TMI Blog2007 (5) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... o separate the human aspect of disharmony in the personal relationship between the directors which has led to the deadlock and the ill health of an earlier profit making company. It is a fact that there is a deadlock. Cause is known - matrimonial discord. And may be even spite and negligence which cannot be ruled out. But the preliminary objections raised in the case cannot be sustained. The case of oppression and mismanagement u/s 397 and 398 of the Act has been made out. Personal cruelty in the relationship has lead to compelling circumstances of the wife director to withdraw from her successfully established business to look for another job to fed for herself and her two children. It is not an easy and painless decision. Driving an almost indispensable director out of the company resulting in the deadlock is itself an act of oppression. For the purposes of Sections 397 and 398 of the Act, oppression may be an act of cruelty, severity, defaulting of will or excessive use of authority. It is unfortunate, but it is true that the personal relationship of the directors has affected the functioning of the R-1 company. It is humanly impossible to exclude and detach the personal rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived in respect of the discounted sales and other amounts siphoned off from the R-1 company's accounts forthwith. Since there is a deadlock in the R-1, and since both the parties know the worth of the company, I hereby direct the parties to arrive at an amount to be paid to the petitioner for her going out of the company which would be acceptable to the petitioner. In case no such acceptable consideration is arrived and paid to the petitioner within a month of receipt of this order, I consider it appropriate to direct that both the parties to be present in the CLB Court Room along with their counsels on 23.8.2007 at 11.30 a.m. to bid for the shares and the party which bids the higher price for the shares, should purchase the shares of the other party at that price. Hence, I dispose of the petition, keeping seisin over the matter till the finalization of the bidding, if required. All CA s stand disposed off. All interim orders stand vacated. - Vimla Yadav, Member ORDER Vimla Yadav, Member 1. In this order I am considering Company Petition No. 10 of 2002 wherein Ms. Heena Dutt, the petitioner who is a professional interior designer has alleged oppression and misma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. My attention was drawn to the News Item in Economic Times dated 13.6.1999 page 59 Annex.,. of Rejoinder. It was argued that as per the manipulated balance sheet and profit and loss account for the years ending 31.3.1999 the company owed to the petitioner ₹ 2,58,557.53/- (page 12 list of documents filed with petition referred). 5. Further, it was argued that after the petitioner has been thrown out of the company, no statutory compliance has been done by the respondent No. 2 under Companies Act, 1956, Income Tax Act, etc. Neither balance sheet has been filed nor annual report nor profit and loss account has been filed for more than five years. This itself shows, it was argued, that there has been complete oppression and mismanagement of the company by the respondent No. 2. 6. It was argued by the counsel for the petitioner that after the petitioner was thrown out of the company, the respondent No. 2 was not legally authorized to manage the affairs of the company in view of the provisions of Section 252 of Companies Act. Minimum two directors are required for the functioning of the company. On 1.11.1997, Ms. Shubhra Dutt was appointed Additional Director of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the respondent No. 2 is ₹ 10,19,000/-. The respondent No. 2 has not given any explanation where the dishonestly and illegally withdrawn money of the company has been used. The respondent No. 2 has not denied the fact that these amounts have been withdrawn by him. The respondent No. 2 has vaguely and falsely stated without producing any documents, that the same have been utilised. At the time of when the petitioner was thrown out of the said company, the said company had a stock worth of ₹ 34,43,375/-. This fact is also not denied by the respondent No. 2. 8. The counsel for the petitioner further argued that the respondent No. 2 has deliberately not stated in the reply regarding showroom at M-45, Greater Kailash-I, New Delhi. The said showroom was the most famous showroom of the respondent No. 1 located in one of the posh locality of Delhi. The said showroom has been reported in various newspapers. (page 54 to 58 of rejoinder were referred). All the stocks of the said showroom were illegally removed by the respondent No. 2 to the factory at Devli, and thereafter was sold under the name of Chavi Interiors, (page 50, rejoinder, para 7of Affidavit of the car taker of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No. 2 has not stated where the money has been spent. The respondent has not given any information as to what happened to the money received from the debtors. The petitioner has not been paid her salary. In January 2001 the petitioner had to take up a job to provide a living for herself and her two children. Petitioner has not been allowed to function as Director. The matter was reported to the ROC vide letter dated 23.4.2001. No information has been furnished about the stock of the company. A profit making organization has been reduced to complete shambles. There has been complete oppression and mismanagement. Hence, lift the corporate veil and pass necessary directions under Sections 397 and 398 of Companies Act, 1956. 10. Shri Abhijeet Chatterjee, Counsel for the respondents argued that in July 1991-1995 the office of the respondent company functioned from the premises at C-58, Malviya Nagar being the office of the father of the petitioner. During this period the workshop was hired for fabrication of furniture at Sheik Sarai. The company entered into a profit sharing agreement with the owner of a commercial/showroom premises at M-Block, Grater Kailash market. This sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner and the respondent No. 2. The allegations made in the petition do not bring the dispute within the scope and ambit of 397/398 of the Companies Act. Hence the same is not maintainable. The petition is also not maintainable for the reason of non-joinder of necessary party. The mother of the respondent No. 2 is Mrs. Shubra Dutta, who was inducted as an Addl. Director of the company in 1997 and after her term expired, she was re-appointed as Director in September, 1998 and in the absence of any procedure to remove her, she continues to be a Director. In the legal notice issued by the petitioner, a specific relief has been sought by asking the Respondent to publically declare that Mrs. Shubra Dutt is not one of the Directors of the company. By seeking the relief of declaration, the petitioner, in fact, has admitted to the continuity of tenure as Director by Mrs. Shubra Dutt. The petition itself has serious allegations against Mrs. Shubra Dutt including that of forgery and misappropriation of company funds. The nature of the allegations made in the petition clearly show that a joint cause of action is being made out against the Respondent No. 2 i.e. Sandeep Dutt and his mother Mrs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the abrupt withdrawal of the petitioner from the affair of the company led to a halt in the working of the company. The petitioner, who was fully aware of the negative consequences of her act has done so willfully and out of spite and vengeance against the respondent No. 2. It is the petitioner, who is thus responsible for serious acts of oppression and mismanagement. It was pointed out that the petitioner withdrew from the affairs of the company in January, 2001 to take up with a company dealing in fashion accessories at Gurgaon. The respondent had learnt that the petitioner in association with Deepak Malhotra had made out an alternate business plan by which she has planned to set up a competing company which would draw upon the cliental and goodwill of Chavi Design, this alone is an act not only of oppression but amounts to unethical business practice. 15. The counsel for the respondent contended that the scope and object of the Section 397 and 398 of the Companies Act, 1956 is to resolve any deadlock and take such steps which would ensure a smooth functioning of the company. In fact, the nature and purpose of the legislation is entirely in the welfare of the company and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allans and Returns. Further the period during which the said company was operating at M-52, Greater Kailash-I was during the year 1995-1999, at this stage the petitioner was in complete charge of the affairs of the company and found no reason then to complain of such alleged acts of mismanagement and oppression. The petitioner herself has signed all vouchers, dispatch documents, bills, sales tax returns etc. And hence is fully responsible for the functioning of the company. In the circumstances, it was argued that all allegations made against two Directors i.e. the respondent No. 2 and Mrs. Shubra Dutt are patently false and baseless. Further, it was pointed out that the annual profit of the company has never exceeded ₹ 1 lakh. The petitioner, who is a qualified interior designer had become disillusioned with the low returns in the business and hence left the company at the first available opportunity. It was argued that it is co-incidental that this decision was also made on account of the deteriorating matrimonial relationship between the petitioner and the Respondent No. 2 leading to acrimony and friction. In these circumstances, the petitioner had lost all interests in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning off funds a profit making company has been reduced to shambles. The respondent's case is that due to matrimonial discord the only interior designer professional wife has herself withdrawn from the R-1 leaving the R-1 and R-2 in the lurch to desire sadistic pleasure to teach R-2 a lesson and derive better terms for herself in the ongoing divorce proceedings; her withdrawal from the R-1 out of personal spite and vengeance has had very negative consequences of her act on the conduct of the affairs of the R-1; she has joined hands With Shri Deepak Malhotra making alternate business plan setting up a competing company which would draw upon the clients and the goodwill of the R-1, this is an unethical business conduct on the part of the petitioner; the petition is not maintainable, it has been filed to settle personal scores, matrimonial discord cannot be a ground for attracting the provisions of Sections 397 and 398 of the Act, the petition has been filed with an oblique purpose; before the matrimonial discord started, the petitioner had never complained about the same state of affairs of the R-1 and R-2 and the statements and annual returns filed with the ROC were signed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional director/director is in violation of Section 252 of the Act and is illegal and in contravention of the provisions of the Act. An illegal act cannot generate legal rights. However, during the arguments the counsel for the petitioner did not insist on relief qua R-2's mother, her main allegations being against R-1 and R-2. As regards the petitioner joining hand with another person in the competing business alleged to be an unethical business practice affecting the clients and the goodwill of the R-1, the allegation is merely a bald allegation, no case is made out, what else can a professional interior designer do other than that to earn a livelihood for herself and her two children is also not understood. The R-2 has failed to appreciate the constraints of her choice. 21. In view of the foregoing, I find that the respondents have failed to meet the allegations on merits of the case under Sections 397 and 398 of the Act. The manipulation of accounts of the R-1, siphoning off of discount sale consideration and non-furnishing of the statements and annual returns to the ROC for several years are all acts of oppression and mismanagement in the conduct of the affairs of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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