TMI Blog2005 (1) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... as its factory at MIDC, Tarapur, Maharashtra. In 1997, the paid up share capital of the company was raised to ₹ 34.0 lakhs. The company is engaged in the business of manufacture and sale of dye-pigment chemicals. The present petition has been filed as the petitioner is aggrieved by the oppression and mismanagement caused by the respondent Nos. 2, 3 and 4. 3. The learned counsel for the petitioner submitted that the respondent company was in need of working capital and it was necessary for the promoter directors to induct funds by way of unsecured loans. The Dharod Group of shareholders inducted ₹ 50.57 lakhs into the company by way of unsecured loans advanced by their relatives and friends. The petitioner inducted ₹ 30.55 lakhs in the respondent-company by way of unsecured loans. In addition as a promoter director the petitioner has given personal guarantee to Maharashtra State Financial Corporation and Corporation Bank and has given collateral security of her personal assets to the tune of ₹ 6 lakhs. In all, the petitioner had blocked about ₹ 20 lakhs worth of her personal funds for the use of company. Over and above a sum of ₹ 9.52 lakhs inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covery of ₹ 20 lakhs. The Respon-dents have replied that the amount of ₹ 15 lakhs has been adjusted against the principal loan amount. This reply is not true and the letter dated 29-9-2003 relied by the Respondents does not support their contentions, rather it states that the amount of ₹ 15 lakhs would be kept as an alternative security in lieu of the flat sold by the Respondents. Thus the Respondents have mismanaged the financial affairs of the Company and exposed the petitioner and her husband to civil liabilities and further have misapplied the Company s fund to the extent of ₹ 20 lakhs. 5. The Learned Counsel for Petitioner mentioned of siphoning and misuse of fund by illegal sale of DEPB licenses by the Respondents. The Learned Counsel submitted that company is engaged in export business and DEPB licence are issued to the company in order to either import material to be used to many manufactured goods for export or for direct sale in the market licenses about ₹ 20 lakhs was received by the company in 1991 but the said licenses were sold by the Respondent and the same proceeds of this licence were not accounted in the books of the company. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods were exported to M/s. U.K. Seung Chemical Company, Korea to whom Respondent-Company was exporting directly. The payment by Vardhman impacts Pvt. Ltd. as well as interest has not been paid to the Respondent-Company on the outstanding amount of ₹ 13 lakhs for the financial year 1999-2000 onwards. The Respondent Nos. 2 to 4 have misrepresented to the bankers and fraudulently use the funds of the Respondent Company for repayment of debts of Vardhman impacts Pvt. Ltd. The Respondents have admitted in their reply to application under section 543 of the Companies Act that Vardhman Impacts Pvt. Ltd. was having financial problem and the Bankers did not pay the Respondent- Company amount of ₹ 13 lakhs approximately. The Respondents have also stated that the Respondent-Company would receive the amount from Vardhman Impacts Pvt. Ltd. On this ground of diversion of business alone, the petition is liable to be allowed. Moreover, Respondents have diverted export business to Vardhman Buildcon Pvt. Ltd., another company wholly owned by Dharod Group. The Respondents have neither taken any approval nor disclosed their interest and nature of such transactions. The Learned Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner, the petitioner has furnished the date-wise transactions to M/s. Deepak Enterprises, the firm wholly owned by Respondent Nos. 2 to 4. These transactions were made without the approval of Board of Directors. The Respondents have provided the details of loans of this Company from 31-3-1995 to 31-3-1999 but they have avoided giving loan balance position. The Respondents have admittedly advanced loan to M/s. Deepak Enterprises during the year 2001-02. The Respondents are using company s funds for their other business ventures without the sanction of Board of Directors as M/s. Deepak Enterprises trading in cement while Respondent-Company is manufacturing in dyes pigment. This financial mismanagement is in violation of sections 292 and 299 of the Companies Act, 1956. 10. The Learned Counsel for Petitioner also submitted that Respondent Nos. 2 to 4 were misusing the funds and treating it as a non-banking financial company while transferring huge funds of Respondent-Company to their personal bank account, their groups funds, relatives etc. in spite of huge financial liabilities payable to MFSC, Corporation Bank and other creditors of Respondent-Company. The Respondents had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Krishan Gupta v. Pannalal Girdhari Lal (P.) Ltd. [1984] 55 Comp. Cas. 702 (Delhi) wherein it is held that the first is that positive acts are done by the management which result in prejudice being caused to the company. Secondly, section 398 may be attracted even where no action results in prejudice being caused to the company. In other words, the expression the affairs of the company are being caused conducted in a manner prejudicial to the interest of the company in section 398(1)(a) will take within its ambit the non-conduct of the affairs of the company which non-conduct results in prejudicial being caused to the company. The non-conduct may arise for a variety of reasons including serious disputes amongst the board of directors of the company which results in a complete deadlock or stalemate. 13. The Learned Counsel for Petitioner summing up with the arguments submitted that the mismanagement of the affairs of Respondent-Company, particularly financial mismanagement stated by them would invite an investigation under section 237 of the Companies Act, 1956. There is a complete distress between the members of the company and the petitioner is oppressed because of mismanageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication before District Forum, Mumbai. Such behavior on the part of the petitioner is that interfering with imparting of justice and is an abuse of process of law. The Petitioner is guilty of Forum Shopping and the petitioner does not deserve a hearing of the grievances in the petition, especially when the petitioner has invoked the equitable jurisdiction of this Board. Even after the assurance given by the counsel for the petitioner, the petitioner has written 3 letters dated 19-3-2004 and 2 letters dated 12-4-2004 which have been placed on record. A conduct of the party has to take into account as has been held in Srikant Dutta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Enterprises (P.) Ltd.[1991] 72 Comp. Cas. 211. In the said matter, Karnakata High Court held that relief will be refused if the real purpose of the petitioner is to obtain payment owned by the company or to force the directors to accept their views. It is submitted that as enumerated above, by her conduct the petitioner has disentitled herself from being granted any equitable relief. 15. The Learned Counsel for Respondent further submitted that she has been actively involved and has participated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for Respondent to press this point relied in the matter of Srikanta Datta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Enterprises (P.) Ltd. [1991] 72 Comp. Cas. 211 . Karnataka High Court stated as follows:- ...It is well-settled that the relief under sections 397 and 398 of the Act is an equitable relief which is entirely left to the discretion of the company court. . . . ****** That takes me to the question of good faith of the petitioner in presenting these company petitions. The question of good faith has to be tested by the conduct of the petitioner as reflected not only in the proceedings before this Court but also in the parallel proceedings in the civil courts and in other civil litigations in other courts. ****** ...Even assuming that the allegations of the petitioner, if proved, do make out a case of oppression and mismanagement within the scope of sections 397 and 398 of the Act, mere proof of those allegations would not entitle the petitioner to the reliefs sought for when these reliefs are discretionary reliefs and they will be granted only to persons who approach this Court in good faith and the parties who approach this Court for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Director General of Foreign Trade) had issued DEPB licenses worth ₹ 20 lakhs. The respondent-company had employed one Mr. Narayan Anavkar as an Export Officer who was required to deal with the export documentation. Mr. Anavkar cheated and committed fault upon respondent-company by utilizing/selling of DEPV licenses worth approximately ₹ 20 lakhs. Subsequently it came to the knowledge of the respondent that out of the total amount of approximately ₹ 20 lakhs the ex-employee had unauthorisedly sold of licenses worth ₹ 8 lakhs, which as per the DGFT records had been utilized and balance licenses worth ₹ 12 lakhs could not be traced. As soon as mishandling by the said employee came to the knowledge of the respondent, a complaint and FIR both dated 22-6-2000, was lodged with the local police for licenses worth ₹ 8 lakhs. In regard to the balance licenses of ₹ 12 lakhs, the respondent-company filed an application for DEPB licenses in lieu of stolen licenses. The Director General of Foreign Trade vide its letter dated 22-6-2000 has informed the respondent-company that committee had decided to approve the case and DGFT has issued four licenses giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action was done purely on the advice of the husband of the petitioner Mr. Rajesh Shah. 19. The learned counsel for the respondent submitted that the alleged diversion of business to M/s. Vardhman Buildcon Pvt. Ltd. has been explained, in the reply to petitioners application under section 543 of the Companies Act. The respondent-company is under the deferred scheme of the sales tax and endeavour has always been to extract maximum benefit out of the scheme. The respondent-company has received such a scheme for ₹ 60.46 lakhs. Under the said scheme, deferred liability of sales tax is for a period of 12 years as most of the products of the respondent-company are exported and sales tax cannot be levied on such exports, M/s. Vardhman Buildcon Pvt. Ltd. helped respondent No. 1 company. In order to avail benefit of scheme, Vardhman Buildcon Pvt. Ltd. exports respondent-company s products resulting in a local sale for respondent-company and accordingly sales tax is charged to Vardhman Buildcon Pvt. Ltd. Subsequently, Vardhman Buildcon P. Ltd. pays sales tax refund to respondent-company. At the expiry of 12 years respondent- company is required to pay all the sales tax collected duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said issue in the present petition. The respondent have already received a total sum of ₹ 6,33,483.11 towards return of amount loaned by respondent-company to the said M/s. Vardhman Impex P. Ltd. 21. The learned counsel for respondent dealing with allegation of unse-cured loan advance to M/s. Deepak Enterprises submitted that respon-dent-company apart from taking loan from financial institutes had also taken unsecured loans from various lenders and M/s. Deepak Enterprises was one of them. This grant of loan was very much within the knowledge of the petitioner which is evident from the schedules to the balance sheet enumerating therein unsecured loans advanced by various individuals/companies and this balance sheet has been signed by the petitioner. The allegation of the petitioner that respondent Nos. 2 to 4 have not disclosed that they have an interest in this company i.e. M/s. Deepak Enterprises. This company is only owned firm of the Dharod Group which was very much within the knowledge of the petitioner as prior to formation of the respondent-company, Mr. Rajesh Shah, husband of the petitioner, being a practising Chartered Accountant was handling the private affairs o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment relied is in the case of Bengal Luxmi Cotton Mills Ltd., In re [1965] 35 Comp. Cas. 187 , Calcutta High Court held that in order to prove oppression and mismanagement, it is not enough to allege that the company s affairs are being conducted in such a manner that a winding up petition order would be appropriate but it must be shown that such an order would unfairly prejudice to the applicant or other members. 25. The other judgments relied on in the matter of Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp. Cas. 91, 104, the Hon ble Supreme Court observed that there must be materials to show when just and equitable clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders. The company court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups. 26. The last judgment relied upon by the learned counsel for the respondent in the matter of Hanuman Prasad Bagri v. Bagri Cereals (P.) Ltd. [2001] 2 Comp. LJ 3921 has held that an or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptt. etc. 30. It seems that everything was going well till March, 2001. Perhaps there was some mutual talk/agreement between the parties that the petitioner will be relieved from the company by March, 2001. This is evident from the first letter written by the petitioner alongwith her husband and signed by both. The petitioner has very clearly mentioned in para 2 of the letter that they have requested the respondent on several occasions to amicably settle their accounts and also to take over 28% holding of the company at a justifiable price. However, this matter was not resolved. Thereafter the petitioner has been writing letters to various forums and even filed criminal cases and this very letter the petitioner had mentioned that they will be constrained to take legal action if the respondent-company continue to torment them. This letter has been signed by both husband and wife. The petitioner had lodged complaints in various police stations including the complaint with Shivaji Park Police Station, Dadar, Mumbai that the respondents have been threatening the petitioner and her husband. After investigation the police station wrote a letter on 28-9-2003 stating that they feel that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not have breached the collateral security without getting clearance from MSFC and in anticipation. 32. Regarding alleged misappropriation of sale price of DEPB licenses, the respondent-company has submitted that one of the employee has cheated them and they have already filed complaint an FIR on 22-6-2000 with the local police for licenses worth approx. ₹ 8 lakhs. Subsequently, DGFT has issued four licenses giving a duty credit of a total sum of Approx. ₹ 12 lakhs on the remaining DEPB licenses. The charge sheet in respect of stolen licenses has been filed and matter should rest for natural course of action to be taken under the law. 33. Coming to the third point of diversion of company business of M/s. Vardhman Impex P. Ltd. the respondent-company has explained that they have received deferred scheme of sales tax for ₹ 60.46 lakhs. Under the scheme the deferred liability of sales tax for a period of 12 years. The company started routing their export products through Vardhman Buildcon Pvt. Ltd. for claiming refund of sales tax. After the expiry of 12 years the respondent-company is required to pay all the sales tax collected during the period of 12 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction on the basis of certain decisions taken by the respondent- company. Although some of these decisions like transferring of ₹ 20 lakhs to the personal account of a particular director for two days, diversion of companies export business through another company of the respondent directors for saving sales tax, etc., as well as selling the flat which had not been released out of the collateral security, are some of the actions which are apparently wrong on the part of the respondent-company. The concerned authorities like Registrar of Companies would take note of these omissions and not adhering to the provisions of the Companies Act and take suitable action against the company. However, no case of oppression to the petitioner is made out by merely some wrongful actions taken by respondent-company as mentioned above. 37. In view of the above discussions, the petition is disposed of with the following directions that in order to end the dispute, the petitioner should be given liberty to sell his shares and go out of the company on return of his investment in shares, as she feels oppressed by the majority share- holders. In case, the petitioner is willing to part wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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