TMI Blog2004 (4) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 6 7; l to set aside the appointment of the fourth respondent as the Managing Director of the company with directions for refund of the remuneration periodically paid by the company; l to set aside the allotment of 2000 8% Cumulative Redeemable Preference shares made in favour of the respondents 8 9; l to set aside the various lease deeds executed by the company which are detrimental to the interest of the company and its members; and l to declare that the proceedings of the extraordinary general meeting of the company held on 5-12-2002 are null and void and to appoint a provisional administrator to take charge of the affairs of the company. 2. Shri A.K. Mylsamy, learned counsel appearing for the petitioners, while initiating his arguments and tracing the background of the parties, pointed out that the petitioners and the respondents belonging to Pai group at Manipal have established and have been controlling a number of industries and managing educational institutions including the first respondent-company. Learned counsel further elaborated the first petitioner s dedicated work embracing various fields like education, finance, medical care, community service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company s assets and indulged in various acts of oppression and mismanagement in the affairs of the company, ultimately forcing the petitioners to approach the CLB for appropriate relief. 3. Shri Arvind P. Datar, learned senior counsel, appearing for the respondents, while denying any act of oppression and mismanagement in the affairs of the company, pointed out that the petitioners 1 3 have been fighting against their cousins and brothers-in-law for the past several years. The various companies under management of the first petitioner including Maharashtra Apex Corporation Limited, Canara Nidhi Limited and Manipal Home Finance Limited etc. are in serious financial difficulties and defaulted in repayment of public deposits to the tune of ₹ 365 crores. The first petitioner having ruined the family name and misappropriated public money does not deserve any sympathy. The sole intention of the petitioners 1 3 is to get some of the lands belonging to the company. The relief under sections 397 and 398 is an equitable relief which is entirely left to the discretion of the Court. Therefore, the requirement of good faith is absolutely required on the part of any one cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned shares were sought to be allotted in exclusion of the petitioners. The Board of Directors at the meeting held on 11-12-2002 had allotted 2,000, 8% cumulative redeemable preference shares in favour of the respondents 8 9 increasing the paid-up capital to ₹ 5 lakhs which was reportedly to comply with the statutory requirement of the Companies (Amendment) Act, 2000. The allotment in favour of the respondents 8 9, being Trusts hit by the provisions of section 153 is ex facie illegal and must be set aside by the CLB. The Company has neither produced any document to show that notice was sent to the petitioners for the extraordinary general meeting held on 5-12-2002 nor minutes of the Board meeting approving the allotment in favour of respondents 8 9. Moreover, the allottees are in control and management of the respondents group. By virtue of the impugned allotment, the company has not derived any benefit and the petitioners are deprived due to non-allotment of the proportionate number of shares, constituting an act of oppression, for which reliance has been placed on the following decisions :- l Farhat Sheikh v. 1. Esemen Metalo Chemicals (P.) Ltd. 2. Deti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on record to show as to how the notices were served upon the corporate bodies and the Trust, in the absence of which the plea of the respondents that notices were sent to the petitioners for the EOGM held on 5-2-2002 does not merit any consideration more so when there is no cordiality between them for several years. The shares impugned in the company petition have been allotted in favour of the respondents 8 9, being the Trusts, which are under the management of the respondents group the fact of which remains unchallenged. The plea of the respondents that the voting rights of the petitioners and their shareholding in the company are not adversely affected cannot justify the impugned allotment, in exclusion of the petitioners. Moreover, we also note that the allotment in favour of the trusts is prohibited by the provisions of section 153. While there is justification for the allotment made by the company to meet the statutory requirements, the allotment for the benefit of educational institutions, under the management of the respondent group, in exclusion of the petitioners can in no way be justifiable. Thus, the impugned allotment of shares in exclusion of the petitioners wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents on account of the nuisance value. FINDINGS : The company is at liberty to serve notice on any member either personally or by sending it by post to him to his registered address. However, in the present case, admittedly the relationship between the parties is strained for several years. Moreover, the respondents 4 to 7 are corporate bodies and Trust, in which case, the plea of the respondents that the notices were used to be sent by hand delivery appears to be impracticable. In the event of the petitioners refusing to give acknowledgement for receipt of the notices, nothing prevents the company from sending notices by registered post. It is on record that the first petitioner was in the habit of calling for copies of the balance sheet on several occasions, which was admittedly not replied by the respondents on account of nuisance value. It is observed that the petitioners 1 5 have deposited the requisite amount with the company for sending notices for meetings and certified copies of minutes of the annual general and extraordinary general meetings of members of the company. When the money has been deposited, in terms of section 53(2)(a) of the Act, is incumbent on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de intention or purpose on the part of the respondents for delisting the shares of the company. FINDINGS : Though the Board of Directors is said to have resolved to delist the shares of the company as early as in the year 1998, the company has not chosen to produce minutes of the meeting of the Board of Directors or the correspondence exchanged with the statutory authority to establish the compliance of the requisite guidelines in this behalf. The plea of the respondents that there was no trading of shares of the company for several years and that the petitioners would not be aggrieved on account of delisting of shares cannot hold good, especially when the company has not maintained any transparency in important matters like delisting shares of the company and keeping the shareholders having substantial interest in dark. Further it is on record that the petitioners have been acquiring shares in the market, which facility would not be freely available now due to delisting. Non-registration of shares : Shri A.K. Mylsamy - The petitioners 6 7 had lodged 379 and 2274 shares respectively acquired by them, with the company on 7-10-1993 for effecting registration of the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filment of the legal requirements in this behalf by the petitioners, nothing survives of this allegation. Exclusion of the petitioners from management : Shri A.K. Mylsamy - The petitioners holding after taking into account the transfer of shares pending registration in favour of the petitioners 6 7 and the shares purchased by the fifth petitioner, which are yet to be lodged for registration of the transfer, accounts for 44 per cent of the total paid-up capital of the company. The respondents hold 52 per cent and remaining 4 per cent of the paid-up capital of the company is held by the public. The first petitioner became a director with effect from 1-4-1945 and was the Managing Director for the period from 1945 to 1957. The first petitioner was not re-elected as director of the company at the 64th Annual General Meeting for the year ended 31-3-1997. When the first petitioner gave notice under section 257 signifying his candidature for the office of director at the annual general meeting held on 30-9-2003, the same was rejected by the company on the ground that he had incurred disqualification under section 274(1)(g) of the Act. Similarly, the notice given by the third petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lationship between the parties would indicate that the company is a family company, wherein the representation from both the groups on the Board of the Company should have been ensured. The petitioners with substantial holding, in our view, must have some representation on the Board ensuring fair opportunity in the management of the company. (B) Alleged Acts of Mismanagement : Leasing of Lands : Shri A.K. Mylsamy - The company owns vast extent of the immovable properties, comprising of land and buildings aggregating 83 acres, shown in Annexure A-19, valued at ₹ 88 crores as per the Valuation Report of Simons and Associates (Annexure A-18 and Vol. III of petition). The company had leased out the vacant lands and buildings at a very nominal rent for a period ranging from 20 to 90 years. By virtue of these leases, the lessees, in which the respondents 2 to 7 are interested are only the beneficiaries. The details and location of the properties which are leased to various companies under the control of the respondents 2 7 and their associates, other properties under the control and enjoyment of the respondents, as well as the vacant land available with the company are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties which are left with the company separately. The petitioners have produced valuation report in respect of these properties. Though the respondents denied the extent and value of these properties, they have not come out with their version of the extent and valuation of these proper- ties. While, according to the petitioners, the properties were leased out by the respondents group to several of the companies under their management as well as outsiders and lease rental was not revised from time to time, it is denied by the respondents. It is on record that the second respondent had executed a number of lease deeds in respect of the properties of the company in favour of the lessees represented by the fifth respondent, (pages 37 to 142 of Vol.II of Index to Documents). These registered lease deeds are for a period from 20 years to 99 years. There is no provision for revision of the lease amount during the currency of the lease deeds. The lease amount in respect of these properties is varying from ₹ 0.02 to 3.30 sq. ft. per annum. There is no record to show that the lease rentals have been increased in respect of these properties, though the lease rentals, in respect of certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members of the company cannot in any way amount to misuse of the company s funds. FINDINGS : The grievances of the petitioners are two-fold, the first being the remuneration paid to Managing Director of the company and the second being that the respondents are misappropriating the funds of the company by inflating the expenses of the company incurred in connection with travelling, communication, administration etc. These grievances must be seen in the light of the income earned by the company. The balance sheet of the company for the year 2002-2003 reveals a gross income of ₹ 80 lakhs, in which case, remuneration of the Managing Director at ₹ 5 lakhs per annum cannot be said to be exhorbitant. The grievances on account of the various expenses, though appear to be on higher side, the petitioners have not established that such expenses have been incurred on personal account of the respondents. There is, therefore, no merit in the plea of the petitioners. 5. Shri Mylsamy, learned counsel, while concluding his submissions reiterated that in spite of the petitioners holding 44 per cent of the paid capital of the company, they do not have any representation on the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itration and Conciliation Act, 1996, as held in V.M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp. Cas. 20 (Mad.). The company is getting rental income and income from hotel business. The petitioners are receiving dividend for the shares held by them in the company and their claim for partition of the properties of the company, not being division of business, as contemplated in the various decisions cited on behalf of the petitioners is not justifiable. Shri Datar, learned senior counsel pointed that even if the relationship between the parties is not cordial, but inimical, one party cannot be forced to buy the other party in support of which he relied on the following passage of the commentaries of Ramaiah of the Companies Act, 1956 which reads as under :- It is clear that even an irretrievable breakdown in relations does not in itself amount to oppression and under that pretence one member or faction of members cannot be allowed the liberty of forcing the other to buy him out. A Company, Re (No. 004475 of 1982), (1983) 2 All ER 36. The petitioners have failed to make out a case for winding up of the company on just and equitable grounds and have no relief can be granted b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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