1982 (5) TMI 165 - HC - Companies Law

Court ruling: Misappropriation allegations involve both groups. Dismissed complaints incl. fictitious payments, removals, misappropriation, and appointment cancellation.

Dr. V. Sebastian Versus City Hospital (P.) Ltd.

Dr. V. Sebastian Versus City Hospital (P.) Ltd. - [1985] 57 COMP. CAS. 453 (KER.) Issues Involved:1. Allegations of misappropriation and misapplication of company funds.2. Fictitious entry of payment to Dr. Paul.3. Removal of M. V. Poulose as company secretary.4. Misappropriation of cement by the chairman.5. Cancellation of Dr. Susheel Cleitus' appointment.6. Refusal to circulate no-confidence motions.7. Legal suits concerning the allotment of shares.8. Refusal to allow poll at the annual general meeting.9. Conduct of the annual general meeting, including objections to the chairman and adoption of financial statements.Detailed Analysis:Allegations of Misappropriation and Misapplication of Company FundsThe petitioners alleged that after Dr. Paul left for the U.S.A., the chairman and managing director began to misappropriate company funds by debiting substantial amounts as salaries to their relatives for supervisory work that was not performed. The court found that attempts to divert profits in this manner had started as early as May 1979 and that members of both groups had benefited from this scheme. The court noted that the mismanagement was a joint venture of both groups and not exclusive to the current controlling group. The practice had since been abandoned, and the court found the petitioners' hands were not clean, thus this complaint failed.Fictitious Entry of Payment to Dr. PaulThe petitioners claimed a fictitious entry of Rs. 29,758.42 as an advance to Dr. Paul was made without actual payment. The court found that Dr. Paul had been drawing amounts for various purposes and had failed to render satisfactory accounts, thus the amount was treated as an advance. The court held that the entries in the books and balance-sheet were not entirely fictitious and dismissed this complaint.Removal of M. V. Poulose as Company SecretaryThe petitioners argued that Poulose was removed because he did not align with the controlling group. The respondents claimed Poulose was not implementing board decisions and was responsible for unnecessary appointments and falsification of vouchers. The court found that the removal of Poulose by a majority decision did not attract section 398 and dismissed this complaint.Misappropriation of Cement by the ChairmanThe petitioners alleged that the chairman misappropriated cement allotted for the hospital's construction. The respondents explained that the chairman had lent 100 bags of cement to the hospital, which were returned when the hospital received its allotment. The court found the petitioners had no definite personal information about the matter and dismissed this complaint.Cancellation of Dr. Susheel Cleitus' AppointmentThe petitioners contended that the cancellation of Dr. Cleitus' appointment was prejudicial to the company's interests. The court found no evidence that the cancellation had adversely affected the company or public interest and dismissed this complaint.Refusal to Circulate No-Confidence MotionsThe petitioners complained that the company refused to circulate no-confidence motions. The respondents argued that the sponsors did not have the requisite voting strength as per section 188 and the company's articles of association. The court did not find this refusal to be prejudicial to the company's interests.Legal Suits Concerning the Allotment of SharesThe petitioners alleged that the controlling group colluded to prevent them from exercising voting rights by filing legal suits. The court noted that the allotment of shares Nos. 501 to 1,000 was under scrutiny in a separate civil suit (O.S. No. 179 of 1981). The court found that the allotment procedure for these shares was consistent with earlier allotments and dismissed the complaint.Refusal to Allow Poll at the Annual General MeetingThe petitioners claimed that the chairman refused to allow a poll at the annual general meeting. The court found that the company's articles of association, specifically regulation 25(b), contained a drafting mistake, referring to section 88 instead of section 87 of the Companies Act. The court held that the articles intended to allow a poll and that the mistake was unintentional.Conduct of the Annual General MeetingThe petitioners raised multiple objections during the annual general meeting, including the chairman presiding over the meeting and the adoption of financial statements. The court found that the majority of shareholders were being stifled by a minority due to the drafting mistake in the articles of association, which was prejudicial to the company's interests.ConclusionThe court allowed the company petition to the extent of directing that 'section 88' in regulation 25(b) of the company's articles of association be amended to 'section 87.' This amendment ensures that members present in person or by proxy at general meetings are entitled to demand a poll, and on a poll, their voting rights shall be as provided in section 87 of the Companies Act, 1956. The petition was allowed with no costs.