TMI Blog2006 (12) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... dly governed by Section 397/398. The entire petition is based on the rights and obligations arising out of the agreements. The allegations forming part of the company petition in relation to unauthorised payments (para 3.4), collection of tax without corresponding payments (para 3.5), status of books of account (para 3.10), bogus and fraudulent booking of sales, unaccounted sales realisations, non-maintenance of registers, discrepancies in stocks (para e, f, g, h, i at pages 11 to 14), actions contrary to law and the articles (para 1 in page 15), infusion and application of funds (para 3.1) and allotment of shares in favour of M/s e-Logistics Services Private Limited (para (a) in page 10) are arising out of the Reciprocal Obligations Agreement and Investor Rights Agreement. Similarly, the allegations in relation to unapproved decisions (para 3.11) and unethical practices in finance (para (d) in page 11) are covered under the Term Sheet. The charges pertaining to misappropriation and wrong application of surplus funds (para (j) in page 15) and appointment of Managing Director (para (k) in page 15) are connected to Investor Rights Agreement. The agreements contain an arbitration cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een reiterated in Rashtriya Ispat Nigams Ltd. v. Verma Transport Co. (Supra) and followed by this Board in S.S. Organics Limited v. V.N. Subba Reddy (Order dated 20.09.2005 in C.P. No. 22/2005). The allegations contained in the present petition are independent of the agreements, which an arbitrator cannot adjudicate for want ' of jurisdiction and therefore, the acts of oppression and mismanagement in the affairs of the Company are bound to be examined by the CLB, as held in 20th Centuary Finance Corporation Ltd. v. RFB Latex Ltd. (1999) Vol. 9 7 CC. 636. The petitioner has already invoked the arbitration clause in June 2006 and appointed Mr. R.G. Kakodkar, as arbitrator in terms of the arbitration clause. The respondents challenged the appointment of P.G. Kakodkar as director in the High Court, but could not be successful in its endeavour. Therefore, the application is liable to be rejected. 4. I have considered the elaborate arguments of learned Counsel. While according to the applicants, the entire company petition is based on the agreements, it is forcefully contended by the respondent that the exclusive jurisdiction of the CLB under Sections 397 and 398, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1 crore, the Company cannot hold stock of ₹ 6.55 crore, as claimed by the respondents. This amply shows that the respondents have manipulated the figures of stock purportedly maintained by the Company. The Company deducted TDS on various payments made under different categories such as salary, rent, commission, professional fees etc, but the same has not been remitted on time for most of the year. During the year the sales effected by the Company are quite low which resulted in huge losses in terms of various overheads and substantial part of the amount raised by way of fresh equity already stands eroded due to negligence sales with all regular expenses. The books of account maintained by the Company are grossly incomplete and give absolutely erroneous results. The Company failed to take approval of the investors in the matter of appointment of Chief Financial Officer and alterations in the business plans, in contravention of the agreement reached with the investors. The respondents have acted in breach of their fiduciary obligations abusing their position as principal officers of the Company by allotting 1.50 lakh shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner, group, which was never acted upon till date, resulting in misappropriation of funds, wrong application of surplus funds, settlement of earlier liabilities etc. The Investors Rights Agreement stipulates that the board of directors of the Company shall consist of two members from each of the petitioner and respondents groups. However, the second respondent got appointed himself as managing director without obtaining any authority and failed to conduct any meeting of the board of directors of the Company. The respondents are obliged to take approval before incurring any capital expenditure in excess of ₹ 25 lakh and before implementing any business plan. Nevertheless, the respondents have incurred over ₹ 25 lakh on several occasions, aggregating several lakh of rupees, without obtaining approval for such capital expenditure. The acts of commission and omission attributed to the respondents, apart from being on account of certain statutory violations, are found to be covered by the Term Sheet dated 27.12.2005, Reciprocal Obligation Agreement dated 27.12.2005 and Investors Rights Agreement dated 28.12.2005, as admitted by the petitioner in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, one of the essential requirements of Section 8 of the Act, 1996 that the subject matter of the action must be the same as the subject matter of the agreements is found to be admittedly satisfied in the case before me. Similarly, the reliefs claimed by the petitioner are on account of the purported breach of the agreements by the respondents. In this connection, beneficial reference is invited to a decision of the apex court in Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad and Ors. (2005) Vol.123 CC 566, wherein it has been held, inter-alia, that when a complaint is made as regards violation of statutory or contractual right, the shareholder may initiate a proceeding in a civil court but a proceeding under Section 397 of the Act would be maintainable only when an extraordinary situation is brought to the notice of the court keeping in view of the wide and far-reaching power of the court in relation to the affairs of the company. Against this background, the decisions cited by learned Counsel appearing for the respondent herein will be of little assistance to them. For these reasons, the parties are hereby directed to resolve the disputes raised in the company petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
