TMI Blog2008 (2) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... te and submit a report to this Board ; (iv) to carry out an investigation into the affairs of the company and to surcharge the respondents herein for their acts of misfeasance ; and (v) to pass such further orders as this Board may deem fit and proper in the circumstances of the case. 2. Shri R. Murari, learned counsel, while initiating his arguments, in support of the petitioners, submitted : The company incorporated in the year 1985 is engaged in the business of operating fishing trawlers, with the family members of the petitioners, as shareholders of the company. One Mr. Nevil A. Kattar, the husband and the father of the first and second petitioners, respectively, funded the company, as borne out by the statement of the bank account for the month of February, 1986, and the correspondence emanated from the family members, which are before the Bench. Mr. Nevil A. Kattar with his exposure to fisheries administration as well as marine fishing and involvement in the fisheries business for several years, was instrumental for the incorporation of the company and met the entire funding of the company. The second respondent became the managing director, looking after the mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h respondent enjoyed the super profit of the trawler, as envisaged from the communication dated May 19, 2002, of the second respondent. Respondents Nos. 2 and 3 and Mr. Griffin Kagoo, the other brother had entered into a memorandum of understanding on November 20, 1994, agreeing, inter alia, to share the profit and loss of the company amongst the signatories to the memorandum of understanding and the fourth respondent and Mr. Royston Kagoo and other family members. Mr. Griffin Kagoo, not even a member of the company became entitled to 30 per cent. of the company's profits. The memorandum of understanding not having been incorporated in the articles of association of the company is not binding on the company. The vessels of the company have been treated as the individual properties of the respondents and till date the petitioners have not been paid any part of the profits on the pretext that the company has been incurring losses. Respondents Nos. 4 and 5 along with the spouse of respondents Nos. 2 and 3, formed a partnership firm in September 1995, under the name and style of M/s. Kagoo Marines, to carry on the business of deep sea fishing, and shared the profits among the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration that may be determined by the fourth respondent, thereby attempting to divide the company's property among some of the shareholders. The fourth respondent cannot fix the consideration of the single most valuable asset of the company in view of the fact that he is more than 76 years old with education only up to high school and without any experience in the fishing industry or any technical qualification. This measure was adopted to see that the trawler is sold at a consideration that would benefit the directors, causing losses to the company. Similar exercise would be undertaken to sell MFV Michael to the second respondent, thereby stripping of all the company's assets, to the advantage of the directors, and depriving the petitioners and Mr. Nevil A. Kattar, who were responsible for the initial investment made in the company. There was no necessity for transferring the vessels. The sale was not for the benefit of the company. By sale of the vessels, the company's operations would drastically be affected and the investment of the petitioners as well as Mr. Nevil A. Kattar would become dried. If these are permitted the company will be left with no trawler and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est of shareholders and the company. Depending upon the facts of a case, even in cases where oppression is not established, suitable orders could be passed in exercise of the equitable jurisdiction conferred by section 397 and no single ready made formula can be applied in all the cases. 3. Shri T.K. Seshadri, learned senior counsel, while opposing the company petition, submitted as under : The second petitioner unconditionally withdrew the company petition subsequent to filing of the petition asserting that she has wrongfully filed the petition through her power of attorney agent, namely, Mr. Nevil A. Kattar and consequently cancelled the power of attorney, thereby she ceased to be the petitioner, in the company petition at the threshold. Therefore, the first petitioner can alone be considered as petitioner and does not satisfy the requirements of section 399, in view of the fact that the company has 12 shareholders on the date of filing of the petition. The power of attorney has been executed on October 9, 2003, in favour of Mr. Nevil A. Kattar and till such time the power agent has no relation in the affairs of the company and not a shareholder and cannot have knowledge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n petition cannot be attributed to his principal. The company petition has been filed on October 15, 2003, while the power of attorney has been executed on October 9, 2003. The powers bequeathed in favour of the power agent is not adequate to file and prosecute the present company petition. The petitioners do not vouch for the statements made by the power agent in the rejoinder to the main counter filed in the instant matter. The power of attorney executed by the present the second petitioner without application of mind not been stamped and is defective. There has been no date by the attesting person. It is not admissible under the Indian Evidence Act. This Bench in Duroflex Ltd., In re [2006] 5 Comp LJ 140 (CLB), held that if an affidavit does not meet the requirements of law, it has no legal consequences and consequently the company petition should be rejected. Therefore, the second petitioner is not presently represented by a proper power agent. The petition has been filed for collateral purposes and not in the interest of the company. The company petition is not for the benefit of the company. The petition brought out by the power agent is not a bona fide one and it is an abuse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All notices of the meetings were sent in accordance with the provisions of the Act either by post or by hand delivery, as the first petitioner is the daughter of the fourth respondent. Even otherwise, non-issue of notices will not vitiate the board or general meetings provided no prejudicial decisions are taken at the disputed meetings as held in Suryakant Gupta v. Rajaram Corn Products (Punjab) Ltd. [2002] 108 Comp Cas 133/[2001] 31 SCL 120 (CLB - Delhi). The petitioners themselves have produced the notice of the meeting falsifying their case of non-issue of notices for the general meetings. The communication dated September 5, 2002, by the first petitioner addressed to Mercantile Marine Department clearly shows that the first petitioner had received a notice convening an extraordinary general meeting held on August 27, 2002. The first petitioner started complaining to the company in the affairs of the company only on September 9, 2002 and December 2, 2002, for the purpose of initiating the present proceedings. The complaint on this account has been raised for the first time in the year 2003. The conduct of the petitioners in not raising the grievances on the issue of notices wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lers and the business was carried out by the company prior to 1990 and after the incorporation. The balance-sheet for the year ended March 31, 2003, discloses an accumulated loss of ₹ 70.32 lakhs and therefore, the company could not declare any dividend out of losses. Moreover, non-payment of the dividend cannot be a ground for oppression and mere dissatisfaction of minority does not justify interference by the court, as held in Asoka Betelnut Co. (P.) Ltd. v. M. K. Chandrakanth [1997] 88 Comp Cas 274/14 SCL 33 (Mad.). The petitioners or their power agent are not parties to the memorandum of understanding dated November 20, 1994 and cannot be relied on by them. The petitioners have not explained the source through which they have procured the memorandum of understanding. The company is a family concern, with family members as shareholders. The shareholders including the petitioners decided that it would be better to operate the vessels individually for better performance, maintenance and competition so as to benefit the company with good profit. The petitioners never objected to the memorandum of understanding, which came to be entered into with the knowledge of the fourth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolutions passed at the meeting have not been implemented and thus no prejudice has been caused to the company or its shareholders. The respondents have taken enormous steps to develop manufacturing Tuna fishing machinery indigenously to suit the fishing vessels, as borne out by the publications produced before the Bench. There is no illegality in the action of the company in convening a meeting of the shareholders to decide on the sale of the trawlers towards the benefit of the company and the family. The petitioners ought to have objected to the resolutions by participating at the meeting. The explanatory notice to the shareholders is rather transparent on all the aspects of the business proposed to be transacted at the meeting. There is nothing illegal in entrusting the formalities of sale to the fourth respondent and Mr. Griffin Kagoo. The reference to the fourth respondent about his education and experience is totally irrelevant. The directors, since the inception of the company, have worked in the interest of the company, mortgaging their personal properties and giving personal guarantees to set up the company. If the elders in the family desired that the trawlers are to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company ; (iv) non-availability of the statutory records, books of account and other records at the registered office of the company ; (v) sharing of profits of the company among respondents Nos. 2 and 3 and other family members in exclusion of the petitioners and non-payment of any dividend to members ; (vi) siphoning off funds and treating of trawlers of the company, as if personal assets of the respondents ; (vii) illegal attempts for sale of trawlers ; (viii) indiscriminate allotments of shares ; (ix) transfers of shares in contravention of articles of association of the company ; and (x) non-maintenance of board minutes in accordance with requirements of section 193. Before dealing with these contentious issues, the preliminary objections raised on account of (a) withdrawal of the company petition by Mrs. Renuka A. Kattar, one of the petitioners who originally initiated the present proceedings ; (b) defective power of attorney ; and (c) authority of the power agent in prosecuting the company petition shall be examined. 5. This Bench by an order dated July 20, 2004, on considering the rival claims in C. A. No. 154 of 2004, permitted the second petitioner who originally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unication dated May 19, 2002, sent to Mr. K. Aloysius Kattar, the uncle of the first petitioner and the second respondent acknowledged the financial assistance extended by the power agent in support of the affairs of the company. The communication dated April 22, 2002, of the husband of the fifth respondent addressed to the power agent recognises the support and encouragement extended by the latter, despite the non-denial in the rejoinder by the petitioners on the specific charges of the respondents that the power agent never provided any funds to the company. These unequivocal admissions would show the extent of the interest evinced by Mr. Nevil A. Kattar in the affairs of the company and that he can maintain the petition for and on behalf his principals though the power agent is not a member of the company. 6. The company has made available, inter alia, the annual reports for the accounting years from March 31, 1991 to March 31, 2003 and for the year ended March 31, 2006 and the compliance certificates for the years ended March 31, 2001, March 31, 2002 and March 31, 2006, from which it is found that the company had convened the annual general meetings for these years without e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Agriculture granted a capital subsidy of ₹ 12.37 lakhs during the month of September 2005. It is, therefore, undoubtedly beyond doubt that the company and its directors have been duly discharging the statutory obligations as envisaged in the Act by convening the annual general and board meetings periodically, maintaining the statutory records, books of account, and other records. In this connection, it is relevant to point out that the advocate commissioner's report filed on October 23, 2003, would show that no books of account or statutory records were available at the registered office, for his authentication in terms of the order made by the Bench. The report would further reveal that as per the statement made by the fourth respondent, all the books of account and records were with the company's chartered accountant whose office is situated at Tuticorin and that the books used to be taken to Visakhapatnam where the trawlers operations were taking place. In these circumstances, neither the respondents subsequently chose to produce the statutory records before the commissioner nor the petitioners took any further initiative in this regard. This warrants appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprises (P.) Ltd. (supra). In the light of the auditor's reports and the compliance certificates discussed elsewhere, confirming the statutory compliances by the company and maintenance of the statutory registers and the books of account from time to time, the bald allegations attributed by the petitioners that the minutes of the meetings do not comply with section 193 are not appreciable. 7. The profitability of the company for the periods between 1990-1991 and 2005-06 as culled out from copies of the balance-sheets on record is furnished here below : Sl. No. Year Profit (Rs.) Loss (Rs.) Accumulated Loss (Rs.) 1. 1990-1991 - 10,90,618.54 - 2. 1991-1992 - 18,56,646.62 29,47,256.16 3. 1992-1993 - 13,06,667.46 42,53,933.23 4. 1993-1994 - 8,94,884.75 51,48,817.87 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deep sea fishing industry promulgated by the Government of India. This reserve and surplus amount continues to appear in all the balance-sheets for the subsequent years including that of the year ended March 31, 2006. It is, therefore, beyond doubt the reserve and surplus amount of the company has not been created out of the profits of the company. With the ultimate huge accumulated losses suffered by the company, any failure to declare dividends would not amount to an act of oppression, as held in Asoka Betelnut Co. (P.) Ltd. (supra). 9. The grievances on account of the allotment as well as the transfer of shares must be considered in the wake of the rival claims of the parties. The memorandum of association shows that 3,750 equity shares of ₹ 100 each were subscribed as follows : the first petitioner (250), the second respondent (1,000), Mrs. Gracelyn Fernando, wife of the second respondent (250), third respondent (500), the fourth respondent (1,000), Elatta Fernando, wife of the fourth respondent (500) and the fifth respondent (250) at the time of incor poration of the company, which evidences unequal subscription of shares by the promoters. Furthermore, the article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present proceedings. Furthermore, the petitioners are guilty of acquiescence in the matter of allotment of shares made way back in the year 1992. Therefore, the petitioners' belated claim on account of non-allotment of additional shares in their favour, in proportion to the shareholding does not merit any consideration. The petitioners cannot plea ignorance of the allotment of shares, on account of the inordinate delay in challenging the allotment as held in Shyamala Pictures Hotels (P.) Ltd. (supra). 10. The grievances made in relation to the transfer of shares in favour of the fourth respondent are lacking the minimum details for necessary remedial measures. There are no particulars as to : (i) name of the transferors ; (ii) number of shares transferred ; (iii) date of transfer of shares ; (iv) date of approval of the impugned shares by the board of the company ; (v) relationship between the transferors and the transferees ; and (vi) the relevant article(s) violated by the transferors. None of the transferors has been arrayed as parties to the main petition. Article 16 makes it clear that the procedure prescribed in articles 11, 19, 20, 21 and 22 will have to be followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly pointed out by Shri R. Murari, learned counsel, are oppressive of the ignored shareholders, including the petitioners. The justification put forth by the respondents that the elders in the family including the petitioners, had decided, in the interest of the company to operate the vessels individually for better performance, maintenance, family peace and harmony does not merit any consideration, in the absence of any iota of evidence to prove that either the petitioners or all other shareholders apart from the parties to memorandum of understanding had agreed to any such arrangement. The operation of the vessels, being a corporate decision cannot be left to the choice of a few family members, even in a family company. When the terms of the memorandum of understanding are oppressive, the petitioners either by themselves or through their power agent are entitled to seek reliefs invoking the jurisdiction of section 397/398, despite the fact that they are not parties to the memorandum of understanding. There is no material to show that the memorandum of understanding was ever brought to the knowledge of the petitioners, in which event the averment that the petitioners never objected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents themselves heavily relied on the said communication to establish that (i) disputes and differences existed between the family members ; (ii) bank guarantee was obtained by pledging the properties belonging to the parents and the wife of the second respondent ; (iii) financial assistance was done by the father-in-law and the brother-in-law (power agent of the petitioners) of the second respondent ; (iv) remuneration was denied to the second respondent for his services rendered in making of the vessels best of the sea worthy conditions ; (v) settlement was arrived between the second respondent and his brothers in the presence and concurrence of their parents ; (vi) Griffin failed to keep up his promise but enjoyed the super profit of the trawler MFV Superna ; and (vii) Griffin sold the trawler, MFV Superna to M/s. Superna Maritime Exports (P.) Ltd., a company incorporated by him. There is no doubt that the second respondent has taken enormous efforts to develop manufacturing tuna fishing machineries indigenously by making use of the trawler of the company, as brought out by a number of publications on record and that the respondents are mainly responsible for effecting con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the interest of the company or its members. In this connection beneficial reference is invited to a judgment of the Delhi High Court in Pearson Education Inc. v. Prentice Hall India (P.) Ltd. [2007] 136 Comp Cas 294, wherein it has been held that once oppression is established, reliefs could be granted under section 402 of the Act. In the present case, the respondents are already found to be acting in a manner oppressive to the petitioners in the matter of the operation of the trawlers belonging to the company and hence winding up of the company on just and equitable grounds becomes automatic. Nevertheless, winding up of the company, engaged in the business of operating fishing trawlers would be prejudicial to the interests of the petitioners against which appropriate alternate remedies shall necessarily be provided. 14. In view of the foregoing conclusions and in exercise of the equitable jurisdiction under section 397/398/402 as reiterated in Delstar Commercial and Financial Ltd. (supra) and with a view to regulate the conduct of the future affairs of the company, the following order is passed : (a) Mr. Daniel Selvaraj, chartered accountant, Madurai (mobile No. 9843088776 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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