TMI Blog2008 (6) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... f) to restrain the respondents, their men, servants and agents from alienating or encumbering or in any way transferring the assets of the Company; (g) to make good the loss caused to the Company by the acts of the respondents; (h) to reconstitute the Board of directors of the Company; and (i) to prepare a scheme of administration to conduct, regulate and manage the affairs of the Company. 2. Shri G. Venkataramani, learned Counsel, while initiating his arguments in support of the petitioner, submitted: The Company has been incorporated in November 1985 by one Shri P. Saravanan Chettiar and Shri S. Kandasami, and is engaged in the business of manufacturing and trading in computer forms and pre-printed stationeries. During the financial year 1989-90, the petitioner and the second respondent had acquired each 2000 equity shares from the promoters. As at 15.09.2004, the authorised capital of the Company was of ₹ 25 lakhs and the paid capital accounted for ₹ 23,02,000/- which got increased by ₹ 5 lakhs. The shareholding of the Company underwent changes from time to time as under: Sl. No. YEAR NAME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd respondent. The petitioner was never a sole signatory for operation of the bank account. At the Board meeting held on 15.09.2004, 6980 equity shares of ₹ 100/- were allotted to the petitioner which are partly paid to the extent of 71.63% of face value of the shares. The respondents 3 4 were parties to the allotment of shares made in favour of the petitioner. With this allotment, the petitioner's shareholding increased from 38.84% to 55.92% of the paid up capital of the Company. In view of the disputes raised by the respondents, the petitioner is willing to forego the impugned shares, so as to avoid any controversy. 4. At the annual general meeting held on 13.10.2004, none of the additional directors including the fourth respondent was appointed and thereby they ceased to be directors of the Company, as a result of which the petitioner and the third respondent alone continued to be director of the Company and the petitioner was managing the affairs of the Company. The balance sheet for the year ended 31.03.2005 brought out later, was signed by the respondents 2 3, as the second respondent was not a director of the Company as on 31.03.2005. The respondents 2 4 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d commencing from January 2005 to May 2005 by interacting with the Bank, which is vital in deciding the claim against the respondents. The respondents without properly accounting for the shortage of materials, have misappropriated the materials sold them and diverted the proceeds for their personal use. 7. The second respondent forcefully took over the management of the Company from the petitioner and removed all key employees without any reason, prejudicing the Company's interest. The respondents mismanaged the affairs of the Company by (a) issuing cheques to suppliers without adequate funds; (b) failing to supply products to customers; and (c) neglecting business of the Company, which resulted in losses suffered by the Company. In a winding up proceeding, initiated against the Company by third party creditors, even though provisional Liquidator came to be appointed, the respondents failed to take appropriate steps diligently, protecting the Company's interest. 8. The petitioner is a single majority shareholder and a director, but was not allowed to attend the board or general meetings. No notice of the Board or general meetings was served on the petitioner. The resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and misusing the pre-signed letter heads of the Company, wrongful representation against the Company before various courts, misusing his position as director of the Company by writing anonymous letters against the Company and black mailing the respondents. The writing of letters to various forums, by the petitioner, apart from invoking the provisions of Section 397/398, would amount to forum shopping, as held in Mrs. M.R. Shah v. Vardhman Dye-Stuff Industries (P) Ltd. (2005) 60 SCL 623. The petitioner never invested any money in the Company and all his shares were gifted by the second respondent. The cash given by the respondent was deposited in the petitioner's account for income tax purpose and was shown as investment by the petitioner. The petitioner has commenced competitive business even before filing of the company petition. 11. The petitioner admits his signature in the affidavit and other documents containing several undertakings, which are produced before the Bench. The affidavit has been admittedly executed at the factory premises in the presence of the Inspector of Police, a large number of employees, friends and relatives. The Board minutes dated 05.02.2005 du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajority in a family company by allotment of shares without consent of all family members is an act of oppression which would justify winding-up of a company on just and equitable grounds; (b) if board issued additional shares with a view to create absolute majority the decision of allotment of further shares made in meeting without sending notice to all directors is invalid and it is a grave act of oppression. The ROC records would show that 18,020 equity shares were allotted on 08.09.2004 in favour of the petitioner (7000 shares); the third respondent (6000 shares) and the fourth respondent (5020 shares), but the company petition does not speak about the allotments said to have been made on 08.09.2004. The report of the Chartered Accountant appointed by this Bench shows that the impugned allotments are not supported by any entry in the ledger for receipt of any consideration. Those allotments being oppressive and illegal must be set aside. 13. The second respondent gifted his shares to the respondents 3 and 4, but the gift was not effected in the records of the Company. The shareholding pattern as existed during 2000-2001 remains the same till date. The Directors report dated 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company. The Directors report forming part of the annual report for the year ended 31.03.2004 does not have any reference about the director's resignation or appointment of new directors. The second respondent, on the other hand was appointed as Managing Director at the board meeting held on 03.01.2005, in terms of Form No. 32 filed with the Registrar of Companies. 15. The respondents have not forged the Board minutes dated 03.01.2005 as claimed by the petitioner, especially when he himself enclosed copies of such resolution to the company petition, which contains an affidavit sworn by him, accepting the aforesaid minutes. The petitioner made the profit making company into a cash crunch company, by siphoning monies of the Company and fabricating records, namely, gate passes, cash vouchers etc. The petitioner, while in the management of the Company had issued a number of cheques to the suppliers, many of which bounced back for want of funds, details of which are given in CA No. 61 of 2005. The petitioner claimed to be in the management of the Company till March 2005, but at the same time pointed out the shortage of stocks maintained by the Company as at 31.03.2005. The peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 57 SCL 211 would be oppressive of the respondents. 18. All cases including Section 138 proceedings initiated against the Company have been withdrawn. The sole object of the petitioner is to grab the Company by excluding the respondents from the affairs of the Company. The petition is purely an arm twisting tactics aimed at harassing the respondents and there is no iota of merit in the allegations contained in the petition. None of the allegations set out in the company petition satisfies any of the requirements of Sections 397/398 of the Act. There is no material to show that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member so as to claim reliefs under Sections 397. The petitioner cannot invoke Section 397 against any careless conduct of a director. The petitioner has not established that the conduct of the respondents is unfair and lacks in probity, causing prejudice to the petitioner, in exercise of his legal and proprietary rights as a shareholder. The petitioner has not shown whether the present state of affairs of the Company would lead to winding up of the Company on just and equitable groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... witnesses appearing therein clearly states thus: I declare that the said arrangements and affidavit had been arrived without any coercion and undue influence. The said things arrived only based on my own consensus. I undertake to withdrew any cases or complaints filed against the rest of the directors if any. (last two paras). The third respondent, consequent upon the settlement reached in terms of the affidavit and the Board minutes dated 05.02.2005, withdrew her complaint lodged against the petitioner with the Police, as borne out by her communication dated 05.02.2005. In the words of the petitioner, All the documents, papers and undertakings were signed by the petitioner in the presence of Mr. S. Maniazhagan, Inspector of Police, E-2, Police station and in the presence of large number of employees, friends and relatives! The Petitioner was let out at 10.30 p.m. in the night with a warning and threat of re-arrest if he goes back on his undertaking. (Para 21 in page 10 of company petition.) These grievances of the petitioner on account of coercion and force purportedly exercised by the respondents 2 to 4 can neither be agitated in a Section 397/398 proceeding nor adjudicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02.2005 before the Assistant General Manager, State Bank of Hyderabad, Chennai and signed in the minutes of meeting arranged by the said Bankers at Bank Premises, confirming the said resolution dated 5.2.2005. The said minutes of meeting and the resolutions had been confirmed by your client on 16.2.2005, in the meeting held at Factory premises and the said resolved resolutions has been reduced into writing and signed by your client. Thereafter our clients are managing the company in a good manner. 23. Accordingly, at the Board meeting held on 05.02.2005 the second respondent was appointed as Managing Director and the fourth respondent became director of the Company. The respondents 2 3 or fourth respondent were jointly to operate the bank account and do all acts of the bank. The authority of the petitioner to operate the bank account was withdrawn with effect from 05.02.2005. The Board minutes dated 16.02.2005 signed by the petitioner and the respondents 2 to 4 recognized the fact of appointment of the second respondent as Managing Director of the Company. According to the respondents themselves, The second respondent was in fact appointed as a Managing Director from 03.01.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s related to the month of March, 2005. It is observed from the Valuer's explanation dated 19.04.2006 that the statement for the month of March, 2005 has not been verified by him. In this connection, the Valuer reported that...... On enquiry it was informed by the first respondent company that, the same (stock statement) has been taken away by the petitioner . It is unknown as to who gave this information on behalf of the Company to the Valuer and whether any explanation was called for from the petitioner for withholding the stock statement for March, 2005 from the Valuer. The conclusion reached by the Valuer that the stock statement for the month of March, 2005 was taken away by the petitioner is based on hearsay evidence and not supported by any concrete evidence. 25. The Valuer has reported in his report of 30.01.2006 that Necessary adjustments were made in the audited accounts of the Company for the year ended March 31, 2005 to the extent of shortfall in the value and the extent of shortfall was treated as claim receivable from the Petitioner. Hence, necessary adjustment was made in the accounts as on 31.03.2005 relating to shortfall in the value of the stock to arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the petitioner form part of a private complaint lodged as early as in May 2005 by the fourth respondent before the Court of the Judicial Magistrate at Ambattur, who by an order dated 31.05.2005 directed the Deputy Commissioner of Police, Central Crime Branch, Chennai to investigate the matter. 28. The Sub-Inspector of Police, Central Crime Branch registered criminal cases against the petitioner and two others, namely, Manager and Statutory Auditor of the Company, carried out investigation and submitted his report before the Court of Judicial Magistrate, Ambattur, a copy of which has been produced before the Bench, containing the following charges: The first accused (petitioner) and the second accused, namely K. Ashan Bee (Manager of the Company), during the period between 01.04.2002 and 31.03.2005 and 01:04.2005 and 30.06.2005, appear to have fraudulently misappropriated funds to a tune of ₹ 80 lakhs. The petitioner in connivance with the second accused floated another company under the name and style of Deccan Forms and diverted the business of the Company to Deccan Forms. The petitioner and the other accused filed a fake report of the Directors Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other accused according to law. The report dated 06.04.2006 of Forensic Sciences Department would confirm that the Directors Responsibility Statement dated 01.09.2004 did not contain the genuine signature of the fourth respondent. The Criminal Court will appropriately deal the complaint lodged by the fourth respondent, under Section 200 of the Code of Criminal Procedure, in the light of the above report of the Forensic Sciences Department and of Sub-Inspector of Police. The criminal proceedings are pending adjudication. All acts of mismanagement in the affairs of the Company and misappropriation of funds of the Company involving huge sums of money attributed to the petitioner are the subject matter of the pending criminal proceedings before the Court of Judicial Magistrate, Ambattur and I, therefore, refrain from adjudicating those contentious issues. 30. It is for the same reasons, the conclusions, reached by the Valuer on the financial irregularities reportedly restored to by the petitioner are pre-mature, for want of any finality reached in the criminal proceedings. Similarly, the company petition cannot be dismissed on the ground that the petitioner has not come with cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king exclusive allotment to the petitioner. By means of the disputed allotment, the shareholding of members got disturbed, constituting an act of oppression, as held in Shymali Dey v. Honco Engineering Works Private Limited (supra). Any creation of new majority by allotment of shares is an act of oppression as held in Arati Dutta Gupta v. Unit Construction Co. Ltd. (Supra). Therefore, the exclusive allotment to the petitioner, apart from being irregular is oppressive of the respondents. There are no primary records to establish the allotment of 18,020 shares in favour of the petitioner (7000); the third respondent (6000) and the fourth respondent (5,020) on 08.09.2004 purportedly made on 08.09.2004 and reflected only in the ROC records. The available Board minutes dated 08.09.2004 do not even whisper about these allotments. The purpose of allotment or details of payment of consideration for the disputed shares are conspicuously not available. The allotment of 18,020 shares of the Company is nothing but a nullity. With the impugned allotments the paid up capital exceeds the authorised capital of the Company. The balance sheet of the Company for the year ended 31.03.2005 does not ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of the directions of 18.11.2005, was to value the shares of the Company, as at 31.03.2005. While the Valuer arriving at the valuation, had taken into account (a) equity share capital; (b) balance of loss in profit and loss account and (c) reduction in value of stock, as prevailed on 31.03.2005, but applied only guideline value for the land and building owned by the Company. The guideline value of land for five grounds at the rate of ₹ 436 per square feet has been arrived at ₹ 52.32 lakhs. 36. The land and building constitute major part of the Company's assets, which will have material impact on the realistic value of shares of the Company. The guideline value does not reflect the market value of any immovable properties, except in the rarest of rare cases, which the Valuer failed to take into account, while determining the value of shares of the Company. The Valuer has not given in his report the market value of the immovable properties belonging to the Company. The valuation of shares based on the guideline value of the assets does not represent the true and fair value of shares. The petitioner has categorically contended in his Memorandum of objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 2,08,70,000 39. The impugned allotments, namely, 18,020 shares made on 08.09.2004 and 6980 shares made on 15.09.2004, already found to be invalid for the reasons enumerated elsewhere, must be kept aside, thereby the paid up capital of the Company shall only account for ₹ 18,02,000/- consisting of 18,020 shares of ₹ 100 each, for the valuation purpose, in which event the petitioner's holding shall account for 7000 shares and the balance of 11,020 shares shall belong to the respondents group. In terms of the arrangements reached between the parties, the petitioner was to transfer 9.5% of shares from and out of his holding, namely, 7000 shares, which would amount to 665 shares (9.5% of 7000 =665) in favour of the second respondent. The petitioner would, therefore, be entitled to receive fair price from the respondents only for 6335 shares, upon which, the petitioner would cease to be a shareholder of the Company, which shall however subject to any claim which may arise against him on final determination of the pending criminal proceedings. 40. The petitioner was sought to be removed from the post of director, during the pendency of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this order. The petitioner shall not, however, take part in day-to-day operations of the Company. (c) The respondents shall reimburse in favour of the Company a sum of ₹ 36,91,120/- on account of the shortfall in value of stock of materials, as at 31.03.2005, within 60 days of the receipt of the order. (d) The petitioner shall meet all claims which may arise in favour of the Company on final adjudication of the pending criminal proceedings. (e) The present Statutory Auditor of the Company will determine by 31.07.2008 value the Company's shares as at 31.03.2005, after taking into account, inter alia, the following material aspects: i) The paid up capital of the Company shall be of ₹ 18,02,000/- comprising of 18,020 equity shares of ₹ 100/- each. ii) The petitioner's shareholding in the Company shall be treated as 6335 shares (7000-665) of ₹ 100/- each. iii) The total value of land and building belonging to the Company shall be of ₹ 2,08,70,000 iv) No reduction in value of stock as on 31.03.2005 shall be allowed to ascertain the net worth of the Company. (f) The petitioner shall exit the Company on receipt of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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