TMI Blog2015 (5) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... f time it may lose its sheen as a family in the long run. As the business and family grows simultaneously, it is quite probable and inevitable that differences also arise among members of family in control of the business due to varied opinions. In a family run business such differences arise not due to any business/commercial decisions but rather giving importance or nurturing the growth of their own kin. Thus as long as the thread of goodwill runs through the family any decision taken for the sustenance of the family bond would survive the test of time. The notion of family company may be lost, if members of the family start fighting among themselves to further their self-interest rather than the interest of the company. It is not uncommon, that we find that fully grown family companies of yester years have of late been in news about rift between members of family as every members Of the family wanted to independently run a business. Once a bond is broken or severed, it is difticult to unite. In such a scenario, it cannot be called a family company, as the underlying principle of 'give and take' does not subsist. Whether the petitioner is entitled to seek a permanent injunctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diversified into moulding of components using Hydraulic Presses ranging capacity from 100 Tons to 250 Tons and started supplying finished switch gear parts to the various electrical industries. A tool room was also developed at Unit 'A' by the 8 th respondent and later it was moved to Unit 'B' at Guindy while the petitioner and the respondent run the Unit 'A' for compound manufacturing and moulding. 3. He submitted that in the late 80's as the original equipment manufacturer moulding market was not growing and hence, the petitioner visited UK and other countries and came up with developing Water Tank Panels in India to be captive user of SMC in order to develop the business of the 1 st respondent company. During this period. a 1000T press was ordered and large tools were made up by the first petitioner at Unit The petitioner was independently handling this unit in all aspects. Also, 2 injection moulding presses were brought from HMT modified to suit injection moulding of SMC/DMC for the I q time in India. All these efforts were headed by the petitioner. The water tank business has grown from strength to strength. New presses were constantly added an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt (Unit 'C') presented to Board by the petitioner. In additions to the above several new developments are being made at Unit C' by the petitioner. These projects when implemented will be in first of it kind in India and it can be offered to the local as well as the world market, for which there is a great potential, as such equivalent products available are very expensive. The petitioner is one of the founder members and was President of FRP Institute, India in the year 2006-2008, He is the well known and respected business leader in the Composites Fibreglass Industry in India. 6. While so, when the petitioner had gone to USA to visit his children, the petitioner has received a show cause notice dated 17.06.2009 through email from the respondent office to show cause the matter Of setting up of consultancy service in USA and the registration of certain patents in the name of his family members. In response to the same, the petitioner has immediately sent a detailed reply dated 18.06.2009 from USA. In the said notice it was stated that the petitioner has started a parallel business and floated a concern by name Devi Consultancy Services without the knowledge and auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent company had issued a public notice in various major newspapers with an intention to tarnish the image of the petitioner. After seeing the public notice, the petitioner has returned to India to take stock of the situation. 9. It is submitted that the petitioner has received a notice dated 17.06.2009 for Extra Ordinary General Meeting on 27.06.2009. As per the said notice, the main agenda is to consider the said reply of the petitioner to the show cause notice and pass necessary resolution in this regard. There is no necessity to call for the EGM to consider the reply. The proposed EGM is with the purpose to exclude the petitioner from the management. The 1 st respondent company is a family company and the 7 th respondent is the petitioner's brother, who was earlier one of the directors of the 1 st respondent. The respondents 2 to 10 are having shareholding in the 1 st respondent company. Meanwhile the petitioner came to know that the 1 st respondent company has terminated the service of his Personal Secretary, Mr P, Immanuel Jebasingh vide letter dated 17.06.2009. From the said letter it is evident that no show cause was given and the termination of his service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iphon off the funds of the I respondent company and such allegations are made without any basis and there is no documentary proof tor such frivolous allegations. 11 . It is further submitted that when the petitioners father namely Sri K. Rajagobal Chatty was acting as chairman, the other directors had removed him on the ground that he had long list of ailments vide resolution dated 14.03.2008. On the other hand the respondents had chosen to appoint one Mr V. Mari Chettiar (11 th respondent) as a whole time director w.e.f. 01.04.2008 vide resolution dated 28.03.2008 and later he was also elected as Vice Chairman of the company. It is to be noted that the said V. Mari Chettiar is aged about 94 years and he cannot read or write on his own and also he is falling in his sensorium. This is only to show the other directors' attitude towards the petitioner and his family. It is submitted that the petitioner is prevented from managing the affairs of the company by the other directors of the company, which is totally against the interest of the 1 st respondent and which amounts to oppression. The petitioner should be allowed to continue as executive director in the interest of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents submitted that the present company petition is a gross abuse of the process of this Hon'ble Board and the petitioner is disentitled to any relief claimed in the petition. The petitioner is guilty of suppressing material facts and is trying to mislead this Hon 'ble Board by filing this petition. The reliefs sought for in the petition are neither maintainable in law nor on facts and the petitioner has tried to justify his gross breach of fiduciary duty' as an Executive Director of the 1 st respondent company. Even a cursory look at the prayers of the petitioner, would reveal that the petitioner has obviously approached this Hon 'ble Board for continuing his position as an Executive Director despite being fully guilty of the gross breach of fiduciary duty as a director, especially when the 1 st respondent company is a company which is owned and controlled by the family members. The respondents are advised to submit that a petition under sections 397 and 398 cannot be tiled for the kind of reliefs prayed for by the petitioner, especially when the only prayer is to secure his position as a director of the company as well as restraining the shareholders fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said websites is yet another prof of his fraudulent intentions and character. The creation and launching of website and attaching a link without authority and knowledge of DPPL would attract the penal provisions of sections 463 464 of IPC. The petitioner is fully aware that proper answers to the questions raised above would prove his guilt beyond all reasonable doubt. Therefore, the petitioner has tried to gloss over the entire issue in his petition. The petitioner is guilty of suppressing the factual details which would be a complete answer for the question raised above. 13. It is submitted that the respondents have fully complied with the Principles of Natural Justice and have given adequate opportunity to the petitioner to submit his response by issuing the show cause notice but what is deliberately not mentioned in this paragraph is that though the show cause notice was sent to the petitioner at his residence and his office, the employees who have colluded with the petitioner, appear to have forwarded the show cause notice to the petitioner by email. On coming to know of this, it became clear to the respondents that the whole idea of a parallel business has been conceiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Mr R. Ramesh. Ihis has not been placed before the Board of directors and is shown to be dated 03.04.2009. It is important to mention here that prior to this report, the petitioner had already executed a Memorandum of Understanding (MOU) with Mr Michael Jackson on 02.03.2009. parallel concern by name DCS therefore had been launched long before the alleged review. The alleged review of Unit-C in Annexure-11 does not even contain a whisper about the starting of the parallel concern by name DCS. The petitioner is clearly guilty of suppressing the fact that the petitioner had not taken any approval or consent from the board not did he have the authority to start the concern by name DCS. The allegation by the petitioner that the respondents were aware of the promotion of sale of design and engineering services in USA is an attempt to hide the fact that the petitioner had deliberately and intentionally kept the Board of directors completely in the dark regarding the starting of parallel concern by name DCS. Therefore, on the petitioner's own showing the petitioner is guilty of breaching fiduciary duty and diversion of business of the 1 st respondent company. The admission regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining to the services offered, are similar to the ones offered by the 1 st respondent company to its existing customers. The petitioner has published photographs of machineries and buildings at Unit-C belonging to the 1 st respondent company to mislead the customers and make it appear as if it belongs to DCS. The petitioner has also given wide publicity in various trade journals portraying DCS as a one stop solution for customers worldwide which include the customers of 1 st respondent company. The petitioner has given press releases to various trade journals including a journal by name Reinforced Plastics dated 05.04.2009, Nasscom dated 01.04.2009, Composite World Article dated 14.04.2009. These press releases mentions about the launch of Devi Consultancy Services having similar activity as that of the 1 st respondent company. The allegation that doing consultancy services tor designing is for the benefit of the 1 st respondent company and that there is no personal gain for the petitioner or to his family members is again a self-serving allegation in which the petitioner has once again tried to mislead by referring to the consultancy services done by the 1 st respondent co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another group company by M/s. Glenrock Estates Pvt Ltd. The 7 th respondent had entered into a secret agreement which strangers for parting with valuable lands belonging to the said M/s.Glenrock Estates Pvt Ltd and had handed over possession of these lands without any authority. This has been done by the 7 th respondent knowing fully well that the estate lands were the subject matter of dispute before the Hon'ble Supreme Court and that the company had given an undertaking before the Hon'ble Supreme Court that it would not deal with the said estate lands in any manner whatsoever until the pendency of the same before the Hon'ble Supreme Court. When the Board of directors came to know of this clandestine action by the 7 th respondent, in order to safeguard the interests of other directors on the board, the 7 th respondent was removed as a director on 28.02.2005 at a meeting which was chaired by the father of the 7 th respondent, Mr Rajagopal Chetty. When the 7 th respondent had been removed as director from the said M/S. Glenrock Estates Pvt Ltd in view of the serious fraudulent acts committed by him and on his admission of guilt, he requested for allowing him to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n here that the petitioner. his son and daughter have registered various patents in their names. These patents are actual products and designs which have been designed by the 1 st respondent company. Further. the patent for the same product in the US is in the joint names of the petitioner, his son Mr Roahan Ramesh and one Mr Martin Fitzer having Intemational Patent No. PCT/IN/2002/00025. This is available in the World Intellectual Property Organisation Webpage which has been published on 21.08.2003. The respondents submit that the expenses for the registration of these patents have been debited to the 1 st respondent company and hence these rightfully belong to the 1 st respondent company. The petitioner cannot escape his liability or guilt in this regard by merely contending that he will assign the patents in favour of the 1 st respondent company. The allegation that the model assignment deed had been forwarded to the company's auditors for his approval or that it was discussed during the various Board meetings is false. This model assignment deed has been witnessed by the terminated employee Mr Imanuel on 30.10.2008. The petitioner is yet to account for the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench to dismiss the petition. In support of his contention he relied upon the following decisions: 1. AIR 1965 SC pg 1535 in the matter of Shantiprasad Jain Vs. Kalinga Tubes. 2. (2000) CC Vol 100 pg 66 (CLB) in the matter of Vinodkumar Mittal Vs. Kaveri Lime Industries Ltd Ors. 3. (1996) 10 SCC 696 in the matter of Kilpest Pvt Ltd ors vs. Shekhar Mehra. 4. (1987) Vol 61 CC 20 (Madras High Court) in the matter of V.M Rao Vs. Rajeswari Ramakrishnan Others. 20. Heard the learned counsel appeared for the respective parties, perused the pleadings, documents and citations relied upon by them, After analysing the pleadings the following issues are felt for consideration and need to be addressed. 1. Whether the petitioner has made out any case seeking injunction restraining the respondents from removing the petitioner from the post of director of the RI Company.? 2. Whether the petitioner is entitled to seek a permanent injunction restraining the respondents from interfering with the carrying on duties enjoined on the petitioner in relation of Unit 'C' of the RI Company. . 3. To what relief. ? 21. Now I deal with the issue No.1 : The prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltancy service in USA and (ii) the registration of certain patents in the name of his family members. 22 . It is stated in the said notice hence you are hereby given an opportunity to offer your explanation to the above stated acts of yours in the matter of setting up of DCS (Devi Consultancy Services) in USA and in India and the registration of patents in the names of your family members and outsiders and the failure to assign the said patents in the name of the company within 5 days from the receipt of this letter or failing which to present your case at the time of EOGM of RI Company to be convened on 27.06.2009 at the corporate office of RI Company at 10.30 AM tor which due notices has been given to all the shareholders of the company. The petitioner in his reply dated 18.06.2009 to the above show cause notice stated that the purpose of DCS was to expand these services to other industries which could help the RI to generate additional business. Mr Jackson who knew capabilities got laid off from Stahlin due to the recession in early January 2009 and who had worked with him for the last 10 years and had a full understanding the capabilities requested him to help the unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an opportunity to Mr R. Ramesh to explain his conduct in the above stated matters in writing before the presently convened Extra Ordinary General Meeting of the company on 27.06.2009. 4) Members are therefore requested to attend this important Extra Ordinary General Meeting of the company to discuss the above stated issue and consider the written reply of Mr R. Ramesh, if any given. to the show cause notice, or in the absence of any such written submission, consider the said acts of Mr R. Ramesh in the above stated matter and pass necessary resolutions in this regard. 23 . The petitioner has given a detailed reply on 27.06.2009 for the notice of intended resolution for his removal as director by the shareholders. It is stated that the petitioner has received notice along with the proposed resolution to remove him from the office of director on 24.06.2009. It is stated that as per sub section 2 of section 284 read with section 190 of the Companies Act, a special notice is required for the said proposed resolution. It is also stated that against the notice calling the EGM, he filed the present CP before this Bench. Apart from the above he also stated that he has no intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the DCS is not a marketing division nor an extension of RI Company but a separate unit. Further it is contended that the petitioner committed breach of fiduciary duty by starting a parallel business in the name of DCS. The annual report which the petitioner strongly relied upon that the respondents are aware regarding the starting of DCS. From the perusal of annual review report of Unit 'C' for the year April 2008 to March 2009 there is a mention regarding future growth. At sub clause 2 of the future growth it states that we are promoting the sale of design. engineering services and supply therefrom from the export market. Steps have been taken to promote these services . From the said statement it is a tact that there is no mention of DCS. Further the petitioner entered an MOU with one Mr Michael T Jackson on 02.03,2009. In the preamble of the MOU it is stated that ' 'this Memorandum of Understanding made at Chennai on 02.03.2009 between Devi Consultancy Services, a division of Devi Polymers Pvt Ltd. a company registered under the Companies Act, 1956 hereinafter referred to as the supplier', AND Mr Michael T Jackson, 1414, 6 th Street, Belding. MI-48 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' notice in writing. Accordingly the EGM of the company was convened on 27.06.2009 and complied with the articles by giving 7 days' notice as required under article 15. Article 1 5 of the Articles of Association reads thus: A general meeting other than the AGM of the company may be called by giving not less than 7 days notice in writing and the provisions of section 173 of the Companies Act, 1956 shall not apply to the company . Even before dealing the said article and the provisions of the Companies Act it is to state that the articles of the company are binding on the company and its shareholders. Under Section 170(1) of the Companies Act, the provisions of section 171 to 186 applies to public company or a private company, which is a subsidiary public company and to a private company, unless the articles otherwise provide. In other words the private limited company can provide for a shorter period of notice for a general meeting under the articles. Since the articles specifically provide a 7 days' notice and the company has complied with the requirement as contemplated under its articles. The petitioner has received notice for the EGM as well as the special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding only 10% shareholding, therefore the first criteria that the shareholding between the contesting parties is more or less equal is ruled out. Admittedly there is no deadlock in the management of the company on account of an equal division in the shareholding and directorship, lack of probity in the conduct of the affairs of the company, It is an admitted fact that the petitioner is holding only 10% shareholding, therefore the first criteria that the shareholding between the contesting parties is more or less equal is ruled out. Admittedly there is no deadlock in the management of the company on account of an equal division in the shareholding and directorship. With regard to lack of probity I am of the view that there is no force in the said argument on the ground that the petitioner himself committed breach of fiduciary duty as stated supra by starting a parallel business by name DCS. Therefore the principles of quasi partnership will not apply to the present case. The learned counsel for the petitioner contended that the RI Company is a family company in the form of a partnership firm and the branches of a family who have been accustomed to participating in the management wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel relied upon the judgment in the matter of N. Ram Others (4) supra. The question of legitimate expectation does not arise in the present case on the ground that the facts are completely different to the facts of that case. 24. The learned counsel for the petitioner contended that the removal of the petitioner is an act of oppression. On the other hand the learned counsel for the respondents submitted that the removal of the petitioner is an isolated act and not an act of oppression. To contend it is an act of oppression it is stated that the petitioner has been the executive director of the company for a long period of time and therefore his removal as a director constitutes an act of oppression. It is a well settled legal preposition that the position of director in a company is that of a trustee. The trust and confidence that is to be discharged by a director in a closed held family company is much higher and much more stringent than that in the case of a public limited company. As stated supra the petitioner started a parallel concern without the approval of the Board therefore it is an act Of breach of trust reposed by the shareholders in him. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case removed the petitioner as director and had made further allotments to themselves in a family company, The facts of the said judgments are different to the facts of the present case. The citations relied upon by the learned counsel for the petitioner at 10. 11, 12, 13 14 supra are not at all applicable to the facts of the present case. In view of the reasons as stated supra the petitioner has not made out any case seeking injunction restraining the respondents from removing the petitioner from the post of director of the R I Company, The EGM was held in a democratic manner and duly complied with the articles and law, Not but the least the position of the director in the company is one of the utmost good faith and the person can continue his position as a director only so long as he enjoys the confidence and trust reposed in him by the shareholders. In the present case the decision of the shareholders in the EGM held on 27.06.2009 is supreme. Accordingly. the issue is answered against the petitioner. With regard to concept of family companies, I am of the view that invariably in settlement of disputes, the interest of the company is paramount. As regards the removal of Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and conditions as the Board may think fit. In view of the articles the Board only has the power to appoint one of its members (directors) as managingexecutive director. Since the petitioner is ceased to be a director by virtue of this order he has no locus standi to continue as executive director more particularly to look after the duties in relation to Unit 'C' of the RI Company. The relevant article 7 of the AOA is reproduced hereunder for better appreciation: AT THE EGM held on 27.09.1989 clause (7) be deleted and incorporated the following in its place: The Board shall have power to appoint from time to time any one or more of its members as Managing/Executive Director or Director(s) of the company for such period and on such terms and conditions as the Board may think fit. The remuneration of the monthly remuneration, fees for attending meetings or participation in profits or all of these modes or any other mode not expressly prohibited by the Act. The Managing1Executive Director or Directors so appointed shall be liable to retire by rotation from the Board but shall cease to be a Managing/Executive Director on the termination of their office as directors. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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