the appellants from representation in the Board? ( 6 )Whether the Company Law Board erred in failing to note that the respondents were guilty of various acts of oppression and mismanagement? ( 7 )Whether the mere fact of appellants having minority shareholding in the company would justify their not being granted appropriate relief? ( 8 )Whether in the circumstances of the case the Company Law Board was justified in directing the appellants to sell their shares to the respondents?" 2. The petitioners before the Company Law Board are the appellants herein. The appellants filed a petition under sections 397, 398, 402 and 403 of the Companies Act for relief alleging acts of oppression and mismanagement committed by the second respondent A. Arumugam. The petitioners herein are the members of the first respondent-company by name Venture Graphics Private Limited, Chennai, holding 7,500 equity shares of Rs. 10 each aggregating to Rs. 75,000. There are totally 12 shareholders. It is stated that the appellants have more than one tenth of the total number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t called upon the second respondent to convene a General Body Meeting in its letter dated 2-2-2002 and called upon him to be transparent in the company s transactions. There was no reply. A notice dated 8-3-2002 was sent purporting to convene an extraordinary General Body Meeting on 5-4-2002 for the purpose of appointing two persons as Directors, viz., the third respondent, Shobana and the fourth respondent, P. Kumaravel for a period of 5 years from the end of the meeting. It is stated that the third and fourth respondents are the wife and the brother-in-law of the second respondent. The first petitioner sent a reply on 18-3-2002 stating that convening of the Annual General Meeting was illegal and there was no Board meeting convened for taking a decision to hold an extraordinary General Meeting. A reply was sent on 28-3-2002 by the second respondent defending holding of extraordinary General Meeting. It is stated that in spite of the objection taken, the meeting was held as proposed. The first petitioner attended and recorded his objections to the procedure followed including the election of third and fourth respondents as Additional Directors. The first appellant further states ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Company, discharge the second respondent in terms of section 406 of the Companies Act read with Schedule XI by directing the carrying out of an investigation in relation to the affairs of the first respondent-company. 4. The first and second respondents filed their counter to the allegations. The second respondent admitted that the first petitioner was a Director of the company as per the meeting held on 13-11-1989. He was appointed for a period of four years during the meeting held on 28-12-1991. Again in the meeting held on 29-9-1995 for a period of three years and thereafter again on 17-8-1998 for a period of further three years. The first petitioner was holding the position as a whole-ime Director till November 2001. All the statutory compliances including finalisation of the balance sheet and profit and loss accounts for the year ending 31-3-2001 were carried out by the first petitioner only. The respondents denied the allegations that there was no meeting held for the past three years. He stated that AGM was held on 15-9-1999, 14-11-2000, and 27-11-2001 and all these meetings were chaired by that first petitioner. The last of the meeting was held on 27-11-2001 to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s active participation in the affairs of the company. Venture Infosys was a proprietary concern involved in software development and services and registered with software Technology Parks of India. Both the companies had nothing to do with the first respondent-company. 7. He denied the allegation as regards the siphoning off the funds of the company by the second respondent as totally misleading. The drawals referred to by the petitioners related to the amount repaid to the financiers in June 2001 which was borrowed with interest at 5 per cent monthly equal instalments. They were all credited to the company s accounts and repayment done through the account. The copy of the statement of account was also enclosed to the counter affidavit. 8. He further stated that the allegations as regards two entries really related to the financial year 2000-01, the books of account for this financial year had already been finalized and approved by the Board of Directors in the meeting chaired by the first petitioner. 9. As to the allegations of the transfer of staff to Venture Infosys, the respondents submitted that due to World Trade Centre disaster in New York, the company faced dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meeting held from 13-11-1989 to 27-6-2002, in all totalling 54 Board meetings. For the meetings held in November 1996, December 1998, March 1999, May 1999, November 1999, May 2000, January 2000 and December 2000, February 2001, June 2001, and August 2001, the date of the meeting had not been indicated. None of the minutes was signed by the Chairman. Minutes were recorded in Bill notebook. As regards the minutes of the General Meetings, it is stated that none of the minutes was signed by the Chairman. He has filed a report pertaining to the cash book, bank book and paid cash book maintained as well as General Ledger. An affidavit was also filed by the first petitioner stating that the second respondent has passed annual account for the year ending 31-3-2001. He stated that on perusal of its original dated 31-3-2001, his signature was found to have been forged and fabricated. He also alleged that the second respondent had scanned the signature from the available document and reproduced as if they were signed by the first petitioner. He reiterated the stand that there was no Board Meeting held on 21-10-2001 on which date the said annual accounts were placed before the Board. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain shareholders on 5-4-2002. The respondents 3 and 4 were appointed as Directors for a period of 5 years as per the wishes of the majority shareholders. 20. As to the contention based on section 193 non-compliance, the Company Law Board stated that the respondents had produced the book on the original minutes of the meeting. None of the pages was initialled or signed nor signed by the Chairman of the Board meeting. Consequently, the requirements of section 193 were not complied with to draw the presumption under section 195 of the Act. The Company Law Board recorded that there was no record other than the disputed minutes to show that the extraordinary general meeting was held on 5-4-2002. There was also no record to show that the Board meeting was conducted on 8-3-2002. For the purpose of convening the extraordinary general meeting on 5-4-2002, except the contention as regards the meeting, there was absolutely no evidence. In view of the inconsistencies in these records, the Company Law Board held that the resolutions appointing the third and fourth respondents as Directors were found to be in contravention of the provisions of the Act. At the same breadth, the Company law B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the withdrawals related to the financial years 2001-02 and 2002-03 to which the first petitioner was not a party. The Company Law Board noted that the petitioners had not furnished details regarding diversion to the other concerns by the second respondent. So too, the diversion of fund process. In the circumstances, the Company Law Board appointed Mr. S. Vankataraman of M/s. V. Sankar Aiyar Co., Chartered Accountants, to scrutinize all receipts and payments on account of the company for the period between 1-4-2001 and 31-3-2003 and found out whether the money had been misappropriated by the second respondent, if so, the same should be reimbursed with interest at 10 per cent by the second respondent in favour of the company within 15 days from the date of receipt of the report. 25. The Company Law Board also noted that in view of the irreconcilable differences, minority shareholders shall sell their shares in favour of the respondents at a value to be determined by the said Chartered Accountant as on 31-3-2003. The Company Law Board also directed the parties to make their submission before the valuer. The valuation done shall be binding on both the parties. Within a period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not oppression. He placed reliance on sections 193, 194 and 195 of the Companies Act to impress on the fact that presumption as to the validity of the meeting is raised under section 192 of the Companies Act that when there is no compliance of section 193 of the Companies Act, there could not be a presumption as to the validity of the meeting. He pointed out the fact that the meeting held on 14-10-2000 and 14-11-2001 carried no signature. Even, in the meeting on 5-4-2002, there was no reference as to the third respondent working as a Director. In the face of the admitted facts that the records were not signed, the appointment itself could not supported either on fact or on law. Consequently, there is no validity as regards the appointment of the third and fourth respondents. He also stated that in the face of the cash withdrawals, the Company Law Board ought to have upheld the contention on the plea of mismanagement. Countering the plea of Mr. V. Ramakrishnan, learned counsel for the respondents, on the preliminary objection as regards the maintainability of the petition under section 397 of the Companies Act, he pointed to the finding of the order of the Company Law Board as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the decision in Kaliammal v. Karuppan 2001 MLJ 22. He stated that admittedly, the respondents are in majority and the act of majority per se does not become an oppressive act. The allegations that the records were not signed or countersigned, as a plea of defence, in any event, would not be available to the appellants. The fact is that the first appellant was the Director right from the day one as seen from the report of the Court Officer. It showed that even the earlier meetings were not stated to contain the signature. As such, it cannot be contended that the absence of the signature stood as a proof favouring the appellant s stand. He referred to the minutes of the 5th Annual General Meeting held on 29-9-1995, which was found at page 30. Again at pages 32, and 55 which were all chaired by the first appellant herein to show that the appointment of the Govindarajan itself was for a period of three years until the conclusion of 8th Annual General Body Meeting and even thereaftarwards in the succeeding meeting extending the term of the first petitioner. Therefore, having enjoyed his position there, it is not now open to the said Govindarajan to come before this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Chairman. The presumption arises under section 192 of the Companies Act as regards the conduct of the meetings as in accordance with law. As far as this case is concerned, the first appellant was appointed as an Additional Director as early as 1989. In the minutes of the meeting held on 13-11-1989, the resignation of the third respondent is recorded and appointment of the Govindarajan, the appellant herein along with yet another person appointed as Additional Director of the company is also recorded. The resignation of the third respondent Shobana was duly informed in Form 32. The photocopy of the minutes of the meeting carries no signature from the Chairman. The photocopy of the meeting dated 28-11-1991 reappointing the first appellant as a whole-time Director for a period of four years is also seen. The meeting was chaired by Govindarajan, the first appellant. Here too there is no signature. The copy of the minutes of the 5th Annual General Meeting dated 29-9-1995 evidences reappointment of first appellant for three years until conclusion of the 8th Annual General Meeting. The meeting itself was conducted under the chairmanship of Govindarajan. Admittedly, it does not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minutes of the Annual General Meeting were not read. The meeting evidenced appointment of the third respondent as a Director, apart from the fourth respondent for a period of five years. It recorded the dissent voice of the first appellant. After noting the objection, the meeting was passed through. In the face of the overwhelming majority attending and voting on the appointments, the contention of the appellants placing reliance on section 193 of the Companies Act for a presumption as well as on the effect of the earlier meeting passing the accounts needs to be considered. 33. Section 193 of the Companies Act requires that every company shall cause minutes of all the proceedings of every general meeting and of all proceedings of every meeting of its Board of Directors or of every Committee of the Board entered entries thereof in the books kept for that purpose with their pages consecutively numbered. It also requires each page of every such book shall be initialled or signed and the last page of the record of the proceedings of each meeting in such books shall be dated and signed by the Chairman of the said meeting or the chairman of the next succeeding meeting. The section al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointment of third and fourth respondents as Directors under the extraordinary general meeting, was convened at the request of the majority of the shareholders. If democratic governance in a corporate entity is to have some relevance, one cannot easily throw away the wishes of the majority calling for an extraordinary general body meeting. In the circumstances, the contention of the first appellant as regards the reliability on the documents as to the conduct of the meetings has to fail, he having not proved in any other manner about the convening of the extraordinary general body meeting. 35. The learned counsel for the appellant pointed out to the contradiction in the reasoning of the Company Law Board as regards the validity of the meeting dated 27-11-2001 as well as to the reference to the minutes book, not being initialled or signed and, hence, the presumption could not be drawn. The finding of the Company Law Board needs to be understood in the context of the conduct of the person who chaired the meeting. As already stated, having passed through these meetings, it is not now open to the first appellant herein to question the very records or the meetings. If the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet for the year ended 31-3-2001. I am, therefore, of the opinion that there is prime facie evidence to show that the balance sheet for the year ended 31-3-2001 contains the signatures of the first petitioner and not his scanned signatures." 37. In the light of these findings of fact, which could not be dislodged as perverse or unreasonable, I do not find any reason to dislodge the same. 38. The respondents are justified in placing reliance on the fact that the meeting of Board of Directors was chaired by the first appellant on 27-10-2001 to approve the balance sheet and profit and loss account for the financial year 2000-01 and fixed up the date for the next Annual General Meeting. In the face of this fact, apart from the finding recorded therein, I do not have any hesitation in confirming this finding. 39. The learned counsel appearing for the respondent submitted that the appellants had not let in any evidence nor pleading available as regards the alleged oppression and mismanagement so as to draw an inference under sections 397 and 398 of the Companies Act. Touching on the scope of section 397 of the Act, the learned counsel submitted that unless and until the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t what is considered objectionable is the use of such powers merely for an extraneous purpose like the maintenance or acquisition of control over the affairs of the company. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough..." The Apex Court further cautioned that the Court should not interfere with the exercise by the majority of its constitutional rights or embark upon an enquiry into the respective merits of the views held or policies favoured by the majority and the minority. In short, this is the ultimate threat which needs to run through when applying the provision of sections 397 and 398 of the Companies Act. 43. Referring to series of decisions of the English Court in a case in V.M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp. Cas. 20 this Court held that: ". . . (1) that the oppression complained of must affect a person in his capacity or character as a member of the company; harsh or unfair treatment in any other capacity, e.g., as a director or a creditor is outside the purview of the section; (2) there must be continuous acts constituting oppress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conclusion, the claim of the petitioners would certainly be considered for a relief. Consequently, I do not find any merits in the submission of the respondents that the petition has to be rejected for want of proper pleading. 47. As regards the prayer with reference to signature demanding forensic examination, the learned counsel for the appellants placed reliance on decision in Manikandan v. Mohan [2000] 1 MLJ 70 and submitted that in the context of the allegations and the denial by the appellants herein that the signature is not that of the appellants herein, the Company Law Board ought to have rendered this decision not by mere comparing the signature and should not have played a role of expert. I do not find any reason to accept this plea since the facts herein does not support the case of the appellants. There is no denial of the fact that the first appellant was at the helm of affairs at the time when the balance sheet in question was passed. He did not deny the fact that in all the earlier extraordinary meetings, he chaired to pass the accounts. There are no materials to substantiate the contention that the accounts were not passed. In view of the admission in act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itics Engg. (P.) Ltd. s case ( supra ) shows that the person complaining oppression must establish that he was constrained to submit himself to a conduct which lacks probity and fair play and such conduct prejudices person complaining in exercise of his legal and proprietary rights as a shareholder. Even on the facts of the case, the first appellant had not established that his rights as a shareholder are in any way prejudiced. The mere fact that second respondent s family members constitute the majority does not result in an act of oppression. 50. I do not find any justification to hold that the allotment of shares or making the third respondent as a Managing Director in his place per se results in the act of oppression. The Articles of Association does not contemplate anything against any change of Managing Directors. 51. The learned counsel for the respondent referring to the issue of presumption under section 195 of the Companies Act, he drew my attention to the cheque signing power enjoyed up to February 2001. He also referred to the fact that the first appellant had admitted the appointment made earlier, for which there is no signature found in the minutes of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitialled, the conduct of the parties are good enough to say that the appointment of the first appellant comes to an end and not renewed in a voluntarily constituted meeting. In the light of the finding of the Company Law Board on the above said fact with which I concur, I do not find any justification in sustaining the plea of the appellants. 54. On the question of appointment of the Chartered Accountant to audit the accounts between 22-7-2000 and 23-7-2002, the Company Law Board found that the first appellant was a signatory of the balance sheet for the financial year ending 31-3-2000. As regards the cash withdrawals in respect of 2001-02, 2002-03, the Company Law Board viewed that the respondents have not satisfactorily explained the same. Hence, it requires an investigation. In the interest of justice, such course is warranted to get at the truth. In considering the same, an opportunity is afforded to the parties herein to place all their objections to the Chartered Accountant. In the nature of the allegations made, for smooth functioning of the company, as an equitable relief, the Company Law Board has arrived at a situation that the minority shall sell the shares in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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