TMI Blog2009 (5) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... is no mismanagement and diversion of funds; (b) an independent chairman of the company be appointed; (c) the respondents be directed that they shall not take any action in regard to the disposal of any of the fixed and liquid assets of the company till the decision made in these proceedings; (d) the appointment of an independent company secretary be ordered to maintain the minute books and other statutory books of the company; (e) the appointment and investigation by a special auditors be ordered to ascertain the funds diverted and misused by the respondents and order making good of such amount; (f) reconstitution of a board of directors be directed where both the petitioner and respondents Nos. 2 to 4 have equal number of directors; (g) in the alternative the equity shares held by the petitioner be ordered to be purchased by the majority group at a price of ₹ 500 per equity share, in the alternative the petitioner be given 25 per cent, of the equitable land which is presently under tea cultivation; (h) in case respondents Nos. 2 to 4 are not willing to buy the shares of the petitioner order be made providing for the purchase of the shares of the petitioner at the same rate b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour contrary to the nomination of and understanding with Bholaram (the petitioner's father), the estate was purchased for ₹ 30 lakhs. As per the actual understanding this estate was to be purchased in the name of a company Hukanpukhri Tea Co. P. Ltd., which was incorporated in December 9, 1970, in which the petitioner's father, Nandlall and respondent No. 2 were promoters. It was pointed out that in absolute disregard of this understanding Shri Nandlall purchased the estate in the name of his firm, which was floated specifically for this purpose. Upon coming to know of Shri Nandlall's intention the petitioner's father vehemently protested. Shri Nandlall then gave an assurance that he would transfer his firm to a joint stock company and M/s. Nandlall Sons Tea Industries P. Ltd., was formed on June 15, 1976, by taking over the business of the firm M/s. Nandlall Sons. Thereafter the petitioner's father extended a loan of ₹ 9 lakhs to respondent No. 1 company with the understanding that shares would be allotted to M/s. CLPL, there is a letter of confirmation dated November 24, 1976. But for the next five years in spite of repeated oral assurances S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the company. Drawing my attention to the discrepancies in the balance-sheets it was contended that (i) there is a vast un-ignorable discrepancy between actual sales and sales as per the balance-sheets and profit and loss account for the years 1977 to June 1985 and 1992-93 to 1996-97; (ii) Price per Kg of tea as shown in the balance-sheets of the company was much less than the sales realisation per Kg of tea in case of other tea companies having tea estates in the same area when compared with their manufacturing expenses and turnover as well; (iii) in spite of making such heavy losses it is surprising to see that the company has spent an exorbitant percentage of its sales on maintenance and upkeep; (iv) details of losses suffered from 1974; (v) percentage of the sales spent on maintenance and upkeep were shown; (vi) comparison with manufacturing expenses and turnovers of some other companies were made; (vii) without having or showing any investment in shares in the previous year in the year 1991-92, the balance-sheets show an amount of ₹ 1,79,710 towards income from other source where the major sub-head is income from sale of shares which amounts to ₹ 1,12,40; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e old machineries were not conducive to manufacturing quality tea, it was contended that this statement was never brought to the notice of the shareholder by the management in any of the previous years instead the management always took the shelter of bad weather and low demand of tea in the international market, deteriorating of the political condition, etc., as per the directors' report for the years 1991-92,1992-93,1993-94,1994-95, etc. The management has spent ₹ 18 lakhs for modernisation during the years 1992-93 to 1994-95. Despite the alleged investment in modernisation the production declined, losses increased, cost of the labour also increased. It was contended that on the one hand the respondent is alleging that the company was passing through financial stringency, and the rate of the interest on the loan generously given by the petitioner was reduced but the payment of the same was also denied, on the other hand the directors increased their remuneration substantially. 8. Further, it was pointed out that the respondents have stated that considering the financial difficulty the directors have allowed the transfer of their outstanding remuneration to their loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the petitioner, the valuation of the garden at the time was approximately rupees four crores, but the consideration money received from the petitioner did not match the share value has no relevance as Smt. Santi Devi Kasera daughter of late Nandlall Agrawalla got married to the petitioner's father in 1953, shares were allotted in 1981 after 28 years of married life. 10. Counsel for the petitioner pointed out that there are discrepancies in the tea waste sold by them in different years and what is disclosed to the excise authorities. The respondents have not sold the tea waste every year. Hence there should be some stock at the end of each year. If, it is admitted that the figure now submitted by the respondents are as per form R. T-12 under central excise is correct, then it would mean that the respondents are using different figures for different purposes. The petitioner has computed the figures of turnover and average realisation on the basis of audited accounts. As regards 93 per cent, of the tea sold through Gauhati Tea Auction, evidence of the same has not been produced. The respondents have contended that the higher sales realised do not necessarily mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiring they started showing figures of sundry debtors from the year 1994-95 onwards. It was argued that the expenditure incurred on vehicles cannot be shown under the head transit expenditure, the company manipulated the expenses relating to workman welfare expenses. It was contended that it is not clear as to how the auditor has signed the accounts and issued the audit report on the accounts of the company for similar accounting year on two different sets having different figures. It was pointed out that unsecured loans and current liabilities have not been disclosed one set of audited balance-sheet on September 19, 1994, but has been on the other set of audited balance-sheet which was issued subsequently, in one set of audited balance-sheet this has been stated that the closing stock of the tea includes the stock of green leaves whereas the other set of audited balance-sheet is silent on this aspect. Stores consumed has been charged under different revenue heads of accounts, figures cannot be ascertained under the head, the figure for insurance and taxes have not been disclosed in one set of the audited balance-sheet. Similarly, figures for power and fuel, repairs of company bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int stock company in the name of M/s. Hukanpukhri Tea Co. P. Ltd., was incorporated in which the petitioner was also made a director. When it became certain that the vendor was prepared to sell the garden and the petitioner under the influence from the respondent, who was his father-in-law, had already written to the vendor's representative that the sale agreement can be made in the name of Shri Nandlall Agarwalla or his nominee, the respondents with a motive to defraud the petitioner formed a firm in the name of M/s. Nandlall Sons. The said garden was acquired in the name of M/s. Nandlall Sons. When the petitioner objected, he was given the assurance that the new joint stock company would be formed to take over the ownership and management of the said garden. In the said company, it was also agreed that the petitioner also be associated as a director. But, he was never associated as a director in the said company. It was contended that Nandlall Agarwalla's family has fraudulently and dishonestly taken absolute control of the management of the company and causing illegal and unlawful acts. The respondents never explained to the petitioner as to how this money was utilis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seriously mismanaged and accordingly the petitioner's shares should be purchased by the respondent at ₹ 500 per equity share. The petitioner and his late father have been shareholders of the company since 1991 and are unable to enjoy the fruits of investment in the company, hence it was prayed that the respondents may, therefore, be directed to purchase the shares of the petitioner at the valuation of the company as on date of filing of the petition in the year 2001. Counsel for the petitioner pointed out that the contention of the respondent that the workers grievances cannot be a ground for mismanagement is far fetched and liable to be rejected. The Company Law Board has several times in the past held that subsequent event can be brought to the notice of the court to mould the relief prayed for. In this case, the details mentioned in the additional affidavit have bearing on the petition as it would affect the interest of the petitioner as a shareholder of the company. It was contended that the details have come to the notice of the petitioner in the year 2003 and the petitioner has every right to produce the same before the Company Law Board. It was pointed out that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not provide any limitation for the courts power and under these provisions the court can even be given appropriate directions which are contrary to the provisions of the articles of the company or the provisions of the Act. In the case of Subir Kumar Basu v. New Central Group Engineering P. Ltd. [1986] 59 Comp Cas 222 (Cal), wherein the court has appointed a valuer to value the petitioner's share so that they could be sold as respondents' shareholding. It was argued that in the present case, the petitioner has been totally excluded from the management and there are serious cases of oppression and mismanagement pointed out by the petitioner, it was, therefore, prayed that it is a fit case for removing the present management and investigating into the affairs of the company. 19. Shri Anil Agarwalla, counsel for the respondents taking preliminary objections argued that (a) the petition has been filed by one Binod Kasera the alleged attorney of the petitioner, he was not been authorised by the petitioner to file any petition against the said company before the Company Law Board; (b) the petition has been filed by suppressing material facts, the petitioner with ulterior mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the loan account. This was done to stop the drainage of fund; (i) location of the garden is very much in the disturbed area of Assam, the management is under constant threat from within and outside, the question of mismanagement has no basis whatsoever. 20. Further, it was pointed out by counsel for the respondents that the petitioner on the other hand had never been co-operative with the management of the company, he has undue influence on his father-in-law, late Shri Nandlall Agarwalla to give him 25 per cent, shareholdings in the company, the valuation of the garden at that time was approximately ₹ 4 crores. Consideration money received from him did not match the share value. Since 1986 onwards, he started writing letters with the request of repayment of loan. He never cared to think about the company. He filed a petition for liquidation of the company which is still pending. However, the company, with all its strains, started paying his loan on quarterly instalments beginning from August, 1998. Four instalments of ₹ 50,000 each have already been paid. It was contended that there was no any fraudulent act or any assurance given by Nandlall Agarwalla to ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said company, the allegations that the year-wise purported instances given reveal various or any discrepancy in maintaining or maneuvering of accounts by the respondents cannot be accepted as correct. The total quantity of tea sold during 1991-92 was 6,82,727 kg. and gross sale value was ₹ 2,06,62,762. The average sales realisation of tea was ₹ 30.36 per kg that about 93 per cent, of tea was sold in Guwahari public auction and the remaining tea was sold by private sale. It was pointed out that the average sales realisation in private sale was much higher than the average sales realisation in auction sale. With the fall of production and quality, sales realisation was only ₹ 30.36 per kg. The annual general meeting for the year 1992-93 was held on September 30, 1993 and the purported letters dated May 9,1994 and September 6, 1994 of the petitioner were received long after the annual general meeting of the company where the accounts were accepted and passed. 22. The petitioner himself has given loan of ₹ 5,16,016 to the respondent No. 1 and he received loan confirmation statement. The said 30,000 kgs was tea waste and in the turnover the value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Nandlall Agarwalla to accept the loan of ₹ 9 lakhs from M/s. Chunnilal Pannalal Co., so that the firm would earn highest interest, interest on the said loan was paid at 15 per cent, per annum whereas the market rate of interest during the said period was around 9 per cent, per annum. Further, the said loan of ₹ 9 lakhs was repaid to the said firm by October 14, 1981. 24. Further, counsel for the respondents pointed out that the petitioner with ulterior motive has falsely alleged that the said 40,000 shares were allotted to late Bholaram Kasera out of the said loan of ₹ 9 lakhs given by the said firm or that the said loan is still continuing and remains unpaid, the alleged balance of a sum of ₹ 5 lakhs was never kept with the company, late Bholaram Kasera had also deposited a sum of ₹ 3,50,000 by three cheques with the respondent-company under the cover of his letter which clearly states that the said amount will not be withdrawn under any circumstances at any instance unless the company decides otherwise . The petitioner had also filed a winding up petition against the company for recovery of the said amount. 25. Replying to the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction team did not find any irregularity and manipulation of the accounts of the said company and there has been no further enquiry by the Registrar of Companies. 27. Further, counsel for the respondents contended that the company was not even incorporated during the period of which the petitioner is making the allegations. Furthermore, the petitioner's father became a shareholder only in 1981 admittedly and as such no grievance can be made for the period prior thereto during which the petitioner's father was not even a shareholder. It was argued that this fact itself goes to prove that the only aim and motive of the petitioner is to harass the respondents and the only motive is to extract money by unlawful means and pressure tactics. 28. Replying to the allegations regarding stock. position or production reflected in the balance-sheets and profit and loss accounts for the financial years ended 1977 to June 1985 or 1992 to 1996-97 alleged to be sham or bogus or contrary to all accounting principles or that the respondents have knowingly or deliberately given a misleading picture of the company's profitability, it was argued that the petition does not give a correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Supreme Court in Rohtas Industries Ltd. v. S.D. Agarwal [1968] ISC 1424 : [1969] 39 Comp Cas 781, wherein it has been held that in the case of an application by member of the company under Clause (a) or (b) of Section 235 the same will have to be supported by such evidence as the Central Government may require for the purpose of showing that the applicants have good reason for requiring inspection. In K.S. Mothilal v. K.S. Kasimaris Ceramique P. Ltd. [2007] 135 Comp Cas 609 (CLB) : [2007] 77 CLA 70, for seeking an investigation into the affairs of the company by the Central Government in a petition under Section 237 before the Company Law Board, the petitioner has to establish beyond slightest doubt, and not for conducting roving enquiry. 32. I have considered the pleadings and the arguments of the parties in C.P. Nos. 32 of 1999 and 31 of 2003 and the case law relied upon by them. It is noted that on December 23, 1998, company petition under Section 235(2) read with Sections 236 and 237 of the Act praying for appointment of inspectors to investigate into the affairs of the company was filed. On May 25, 2000, the petitioner, namely, Shri Bholaram Kasera expir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o take over the ownership and management of the said garden. It was also agreed that the petitioner would also be associated as a director. But, he was never associated as a director in the said company. During the pendency of these petitions the parties had reported that compromise talks were in progress. However, on January 28, 2005, it was recorded that the MCA/Registrar of Companies is free to conduct enquiry/ inspection under Section 209 of the Act. The Registrar of Companies vide its report dated July 23, 2008, gave the status report regarding inspection on June 27, 2001, under Section 209A of the Companies Act, 1956, in the matter as under: Sections RD's instructions Action taken by ROC PART 'B' Directorate's letter No. RD/T/2156/I This office has filed the prosecutions on 31.05.2003 in the court of the CMM, Kolkata, vide case No. C/2864/2003 and the case has been disposed off by the court on 18.07.2003 by imposing fine of ₹ 300/-for each director. The total fine was ₹ 900/-out of which an amount of ₹ 450/- was awarded as cost to Regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been sent to the Directorate on 14.12.2004. Name of the petitioners (1)Shri Parshuram Agarwal (2)Shri N.K. Agarwal (3)Shri A.K. Agarwal V. ROC, West Bengal 58A -do- Filing of Return of Deposits Directorate's letter No. RD/T/2156/Ins p./481 dated 02.05.2003 referring Ministry's letter No. I/140/2002/CL. II dated 17.03.2003, to issue show cause notice under section 628 for misstatement in the return of deposits. 211(1) and (2) Directorate's letter No. RD/T/2156/Ins p./481 dated 02.05.2003, to file prosecutions The offence was compound 33. The petitioner's case is how Nandlall and subsequently the respondents completely disregarded the interest of the company and how the books of account have been maintained more for the purpose of concealing material facts than to disclose the same, how in spite of being the single largest shareholder the petitioner's father was never allowed to participate in the management and his rights as a shareholder were at all time denied so that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce-sheet clearly show that either the accounts were rewritten or the company is using different sets of accounts for different purposes. It has been reiterated that the respondents have not given any clarification in respect of various irregularities committed by them. The irregularities committed by any management cannot be legalised, by adopting the accounts in the annual general meeting by majority shareholders nor do the shareholders' rights cease to ask for any clarification after the annual general meeting. Notices to the annual general meetings and audited statements of accounts were never sent to the petitioner. The respondents, however, very firmly ensured that the petitioner was denied the legal and proprietary rights vested in a shareholder. The petitioner was not having any say in the activities of the company, the respondents have time and again tried to cover up their misdeeds by taking shelter in the non-existing threats received from them and on account of the alleged industrial unrest. All other tea gardens in the area are not suffering the same fate as the respondent-company and, therefore, the respondent-company is suffering only on account of mismanagement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents were compelled to file the writ petition in the Hon'ble High Court of Gauhati because of wrongful acts of the labour, workmen as well as the statutory authorities. Upon filing of the said writ petition the Hon'ble High Court was pleased to admit the same and grant relief to the respondent-company. 37. The respondents' case is that the condition of the factory was not good, manufacturing of tea suffered due to intermittent breakdown and the old machineries were not conducive to manufacturing quality tea, due to bad weather and low demand of tea in the international market, deteriorating of the political condition, etc., the reasons were given in the directors' report for the years 1991-92, 1992-93, 1993-94, 1994-95, etc. The higher sales realised do not necessarily mean higher gross profit of a company. The accounts were duly approved in the annual general meetings. The management has spent ₹ 18 lakhs for modernisation during the years 1992-93 to 1994-95. Despite the alleged investment in modernisation the production declined, losses increased, cost of the labour also increased, company was passing through financial stringency. Almost 83 per cent, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eye. Where a petition discloses merely facts which are apparent from the balance-sheet of the company, an investigation will not be ordered. At least prima facie evidence should exist that the business of a company is being carried on in fraud of its creditors or of persons dealing with the company or otherwise for a fraudulent or unlawful purpose which would lead to the conclusion that an investigation is necessary. There also must be circumstances before the court, which lead to an inference that there has been the type of malpractices by the respondent-company or its directors, which would justify an investigation of its affairs. No jurisdiction, outside the section which empowers the initiation of investigation, can be exercised. An action, not based on circumstances suggesting an inference of the enumerated kind will not be valid. In other words, the enumeration of the inferences which may be drawn from the circumstances, postulates the absence of a general discretion to go on a fishing expedition to find evidence. No doubt the formation of opinion is subjective but the existence of the sine qua non for action must be demonstrable. If the action is questioned on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year 1996-97 which have been complained in 1999 itself and the circumstances had been such that even the Registrar of Companies was given liberty to proceed under Section 209A of the Act, and the Registrar of Companies did carry out inspection under Section 209A and prosecutions have been launched. 42. I find that the respondents' preliminary objection to this petition on the ground that the reliefs claimed are beyond the scope of Section 235(2) of the Act is tenable. The mere fact that a so called shareholder is feeling dissatisfied about the way in which the affairs of the company are being conducted is not enough to get an order of investigation. Neither side can seek an order of investigation against the other after they have fallen out against each other, when the purpose is only to make a score against the other. Seeking an order to investigate into the affairs of the respondent-company for such aggrievement of the petitioner is beyond the scope of Section 235(2) of the Act. Under this section directing an investigation is only analogous to the issue of a fact finding commission by a civil court for looking into the accounts or making an investigation and does not am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples of partnership apply. The respondents have also not denied that these two petitions have been filed by the petitioner seeking representation on the board or to have his shares purchased at ₹ 500 per share by the respondents or by respondent No. 1 company with consequent reduction in the share capital, and in case both respondent No. 1 company and respondents Nos. 2 to 4 are not willing to buy the shares of the petitioner, order for the purchase of the shares of respondents Nos. 2 to 4 by the petitioner at ₹ 500 per share is sought. In the given circumstances of the case it is clear that the petitioner and the respondents are not able to go together in respondent No. 1 company. To end the matters complained of and in the interest of the respondent No. 1 company wherein 25 per cent, shareholder has not been given any representation on the board so far, to do substantial justice between the parties, I hereby direct respondents Nos. 2 to 4 to buy the shares of the petitioner at ₹ 500 per share and let him move out of the company enabling the respondents to manage the affairs of the company smoothly or the respondents may make respondent No. 1 company to purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X
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