9911796707
TMI Blog2018 (4) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent no.2, inter alia, under Sections 397, 398, 399, 402, 403, 235 and 250 of the Companies Act 1956. The original petition was filed alleging oppression and mismanagement on the part of appellant nos.1,2,3,4, respondent nos.4 and 5. Respondent nos.4 and 5 have filed a separate appeal being company appeal no.30 of 2008. Appellant nos.1 and 2 and respondent nos.2 and 3 are brothers. Appellant no.4 is their sister. Appellant no.3 is a company owned/controlled by appellant no.1. Respondent no.1 is the company. Respondent no.5 was auditor of the company. 2. The brief facts are as under : (i) Respondent no.1 company (M/s. OFS Industries (P) Limited) promoted by respondent no.2 was incorporated on 15th December, 1983. The issued share capital of respondent no.1 was 1,50,000 shares of Rs. 10/ each. Respondent no.2 held 1,46,000 shares. Respondent no.3 held 2,500 shares. Appellant no.4 held 500 shares and 1,000 shares held by one K. Kunjipali. From 19831996 the company was rendering agency and brokering services to foreign companies. Its net worth as on 31st March, 1998 was about Rs. 29.34 lakhs. (ii) During 1997-1998 respondent no.2 was involved in a matrimonial di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent no.1 for the financial year ended 31st March 2005 without being approved by the board of directors of respondent no.1, which is obvious from the balance sheet for the year where only one director, i.e., appellant no.1 and respondent no.5 has signed and no other director has signed the same. Respondent no.2 had annexed to the petition, a copy of the balance sheet signed only by appellant no.1 and respondent no.8; (e) that he had removed appellant no.1 as a director on 14th November 2005 and had filed Form 32 regarding appellant no.1 ceasing to be a director of respondent no.1 company; (f) that on 22nd December 2006 respondent no.2 had received a notice convening an EOGM on 29th January 2007 to pass resolution for the removal of respondent no.2 as a director of the company. Respondent no.2 claims that on receipt of said requisition/notice, respondent no.2 undertook a search at ROC and discovered that there has been an illegal increase and subsequent allotment of shares in favour of others in the company thus reducing respondent no.2 to a minority; (g) Prayer a, b and c of the petition had accordingly impugned the increase in share capital and the EOGM notice. 4. Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while deciding the appeal. Paragraph 35, 36 and 37 of Dale and Carrington (Supra) read as under : 35. We have now to deal with the question of scope of appeal filed under Section 10F of the Companies Act by Prathapan in the High Court. 36. Section 10F refers to an appeal being filed on the question of law. The learned counsel for the appellant argued that the High Court could not disturb the findings of facts arrived at by the Company Law Board. It was further argued that the High Court has recorded its own finding on certain issues which the High Court could not go into and therefore the judgment of the High Court is liable to be set aside. We do not agree with the submission made by the learned counsel for appellants. it is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. In the present case we have demonstrated that the judgment of the Company Law Board was given in a very cursory and cavalier manner. The Board has not gone into real issues which were germane for the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant no.1 and respondent no.5, the records of respondent no.1 was handed over to respondent no.5, there was enough evidence to show misappropriation of funds of respondent no.1 by appellant no.1 and there were various instances of diversion of business of respondent no.1 by appellant no.1 to his own company - appellant no.3 which would amount to mismanagement and hence no interference is called for. 10. In the impugned judgment, the facts and rival submissions are extensively recorded from paragraph 1 to paragraph 43 (almost 29 pages). The rival submissions, however, have been dealt with, in my view, in a very cursory and cavalier manner. I have with the assistance of the opposing counsel perused the entire impugned judgment and also the pleadings and the documents. There are enough materials in the impugned judgment or lack of material to label the impugned judgment as perverse. 11. The allegation of respondent no.2 that the share capital was unilaterally and illegally increased to 10,00,000 equity shares of Rs. 10/ each without the board of directors' approval and without knowledge of respondent no.2 and approval is incorrect and belied by the records. This point h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed the balance sheet as of 31st March 2005, which had recorded the increase in share capital to 10,00,000 shares and that the same had only been signed by appellant no.1 and respondent no.5. Appellant no.1 and respondent no.5 had in their affidavits referred to and produced the photocopy of the balance sheet which had been duly signed by respondent no.2 as Managing Director and that recorded the increase in share capital to 10,00,000 shares. Thereafter, respondent no.2 himself had admitted in his affidavit that he had signed the balance sheet of 2005 and that he had also arranged to file the same with the Income Tax Department. Respondent no.2 had, however, falsely disputed his signatures on the photocopies of the Balance Sheet as at 31st March 2005. Copies of these balance sheet had been obtained from the Income Tax Department. Subsequently, pursuant to an application made to this Honble Court, the original balance sheet as at 31st March 2005 was produced by the Income Tax Department/Police authorities and the same was found to be identical to the said photocopies. 14. Respondent no.2 had approached the CLB by alleging (i) His signature had been falsely taken "on various Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 1999 to 2003. By 2002-2003 these amounts had aggregated to an additional sum of Rs. 85,00,000/. The balance sheets for the years ended 1997 to 2004, reflecting the aforesaid additional amounts of "shareholders funds", had all been duly approved and had all been signed, inter alia, by respondent no.2 as Managing Director. The annual accounts/balance sheets from 1997-2003 were annexed as Exhibit R7 to the Affidavit dated 14th February 2007 of appellant no.1. The balance sheet as on 31st March 1999 recorded an increase in "shareholders funds" from Rs. 16,75,000/ to Rs. 40,45,000/. The balance sheet as on 31st March 2000 recorded an increase in "shareholders funds" from Rs. 40.45 lakhs to Rs. 79.25 lakhs. The balance sheet as on 31st March 2001 recorded an increase in "shareholders funds" from Rs. 79.25 lakhs to Rs. 100 lakhs. The balance sheet as on 31st March 2003 recorded that "shareholders funds" were Rs. 100 lakhs. All these balance sheets had been duly approved and signed by respondent no.2 as the Managing Director. These balance sheets clearly established that respondent no.2 was fully aware and had approved an additional Rs. 85,00,000/ be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the balance sheet for the year ended 31st March 2005 and that the same had only been signed by appellant no.1 and respondent no.5. This clearly was a false statement. Respondent no.2 had also annexed to the petition a photocopy of the balance sheet as at 31st March 2005, which was only signed by appellant no.1 and respondent no.5 and which was not signed by respondent no.2. 19. Appellant no.1 had in his affidavit dated 30th April 2007 pointed out that respondent no.2 had duly signed the balance sheet as at 31st March 2005, which reflected that the issued capital of the company was Rs. 10,00,000 equity shares for both 2004 and 2005. Appellant no.1 had annexed a photocopy of the balance sheet duly signed by respondent no.2 also. Respondent no.5 had by his affidavit dated 12th May 2007 pointed out that respondent no.2 had in fact approved & signed the balance sheet as at 31st March 2005 and that he had filed the same with the Income Tax Department on 31st October 2005. A photocopy of the balance sheet as at 31st March 2005 duly signed by respondent no.2 as the Managing Director was annexed to affidavit of respondent no.5. 20. In response, respondent no.2 filed an affidavit dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he had ousted appellant no.1 and respondent no.5 from directorship/management control. Accordingly, from 2005, respondent no.2, it has to be concluded, had custody of the original minutes books & other registers of the company. Respondent no.2, otherwise would have raised objections or should have produced correspondence demanding of appellant no.1 to handover the records/minutes book. Respondent no.2, however, did not produce, respondent no.1company's records and contended that resolutions had not been passed for the issue of the said shares. Significantly respondent no.2 had verified his affidavit dated 6th June 2007 as being "true and correct to my personal knowledge and from the records pertaining to respondent company available with me .. ". 24. Respondent no.2 has sought to rely on a letter dated 22nd August 2000 to support his allegation that the minutes book & record of the company had been handed over to respondent no.5. The letter, however, only refers to a file containing draft minutes and not to respondent company's records. This also exposes the falsity of respondent no.2's case. 25. The CLB has noted appellants' submissions : (a) that the company's inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n EGM on 22nd December 2006, which sounded the alarm and made the Petitioner inspect the ROCs record.. .."; (d) "In the totality of circumstances of the case the Petitioners contention that blank documents were got signed by him cannot be disbelieved"; (e) Respondent no.2 "was only signing as statutorily required being the MD .. .."; (f) "The original record of the purported board meetings, notices, minutes, resolutions have not been produced on the pretext that the same are in the possession of the Petitioner instead of being available at the registered office and in possession of the Respondents who are in de facto control and management of the affairs of the company". Though in November 2005 respondent no.2 had taken control of respondent no.1 and petition itself was filed in 2007 and except a letter dated 22nd August 2000 no document is produced by respondent no.2. This letter also as noted earlier, only refers to a file containing draft minutes and not to respondent no.1 company's records. 27. The aforesaid findings of the CLB, in my view, are ex-facie perverse having regard to the fact that : (a) Respondent no.2 had never disputed signing the balance sheets from 1999 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) approached the CLB by making statements in the petition that could be termed false and (c) the share capital had been duly increased after passing necessary resolutions and with the knowledge and approval of respondent no.2. 29. Respondent no.2 also made allegations that appellant no.1 had diverted the business and profits of the company. In the petition, it was alleged that on 28th March 2001 respondent no.1 had entered into a MOU with M/s. Detector Electronic Corpn USA for absorbing tech for fire and hydrocarbon Gas Detection system and that respondent no.1 had spent money for training in USA & Singapore. On 18th December 2001 ONGC had awarded the company a contract for their Uran complex for US $10,88,063 or at the then rate of exchange, Rs. 3.67 Crores. Respondent no.1 completed the project ahead of time. Thereafter, it is alleged, appellant no.1 took over the collaboration with Detector Electronic Corporation, enticed trained employees from respondent no.1 and started bidding through appellant no.3 [Spectron Engineers Pvt. Ltd.] and in 2005 and 2006 diverted several contracts to himself. The contracts according to respondent no.2 were : (a) A contract with BG Exploration & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Regarding Cairn Energy, it was the case of appellant no.1 that respondent no.1 had been executing O & M contracts with Cairn Energy Limited for Rajasthan Oil Field dated 14th August 2003 and dated 11th February 2004. Due to interference by respondent no.2 Cairn India refused to renew the contract with respondent no.1 after the contract was completed. Appellant no.1 was able to convince Cairn Energy to award the Contract to appellant no.1, which they agreed only if it was not taken up through respondent no.1. Appellant no.1 was constrained to take up the contract through appellant no.3, as otherwise, it would have been awarded to a third party; (iv) Regarding ONGC Ankleshwar, it was the case of appellant no.1 that respondent no.1 had been executing a power plant for ONGC Ankleshwar. For renewal, ONGC, floated a tender dated 11th October 2006. As appellant no.1 had by then been ousted from management and purported to be removed as a director (Form 32 had also been filed), appellant no.1 had put in a competing bid through appellant no.3. In the affidavit dated 29th March 2007 of respondent no.2 in rejoinder, these statements have not been denied. 31. Therefore, I cannot accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken away by appellant no.1 and respondent no.5. Then how did respondent no.2 prepare this note. In that note, a bald allegation has been made that an amount of Rs. 180,18,758/ had been siphoned off from 31st March 1999 to 31st March 2005 through bogus entries re car hire charges of Rs. 180,000/, Commission of Rs. 25 Lakhs and bogus claims of catering contracts of Rs. 26 Lakhs to Rs. 37 Lakhs per year for 6 years. The only specific allegation made was that the cost of catering would be Rs. 80/ per person per day, i.e., Rs. 11.68 Lakhs per year for 40 persons, but that appellant no.3 [Spectron Engineers Pvt. Ltd.] had charged Rs. 35 Lakhs per year, resulting in an alleged siphoning off of Rs. 2325 Lakhs per year. Appellant no.1 had responded to these allegations vide the note annexed to his affidavit dated 3rd September 2007 and had pointed out that the catering cost of Rs. 80/ per person per day alleged by respondent no.2 was unreal and contrary to the record. In fact respondent no.1 company had billed Oil India Rs. 210/ per head per day in 1998 and Rs. 290/ per head per day from 2003 for catering services provided to visitors at the site; that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refute the specific allegations made in that regard."
38. It has to be noted that even the allegations of misappropriation and siphoning off by respondent no.2 were generally bald unsubstantiated allegations. Moreover, the CLB has, in the order noted and recorded responses/explanations offered by appellant no.1. Thereafter, without dealing with the same, the CLB has in an error apparent concluded that "the Respondents have failed to refute the specific allegations made in that regard".
39. In the aforesaid context of facts, allegations and pleadings, the CLB's finding is totally unreasoned, discloses an error apparent and is ex facie perverse. The impugned order, therefore, is unsustainable and requires to be set aside and is hereby set aside, with costs.
40. Respondent no.2 to pay a sum of Rs. 5 lakhs as cost to appellant no.1.
41. Company appeal accordingly stands disposed. All pending applications also stand disposed.
COMPANY APPEAL NO.30 OF 2008
In view of the order and judgment passed in company appeal no.18 of 2008, this appeal also accordingly stands disposed with costs.
Respondent no.2 to pay a sum of Rs. 1 lakh as cost to appellant. X X X X Extracts X X X X X X X X Extracts X X X X
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