9911796707
TMI Blog2017 (5) TMI 1661X X X X Extracts X X X X X X X X Extracts X X X X ..... aring on various dates viz. 20.07.2016, 22.07.2016, 03.08.2016, 19.08.2016, 16.09.2016, 19.10.2016, 21.11.2016, 22.11.2016, 07.12.2016, 21.12.2016, 06.01.2017, 10.01.2017, 24.01.2017, 06.02.2017, 17.02.2017, 23,02.2017, 07.03.2017 09.03.2017 & 13.03.2017. The case was heard on several dates and used to be adjourned on one pretext or the other at the request of parties. They have insisted the Tribunal to decide Company Applications, which are pending in this case, before deciding the main case. Accordingly, we have appointed an Advocate Commissioner vide order dated 19.10.2016 passed in C.A.No.1/2016 in C.P.No.87/2007 to take inventory of fixed assets of M/s Priyaranjani Fibers Limited (R1 Company). After hearing both the parties, orders were reserved on 9th March, 2017. 2. Since several developments takes place after filing the present Company Petition, the Petitioners have filed C.A.No.43/2009 by seeking to add some more prayers to the existing prayers already sought in the main Company petition. The CLB allowed said Company application on 09.08.2012. It would be appropriate to extract all main prayers in Company petition, after amendment. Existing main Prayers in Company petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re relevant to the present issue are as follows:- (a) Priyaranjani Fibers Limited (hereinafter referred to as "the Company") was incorporated on 14th February, 1991 as a public limited Company with its Registration No.01-12336 of 1990-91. The Registered Office of the Company is situated at Rayapole Village, Ibrahimpatnam, R.R. District, Telangana. The authorized share capital of the Company is Rs. 23,00,00,000/- divided into 2,30,00,000 equity shares of Rs. 10/- each and its paid-up share capital is Rs. 11,70,00,000/- divided into 1,70,00,000 equity shares of Rs. 10/- each. The object of the Company is to carry on business of spinning and weaving mills and of spinners, weavers, bleachers, dyers of cotton, silk, wool, rayan, Dotusal and Synthetic fibers and fibrous substances of all kinds. (b) All Petitioners are shareholders of the Company, and all of them have duly executed their Power of Attorney (POA) to the first petitioner to file this petition on their behalf also. (c) The Company is 100% export oriented and an entire premises of the factory is bonded with the Customs and Central Excise Department, Government of India. The Company has availed several loans and commenced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving words of K. Ranganathan, the second respondent has entered into agreement dated 09.10.2003 and also got second respondent signed some blank letters in a mischievous manner. On the basis of such letters and agreement, Respondent Nos. 3 to 5 got appointed as Additional Directors of the Company and the 3rd Respondent was further appointed as Managing Director of the Company for a period of five years w.e.f. 03.09.2003. In fact, there was no meeting of the Company held, and no notice whatsoever was given to existing shareholders to such appointments. And all these documents are alleged to have been fabricated by the 3rd Respondent. (h) The 3rd Respondent, basing on the said agreement and alleged resolutions, has entered into the factory of Company and made small payments to various authorities, and started production of the Unit. And it was also understood that the Company was running continuously for a period of about four years, and made huge profits without bothering about overheads and maintaining accounts. The 3rd Respondent has paid at least Rs. 3 lakhs per month for four years towards electricity bill to AP Transco Limited. So it is alleged that third Respondent, without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany along with Respondent Nos. 3 to 5, has filed a civil suit bearing O.S.No.469/07 before the 3rd Additional Chief Judge, City Civil Court, Hyderabad by inter alia seeking a judgment and decree in their favour against the Defendant Mr. D. Srinivasa Rao (Respondent No.2 herein) by declaring that the notice dated 03.08.2007 was illegal, null and void and non est in law and to further declare that second respondent was not entitled to act as Executive Vice chairman as he was no more a Director and also sought a perpetual injunction restraining him or his agents, representatives, nominees etc. from holding any meeting of the shareholders of the 1st Plaintiff Company. Accordingly, Respondents No.3 to 5 were able to obtain an ex parte interim injunction dated 28.08.2007 in I.A.No.3166/2007 in O.S.No.469/2007, by restraining the respondent, his agents etc. from conducting the proposed EGM on 03.09.2007. Subsequently, these interim orders were vacated on 06.11.2007. Aggrieved by the Order dated 6.11.2007, the Company and Respondent Nos. 3 to 5 have filed CMA MP No. 2391/2007 in MA.CMA No. 1015/2007 before the Hon'ble High Court of Andhra Pradesh by inter alia seeking to grant interim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther prohibited from selling any of fixed assets of the Company till disposal of Company Petition. The said order was questioned before Hon'ble High Court of Andhra Pradesh, by filing Company Appeal Nos. 14 and 16 of 2008 under Section 10 F of Companies Act, 1956. After hearing those appeals, the Hon'ble High court by an order dated 28th January, 2009 dismissed those appeals by upholding the said order of the CLB. Subsequently, amendment petition has been filed by petitioner amending the prayer and pleadings. (r) It is further alleged that the Respondent Nos.3 to 5 alleged to have conducted EGM dated 01.05.2004 for a purported issuance of 12 crores of equity shares to friends and relatives of Respondents No.3 in order to make the petitioners stake below 10% with a mala fide intention to disqualify them from invoking Section 397/398 of the Companies Act, 1956. The resolutions dated 31.04.2004 and 31.05.2004 are also cooked up and fabricated and those resolutions were filed by way of Forms No.23 and 2 with RoC. In fact there was no money received from the alleged allottees by the Company for the so-called allotment of 1,13,00,000 equity shares of Rs. 10/- each. Likewise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the main petitioner namely Mr. Tej Kumar, who is none other than son of Respondent No.2. They have raised so many doubts on the POA given to the 1st Petitioner by other Petitioners of the Company Petition. (v) It is further stated that Petitioners 8 & 14 were purportedly were the directors of the company and further re-appointed as directors on 26.12.2006 and the same is not borne out by their affirmation affidavit signed in March, 2010. (vi) They have further denied that D. Srinivasa Rao, Respondent No.2, is working as Executive Chairman. It is stated that he is an outsider and does not hold any position as on date of filing of CP. The Petitioners do not satisfy the criteria of requisite value of shares as well as numbers as contemplated under section 399 of the Companies Act, 1956. It is further denied that the Petitioners hold about 10.33 % of the total paid-up share capital of the company. Even the purported shares held by them were pledged to IDBI/SASF and they are the rightful legal owners of the shares. (vii) The Respondent No.2 is Ex-Executive Chairman of the Company, and he has resigned it long-time back in the year 2003, and today he is only an outsider an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.2007 was illegal and void per se. The petitioners have come to this Tribunal with unclean hands and thus they are not eligible to claim equitable relief from this Tribunal. 5. The Respondent No. 2 (D. Srinivas Rao) has filed a reply statement dated 22nd February followed by his written submissions dated 6th March, 2017. The following are his material submissions in those pleadings: (a) He is a M.Tech Degree holder in structural engineering from IIT Madras. Around March 1991, some friends had pursued him to invest in the Company. Accordingly, he has invested about Rs. 0.93 crores over a period of time in the Company. Even, though he holds a major stake in the Company along with family, friends and associates, he was not at helm of affairs of Company from the beginning. He has brought one Sri. V. Raman, a textile expert into the Company as Managing Director .Though Raman held very few shares in the Company; he used to manage the Company, which ultimately led the Company to losses and also in litigation. Ultimately, when all the court cases are over, the Company was left with no funds except crores of accumulated losses. (b) Due to the miscellaneous acts of Ranganathan CA, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement and no such resolution in any general meeting had been passed till date in that regard. So all the resolutions stated to have been passed by Respondent No.3 are invalid. It is further stated that Respondent No.3 cooked up records projecting further issue of shares. (j) The petitioners are eligible to file present petition. It is alleged that Respondents Nos. 3 to 5 are committing various illegal acts and misrepresenting the Company before various judicial forums. They have not produced any documentary evidence to show they were duly appointed in accordance with law except to rely on terms of agreement dated 09.10.2003. (k) The agreement dated 09.10.2003 is a private agreement between him and respondent No.2 and 3, and it was not adopted by Memorandum & Articles of Association. Therefore, the Company and shareholder are not bound by terms of agreement. The agreement was ultimately terminated on 14.10.2006, and shares including that of petitioners of 10% shareholders were not transferred to Respondent No.3 due to failure of fulfilling terms and conditions of agreement. In fact, this fact was also admitted by Respondent No.3 in an answer U/Q 9 of 313 of Cr.PC examination in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of Company, while exercising their rights, conducted Extraordinary General Meeting on 02.01.2008 and passed resolutions removing Respondent Nos. 3 to 5 as MD/Directors w.e.f. conclusion of this meeting. (r) It is also stated that Sections 22(2) r/w section 18 of SICA Act is not in conflict with right of shareholders herein since scheme of revival was not yet been sanctioned by BIFR. (s) It is alleged that Respondent Nos. 3 to 5 have fabricated balance sheets showing enhanced capital of Rs. 11.30 crores, K. Ranganathan was never appointed as Auditor by Shareholders of Company in any AGM and thus all proceedings with his association are invalid and illegal. It is alleged that fictitious enhanced capital is void ab nitio as per section 69(3&4) of the Act. (t) Therefore, he prayed the Tribunal to pass appropriate orders as per law. 6. Mr. S. Ravi, learned Senior Counsel for the Respondent Nos.l, 3, 4 & 5 has filed written submission dated 13.03.2017. The following are his main contentions:- (a) It is contended since Respondent Nos. 3 to 5 are already restrained by the CLB vide order dated 16.07.2008, which is upheld by Hon'ble High Court, hence no directions need to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee main reliefs relates to issue and allotment of 1,13,00,000 Equity shares of Rs. 10 each to various allotees cannot be questioned as none of parties are impleaded to the Company petition. Similarly, no relief can be granted with regard to statutory Auditor namely Ranganathan as he was not a party to this petition. (h) It is alleged that Company petition is a surrogate petition filed for and on behalf of Respondent No. 2 through his son, daughter, wife (deceased), brothers-in-law and other close relatives and it is nothing but pure abuse of process of law. (i) It is contended that BIFR has ordered Operative Agency (OA) to appoint an Independent professional to verify the claims/counter-claims of both the groups and submit an independent report. Accordingly, Y. Koteswara Rao, a Practicing Company Secretary was appointed and has submitted his report in October, 2008 dealing with everything in issue and the same is after the CLB order dated 16.7.2008. The said report was not controverted nor challenged either by petitioners or Respondent No.2. (j) It is also contended that Respondent No.2 has no authority to conduct any meetings in question as he was no more a MD/Director and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t petitioner is perfectly justified as most of the Petitioners hailing from different parts of the state. In this regard, he has relied upon the judgment of Apex Court in P. Punnaiah and AMP v. Jeypore Sugar Co. Ltd. [1994] 1 SCL 180 (SC). (d) It is further contented that Company is declared as sick industry and the matter is pending with BIFR vide Case No.366/2001, which is referred to by the second Respondent in his capacity as Vice Chairman and Managing Director. (e) Though, it is mentioned in the agreement dated 09.10.2003 that Respondent No.3 and his nominees would be co-opted into Board of Company later, there is no whisper in it that Respondent Nos.3 to 5 were already inducted as Managing Director/Directors. The agreement just speaks of an agreement to transfer shares from Respondent No-2 to Respondent No-3, however subject to fulfilment of certain conditions. However, Respondent No-2 has no authority to sell shares of his friends and Relatives to the Respondent No-3. It is also not in dispute that the shares in question are pledged with IDBI as per collateral security and it cannot be transferred to anybody without permissions from IDBI. So the agreement to transfer sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Company Law Tribunal (NCLT) clearly shows that several valuable machines are missing from the factory premises and the value of same is estimated to be about Rs. 2,65,00,000/- and it would require about Rs. 4.50 crores to bring back original condition of machines that are existed in the year 2003. (j) It is alleged that acts of filing of several forms illegally with RoC not minding the Orders of CLB and Hon'ble High Court, representing the Company in place of Original Board of Directors constitute oppression under Section 397 of the Companies Act, 1956. Running the factory without showing accounts, illegally making profits, selling away Machines, Yarn and other valuable Assets of the Company constitute mismanagement. (k) It is further stated that interim orders passed by the City Civil Court in OA No. 468/2007 were subsequently vacated on 06-11-2007 and it was also upheld by the Hon'ble High Court, while dismissing CMA No. 1015/2007 filed by the Respondent No.3 to 5. Respondents Nos.3 to 5 were removed as Directors of the Company and original Board of Directors were restored in accordance with law. (l) It is also stated that the Respondent No-2, in his capacity as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 02.01.2008. (v) If so ,what is the relief, the petitioners are entitled for. 10. Before adverting to issues raised in the Company petition, it is necessary to refer brief history of Company as to its origin, and up and down. As stated supra, M/s Priyaranjani Fibres Limited (R1 Company) was incorporated on 14th day of February, 1991 as a Public Limited Company. It was promoted as 100% Export Oriented Unit (EOU) Spinning unit. The second respondent, who is an M. Tech degree holder in structural Engineering from IIT, Madras, at the instance his friends, has invested about Rs. 0.93 crores in the year 1991, along with his family, friends and associates in the Company. Though his group held major stakes in the Company, he was not at helm of affairs for so much time and one Mr. V. Raman, a Textile Expert was initially brought into the Company as Managing Director, who held very few shares in the Company. It is closely held Public Company and no public issue had ever taken place. Subsequently, the second respondent was appointed as Director in the year 1994 and also became Executive Vice Chairman in the year 1998. Due to financial losses in the Company, he made a reference to BIFR and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween parties, and what rights it would bestow on the parties, non-parties, and liability on the Company. The second respondent has not denied the execution of said agreement but only alleged that he was trapped into it and it was a total fraud played on him by mischievous parties. However, various documents placed on record shows that some of terms of said contract stand implemented. Major disputes arise with regard to transfer of shares of the Company to Respondent No.3. The said agreement was executed only between Respondent Nos. 2 and 3 without involvement/approval of Board of Directors, of Company, and other shareholders. Several events took place after the execution of said agreement, and that those events would not have much relevancy at this distant point of time. It is suffice to say that any agreement would bind only parties to such agreement. Second respondent did not have any authority on behalf of Company to execute such agreement and even such type of agreement is entered into, and it would not have any binding on the Company unless it is duly approved in meetings conducted by Board of Directors and Shareholders of Company. Even, second respondent could not enter int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification shall be necessary for appointment as Director. In any case, it is not in dispute that Respondent Nos. 3 to 5, either rightly or wrongly, got appointed as Directors in pursuance to said agreement, and they were continued for sometime though several disputes were pending with regard to their appointment. Finally they were as such by duly conducting EGM dated 02.01.2008 as explained above and their removal became final". 14. The other important questions are whether Respondent Nos. 3 to 5 are continued to hold MD/Directors , Whether they are removed in accordance with law or not, whether they are eligible to be appointed as such again so as to interfere in the affairs of Company or not. 15. It is relevant to refer to the suit bearing OS No. 469 of 2007 filed by the Company and respondent Nos. 3 to 5 against D. Srinivasa Rao (second respondent herein) before III Addl. Chief Judge, City Civil Court at Hyderabad. The averments in this suit covers all material aspect of issue with regard to agreement dated 09.10.2003, EGM dated 26.12.2006, notices etc. It is relevant to point out here that under para (n) of plaint filed under order VII Rule I R/w Section 26 of Civil Procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final as the order was not questioned subsequently." 16. Another suit bearing OS No. 86/2008 was filed by M/s Priyaranjani Fibres Limited (The Company) rep by D. Srinivasa Rao before III Addl. District & Sessions Judge, Ranga Reddy District, against Respondent Nos. 3 to 5 herein by seeking a perpetual injunction restraining them or their men etc from interfering with affairs, day-to-day functioning, facilities or manufacturing activities in any manner whatsoever, including calling for meetings and day to day operations the Company. And the suit was ultimately decreed as prayed for by judgment dated 05.11.2015. 17. It is not in dispute that both judgments in the above suits became final and they are binding on respondent Nos.3 to 5 herein. As stated supra, they are not holding any shares in the Company, and they were also removed as Directors too, duly following relevant rules and law. Moreover, even the CLB by an order dated 16th July.2007 has passed a detailed order in the present Company petition itself by restraining Respondent No. 3 to 5 as Managing director/Directors of the Company and also prohibited them selling any of fixed assets of Company till disposal of Company peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms, which ultimately ended in its termination, even though second respondent has no authority to enter into such an agreement; b. Taking management of Company by Respondent No. 3 in an illegal manner by making nominal investments in it; c. Filing of several civil and criminal cases on false allegations and applying illegal methods to run the Company, contrary to directions CLB , BIFR and Civil Courts ; d. Taking so many decisions including increase of share capital of Rs. 11.30 crores basing on unenforceable agreement dated 09.10.2003, and fabricating fake balance sheets and allotment of shares out of such alleged increased share capital without receiving any consideration ; e. Acts of oppression and mismanagement still being continued even though respondent suffered two decrees as mentioned above and not willing to. leave the Company to the duly elected Board of Directors by shareholders of the Company; f. Several reports including report of Advocate commissioner appointed by this Tribunal, pointed out several illegal acts on the part of respondent No. 3 to 5. g. It is serious acts of oppression and mismanagement on the respondent Nos. 3 to 5 to continue the managem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal is fully empowered to interfere with this issue. It is relevant to point out general principle of law which says 'Nobody can convey a better title that what one has'. In the instant case, the Respondent Nos. 3 to 5 themselves have.lost all rights in the Company and thus they convey nothing to anybody else including so-called allotees out of alleged increased share capital. Moreover, as stated supra, in the plaint filed by respondents have clearly stated that capital of Company remains same without any enhancement as contended now. 22. It is also to be mentioned herein that the issues raised in the present Company petition is no longer res integra as two decrees as passed by Competent Civil Court in the said two suits bearing No. 469 of 2007 and 86 of 2008 sealed the fate of respondents and respondents No. 3 to 5 can longer involve in the affairs of Company, and they are neither shareholders nor Directors of the Company. We have no doubt in our mind that the Respondent Nos. 3 to 5 have committed several acts of oppression and mismanagement and thus interfered and still doing same things despite various court orders. The acts respondent Nos. 3 to 5 are conducting affair ..... X X X X Extracts X X X X X X X X Extracts X X X X
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