TMI Blog2006 (12) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... ral meetings of the company and file statutory returns ; (iii) to reconstitute the board of directors of the company; (iv) to appoint an administrator to manage the affairs of the company; (v) to set aside the sale of the company's properties effected by respondents Nos. 2 to 7 ; (vi) to surcharge respondents Nos. 2 to 7 on account of the losses suffered by the company ; and (vii) to direct the Central Government to investigate into the affairs of the company and take appropriate action for statutory violations and diversion of funds of the company. 2. Shri V. Venkadasalam, learned counsel, while initiating his arguments submitted: The company is a private limited company promoted in January 1970, by (late) KSN, the petitioner's father along with second respondent herein for manufacture and sale of mechanised bricks. The authorised capital of the company is ₹ 25 lakhs divided into 25,000 equity shares of ₹ 100 each. The issued and paid up capital is ₹ 20.57 lakhs divided into 20,570 equity shares of ₹ 100 each. Respondents Nos. 2 and 3 are brothers, the fourth respondent is the mother and the sixth respondent is the sister o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner to file in C. P. No. 60 of 1996, for winding up of the company and obtained an order of injunction restraining them from selling of the properties of the company. The third respondent filed a civil suit in O. S. No. 5560 of 1996, on the file of the City Civil Court, Chennai, and obtained a restraint order against the second respondent and the petitioner, from herein acting as the chairman and director respectively. In the meanwhile, the third respondent had entered into separate agreements with 25 persons including the seventh respondent without the knowledge of other shareholders, for sale of 13.77 acres of land belonging to the company at Maduravayal, Chennai, in violation of the injunction order obtained in C. P. No. 60 of 1996. Contempt proceedings were initiated against the agreement holders, which however, came to be closed, pursuant to the affidavits of undertaking given on their behalf to maintain status quo of the land belonging to the company. Respondents Nos. 2 and 6 filed C. P. Nos. 199 of 1998 and 274 of 1998, respectively for winding up of the company. The petitioner, however, withdrew C. P. No. 60 of 1996, on the understanding reached with other family memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g before the High Court, of which two suits are for partition of the family properties. The second respondent in C. S. No. 477 of 2000, claims 60 per cent, of shares in the company and applied before the High Court for grant of probate in respect of the will executed by his father. Nevertheless, the second respondent does not claim any right as per the will either in his counter statement or in his oral submissions. The suit filed in O. S. No. 5560 of 1996, by the company is only for an order of injunction and the issue and the prayers involved in the present petition are totally different from the issues and prayers involved in the suit, in which case there is no impediment to proceed with the present company petition as held in Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. [1997] 1 Comp LJ 268 (CLB); Gram Panchayat of Village Naulakha v. Ujagar Singh and S. D. Dhandapani v. Branch Manger, Indian Overseas Bank [2004] 121 Comp Cas 669 (Mad). Though these suits are pending, all the respondent have submitted to the jurisdiction of the Company Law Board. Furthermore, the company is a small private limited company and it is treated as a partnership firm and therefore, the principles of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, who were parties to contempt proceedings before the High Court filed in the year 1996, wherein the High Court had restrained them from altering the properties. Thus, the purchasers are very well aware of the disputes between the legal heirs of (late) KSN. While the second respondent caused a public notice on February 25, 1996, there has been yet another public notice issued by the petitioner on April 17, 2003, cautioning the public not to deal with the property without reference to the second respondent. The purchasers ought to have insisted for the general body resolutions, but they hurriedly went for obtaining the sale deeds, in collusion with the third respondent. The purchasers are not innocent and bona fide purchasers. There was no need to sell the entire Maduravoyal property, but half of it would be sufficient to meet the existing liabilities of the company. However, the sale has been effected in order to gain unfair advantage by the third respondent. The Company Law Board has power to set right the fraud played on the company as well as on the shareholders. Therefore, all the sale deeds executed by the company are liable to be cancelled and the petitioner is also entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner as director and approving the appointment of the second respondent as chairman of the company. The second respondent's appointment as chairman after the demise of his father in accordance with article 39, is borne out by the authority given in his favour to appear in land acquisition proceedings as chairman of the company. The resolution passed on January 29, 1970, by the board of directors discloses the allotment of shares in the name of the petitioner's father. The petitioner's father sold his landed property to the company and by way of consideration 2,498 shares were allotted to him and got in addition 13,570 shares in the company by way of conversion of his partnership firm's movable and immovables such as machinery, lorries, building, etc. The shares held in the name of KSN are reflected in the balance-sheet for the year ended on December 31, 1973, according to which no cash has been received for these shares. Clause 22 of the partnership deed clearly shows that the entire 16,068 shares shall go to the petitioner's father. TIIC took 4,500 shares as additional security, which on closure of the liabilities must form part of the shareholding of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at the board meeting held on January 12, 1996, as director and her appointment as chairperson ; (c) resolutions passed on February 10, 1996, and November 27, 1999, under chairmanship of the fourth respondent to enter into sale agreements/sale deeds ; and (d) execution of sale deeds by the third respondent in favour of respondents Nos. 11 to 47, must be declared as invalid and not binding on the company. Respondents Nos. 3 to 5 executed all the sale deeds in favour of several of the buyers with effect from November 7, 2001, in spite of an order of injunction dated November 6, 2002, obtained by the second respondent in C. S. No. 477 of 2000, on the file of the High Court of Madras. The third respondent illegally collected the sale proceeds and utilized the funds on account of his personal needs and businesses. The building plan of respondent No. 16, has been approved only on January 22, 2004, and therefore, she must be restrained from going ahead with the construction work. In the contempt application namely, C. A. No. 1882 of 1997 in C. P. No. 60 of 1996, filed by the petitioner, the nature and topography of the property were directed to be preserved as per the sketch submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng legal proceedings namely, appeal preferred against the order made in winding up petition, probate proceedings and civil suits for declaration as to directorship are not relevant with reference to the present disputes and will not affect the present company petition. The partition suits cannot affect the properties of the company, especially when such properties cannot be divided among shareholders. Mere pendency of the civil proceedings, where some of the facts are subjudice and any possibility of conflict of decisions on these facts cannot take away the jurisdiction of the Company Law Board under Section 397/398. All the sale agreements in respect of the company's property produced before the Bench show that the sixth respondent is representing the company, but her signature is not found in any of the sale agreements. All the sale deeds and nomination letters make a reference to the agreements of sale. Thus, title of the purchasers flows from the agreements of sale, in which case, if any agreement of sale is found invalid, then sale must also be invalid. At the board meeting held on January 12, 1996-(a) respondents Nos. 3 and 4 were appointed as managing director and dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreements. Moreover, there are different versions of the same minutes circulated in various proceedings, copies of which are produced before the Bench. The first version has been produced in the winding up proceedings before the High Court of Madras. The second version of the minutes finds place in a suit filed by J. Valliammai before the District Munsiff Court at Poonamal-lee. The sixth respondent never signed this version of the minutes. Nevertheless, the third respondent apparently manipulated by super imposing her signature and taking photo copies as though the sixth respondent attested the minutes. The third version of the redrafted minutes was forwarded by the third respondent in his letter dated May 31, 1997, addressed to the sixth respondent's husband which would show that the minutes of the meeting dated February 10, 1996, did not attain finality as late as in May 1997. Thus, the third respondent fabricated and circulated the minutes of the board meeting to serve his interest by selling the company's properties and misappropriating the sale proceeds. The company or purchasers failed to produce anyone of the twenty-five original sale agreements containing the sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the agreement. Respondents Nos. 15, 22, 25, 26 and 34 in their counter-statement categorically stated that they have been in possession and enjoyment of the property ever since the year 1996. The value of land as reflected in the order dated October 19, 2001, of the High Court of Madras made in C. P. Nos. 60 of 1996, 199 of 1998 and 274 of 1998 is phenomenal, but the company sold the property for a meagre sum. The purchasers paid just ₹ 40,000 and waited till the year 2002 to pay rest of the sale consideration at the rate which prevailed in the year 1996, causing enormous losses to the company. The third respondent or the buyers shall deposit with the Company Law Board the difference of sale consideration to avoid any loss suffered by the company. Furthermore, the entire 13.77 acres need not be sold to discharge the liabilities of the company. The holding of general meeting is one of the fundamental rights of any shareholder so as to exercise control over the company. The company failed to convene any general meeting for the past several years, thereby all the directors vacated the office of director and the plea of estoppel cannot be raised against the statute. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 996, with M/s. Southern Peninsula Housing Ltd., for sale of the Maduravayal land and received an amount of ₹ 10 lakhs which ultimately resulted in a civil suit filed by the latter for refund of the advance amount together with interest. The second respondent misutilised the advance amount of ₹ 10 lakhs received from M/s. Southern Peninsula Housing Ltd., by way of legal expenses and personal expenses of the petitioner and his wife. The High Court in its order dated October 19, 2001, made in C. P. No. 60 of 1996, while observing that the validity of the will reportedly executed by the petitioner's father, appointment of the petitioner as director, validity of the meeting held on August 9, 1995, and the board meeting held on January 12, 1996, are all matters pending consideration before the civil courts and cannot be gone into in the winding up proceedings, which are summary in nature, made clear that if the interests of the shareholders are prejudicially affected under Section 397/398, the aggrieved shareholder can move the Company Law Board for appropriate reliefs under Section 402. The sale agreements are under challenge before the Company Law Board and its juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C and Mr. J. I. Coil Pillai, a common non-shareholder director. Though the company stopped its operations in the year 1976, KSN had taken steps to settle the dues of TIIC. The board of directors at the meeting held on August 10, 1988, authorised the chairman of the company to arrange for ₹ 81 lakhs in any manner in order to settle the dues of TIIC. At the board meeting held on October 12, 1988, the proposal for disposal of the entire landed property and machinery belonging to the company was approved. At the same board meeting the chairman was authorised to negotiate and finalise the terms with any prospective buyers for sale of the property. The board of directors at the meeting held on December 16, 1988, authorised the chairman to negotiate and conclude a sale in favour of S. X. Francis. The company ultimately cleared the dues of TIIC in full in instalments by September 1989, upon which TIIC returned on November 25, 1989, the title deeds belonging to the company and the right to nominate two directors by TIIC by virtue of article 37 ceased to operate, upon which the nominee directors of TIIC vacated their office and respondents Nos. 2, 3 and 6 were elected as directors in N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of the company. Accordingly, a board meeting was convened on January 12, 1996, after due notice sent on December 30, 1995, under certificate of posting to all the directors in writing as per Section 286 of the Act. The second respondent neither attended the board meeting nor obtained leave of absence of the board. However, the second respondent in his letter dated January 3, 1996, while acknowledging the receipt of the notice dated December 30, 1995, advised the third respondent not to indulge in the company's affairs. At the said board meeting, the fourth respondent, being the widow of KSN was appointed as the chairperson and the third respondent became the managing director of the company. At the same time, the second respondent in collusion with the petitioner entered into two agreements of sale namely, one for ₹ 3.15 crores and another for ₹ 4.65 crores with the obvious intention of appropriating the unaccounted personal profit of ₹ 1.5 crores which ultimately resulted in the civil suit filed in O. S. No. 5560 of 1996 by M/s. Southern Peninsula Housing Ltd. This act of the second respondent was condemned by the High Court while dismissing the C. P. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided to withdraw C. P. No. 60 of 1996, the second respondent delayed the process by filing an application (C. A. No. 804 of 1999) for his transposition as the petitioner in C. P. No. 60 of 1996, and the High Court ultimately by an order dated July 1, 1999, permitted the withdrawal and dismissed C. P. No. 60 of 1996. With a view to ensure that the injunction order passed by the High Court is not vacated on account of withdrawal of C. P. No. 60 of 1996, respondents Nos. 2 and 6 filed C. P. No. 199 of 1998 and C. P. No. 274 of 1998 respectively for winding up of the company. However, the company petitions in C. P. No. 199 of 1998 and C. P. No. 274 of 1998 came to be dismissed by the High Court on October 19, 2001. Thereafter, a major portion of the landed property in Maduravayal was sold in pieces to the agreement holders for an aggregate sum of ₹ 4.41 crores and the sale proceeds were deposited in banks. The company sold the property at the rate of ₹ 32 lakhs per acre which is above the guideline value and even above the market value itself. At the time of entering into the sale agreements, one cent of land in case of an approved lay out in the same area was selling at & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares and probate proceedings are pending before the High Court. The petitioner herein has given consent for probate of the will, but failed to approach the company for transmission of shares. However, the other legal heirs are seriously objecting to the probate, sought by the second respondent. Therefore, the Company Law Board cannot at this stage pass any order with regard to transmission of the shares pending disposal of the probate proceedings. Consequently, the prayer for calling of the general meeting after transmission of the shares and for reconstitution of the board cannot arise. The appointment of the third respondent as the managing director has been held to be valid by the city civil court which has been affirmed by the appellate court and therefore, his appointment as the managing director cannot be questioned in the present proceedings. The serious charges in relation to the sale of the property agitated in the winding up proceedings have been negatived by the High Court, and the same cannot be reopened before the Company Law Board. There is enormous delay on the part, of the petitioner in approaching the Company Law Board, after withdrawal of C. P. No. 60 of 1996, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principles of laches. The present company petition is based substantially on the same grounds, which have been already adjudicated by the High Court and therefore the present petition is barred by the principles of constructive res judicata. The petitioner and second respondent were solely responsible for not conducting the annual general meetings or board meetings on account of various illegalities committed and litigations initiated by them. All the records of the company are in custody of the High Court and therefore, neither meetings could be convened nor annual returns be filed periodically. The shares of KSN could not be transmitted on account of the pendency of the probate proceedings. The sixth respondent received the notice of the board meetings and attended the meetings held on January 12, 1996, and February 10, 1996, as borne out by the attendance sheets signed by the sixth respondent. The minutes of both the board meetings dated January 12, 1996, and February 10, 1996, were already produced in C. P. No. 199 and C. P. No. 274 of 1998, before the High Court of Madras. The sixth respondent in C. P. No. 274 of 1998, filed before the Madras High Court for winding up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of certain disputes with the fourth respondent pursuant to the denial of her claim for a larger share in enjoyment of the house property situated at Shenoy Nagar, Chennai-600 030 by the fourth respondent, the relationship became strained between the parties and therefore the sixth respondent is falsely challenging the validity of the meeting of board of directors held on February 10, 1996. Thus, the sixth respondent lacks good faith and bona fides and supported the petitioner with unclean hands. The company never fabricated the minutes in order to super impose the signature of the sixth respondent in any copy of the board minutes dated February 10, 1996. There are no pleadings in relation to the third board meeting held on November 27, 1999, raised by the sixth respondent either in her counter statement or additional reply statement. The sixth respondent in her counter-affidavit filed to C. A. No. 199 of 1989 in C. A. No. 1882 of 1987 in C. P. No. 60 of 1996 before the High Court of Madras, while denying any contempt committed by the respondents by altering the nature and topography of the vacant land in Maduravayal, did not question the execution of the sale agreements. Moreove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that the sixth respondent has approached the court with unclean hands and failed to take consistent stand in the proceedings relating to the company. The High Court with regard to holding of shares by (late) KSN and the claim of the parties to the shares of (late) KSN made on the basis of the alleged will found that these issues are pending consideration before the civil court which will investigate the issues in question. The High Court in C. A. No. 804 of 1998 and 2098 of 1987, in Company Petition No. 60 of 1996 and C. A. No. 1033 of 1998 in C. P. Nos. 199 of 1998 and 274 of 1998 by an order dated July 1, 1999, upheld the reconstitution of the board of directors of the company during the life time of KSN and after vacation of the office of director by the nominees of TIIC which consisted of KSN as the chairman besides respondents Nos. 2, 3, and 6 and one Johnson as borne out by the minutes of the board of meeting held on December 16, 1989. The City Civil Court at Madras by an order dated October 31, 1996, made in I. A. Nos. 7375 to 7378 of 1996 in O. S. No. 5560 of 1996, restrained the petitioner and the second respondent from holding themselves out as director and chair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zhilmani and Sri Dhanaraj, learned counsel, representing the purchaser-respondents and adopted by other purchasers submitted: The petitioner neither holding 10 per cent. of the issued share capital nor constituting 1/10th of the total number of members of the company does not fulfil the requirements of Section 399 and therefore, the present company petition is not maintainable. The petitioner consequent upon the death of KSN, his father is neither entitled to l/5th of shares as per intestate succession nor 40 per cent. share in the land of the company as per the will of (late) KSN, especially when the will has not been so far probated. There were originally 25 agreement holders, out of whom a few of the agreement holders nominated 53 persons in terms of the agreements reached between the parties and out of the 53 persons, 36 of them have got their sale deeds executed and the remaining sale deeds are yet to be completed in view of the present company petition. The company represented by respondents Nos. 3, 4 and 6 had reported that the land under dispute belonged to the company in support of which copies of the board resolutions dated January 12, 1996, February 10, 1996, and N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held in Nellai Metal Rolling Mills v. Southern India Central Benefit Fund P. Ltd. [1986] I ML] 370. Moreover, the company received the sale consideration and is enjoying the benefit of such a sale consideration, in which case bona fide third parties ought not to be deprived of the property on account of the disputes among the family members of (late) KSN. The sale deeds pertaining to these respondents were not undervalued at the time of registration and therefore, none of the sale deeds was impounded as per the procedure prescribed by law, as claimed by the petitioner. The agreement-holders have already taken possession of the property. The petitioner cannot now seek to reopen the past concluded transactions. The entire property has been fenced and the huge pond existed in the land has been levelled by the 24 agreement-holders. These facts have been recorded in the winding up proceedings before the High Court. The encroachers in the property were removed. All these additional costs were met by the purchasers. The petitioner is not prosecuting the present company petition for any of the reliefs prayed for, but with a mala fide motive of enriching himself unjustly in terms of par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 199 of 1998 and 274 of 1998, filed by respondents Nos. 2 and 6 came to be dismissed, and C. P. No. 60 of 1996, was withdrawn and the present petition is yet another attempt by the petitioner to settle his personal scores for which respondents Nos. 2 and 6 are supporting him. The petitioner has indulged in forum shopping which must be condemned by rejecting such vexatious proceedings. 8. I have considered the pleadings and arguments-oral as well as written-advanced for the parties. The arguments made out in the written submissions and case law cited therein, but not dealt with at the time of oral submissions have not been considered by me, keeping in line with the principles of natural justice. This Bench considering the fact that the company is closely held by the family members of (late) KSN and with a view to put an end to various protracted litigations appointed, by orders dated June 15, 2004, and July 29, 2004, with consent of the contesting parties M/s. K. S. Jagannathan and Co. and M/s. Khicha and Co., to determine the shareholding pattern of the company and accordingly a report came to be submitted on December 1, 2004, before the Bench. However, all the efforts to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 10 of the Hindu Succession Act, 1956, the shares held by KSN, upon his demise devolve upon his legal heirs, thereby the petitioner becomes entitled to one-fifth of the shareholding of (late) KSN namely, 2,760 shares, with an indefeasible right to get his name registered in the register of members of the company and therefore, the petitioner is entitled to maintain a petition in respect of oppression and mismanagement in the affairs of the company under sections 397 and 398, as held in World Wide Agencies P. Ltd. v. Mrs. Margaret T. Desor MANU/SC/0137/1990MANU/SC/0137/1990. However, in the event of grant of probate of the will in the probate proceedings, the petitioner will become entitled to 40 per cent. of the shares of the company. Thus, the petitioner's holding, in either of the cases will exceed one-tenth of the issued capital of the company, meeting the minimum requirement as stipulated in Section 399. 9. The petitioner and respondents Nos. 2, 3 and 6 are the children and the fourth respondent is the wife of (late) KSN. After the demise of KSN in July, 1995, disputes arose among his legal heirs in relation to, inter alia, the shareholding, constitution of the board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irs are reportedly eligible for 10 per cent. of the total assets of the company. Accordingly, the second respondent has sought for a declaration, in the pending civil suit, that he is entitled to 60 per cent, of the assets and share value of the company. In this background, the prayer of the petitioner for issue of directions against the company to effect transmission of the shares of (late) KSN in the name of his legal heirs will no way be justified. 11. The claim and counter claim in regard to the directorship must be examined in the light of the civil suit in O. S. No. 5560 of 1996 on the file of the City Civil Court at Madras and the connected proceedings. The company represented by the third respondent in the said civil suit prayed, inter alia, for a declaration that (a) the petitioner and the second respondent are not the director and chairman respectively of the company ; (b) the meeting held on August 9, 1995, appointing the petitioner as the director and the second respondent as chairman is illegal, null and void ; and (c) the petitioner and the second respondent shall not act as the director and chairman of the company and accordingly prayed for certain interim orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed in C. M. A. Nos. 228 of 1996 and 230 of 1996 by an order dated May 6, 1997, wherein the appellate court found that there is sufficient materials available in this to come to the conclusion that there is all, prima facie, case for granting interim injunction against the respondents (the petitioner and the second respondent herein) restraining them from holding themselves out as the director and chairman of the applicant-company pending disposal of the suit and to restrain them from entering into any contract agreement or any other obligations for and on behalf of the company towards selling transferring alienating or dealing with the assets of the company pending disposal of the suit . The civil revision petitions (C. R. P. Nos. 917 and 918 of 1999) preferred before the High Court of Judicature at Madras, by the second respondent against the order dated May 6, 1997, made in C. M. A. Nos. 228 of 1996, and 230 of 1996, came to be dismissed as early as on March 31, 1999. This order of the High Court has become final and binding on the petitioner and second respondent. In view of this, the petitioner and the second respondent cannot claim to be the director and chairman of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the findings of the High Court reached in the winding up proceedings against the company and any such direction may also result in conflict of decisions, in the light of the proceedings pending in Tr. C. S. No. 496 of 2003 and other connected civil suits. 12. The sale of property in Maduravayal belonging to the company, in favour of the purchaser-respondents is under challenge. It is observed that certain agreement holders sought to implead themselves to the present company petition by taking out appropriate applications, who are found to be necessary parties, in view of the interest in the disputed property and therefore, they have been impleaded as respondents Nos. 52 to 54. A close scrutiny of voluminous records produced before the Bench reveals that as many as 35 sale deeds have been executed and registered in the name of respondents Nos. 1 to 54 save respondents Nos. 16, 30, 34, 39, 44, 45 and 48 to 51, 53 and 54, during the period between November 7, 2001, and February 6, 2002. However, it appears that no sale deeds have been so far obtained by respondents Nos. 16, 30, 34, 39, 44, 45 and 48 to 51, 53 and 54. While questioning these sale transactions, it was argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board meeting held on January 12, 1996, but he did not choose to attend the board meeting. The second respondent in the course of his oral submissions reported that he did not attend the board meeting on January 12, 1996, in view of the fact that the third respondent had no authority to convene any board meeting and that the board meeting of January 12, 1996, is illegal. The managing director was authorised to finalise the agreements for sale of the Maduravayal land in favour of prospective purchasers and to do all acts necessary to complete the sale transactions and further respondents Nos. 2, 3 and 6 were authorised to sign jointly the sale agreements at the board meeting held on February 10, 1996, wherein respondents Nos. 2, 3 and 6 participated, as borne out by the attendance register on record. The second respondent in his counter statement filed in C. P. No. 60 of 1996, before the High Court of Madras categorically admitted that the third respondent herein had without any authority issued notices dated December 30,1995 and December 3, 1996, convening the board meetings on January 12, 1996, and February 10, 1996, respectively. The sixth respondent in her affidavit filed in Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purported fabrication of the board minutes dated February 10, 1996, will not have any adverse impact on the validity of the sale deeds, more so when valid title to the property could be conveyed on the strength of the resolutions passed at the board meetings held on January 10, 1996, and November 27, 1999, in favour of the purchasers. Furthermore, the requirements of Section 293 are inapplicable to the company, being a private limited company. The purchaser-respondents, being third parties, while dealing with the company have every right to assume, as against the company that all the requirements of internal management have been duly complied with, as held in Nellai Metal Rolling Mills v. Southern India Central Benefit Fund P. Ltd. [1986] 1 MLJ 370. The purchasers are not concerned with the internal squabbles between the shareholders. When the very same issues have been raised in the winding up petitions by the contesting parties, the High Court by an order dated October 19, 2001, while dismissing the winding up petitions, observed that there is a resolution by the board of directors, and the board of directors have resolved to disburse all the property by way of twenty-five a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No. 274 of 1998, had been taking not only different but also shifting stands and different attitudes from time to time. In fact, in the Contempt Application No. 199 of 1997 the said Mrs. Mangala Vijayalakshmi had supported the board resolutions and admitted that she had signed the same. Having said so, it is too late in the day for her to plead that her signature had been secured forcibly.... (paragraph 81) . 14. The High Court after making the above observations concluded : ....Thus, it is clear that the petitioner, Mrs. Mangala Vijayalakshmi, was a party to the resolutions and she cannot turn around and say that she had been a signatory due to compulsion. The above conduct on the part of the petitioner in the company petitions would show that they have neither a consistent stand nor have they approached this Court with clean hands nor their conduct is above board nor had they taken a consistent stand right through.... (paragraph 82) . 15. The order dated October 19, 2001, made in C. P. No. 274 of 1998, is under challenge in O. S. A. Nos. 430 and 431 of 2001, before the High Court of Judicature at Madras the appeal is pending adjudication, but the order dated October 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 001, observed that the second respondent herein ...had made arrangement to drain or pocket ₹ 1.5 crores out of the very same dealing, which is to the detriment of the company and its shareholders. Such is the conduct of the said petitioner. It is rather shocking that in respect of the same sale agreement there could be one sale agreement and a separate memorandum of understanding for different consideration for which a sum of ₹ 1.30 crores is attempted to be pocketed. Such a sale agreement is not backed by any resolution or authorisation by the company and the board of directors. This shows the anxious conduct to knock away the company's property, which speaks volumes... . The sale deeds indicate that the 25 agreement-holders, with their funds, reportedly cleared all shrubs and bushes, erected fences around the property and increased the level of land, filled 2 1/2 acres of pond and levelled the property in order to maintain it as made out in the winding up proceedings by the agreement-holders. These development costs are in addition to the sale price of ₹ 32,000 per cent. It is, therefore, clear that the claim of the petitioner that the property has been sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to ₹ 2.82 crores between April 1, 2001, and March 31, 2002, on account of sale of the property; (b) expenditure/payments incurred by the company during the period between July 24, 1995, and March 31, 2006, consisting of advance for land registration, legal, telephone and travelling expenses, printing of stationery, postal expenses, KSN memorial expenses, agricultural expenses salaries and wages, bank and sales panchayat tax dues, etc., aggregating ₹ 1.86 crores, which include an amount of ₹ 54 lakhs towards bank dues. The third respondent has neither offered any explanation for not paving rendered the accounts all these years nor justified the various expenses reportedly incurred by him. All the expenses shown in the statements of accounts furnished from time to time, are required to be verified to ensure the interests of the company and its shareholders. At the same time, mere production of copies of the statement of accounts in relation to M/s. Kasimari Ceramique cannot establish the alleged diversion of the sale proceeds by the third respondent to the aforesaid entity owned by him. Similarly, the charges of misappropriation are not borne out by the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a case, appropriate directions could be given to do substantial justice between the parties. 18. The prayer seeking directions against the Central Government to investigate into the affairs of the company would arise only when there are sufficient materials to form a prima facie opinion that the circumstances of the case would satisfy any one of the requirements of Section 237(b) of the Act, which provides as under: 237. Without prejudice to its powers under Section 235, the Central Government-.... (b) may do so if, in the opinion of the Company Law Board there are circumstances suggesting- (i) that the business of the company is being conducted with intend to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose ; (ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members ; or (iii) that the members of the company have not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause there was a discussion among the family members including the petitioners. Being the legal heir of K. Shanmugasundaram Nadar, the family members and also the management of the first respondent-company gave a compromise proposal that if the petitioner withdraws Company Petition No. 60 of 1996, the petitioner would be compensated with ₹ 1 crore (rupees one crore) towards all claims and shares in Maduravayal lands of the first respondent-company. I filed a withdrawal memo for C. P. No. 60 of 2006, and the company petition was allowed to be withdrawn by the petitioners this hon'ble court on the basis of the legal advice obtained by him. But the family members and directors also parties in the present O. S. A., cheated me absolutely, and the petitioner did not get any compensation (para. 6(0) at page 16 of company petition). 21. It is therefore, clear that the petitioner had reached certain understanding with other family members to withdraw C. P. No. 60 of 1996 and support the sale transactions entered with the purchaser-respondents provided he is adequately compensated. It will not be out of context to observe that the petitioner and respondents Nos. 3, 4 and 6 ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members as per their shareholding as reflected in the register of members of the company, however, after meeting the regular and recurring expenses essentially incurred by it. The interest amount in relation to the shares held in the name of (late) KSN shall be distributed in favour of his legal heirs in the ratio of one-fifth share each subject to the condition that the interest amount so distributed would finally be appropriated among them appropriately on the basis of the decision as and when made in the probate proceedings ; (d) The third respondent shall render accounts in respect of the entire advance moneys and sale proceeds collected from the purchaser-respondents. All the expenses incurred and payments made from and out of the sale proceeds shall be verified by an independent chartered accountant. Towards this end, M/s. K. S. Jagannathan and Co., chartered accountants, are appointed to verify the accounts maintained by the company namely, all receipts, payments and expenses with effect from July, 1995, which shall be completed by January 31, 2007. The third respondent shall be accountable for the irregularities, if any, and shall reimburse the amount that may be quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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