TaxTMI 
TaxTMI 
2001 (12) TMI 827
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....sh to Courts and how they are converting the Court rooms as their battle ground and fight under the attractive banners of fair play and public interest. While considering the conduct of the board of directors in LIC of India v. Escorts Ltd. AIR 1986 SC 1370. His Lordship observed as follows : "2. In the case before us, as if to be fit the might of the financial giants involved, innumerable documents were filed in the High Court, a truly mountanous record was built up running to several thousand pages and more have been added in this Court. In deed, and there was no way out, we also had the advantage findings of listening to learned and long drawn-out, intelligent and often ingenious arguments, advanced and dutifully heard by us. In the name of justice, we paid due homage to the causes of the high and mighty by devoting precious time to them, reduced, as we were, at times to the position of helpless spectators. Such is the nature of our judicial process that we do this with the knowledge that more worthy causes of lesser men who have been long waiting in the queue have been blocked thereby and the queue has consequently lengthened. . . ." [Emphasis supplied] (p. 1375) I am in a wo....
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....he proximity of the relationship between the parties. Mr. K.V.R. Choudari (hereinafter referred to as "2nd respondent"), Managing Director of the company, happened to be the father of Chundru Manorma (Petitioner No. 7), grand-father of Chundru Padma Chaitanya (Petitioner No. 8) and Nandamuri Satya Lavanya (Petitioner No. 6) and father-in-law of Chundru Sri Hari Rao (hereinafter referred to as "9th petitioner"). When the counsel for the 2nd respondent conveyed the anguish of his client against his son-in-law i.e., the 9th petitioner in dragging the affairs of the company to the streets, may be because of the precarious situation in which he is placed, his son-in-law the 9th petitioner has gone to the extent of submitting before the Court that he is prepared to give a written apology if the company purchases the shares held by the petitioners as directed by the Board and pay the amounts that are due to them and if they are relieved of their agony to which they are subjected to for over ten years. But the offer was rejected outright and the father-in-law invited a judgment on merits in this case. Hence I am left with no option except to proceed with the case and deliver the judgment o....
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....ny. From the above it is seen that the 9th petitioner was looking after the affairs of most of the subsidiary companies and enjoying the powers on par with his father-in-law, i.e., the 2nd respondent in the 1st respondent-company. In and around 1993, some disputes seemed to have arisen between these two individuals. While it is the case of the 9th petitioner that disputes have arisen when he raised the issue of sale of lorries and closure of parcel offices in the board meeting held on 3-3-1993, the case of the respondents is that disputes have arisen between them as he refused to finance for his political activity, I feel that both the versions may be far from truth. The efforts made by the well-wishers of the family did not yield fruitful results. On the other hand, misunderstanding developed between the father-in-law and the son-in-law, i.e., the 2nd respondent and the 9th petitioner, reached a stage of no return. While majority of the shareholders aligned with the 2nd respondent, a few shareholders who figured as petitioner Nos. 1 to 5 in C.P. No. 15 of 1994 aligned with the 9th petitioner and his family members (Petitioner Nos. 6 to 9). As and when some information with regard ....
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.... of the allegations of misconduct and fraud. Accepting the contention of the respondents' counsel the petition was dismissed by observing that if the counsel for the petitioner desires to lead any evidence by petitioners it may be done through personal appearance of such petitioners. 8. After some time, petitioners filed C.A. No. 65 of 1996 on 12-1-1996 seeking appointment of an administrator for a period of five years and for production of minute books, account books along with the vouchers for the period from 1992-1995. In the said application, the petitioners have given some more instances relating to oppression of minority shareholders and mismanagement of the affairs of the company. Subsequently with the permission of the Board the petitioners filed another application, i.e., C.A. No. 115 of 1997 on 13-3-1997 seeking permission to amend C.A. No. 65 of 1996 by adding paragraphs 18A, 18B and 18C. The respondents contested these applications by contending that the petitioners cannot travel beyond the allegations made in the main petition and the subsequent events cannot be taken into consideration for considering the relief sought for in the main petition. 9. Having heard the a....
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....Hari Rao v. Sri Ramdas Motor Transport Ltd. [1999] 97 Comp. Cas. 685 . The Court held as follows: "(1) None of the issues raised in the appeal can be said to be a question of law arising out of the order of the Company Law Board and as such the question of entertaining appeal under section 10F of the Act does not arise; (2) the order under challenge is an interlocutory for purpose of appointment of Administrator at the interim stage and the Company Law Board in the contextual facts have exercised discretion and the user of discretion cannot by any stretch be deemed to be so perverse in any event so as to warrant interference or intervention of the appellate court and (3) directed the Board to dispose of the matter with utmost expedition." 12. The S.L.P. No. 16705 of 1998 filed against the said order was also dismissed on 3-11-1998. 13. Since the proceedings of the Board were not stayed during the pendency of the appeal, the following docket order was passed by the Board on 1-4-1998 : "Witnesses will be examined on 18th April, 1998 at 9.30 a.m. at Chennai. Petition will be heard on merits as already fixed on 27th, 28th, and 29th August, 1998 at New Delhi at 10.30 a.m. each day."....
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....ng, i.e., 2-12-1998 the Board straightaway started hearing the arguments on the petition without completing the evidence of the 9th petitioner and without recording any evidence on the respondents side and without verifying the xerox copies of the documents filed by the respondents with the original records more so in the light of the allegations made by the petitioners that the 2nd and the 3rd respondents fabricated the minutes of the board meetings etc., and completed the arguments by 22-3-1999. The Board by an order dated 15-6-1999 while dismissing the petition by holding that the petitioners have not been able to establish any of the allegations meriting the grant of any of the prayers in the petition, gave a direction under section 402 of the Act to the 1st respondent-company to purchase the shares held by the petitioners by itself or the private individuals as may be decided by the respondents. Though I could not see from the attendance sheets that any one was examined in this case at any point of time both the parties agreed that the 9th petitioner (Chundru Srihari Rao) was examined before the Board and relied upon the oral evidence given the 9th petitioner before this Court....
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....ived from all the organizations and individuals for constitution of an independent Board without interference of the Central Government, the Central Government constituted "Sachar Committee' to consider those representations and suggest suitable amendments to the Act. Having considered the representations of several organizations, the committee made the following recommendations : "We therefore, feel that appropriate solution would lie in statutorily constituting an independent quasi-judicial Company Law Board broadly on the lines of the Income-tax Appellate Tribunal, as provided in section 252 of the Income-tax Act." [Emphasis supplied] The Committee also recommended modifications to the existing provisions relating to the constitution and function of the Board. Under clause (c) it recommended that the Board including its Regional Benches shall have powers of the Court under the Code of Civil Procedure not only in respect of matters specified in the present sub-sections (4C) and (4D) of section 10E, but also in respect of the powers conferred upon it or the Regional Benches by the Act. 19. Accepting the recommendations of the Committee, the Central Government amended the Act in....
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.... But as the learned counsel addressed marathon arguments justifying the procedure followed by the Board, I am forced to refer to his contentions to avoid criticism that the Court did not consider various contentions raised on behalf of the respondents. Now the question to be considered is : Whether the Board is having inherent powers ? 21. It is seen that an independent Board is established to exercise judicial and quasi-judicial functions exercised by the courts or the Central Government till then and is not subjected to control of the Central Government. Under sub-section (4C) of section 10E of the Act, the powers of the Civil Court under the Code of Civil Procedure while trying a suit were conferred on the Board to the extent indicated therein. Under sub-section (5) without prejudice to the provisions of sub-sections (4C) and (4D), the Board in discharge of its functions under the Act or any other law is 'to be guided by principles of natural justice' and shall act in its discretion and under sub-section (6) 'subject to the foregoing provision of this section, the Board shall have the power to regulate its own procedure'. In exercise of this power the Board framed Company Law....
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....2 as the provisions of sections 397, 398 and 402 are interrelated and they should not be read in isolation. A combined reading of the aforesaid three sections clearly brings out two aspects; first, the very wide nature of the power conferred on the Court and, secondly, the object sought to be achieved by the exercise of such power. The only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed there under and the object sought to be achieved by these sections and beyond this limitation which arises by necessary implication, it is difficult to read any other restriction or limitation on the exercise of the court's power. While sections 397 and 398 is intended to protect the minority shareholders from acts of oppression and mismanagement or preventing its affairs from being conducted in a manner prejudicial to public interest or the interests of the company while avoiding winding up of the company if possible and keep it going and the powers of the Board under section 402 are wide enough to enable the court to put an end to the acts complained of. Likewise while exercising the powers under sections 397....
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....- "Regulation 44 of the Company Law Board Regulations, 1991, saves the inherent power of the Board and it correspondents to section 151 of Civil Procedure Code. It is settled law that, under the inherent powers, the court can pass any order to prevent the abuse of process and also to meet the ends of justice. . . . When a case of oppression is made out, it is only within the power of the Company Law Board to end the matter complained of and to make such order as it thinks fit. While considering to end the matters complained of and when it is given the power to make any such order as it thinks fit to rectify the same, the Company Law Board is empowered to remove the Board of directors so that the affairs of the company can be set right. . . ." (p. 244) 27. In Standard Industries Ltd. v. Mafatlal Services Ltd. [1994] 80 Comp. Cas. 764 (CLB) the Principal Bench of the Board at New Delhi held that the modus operandi adopted by the Majority shareholders fully subscribing rights issue is intended to reduce voting of the petitioners by reducing their share holding from 48 per cent to 12 per cent, and suffers from lack of probity and fair play as evidenced by their resolution and in exe....
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....remedy under section 210 of the English Act, 1948 similar to that of section 397 of our Act is to bring to an end the matters complained of, i.e., oppression and one of the most useful orders mentioned in the section which will enable the Court to do justice to the injured shareholders is to order oppressor to buy their shares at fair price. 31. In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298 their Lordships of the Supreme Court at paragraph No. 172 held as follows : "172. Even though the company petition fails and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression, the Court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of 2nd May were held in accordance with law. . . ." (p. 1360) 32. In fact the Board relying on this judgment gave a direction to the respondent-company to purchase the shares of the minority shareholders. 33. The complaint of the learned counsel for the respondents is that the Supreme Court while exercising the inherent powers/plenary powe....
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....ine the legal position to see whether the procedure followed by the Board can be sustained in law. In the main petition as well as in C.A. No. 69 of 1994 the petitioner prayed for summoning the records but the Board did not pass orders. In fact in C.A. No. 65 of 1996 also similar prayer was made. But the counsel might have felt that he will be in a position to convince the Board without summoning the originals, he did not press for summoning the originals at that stage. That does not mean that the Board can act arbitrarily at its whims and fancies. Whether provisions of C.P.C. are applicable to the proceedings before the Board ? 38. To my mind when the Board exercises judicial functions the elementary principle of adjudicatory process is observance of rules of procedure, i.e., pleadings supported by oral, and documentary evidence and respective parties have to get into the witness box to prove their case and also subject themselves for cross-examination to test the correctness or the veracity of his case apart from proving the authenticity of the documents. Keeping the above principles in mind if one look into the facts of the case it is seen serious allegations as extracted supr....
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....the rights of subjects and if it is having a duty to act judicially it is a clear case of judicial act and held as follows : ". . . In all these cases the Government, the Examination Committee and the Board of Revenue were administrative bodies, but the acts impugned were quasi-judicial ones, for they had a duty to act judicially in regard thereto. The law on the subject may be briefly stated thus : The provisions of a statute may enjoin on an administrative authority to act administratively or judicially. If the statute expressly imposes a duty on the administrative body to act judicially, it is a clear case of a judicial act. But the duty to act judicially may not be expressly conferred but may be inferred from the provisions of the statute. It may be gathered from the cumulative effect of the nature of the rights affected the manner of the disposal provided, the objective criterion to be adopted, the phraseology used, the nature off the power conferred, of the duty imposed on the authority and other indicia afforded by the statute. In short, a duty to act judicially may arise in widely different circumstances and it is not possible or advisable to lay down a hard and fast rule ....
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....rd. On the other hand, to the extent possible these Tribunals are guided by those principles when they are involved in the adjudicatory process. The Board can regulate its own procedure subject to observance of rules of natural justice under section 10E(5) & (6) - What does it mean ? 45. The contention of the learned counsel for the respondent, that the Board is entitled to regulate its own procedure and it is not under an obligation to follow strict rules of evidence is answered by their Lordships of the Supreme Court in Industrial Credit & Investment Corpn. of India Ltd. v. Grapco Industries Ltd. [1999] 4 SCC 710. Their lordships of the Supreme Court while considering the procedural powers of a Debt Recovery Tribunal under section 22 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held as follows : ". . . When section 22 of the Act says that the Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, it does not mean that it will not have jurisdiction to exercise powers of a Court as contained in the Code of Civil Procedure. Rather, the Tribunal can travel beyond the Code of Civil Procedure and the only fetter that is put o....
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....being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far reaching effect than a decision in a quasi-judicial enquiry. . . ." (p. 156) 47. In Fort William Jute Mills Co. Ltd. v. First Labour Court 1963 (1) LLJ 734 (Cal.) the Calcutta High Court ruled that "though the strict rules of law of evidence are not to be applied this does not mean that the proceedings can be held in an arbitrary manner. The rules of natural justice must be applied. Ordinarily, there must be a personal hearing. If a person is entitled to show cause he is entitled to a hearing and if he is entitled to hearing, he must be given an opportunity of being personally heard of calling his own evidence and cross-examining any witness called by the prosecution." 48. In Delhi Transport Corpn. v. D.T.C. Mazdoor Congress AIR 1991 SC 101, wherein their Lordships while considering the validity of regulation 9-b of Delhi Road Transport Authority (Conditions of Appointment and Service) Regulations, 1952 which provides removal of employees from service without ....
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.... not mean that the Board can pass orders on the basis of xerox copies or typed copies, which were filed before the Board even without attestation. Keeping the above principles in mind if one look at the order of the Tribunal it is evident that the order suffers from serious infirmities and the order is ab initio void. Board is following the same procedure 50. Nextly, the learned counsel for the 2nd respondent having conceded that the procedure followed by the Board is not within the parameters of the procedural laws of the land, he tried to justify the conduct of the Board by contending that the Board is following this procedure for a long time. At the same time, the Supreme Court deprecated such a practice followed even by the Courts way back in 1981 the counsel placed reliance on the observations of the Supreme Court. 51. In Needles Industries (India) Ltd.'s case (supra ) the Supreme Court held as follows :- "63. We appreciate that it is generally unsatisfactory to record a finding involving grave consequences to a person on the basis of affidavits and documents without asking the person to submit to cross-examination. It is true that men may lie but documents will not and o....
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....trenuously contended that Order-19 is applicable only when specific fact has to be established but cannot be used for all purposes. Examination in chief is a must followed by the cross-examination in view of the allegations of misconduct and fraud. The Board upheld the objection raised by the respondent's counsel. But before this Court the learned Counsel for the respondent-company has taken a round about turn and started pleading that the Board is justified in passing the orders without there being any oral evidence by respondents in support of their plea and without proof untested xerox copies of the documents. 52. In A.K.K. Nambiar v. Union of India AIR 1970 SC 652, their Lordships of the Supreme Court while considering clause (f) of section 10E where under the Bench is empowered to receive evidence on affidavits held that that the affidavits without verification are not admissible in evidence. Their Lordships of the Supreme Court emphasized the need for verification of the affidavits as hereunder : "The reasons for verification of affidavits are to enable the court to find out which facts can be said to be proved on the affidavit evidence of rival parties. Allegations may be ....
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....ic places, parks and plant trees, their Lordships held that Mahapalika a body corporate constituted under the act being a trustee is under an obligation and duty to maintain public places, parks and plant trees. When the nature of the park, as it existed, is destroyed it would be violative of the doctrine of public trust as expounded by this Court in Span Resort case [1997] 1 SCC 388. Public Trust doctrine is part of Indian Law. Viewed from the above angle, the Board is bound to exercise its powers in a manner known to law. But it cannot act whimsically, fancifully and arbitrarily and adopt a procedure of its own unknown to law. It is the public trust reposed in the institution. If the Board acts inviolation of the doctrine of public trust, it amounts to destroying the public confidence in the institution. 55. Further the Board as well as the respondents having proceeded on the assumption that the provisions of the Code are applicable as seen from the order of the Board dated 21-7-1995 in C.A. No. 134 of 1995 till 2-12-1998 the day on which the Board started hearing the matter cannot dispense with the procedure, they thought of at the initial stage, more so without assigning any ....
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.... produce the evidence. 58. Coming to the provisions of the Code, under order-13, rule-1, all parties shall produce all the documentary evidence of every description in their possession or power, on which they intend to rely, and which have not already been filed in Court, and all the documents, which the Court has ordered to be produced. Under order-39, rule-4, the Court should endorse on every document, which has been admitted in evidence in the suit with the particulars contained therein. Under order-13, rule 5(3), where a copy of an entry is furnished, the Court shall, after causing the copy to be examined, compared and certify in the manner mentioned in order XIII rule-17, mark the entry and cause the book, account or record in which it occurs to be returned to the person producing it. 59. A Division Bench of this Court in Badrunnisa Begum v. Mohamooda Begum [2001] (3) ALD 11 D.B. held that a copy of the agreement without there being comparison of it with original document, is not admissible in evidence as secondary evidence. Having considered the scope of section 63 of the Evidence Act dealing with secondary evidence, their Lordships observed as follows :- "The learned coun....
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....d were not placed before the Court for its perusal and for refusing the allegations of depressing the working results of the company, prima facie the allegation of the mismanagement of working results stood un-rebutted and in such an event the Court is empowered to supersede the Board of Directors if found to have acted illegally and appoint a Receiver for a limited period and purpose. 62. In Abdul Rasheed v. Abdul Hakeem [1998] (6) ALD 682 a learned Single Judge of this Court held that the entries in the accounts book in favour of a party producing it has to be strictly proved. In a suit for specific performance filed on the basis of an oral agreement, the plaintiff therein produced a note book (Ex. A44) maintained by him to show that he paid an amount of Rs. 10,000 to the defendant as advance and the version of the plaintiff was disbelieved by the learned Judge by giving the following reasons : "(1) in the first place the entries are unsound; (2) the entries as such are not marked; (3) the accountant who made the entries was not examined. Thus observing the learned Judge held that the entries in the note book relied upon by the plaintiff to prove the alleged payment of Rs. 10,0....
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....rivate extracts of accounts in other cases can only be secondary evidence and unless a proper foundation is laid for adducing such secondary evidence under section 65 or other provisions of the Evidence Act, the privately handwritten copies of alleged account books cannot be themselves be treated as secondly evidence." (p. 426) 65. In United India Assurance Co. Ltd. v. Satyanarayana Ghee Trading Co. [1999] (6) ALD 4, this Court held thus: "merely because the accounts are kept in regular course of business and entries have been made therein they cannot have any binding nature vis-a-vis the insurer against whom the plaintiff is making now the claim. In other words the respondent firm has to prove the entries separately by independent evidence apart from the proof required under section 34 of the Indian Evidence Act to the effect that the accounts have been kept in regular course of business inasmuch the element of interestedness cannot be ruled out. The distinction between the relevancy and proof of entries and probative value thereof cannot be lost sight of". 66. In National Insurance Co. Ltd. v. Jugal Kishore AIR [1988] SC 719 their Lordships of the Supreme Court while commentin....
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....ard has at least followed the rudiments of law by summoning the original records and verify with the documentary evidence filed by the respondents to test the veracity of the statements of the petitioners that the records were tampered by the respondents or not. As stated supra, having summoned the original records and seen them I have no hesitation to hold that the records were tampered by the respondents. Petitioners themselves gave up the prayer for summoning the records in C.A. No. 65 of 1996 70. Nextly, the learned counsel for the 2nd respondent contended that though the 9th petitioner filed C.A. No. 65 of 1996 for appointment of interim administrator and sought for production of the minutes books, account books along with the vouchers for the period 1992-1995 from the respondent company, before the Board for verification, he did not press for the same as is evident from the order of the Board. He has drawn my attention to a passage in the order of the Board dated 8-12-1997 passed in the above C.A. wherein it was observed that- "Dr. Prasad Paul, Sr. Advocate appearing for the petitioners, even though application contains various allegations, restricted his arguments on the ....
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....question of law alone may arise in the suit. In such a case when the Court expresses an opinion on the question in order to determine in an injunction application whether a prima facie case exists, an impression can conceivably be gathered that the suit itself has been disposed of. But when the matter is considered in deeper perspective, it will be evident that the impression is a false one. The finding is limited to the context in which it has been given. It is a finding on an application for interim relief only. Any opinion expressed by the court, whether it be of the trial court or an appellate court or revisional court, cannot in law preclude the trial court from considering the issue afresh when deciding the suit, and for that purpose it must have regard to all the material then before it. In deciding that issue, it will properly have no regard to the finding rendered on the point while disposing of the application for interim injunction. No matter how superior the court rendering that finding and we would include this court the trial court is bound in the proper discharge of its duties to ignore the finding when it proceeds to dispose of the suit and to apply its mind indepen....
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....l not operate as res judicata within the meaning of section 11 of Civil Procedure Code. For example, orders relating adjournment of the case, appointment of Receiver or Commissioner, stay of proceedings, casting of issues, summoning witnesses, calling for documents, remanding the case and many more such orders cannot operate as res judicata since they do not decide any matter in dispute arising in the suit. Even the same Court in respect of such orders has power to alter or vary them by subsequent applications on proof of new facts and subsequent events." 76. In Palika Sathi Raju v. Pydah Soma Malleswara Rao [1999] (5) ALD 472, a learned Single Judge of this Court while considering the effect of interim order, held "that the finding given by the Courts in interlocutory applications are euphamary and are coterminus with the result of main proceedings and as such no importance can be attached to those findings since those findings have been arrived at in a summary proceedings." Accordingly this contention is rejected as devoid of merits. Oral evidence 77. Under section 59 of the Evidence Act all facts except the contents may be proved by oral evidence; under section 60 any oral e....
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.... the son filed a suit. The trial Court dismissed the suit against the borrower, but decreed against the father. On an appeal, the High Court decreed the suit against the borrower also. Aggrieved by the said decree and judgment, the appellant (borrower) approached the Supreme Court. Their Lordships of the Supreme Court held "that since the appellant did not enter into the witness box nor made any statement on oath in support of his pleading, an adverse presumption has to be drawn against him." 81. Even after passing of the order in C.A. No. 65 of 1996, the Board in its meeting held on 1-4-1998, passed the following order : "Witnesses will be examined on 18th April, 1998 at 9.30 a.m. at Chennai. The petition will be heard on merits as already fixed on 27th, 28th and 29th of April, 1998 at New Delhi." 82. On 27-4-1998 also the Board observed that oral evidence will be taken on 9-6-1998 at 10.30 a.m. at Chennai. I do not know-how the Board can hear the petition on merits even without completion of trial. Thereafter the Board started hearing the matter on 4-1-1998 without recording any evidence, perhaps on the basis of an affidavit filed by the petitioner No. 9, dated 13-5-1998 wher....
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.... Court has observed that findings arrived at by the first appellate court are not based on proper appreciation of the evidence on record and the same are set aside but for all intents and purposes and in substance the conclusion of the High Court is that the decision of the first appellate court is based on no evidence and is perverse. The High Court has rightly drawn an adverse inference on account of non-examination of Respondent 4, the tenant, as a witness by the appellant. On the facts and circumstances of the case that was vital and was rather the heart of the entire matter going to the root of the whole case. There was no explanation for non-examination of Respondent 4. Clearly, the decree of the first appellate court is based on no evidence and is perverse" (p. 121) 85. In Habeeb Khan v. Valasula Devi [1996] (2) ALD 822, this Court drew an adverse inference against the defendant/appellant for withholding important and material witnesses viz., the 4th defendant Shahbaz Khan and their employee, Abdul Ahmed. In recording the above finding, the learned Single Judge relied upon a Judgment of the Supreme Court in Gopal Krishnaji Ketkar v. Mohd. Haji Latif AIR 1968 SC 1413 and Pat....
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....ts were not marked and it is definitely a lapse on the part of the Board as well as the counsel who are expected to know the procedural laws. I have no manner of doubt, had the counsel for the petitioners conducted the case properly; the hands of the Board would have been tied in this case. It is not known whether the counsel for the petitioners is a party to the grave illegalities committed by the Board wantonly or otherwise. But at the same time, the 9th petitioner spoke in crystal clear terms in his evidence on the acts complained by the petitioners and in fact the learned counsel appearing for respondents could not and did not elicit anything contrary to what the 9th petitioner has spoken in his chief examination and he stuck to his version except some minor discrepancies which did not matter much. Even the respondents' counsel did not cross-examine the witness with reference to the documents. He being sufficiently a senior counsel, at least he would have cross-examined the witness with reference to documents filed by him or examined his witnesses in the manner in which the counsel for the petitioners examined his witness. That was also not done. Having pleaded before the Board....
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....d in the pleading of the defendant, shall be taken to be admitted except as against a person under disability : Provided that the court may in its discretion require any fact so admitted to be provided otherwise than by such admission. 14. What is stated in the above is, what amounts to admitting a fact on a pleading while Rule 3 of Order 8 requires that the defendant must deal specifically with each allegation of fact of which he does not admit the truth. 15. to 18. ****** 19. Non-traverse would constitute an implied admission. In the facts of this case the findings of the trial court and that of the first appellate court could be upheld on this admission. Thus, we find the High Court was wrong in interfering with this finding. Accordingly, the appeal will stand allowed. No costs." 91. In Maseem Bano (Smt.) v. State of U.P. [1993] Supp. (4) SCC 46, their Lordships of the Supreme Court held that since the respondents did not dispute that 40 per cent of the total number of posts had not been filled up by promotion, as pleaded by the appellants, inasmuch as the said averments had not been controverted, the High Court should have proceeded on the basis that the said averments had....
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....ss box and his cross-examination was completed on 18-10-1995. This evidence is complete on all aspects on the allegations made in the main petition. The Board started hearing the case without completing his evidence. (4) Be that as it may only to the extent of subsequent allegations, though he did not depose, he proved the allegations by filing necessary documents. But his evidence was discarded stating that it is incomplete. (5) On the other hand, the respondents completely failed to prove their case in a manner known to law. (6) The Board relied on xerox copies of documents, which are not admissible in evidence in dismissing the case of the petitioners without summoning the original records though serious allegations of fabrication of documents and accounts etc., are made against the respondents. (7) Assuming for a moment that the petitioner failed to examine the witnesses, under section 59 of the Evidence Act, the respondents are expected to lead oral evidence in support of their contentions. Further, under section 102 of the Evidence Act, the burden of proof lies on the respondents to prove that there is neither mismanagement in running the affairs of the company prejudicia....
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.... The result of the facts and circumstances of the case "(1) When a question of law is raised before the Tribunal, is dealt with, it is clearly one arising out of its order. (2) When a question of law is raised before the Tribunal, but the Tribunal fails to deal with it, it must be to have been dealt with by it and is therefore even arising out of its order. (3) When a question of law is not raised before the Tribunal, but the Tribunal dealt with it, that it will also be a question arising out of its order. (4) When a question of law is neither raised before the Tribunal nor considered by it, it cannot be a question arising out of its order not-withstanding that it may arise." This case cannot be an authority for the proposition that whether the procedural illegalities committed by the Tribunal constitute a question of law arising out of the order of the Board or not. (2) In T.R. Varma's case (supra) their lordships of the Supreme Court having held the Evidence Act is not applicable to the enquiries conducted by Tribunals even though they may be judicial in character observed "The law requires that such Tribunal should observe the rules of natural justice in the conduct of the....
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..... The Supreme Court has taken a similar view with regard to the observance of principles of natural justice by Tribunals exercising quasi-judicial powers in a decision reported in A.K. Kraipak's case (supra). 95. In Bhagwan Sharma v. Smt. Bani Ghosh AIR 1993 SC 398 a Constitution Bench of the Supreme Court held "that the High Court is certainly entitled to go into the question as to whether the findings of fact recorded by the first appellate court which was the final court of fact were vitiated in the eye of law on account of non-consideration of admissible evidence of vital nature..." (p. 398). To the same effect is the judgment of the Supreme Court in Ishwar Dass Jain's case (supra), their Lordships of the Supreme Court held : "(that) the Court (the first appellate Court) is under a duty to examine the entire relevant evidence on record and if it refuses to consider important evidence having direct bearing on the disputed issue and the error which arises as of a magnitude that it gives birth to a substantial question of law, the High Court is fully authorized to set aside the finding. This is the situation in the present case." (p. 429) Their Lordships further held "that whe....
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.... unreasonable and perverse." 100. In Kondiba Dagadu Kadam v. Savitribai Sopan Gujar [1999] 3 SCC 722, their Lordships of the Supreme Court while interpreting section 100 of the Code held that the High Court cannot substitute its opinion for the opinion of the first appellate court unless it is found that the conclusions drawn by the lower appellate court were erroneous being contrary to the mandatory provision of laws applicable or its settled position on the basis of pronouncements made by the Apex Court, or was based upon inadmissible evidence or arrived at without evidence. 101. In Ashwinkumar K. Patel v. Upendra J. Patel [1999] 3 SCC 161 their Lordships of the Supreme Court posed a question and answered as follows: "7. The point for consideration is whether the order of the High Court in remitting the matter to the trial court was necessary. Question also is whether this Court should remand the case to the High Court in the event of this Court holding that the remand by the High Court was not called for. If not, whether the order of the trial court is to be sustained. 8. In our view, the High Court should not ordinarily remand a case under Order 41 Rule 23 CPC to the lower ....
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....Courts for another decade or two as there is every possibility of carrying the matter in appeal till all the forums that are involved in the adjudicatory process are exhausted by one or the other party. 104. Secondly, 9th petitioner in the open Court expressed that he is not even being paid dividends all these years and he will be satisfied if the value of the shares held by his family members and his friends is paid to them and they are not interested in continuing as shareholders in the 1st respondent-company and it is for R. 2 to administer the affairs of the company in a manner he likes as long as the majority shareholders approve his actions. In opposition of the claim of petitioners, the counsel for R. 2 strenuously contended that the direction given by the Board is not supported by any reasons and as such the Company cannot be compelled to purchase the shares. In the light of this contention, I directed the counsel to argue the case on merits to find out whether cogent reasons can be given for the direction given by the Board on the basis of the material available on record including the documents, which were not looked into by the Board. I am fortified in my view by severa....
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....s: "The High Court is certainly entitled to go into the question as to whether the findings of fact recorded by the first appellate court which was the final court of fact were vitiated in the eye of law on account of non-consideration of admissible evidence of vital nature. But, after setting aside the findings of fact on that ground the Court had either to remand the matter to the first appellate court for a rehearing of the first appeal and decision in accordance with law after taking into consideration the entire relevant evidence on the records, or in the alternative to decide the case finally in accordance with the provisions of section 103(b). If in an appropriate case the High Court decides to follow the second course, it must hear the parties fully with reference to the entire evidence on the records relevant to the issue in question and this is possible if only a proper paper book is prepared for hearing of facts and notice is given to the parties. The grounds which may be available in support of a plea that the finding of fact by the court below is vitiated in law does not by itself lead to the further conclusion that a contrary finding has to be finally arrived at on t....
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.... the Madras High Court held as follows : "We have carefully considered the submissions of learned counsel appearing on either side. A perusal of the memorandum of grounds of appeal filed in this court against the order of the Company Law Board also shows that the appellants before the learned single judge (respondent Nos. 1 and 2 before us) were equally aggrieved against the manner of disposal of the preliminary objection and contended that the Company Law Board ought not to have decided the issue in such a summary fashion and the laconic order passed without objective consideration or assigning any reasons therefore cannot be sustained. That apart, several factual issues such an discrepancies in the signatures found in the consenting letter, the varying numbers of such persons who subscribed their signature to the letter of consent are very serious as also vital questions of fact which deserve a proper and effective enquiry or trial at the hands of the Company Law Board. That apart, the locus standi or authority of Mr. C.P. Sodhani, to present the application in the absence of a resolution of the board of directors authorizing him to do so was also raised. We also find from the o....
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....ressed into service by the counsel for the simple reason that the issue was sought to be raised at the level of the Apex Court without there being any foundation in the pleadings and without adducing any evidence on that aspect. The facts of this case are altogether different. The subsequent events were brought to the notice of the Board, before it has taken up the Company Petition for hearing. He also relied on a Judgment of Calcutta High Court in Mohta Bros. (P.) Ltd. v. Calcutta Landing & Shipping Co. Ltd. [1970] 40 Comp. Cas. 119 , wherein the Division Bench of the Calcutta High Court held "that when dealing with a petition for relief from the oppression or mismanagement made under sections 397 and 398 of the Companies Act, 1956, the Court must confine itself to the case as made out in the petition and to the allegations made therein and the supporting affidavits and not to look at the other evidence with regard to events that might have happened subsequent to the petition." (p. 119) 114. I am not inclined to agree with the reasoning given by the Calcutta High Court for the reason that the Apex Court in many a case held that the Court is bound to take subsequent events into c....
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....right to evict, in view of the inhibition written into section 10(3)(iii) itself. We are not disposed to disturb this approach in law or finding of fact." (p. 1410) 116. In fact, the Board itself in its order dated 18-12-1997 held that since now the matters relating to section 397 or 398 are solely within the jurisdiction of the Board, we would like to settle this issue once for all in the following terms : (a)Section 397 or 398 of the Act has to stand on its own on the basis of the allegations contained in the petition. Subsequent events brought on record alone, in case the main petition fails on merits, cannot entail a person to any relief. In case the allegations in the main petition are placed, then subsequent events may be taken into consideration by the Board in moulding the suitable relief. 117. From this it is seen that the Board did not close the doors for 9th petitioner to raise subsequent events also during the course of the arguments in the main case. In fact the Board considered these two new issues that were brought to the notice of the Board in C.A. No. 65 of 1996 in the impugned orders. Hence, it is too late in the day to contend that subsequent events that have ....
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....s pleas in the pleadings is to enable the opposite party to controvert them and to adduce evidence in support of his case and it would be neither legal nor just to refer to evidence adduced with reference to a matter which was actually in issue and on the basis of that evidence...." (p. 256) 121. In S. Seetharaman v. Stick Fast Chemicals (P.) Ltd. [1998] 93 Comp. Cas. 5071 (Mad.) the Madras High Court held that in a petition filed under section 397 of the Companies Act, 1956, the petition should contain all material facts. In the case of fraud, mismanagement, oppression, etc., full and complete particulars must be alleged in the petition. Subsequent affidavits are not enough. The petitioner must plead all material facts necessary for granting the relief as prayed for. 122. Countering the arguments of the counsel for the respondents, the counsel for the petitioners placed reliance in M. Harichandra Prasad v. Chitturi Krishnamurthy 1997 (1) ALD 330, wherein this Court as follows: "Pleading should receive a liberal construction. There may be many instances wherein the pleadings are incomplete, but during trial the parties place many materials before the Court either directly touchi....
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....osed on those allegations but he was also subjected to cross-examination by the counsel for the respondents. 126. From the written arguments submitted by the counsel for the respondents and the order of the Board it is seen that both the counsel addressed arguments very elaborately and the Board recorded findings on some of the issues and reference was made to some other issues without giving a finding and certain other issues were not at all considered for reasons best known to it. Hence I hold that there is no vagueness in the allegations in the petition, at any rate, parties addressed arguments on all the issues knowing fully well the issues in controversy and in fact the Board recorded findings adverting to their arguments. To my mind the respondents are blowing hot and cold in the judicial proceedings. With regard to the findings of the Board that are in their favour they are trying to take advantage of it knowing fully well that the Board conducted the proceedings in very shabby manner unknown to law and on the findings that are inconvenient to them they are raising all sorts of pleas. In the result, I do not find any substance in this contention. If the action of the board....
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....medy for the purpose. In order constitute oppression within the meaning of section 397 of the Act there must be continuous acts on the part of the majority shareholders, continuing up to the date of the petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members." (p. 235) "The conducting of affairs prejudicial to the interests of the company by the persons who are in the control or the management gives the court jurisdiction to pass appropriate orders to bring to an end the matter complained of. Neither section 398 of the act nor section 402 of the act provides that only such orders can be passed which will result in handing over the management of the company to the aggrieved persons, in granting relief under section 398 and section 402 of the Act not only is the interest of the company to be kept in view, but also other equitable considerations have to be taken into account." (p. 236) From the above, it is seen that while certain actions of the directors are illegal or invalid, the shareholders can question the validity of such an action in a court of law. But section 397 comes into play when minority shareholders al....
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.... 397, 398 and 402. Hence any of the cases cited by him will not come in aid of his contention. Accordingly, this contention also has no legs to stand and accordingly rejected. All the directors were not made party respondents 128. The next contention of the counsel was that out of nine board of directors, only the managing director and joint managing director were impleaded and as the Board has to be treated as an independent one and as all the decisions were taken by the Board, apart from R2 and R3 a petition under sections 397 and 398 is not maintainable without impleading them as party respondents to the proceedings. This contention is answered by their Lordships in a case reported in Shoe Specialities Ltd.'s case (supra), wherein their Lordships of the Madras High Court held as follows : "We are not hampered by such rigid technicalities of procedure and if the minority in a company complains of an oppression and discloses certain grounds of complaint in the petition which are made the basis for the relief, we would hold that the court should ordinarily investigate the charges. Such investigations may in certain cases, be necessary even to regulate the future conduct of the ....
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....question to be decided is, whether the affairs of the company are being conducted in a manner prejudicial to the interest of the company or in any manner prejudicial to its member, or whether there is any material change that has taken place in the management and control of the company, and whether such constitution has affected or (is) likely to affect the affairs of the company. When we read these two sections, it is clear that the Company Law Board has taken into consideration how the company has been managed. It is not the individual's right or the right of the individual/shareholder or creditor that is the subject matter of the litigation. The proceedings under sections 397 and 398 are like a declaratory suit. It is for that reason, the Companies Act, provides that any person who is not a party can get himself impleaded in the proceedings. Section 405 of the Companies Act says :- 'If the managing director or any other director, the managing agent, secretaries and treasurers or the manager, of a company, or any other person, who has not been impleaded as a respondent to any application under section 397 or 398 applies to be added as a respondent thereto, the Company Law Board ....
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.... of the company itself or in a manner oppressive to the minority shareholders. 131. Admittedly, in this case, the company the juristic person having been incorporated under the provisions of the Act, it is a juristic person and the same is represented by its Secretary. In fact the managing director and the Joint managing director who are responsible in conducting the affairs of the company, according to the petitioners, in bad faith were also impleaded as an abundant precaution. Hence the contention of the learned counsel for the respondents that the company petition is not maintainable on the ground that all the Board Directors were not made parties to the proceedings has no legs to stands. Accordingly, this contention was also rejected. The procedure followed by the Board was not questioned in the appeal 132. Nextly, Mr. Raghavan contended that the petitioners did not raise any objection for the procedure followed by the Board even in the grounds of appeal and therefore, this Court is not justified in interfering with the order of the Board on the ground of procedural lapses, at any rate the same cannot be a ground for interference by the Appellate Court. It is true that the p....
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....unless one tenth of the shareholders join the Appeal, the same is not maintainable by pointing out that some of the petitioners withdrew from the petition. While the counsel admits the fact that on the day when the application was filed, the petitioners in the petition were holding more than 11 per cent shares, contends that after withdrawal of the legal representatives of the 1st petitioner and the other two petitioners, the shares held by the petitioners fell short of 10 per cent of the shares. But the counsel himself conceded that there would not be any impediment for continuing the proceedings even if the shareholding of the petitioners is less than 10 per cent of the shareholding of the company. 135. Be that as it may, this issue is covered by a Judgment of the Supreme Court in A. Rajahmundry Electric Supply Corpn. Ltd. v. A. Nageshwara Rao AIR 1956 SC 213. In the above case, while considering the objections of the Chairman of the company that, though the petitioner stated that he obtained consent of 80 shareholders for filing an application under section 162(vi) of the old Act for winding up of the company, only 52 persons consented for filing of the applications and therefo....
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....he Board on the alleged acts of oppression and mismanagement can be sustained in law. Even if the findings of the Board cannot be sustained whether the acts alleged by the minority shareholders against the majority shareholders can constitute an apprehension in the mind of a prudent person so as to enable the Board to exercise the powers vested in it. The issues in controversy are referred in seriatum. Merits of the case : Mismanagement : I. Closure of parcel offices : (a)Fabrication of the minutes of the Board meeting dated 7-8-1992 : 138. The case of the petitioners is that during the year 1992, the respondents 2 and 3 closed as many as sixty parcel offices without the knowledge or sanction of the board of directors. The motive behind such closure is to release the lorries connected to these parcel offices and to dispose of them and pocket the sale proceeds by showing nominal price, i.e., around the book value in Books of Account. When the issue was raised by the petitioner No. 9 at the board meeting held on 3-3-1993, the respondents not only fabricated the resolutions of the meeting of the board of directors dated 7-8-1992 to show that the closure of parcel offices was effe....
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.... started in the book, the minutes were written with a separate pen and the same is visible to the naked eye. Further this form is re-stitched with the support of a piece of a cloth. While it is the case of 9th petitioner that this form was introduced by removing the original form, the company says that as the binding has become loose in the ordinary course of business this form was re-stitched by using the cloth for strength. In the normal course this version of the respondents was to be proved by adducing oral evidence. As the record is speaking for itself, I am proceeding to test the veracity of the statement. From the resolution of the Board dated 7-8-1992 it is seen not only a decision was taken to close down the un-remunerative parcel offices with immediate effect as per the statement given by the Chairman, but also authorized him to take decision with regard to closure of uneconomic branches. But it is not known for what purpose this subject was again included in the Agenda for discussion in the notices for the meetings dated 19-12-1992 and 3-3-1993/27-2-1993 nearly seven months after the Board passed the resolution. Nextly, it is the case of the Respondents that at the meeti....
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.... close down the offices. Nextly, when the Board passed resolution way back on 7-8-1992, how the company failed to inform the shareholder that under a resolution of the Board, the parcel offices were closed. Yet the same time no reply was sent to 9th petitioner to his letter. As he happened to be the director of the company on that day, and they cannot refuse to give information to him, before the Board a photostat copy of the acknowledgement which is said to have been signed by 9th petitioner on 27-12-1993 is filed as Annexure-6B by stating that a reply was sent to him on 3-12-1993 asking him to come to office and inspect the same during 2.00 p.m. to 4.30 p.m. on any working day with prior intimation to them. 9th petitioner in the above letter not only asked for the information, but also requested R2 to convene Board meeting or put those issues on the agenda at the ensuing Board meeting for discussions and proper considerations thereon and they reply of R1 do not throw any light on this aspect. It is his specific case that he has not received any reply from the respondent-company to his letter (Ans. to Q. 131 in cross). The falsity of the case of R2 is exposed from the fact that th....
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....hand, the case of R2 is that on the same day, i.e., 20-2-1993 another meeting notice was sent pre-poning the Board meeting to 27-2-1993 and 9th petitioner applied leave from attending the meeting. At the same time, 9th petitioner denied the receipt of the notice pre-poning the meeting to 27-2-1993 and the leave letter pressed into service by respondents is a fabricated one. It is his specific case that while he was functioning as Member of Parliament he left blank signed papers with the Manager at Hyderabad for railway reservation purpose and on one such paper the leave letter was brought into existence. A xerox copy of the letter seemed to have been produced before the Board and the Board without summoning the original came to the conclusion that 9th petitioner applied for leave. To know the truth or otherwise of the rival contentions, I directed the respondents to produce the original leave letter. It is not original but only a carbon copy. The respondents did not offer any explanation for not producing the original leave letter. 145. Be that as it may, for better appreciation of the contentions of the parties, the letter in dispute was scanned below. From : Ch. Srihari Rao, ....
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.... the preponed meeting. The only suggestion made by the counsel for respondents for convening the meeting on 27-2-1993 in cross-examination of 9th petitioner in question Nos. 28 and 29 is that the company has to furnish Board resolution to the banks for deferred payment guarantee before the end of February 1993. But the same was denied by 9th petitioner and stated that all the documents and agenda were forged. The next suggestion made to 9th petitioner is that the minutes of this meeting was confirmed in the meeting held on 9-6-1993. The answer given by 9th petitioner to question No. 31 is that the practice is that agenda used to be discussed and minutes were never discussed. The minutes used to be noted on a small paper and subsequently they used to be carried out in the minutes book and he acted in good faith. In the cross-examination the counsel suggested to 9th petitioner that since no meeting took place on 3rd March, no sitting fee was paid to him. 9th petitioner said that now and then he used to be paid the sitting fees and he do not remember for which meeting he received the sitting fee. While going through the minutes book, I noticed that the Board at its meeting held on 29-....
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....ia) (P.) Ltd. [1992] 3 Comp. Law Journal 89 (CLB) the Principal Bench of (CLB) held "that the action of the company in passing a resolution that the petitioner consented for transfer of her holding of 50 per cent shares by fabricating minutes showing her presence, though she did not attend the meeting and other resolutions passed in such a meeting are null and void and non-operative." 149. In the case on hand also I hold that the alleged leave letter and meeting notice were brought into existence to cover up the illegal action of R2 in closing the parcel offices unilaterally without the approval of the Board and they are fabricated. Likewise, I have no hesitation in holding that the resolutions of the Board meeting dated 3-3-1993 were replaced with new minutes as if the Board meeting was held on 27-2-1993. As the resolutions said to have been adopted at the meeting of the Board held on 27-2-1993 are proved to be fabricated they have to be declared as null and void. Sale of lorries 150. It is an admitted fact that the company sold 22 and 15 vehicles during the financial years 1992-93 and 1993-94 respectively. The case of the 9th petitioner is that the company from its inception n....
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....y the petitioner ... Since we ourselves felt that the present system was not a full proof system we advised the Board that more transparent system should be evolved in disposal of lorries by fixing a reserve price, getting approval of the Board and giving wide publicity before conducting the auction. We feel that as far as this allegation is concerned it is sufficient that we retreated the above advice for future adherence and accordingly to do so." 151. The order neither referred to the directions given nor verified whether the procedure followed by the company in disposing of the vehicles is in accordance with the directions given by the Board. Even before this Court, the respondents did not choose to place the directions as well as the procedure followed by them to show that the disposal of lorries is in accordance with the directions given by the Board. The Board expressed satisfaction by observing that the vehicles fetched 15 to 20 per cent higher price in the subsequent years. 152. Nextly the Board did not advert to any of the contentions of the petitioners, more so the contention that the company never sold so many vehicles in a year, that the company never auctioned the v....
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....8th Rank English 25,000 Second Highest Bidder Rs. 24,900 11. ABP 1220 1983 4th Rank 26,000 12. ATB 5234 1982 5th Rank 29,000 Sl. No. Vehicle Number Model Rank How he signed Value In Rs. Comments 13. AP 5T 2612 1983 4th Rank 22,000 14. AP 5T 2620 1982 6th Rank 29,000 15. AP 5T 2230 1982 5th Rank 30,000 ANNEXURE - IV Md. MUNEER Sl. No. Vehicle Number Model Rank How he signed Value In Rs. Comments 1. ADP. 6693 1984 Rank 3rd Telugu 25,000 Second Highest Bidder Rs. 24,900 2. AP 5T 2360 1981 6th Rank 25,000 3. ATP 1554 1981 6th Rank 25,000 4. ATP 1445 1981 2nd Rank 27,000 5. ATP 1221 1981 5th Rank Telugu 22,000 Second Highest Bidder Rs. 21,950 6. ATP 5234 1982 3rd Rank (Telugu) 29,000 Second Highest Bidder Rs. 28,950 ANNEXURE - V MD. AYUB KHAN Sl. No. Vehicle Number Model Rank How he signed Value In Rs. Comments 1. ATP 969 1981 3rd Rank 25,000 2. MEK 8343 1983 3rd Rank 29,00....
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....NEXURE - VII K. ANANDA PRASAD Sl. Vehicle Model Rank How he Value Comments No. Number signed In Rs. 1. ATP 1981 7th English 25,000 Second Highest 1455 Rank (K.Anand Bidder Prasad) Rs. 24,950 2. ATP 1981 4th 25,000 1554 Rank 3. ATP 1981 9th English 27,000 Second Highest 1445 Rank Bidder Rs. 26,900 4. ATP 1981 7th English 39,000 Second Highest 3245 Rank Bidder Rs. 38,950 5. ABP 1983 3rd 30,000 1202 Rank 6. ABP 1983 7th 25,000 6286 Rank 7. ABP 1983 6th 26,000 1220 Rank 8. AP 5T 1982 5th 29,000 2220 Rank 9. AP 5T 1981 ....
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.... 1976 5th 25,000 6746 Rank 7. ATP 1982 2nd 27,500 7566 Rank 8. AP 5T 1983 2nd 28,000 2928 Rank 9. ATB 1982 4th 29,000 5234 Rank 10. AP 5T 1983 6th 22,000 2612 Rank 11. AP 5T 1982 5th 24,000 2802 Rank 12. AP 5T 1982 4th 29,000 2620 Rank 13. AIQ 5524 1988 5th 18,000 Rank 14. AP 5T 1982 4th 30,000 2230 Rank 15. AP 5T 1982 4th 29,500 2801 Rank 16. AP 5H 3rd 2,70,000 2552 Rank ANNEXURE - X K. SATYANARAYANA RAJU Sl. ....
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....0 Second Highest Rank Bidder Rs. 24,975 21. ATP 1981 6th English 26,000 First Highest 1212 Rank Bidder From the above tables it is seen that (1) several individuals not only participated in the auction alleged to have been held on different dates as per the information furnished by the respondents but also signed differ-ntly. (2) From the auction slips it is seen that only the first two highest bids were given but neither the upset price nor the offers given by the others were shown in the auction slips - apart from not showing the progress in the bids in the process of auction and the difference between the first and the second bidder is marginal and they do not exceed Rs. 100 generally. (3) From the information furnished by the 1st respondent-company the date of auction of three lorries bearing Nos. ATP 1455, ATP 1212 and ABP 1220 are not tallying with the dates on which auction slips were prepared. (4) In case of certain lorries originally they were shown as condemned lorries but later on corrected as old lorries. (5) In the auctio....
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....ssues were discussed in the board meeting held on 23-9-1993 (answer to Q. 29 in chief). With regard to the approval of profit and loss account by the general body, the case of the petitioners is that when the chairman refused to give information he walked out of the meeting (answer to Questions 25 to 27 in chief). Be that as it may it is not known why the company refused to furnish the required information sought for by the petitioner No. 9 as well as late Suryanarayana in their letters. When a suggestion (Question No. 136 in cross-examination) was made to him that he is having every right to inspect the books and records of the company, the answer given was that since the information asked for was not given, it is not possible to go through the records of the company and find out the misappropriation. But at the same time the Court should not miss the fact that the ill feelings have reached to a point of no return by that time and the petitioner No. 9 was also manhandled by the employees of the company (Answer to Question No. 86 in chief). The respondent elicited from the witness that after 29-7-1993 he was given further powers to operate the bank accounts and the answer given by ....
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....ments are true and would have provided an opportunity to the petitioner to cross-examine them on the retracted affidavits. If the Board wants to rely on these affidavits the Board should have directed the respondents to produce these individuals for examination. That was also not done. 156. Though no material was placed before the Board that the parties have take loans for attending to major repairs, the Board simply jumped at the retracted affidavit and held that they have borrowed the amounts for attending to major repairs of the vehicles more so in the absence of any evidence that these vehicles have become so unserviceable. 157. Nextly, it is seen that though these parties went back on their earlier statement in the affidavits filed by the respondent-company, the fact remains that they have borrowed the amounts from the financial company, i.e., Laxmi Devi Finance Corpn. In the hire purchase agreement they entered with that corporation they never stated that they are borrowing these monies for effecting repairs. The 9th petitioner in his evidence categorically stated that he obtained hire purchase documents from Laxmi Devi Finance Corpn. apart from the affidavits given by the ....
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.... to be drawn is that the sale proceeds of the vehicles shown in the books of account by the company is in and around the book value of those vehicles, but not the real price fetched by these vehicles and the inevitable presumption to be drawn is, the excess amount realized by the company over and above the amounts shown in the books of account were embezzled by respondents 2 and 3. Payment of hire charges to private lorries 159. The case of the petitioner is that, while he was the managing partner of the Padmalaya Finance Corpn., it used to give its lorries on hire to SRMT and the average hire charges used to be Rs. 6,000 to Rs. 7,000 per month. But during 1993-94 and 1994-95 an amount of Rs. 2,90,83,525 and Rs. 3,19,37,496 were paid to private lorry owners towards hire charges as seen from Schedule 'S' to 50th Annual Report for the year 1994-95. The case of the petitioners is that all the payments to the lorry owners were paid in cash, but not by way of cheques. In that process, respondents 2 and 3 obtained receipts from the owners for much higher amounts and the same were misappropriated and in the year 1994-95 there was a shortfall of Rs. 1.55 crores in the cash flows. The con....
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....ly in effecting the repairs to the vehicles but also in payment of hire charges to others. Further, the case of the respondents that the contracts register, containing the particulars of the vehicles hired, to be maintained statutorily is not traceable. To my mind the self same vehicles sold might have been hired and the Contracts Register was purposely withheld by the company. Instead of drawing an adverse inference against the respondents, the Board observed that this issue was not raised. Further the Board did not consider the aspect, whether the respondent-company was subjected to audit and payment of income-tax, can pay hire charges in crores of rupees in cash though the evidence of the 9th petitioner on this aspect stood unrebutted (see answers to questions 55, 62, 82, 83 in chief and questions 160 to 165 in cross). 160. The issue can be looked at from another angle also. One of the main activities of the company being parcel lorry service and in the absence of denial to the evidence of the 9th petitioner that previously one or two vehicles used to be sold, the company did not offer any explanation in not purchasing new vehicles having sold considerable number of alleged old....
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..... Finally the company contended that it can appoint only those on whom it has confidence. Except making vague allegations, the petitioners have not furnished any evidence to show that the respondents 2 and 3 have received kick backs from the commission paid to these companies. The Board held against the petitioners on the ground that "he was a director of the company for nearly three years after appointment of these firms as their sole selling agents for North and South India and the fact that he has not raised this issue in any of the board meetings during this period, giving us an impression that he has no grievance in this regard till the same was raised in this petition." 163. To my mind, the Board cannot reject the plea of the petitioners solely on the ground that the 9th petitioner was on the board when the agents were appointed without examining whether there is any truth or not in the allegations. Even assuming that the 9th petitioner is a party to the decision of the Board, if the decision is ultimately found to be illegal the alleged silence on the part of the 9th petitioner is of no avail and as held by the Supreme Court in B.R. Kapoor v. State of Tamil Nadu 2001 AIR SC....
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.... C D 1. Location *** 2. Present Business *** 3. Intensity of *** Interest 4. Overall *** (including Presentation) Preliminary Discussions Shortlist for further Decision Certified True Copy The columns relating to corporation, present business, intensity of interest, over all presentation are shown as nil. As per the balance sheet of that company that its capital is Rs. 1,30,000 but he was able to earn Rs. 38,23,000 as commission. It is not known how the consultant felt that the amount which he is going to invest (i.e., Rs. 5 lakhs would be sufficient to market about 400 spare parts of the company in whole of South India. Be that as it may 3 years after its establishment, the share capital of the company is only Rs. 1,30,200. It is not known whether he established any shops of his own or appointed dealers all over south for marketing the spare parts. To my mind the capital invested by him ....
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....S. Arban Singh Sabarwal & Sons with its Head Office at Bombay and having a branch office at Kasmiri Gate, New Delhi, partnership concerns having vast experience in the field with abundant money flow and with show room facility at Delhi were shown at Sl. Nos. 2 and 3 respectively. The list of the other applicants was not filed before the Court. The consultant recommended the name of this company with a paid-up share capital of Rs. 4,55,000 though newly incorporated on the ground that the promoters are well experienced in auto parts technically as well as marketing wise ignoring the well experienced firms and this company earned a commission of Rs. 45,56,000 in the financial year 1992-93 as seen from its balance sheet. While the petitioners filed some letters from the dealers, who according to the respondents, have responded to the notifications inviting applications both for South India and North India stating that they never applied for the agency, the respondents got letters from those dealers saying that they have not given such letters to the petitioners. I need not go into that controversy. 167. Now it is evident that this company appointed as the sole selling agent for North ....
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.... other share holders being individual share holders they cannot raise their voice in the company as it may be difficult for them to muster necessary strength to oppose the 2nd respondent and perhaps they might be satisfied with the dividends that are being paid to them for the investment they made. Now because of the differences between the family members, these underhand dealings came to light. If they are together things would not have gone in this manner to the detriment of the interest of the other share holders apart from causing loss to the exchequer by avoiding payment of sales tax, excise duty, income-tax, etc. When the acts of mismanagement brought to the notice of the Court are ignored, it amounts to giving a seal of approval for the mismanagement of the affairs that are being conducted by the company which are prejudicial to public interest. Persons of confidence 169. Coming to the other contention of the respondents that they can appoint only those on whom they have confidence, I can only observe that if the respondents want to appoint people of their confidence, without undertaking any such process they would have straight away appointed these companies as their sole....
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....n certificate issued by the income-tax authorities, and (3) the assessment order for the financial year ending with 31-3-1996 on the basis of a nil return without giving a finding on the contention of the petitioners, that the later para of the resolution dated 30-5-1992 (Annexure-A) filed along with the counter of the respondents is a fabricated one. Be that as it may after considering the events the Board recorded a finding that the application filed under sections 397 and 398 of the Act has to stand on the allegations contained in the petition and subsequent events brought on record alone cannot entail any person to a relief in case the main petition fails. In other words in case the allegations in the main petition are held proved then the subsequent events may be taken into consideration by the Board in moulding relief suitably. In the normal course as the 2nd respondent being the managing trustee of the trust, the Board would have directed him to produce the original records of the trust to see which of the resolutions produced by the parties are true and genuine. From the material available on record and as per the version of the petitioners that the trustees passed a resolu....
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....le to achieve the desired objects on its own inspite of best efforts and also on being satisfied that the said desired objects of our trust can be attained through Sri Srinivasa Educational Society, Kakinada which was registered with the similar and identical objects as that of ours, it is desirable to wind up our trust and pass over the movable and immovable properties to Sri Srinivasa Educational Society. In this regard he brought to the notice of members the resolution passed on 20-4-1992 a copy of which is also placed before the meeting. After discussion the following resolution is unanimously passed: 'Resolved that Sri K.V.R. Choudary, Managing Trustee be and is hereby authorised to take all steps to become a sponsor patron in M/s Sri Srinivasa Educational Society and for which purpose, do all such things that are necessary such as advancing/transferring movable and immovable properties to Sri Srinivasa Educational Society' Resolved that Sri K.V.R. Choudary, Managing Trustee be and is hereby authorised to take necessary permission from the Income-tax authorities and do all acts that are necessary for finally transferring the properties of our trust to Sri Srinivasa Educatio....
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....for a defunct Trust in contravention of the alleged resolution passed by the Board, where under he was authorized to take necessary permission from Income-tax Authorities for effecting transfer of properties of the Trust to the Society. Be that as it may it is not the case of the respondent that this amount was in any way required for carrying on the activities of the Trust. In fact they have not shown utilization of this amount in the income tax return. Nextly it is to be seen that normally the donee will be approaching the donar for donation by specifying the purpose. There is absolute silence on the part of the respondents, as to who approached the company for donation or at least how this donation was utilized by the Trust belonging to the family of the 2nd respondent. By diverting the funds in this manner to a non-functioning Trust if not non-existent Trust belonging to the 2nd respondent family, the company avoided payment of income tax and claimed exemption. The Board has not applied its mind to the crux of the matter and simply washed of its hands by saying that the contribution is to an existing Trust. Hence its cannot be said that the affairs of the company are being run ....
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....d by the Board can be sustained in law. 176. Mr. Raghavan tries to impress upon the Court that the Board comprises of a Member well acquainted with the accounts and other experts have approved the explanation given by the respondent-company. I can only observe that as this country is having such type of Accounts Officers the black money that is being generated in the industrial circles of this country is 3 to 4 fold than the real currency, which is expected to be in circulation as per the version of Reserve Bank of India. If the members of the Board properly analysed this issue in a manner known to law and not carried away by extraneous reasons, the result of the company petition would have been otherwise. 177. The book that was produced before the Board was produced before this Court also. To my surprise it is nothing but a compilation prepared by the company. But the original RJI register was not produced before the Board to prove that the Central Excise Authorities have verified and signed in the register. Further the Board did not summon the original RJI register to find out whether the entries in the compilation book tally with the original register or not. In fact no centra....
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....96,02,700 1988 1991-92 Opening 3,76,565 ... ... 36,336 Stock Production 19,17,917 1,76,116 1,28,738 2,03,529 Sales 4,19,260 ... ... 1,44,354 Closing 3,27,631 ... ... 24,462 Stock Discrepancy 15,47,591 1,76,116 1,28,738 71,049 (Amount Rs.) 15,47,59,100 3,52,23,200 3,86,21,400 36,52,450 2321 1992-93 Opening 3,27,631 ... ... 24,462 Stock Production 21,93,374 1,36,833 1,19,927 2,01,883 Sales 4,56,203 ... ... 1,26,948 Closing 1,90,404 ... ... 5,472 Stock Discrepancy 18,74,394 1,36,833 1,19,927 93,925 (Amount Rs.) 1,87,43,400 2,73,66,600 3,59,78,100 46,96,250 2554 1993-94 Opening 1,90,404 ... ... 5,472 Stock Production 24,89,080 1,44,537 1,55,651 2,75,534 ....
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....f the sets should be 16,250. But the closing balance was shown as 899 and the missing sets are 15,357 whose value works out to Rs. 70,76,811 at the rate of Rs. 461 per set as per the price list of the respondent-company. To prove the falsity of the case of the respondents, the petitioners furnished the account of piston pins for the year 1980, 1994-95 and 1996-97. The table is extracted hereunder : STOCK POSITION OF PISTON PINS IN THE BALANCE SHEETS OF S.R.M.T. Piston Pins 1980 1994-95 1996-97 Sets Produc- Sets Produc- Sets Produc- tion in tion in tion in Nos. Nos. Nos. Opening Stock 293 657 2612 1,20,204 1,43,424 Production 2,42,725 20034 40454 23904 6 6 6 Sale 20327 41111 26516 18363 24861 24223 Closing Sto....
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.... other Engine Parts Nos. 2,17,622. 3.In this statement they have been included under 'Other M.V. Parts & Engine Parts'. On the basis of the above statement, the counsel for respondents contended that the petitioners arrived at the conclusion on the basis of incomplete narration in the annual reports and the production of pistons pins includes other engine parts whose number is 2,17,622 and they are shown in this reconciliation statement. This contention found favour with the members of the Board. To my mind the explanation is utterly false and far from truth. For the first time I came across with a contention that the figures shown in the balance sheet are incomplete and they include some other engine parts whose identity was not established. If there is any truth in this reconciliation statement, the respondents would have stated what are the other engine parts that they are manufacturing, how their production and sales were shown in the balance sheets of all those years, and how for the first time in the reconciliation statement they came up with this story that piston pins include other engine parts. The case of the petitioners is that the automobile spare parts that are being....
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.... the respondent-company can be exposed in another manner also. From the Annual Reports for the year 1980 and 1996-97 (after Board order in C.A. No. 65 of 1996) it is seen that there are no discrepancies in the stocks of the piston pins. If other engine parts are included in the piston pins, why the discrepancies that occurred in the financial year 1994-95 were not there in those years and where the other Engine parts have gone? I understand in 1980 the company was following the calendar year but the company seemed to have opted financial year for accounts purpose subsequently. 183. If the statement of the respondent counsel that the production of piston pins include other engine parts is true, how they disappeared in the years 1980 and 1996-97 when the respondent-company is following the same pattern of accounts consistently for last 25 to 30 years as per their version before the Board and their own letter dated 24-9-1996 addressed to petitioner No. 4 wherein he stated "that the item-wise tally of each and every part manufactured in the formula given by you is impracticable because of the large number of items manufactured and also on account of combination sale and the company ha....
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....on of both direct and indirect taxes apart from excise duty payable to the State as well as Central Government. Other Acts of Mismanagement 185. I am not adverting to the plea of the petitioner with regard to the diversion of material for construction of a community hall in the name of the mother of the 2nd respondent, Hotel Jaya International, sale of scrap, used oil etc. as no serious arguments were addressed on these matters before me, though the petitioners filed some material and deposed on these issues in his evidence before the Board. I would not like to express any opinion on these aspects. 186. From the findings recorded by me on the acts complained by the petitioners with regard to mismanagement, I have no hesitation to hold that the affairs of the company are being conducted by Respondents 2 and 3 (father and son) as joint managing directors of the company in a manner not only prejudicial to public interest but also prejudicial to the interest of the shareholders of the company as well. Acts of Oppression 187. The word 'oppression' used in section 397 not defined in the Act. In Universal Dictionary the word 'oppression' is defined as (1) Harsh; tyrannical (2) caus....
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....sive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. ...xx xx xx Section 397 unless it be shown that this lack of confidence sprang from a desire to oppress the minority in the management of the Company's affairs and that there was at least an element of lack of probity and fair dealing to a member in the matter of his proprietary right as a shareholder." 192. In Gajarabai Patny v. Patny Transport (P.) Ltd. [1966] 36 Comp. Cas. 745 (AP), ....
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....on vis-a-vis the company and must exercise their power for the benefit of the company. If the power to issue further shares is exercised by the directors not for the benefit of the company but simply and solely for their personal aggrandisement and to the detriment of the company, the court will interfere and prevent the directors from doing so. The very basis of the court's interference in such a case is the existence of the relationship of a trustee and cestui que trust as between the directors and the company..." (p. 886). On the facts of the case, the Court having observed that there was no necessity to increase the capital since there was no plant or machinery, why the share capital was increased is not explained. Accordingly, the Court held that the directors of the fifth respondent-company did not act in good faith and amounted to act of oppression. 195. In Mrs. Rashmi Seth's case (supra), the Principal Bench of (CLB) held that the action of the company in passing a resolution that the petitioner consented for transfer of her holding of 50 per cent shares by fabricating minutes showing her presence, though she did not attend the meeting and other resolutions passed in such ....
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....of the Company Law Board Regulations, 1991 akin to the inherent powers that are being exercised by the Civil Courts under section 151 of the Code. Nextly, from the language of section 398, mere apprehension in the minds of minority shareholders is sufficient and the allegations levelled against the majority shareholders need not be proved in the strict sense for exercise of the powers vested in it under section 402 by the Board. 199. Keeping the dicta laid down in the cases referred supra, I proceed to examine whether acts complained by the petitioners constitute acts of oppression. Rights issue 200. The case of the petitioner is that in January, 1994 the company made rights issue all of a sudden without any discussion in any Board meeting or the General Body Meeting, on 25-9-1993 with a view to bring the share holdings of the petitioners below 10 per cent in order to see that the petitioners would not approach the Board for reliefs against oppression and mismanagement and the issue was not for any bona fide business purpose. The petitioner in his chief examination categorically stated that in the board meeting held on 29-7-1993, the issue regarding expansion or modernization o....
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....ot come in the way of discharging statutory responsibilities. The delayed allotment has denied the petitioner the benefit of dividend declared. Therefore, we are of the view that the petitioner should be compensated at least to the extent of the dividend that he would have been otherwise entitled if the shares had been allotted in time. We direct the company to compensate him by payment of interest at the same rate at which dividends were declared and paid in respect of delayed period within a period of one month from the date of receipt of the order." 202. Now let me see to what extent the findings recorded by the Board can be sustained. The case of the respondent is that the Board has taken a decision at its meeting held on 29-7-1993 admittedly after the disputes started. The agenda notice for that meeting was filed before the Board as Annexure R. 15 by the respondents themselves. None of the agenda items relate to expansion or modernization or replacement of the old machinery. Perhaps they want to take advantage under the last item "Any other matter with the permission of the Chair". But at the same time the resolution adopted at the meeting was not filed before the Board. I su....
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....ussion the conclusion arrived at by the Board that the company decided to raise Rs. 1.50 crores by making rights issue is not based on any material and it is the result of non-application of mind. 204. Nextly the Board brushed aside the contention of the petitioner that the company made rights issue only to see that his shareholding is reduced to less than 10 per cent to prevent him from approaching the Board Under section 397, by holding that it is beyond their comprehen- sion as to how rights issue as long as the offer is accepted would reduce one's shareholding. The case of the petitioner is that both in the petition as well as in his evidence that having accepted the rights issue, he submitted an application dated 8-3-1994 to the Assistant Secretary, when the company did not allot the shares to the petitioner on the ground that the joint shareholder, (i.e.), Aruna Devi has not signed the application, he submitted the death certificate of Aruna Devi on 25-5-1994. The copy of the letter along with Death Certificate were filed before the Court. Though the counsel for the respondent-company contended that the company did not receive the death certificate till 1997, he neither prod....
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.... laid down in the above judgments, I hold that withholding of allotment of shares of the 9th petitioner even after producing the death certificate of joint shareholder late Aruna Devi along with her letter dated 25-5-1994 for more than four years is only with a view to preempt the 9th petitioner and his group from approaching the Board complaining acts of oppression and mismanagement in the affairs of the company and such an action is vindictive, harsh and unreasonable and amounts to oppression. Removal of petitioner No. 9 as director 209. The case of the petitioner No. 9 is that he was removed as Director in the extraordinary general body meeting of the company held on 21-1-1994, without following the procedure prescribed in the Act. It is also his case that the petitioners and other shareholders supporting him were not allowed to participate in the said meeting and he was not accorded any opportunity to explain his position as envisaged under section 284. His further case is that once the Board decided to convene the meeting as per the requisition, a special notice under section 190 must have been issued by the requisitionist. Likewise, the provisions of section 168 were not fo....
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.... which is to be held within a stipulated time framed as provided under that section, the question of issuing separate special notice under section 190 does not arise and the notice of the requisitionist was treated as special notice under section 190. The Board also held that "the provisions of section 190 of the Act are applicable only in connection with the Annual General Body Meeting and not in respect of a requisitioned Extraordinary General Body Meeting." The Board also held that "in case of meetings convened on requisition under section 169 of the Act, no explanatory statement need be enclosed. In that view of the matter, the Board held that the removal of the petitioner as Director does not suffer from any legal infirmity." Before considering the correctness or otherwise of the Order of the Board, it should be kept in mind that petitioner No. 9 was given in marriage to Respondent No. 2's daughter in 1969 and he became a director of the company in 1970. He was not only a director of this company, but also actively involved in the management of the affairs of the various subsidiary companies. He was the (1) Managing Partner of the Padmalaya Finance Co., (2) Managing Director ....
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....rectorship as well as the replies of the company to the other petitioners as shareholders. From this angle, if we look at the notice, nine shareholders belonging to the R. 2's family gave the notice after the disputes have arisen between R.2 and 9th petitioner, the irresistible conclusion that can be arrived at is that the respondent No. 2 with the power at his command wants to oppress the voice of the petitioners by not allowing him to have access to the records, accounts etc. more so, when he tried to find pitfalls in the administration and tried to expose the misdeeds of R2 prejudicial to public interest as well as the interest of the company. 213. Coming to the resolution removing the petitioner No. 9 as Director, the specific case is that in the Annual General Body Meeting held in September 1993, he raised the issue of mis-appropriation of Rs. 1.25 crores and as a retaliation the R2 got requisition notice issued by his family members on 4-11-1993. The requisition notice is said to have been given under section 169 requesting the managing director to convene extraordinary general body meeting to consider and pass a resolution, 'resolved that Mr. Chundru Srihari Rao be and is ....
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....uirement is satisfied in convening the meeting or the contents of the telegram, to know whether it can be treated as an explanation and whether the resolution adopted by the general body reflects the application of mind by the members to the telegram in removing the petitioner No. 9 as director. 217. Be that as it may, even assuming that the company complied with statutory requirements in convening the meeting, under section 294(3), the director is entitled to be heard on the resolution at the meeting. In the evidence, the petitioner categorically stated that having received the notice for Extraordinary General Body Meeting slated on 21-4-1994, he along with his wife went to attend the meeting at 3.30 p.m., which is scheduled to be held at 4.00 p.m., to explain to the shareholders of the company the reasons why a resolution is being moved to remove him as a director and to explain them the stand taken by him for exposing corruption and misappropriation of funds by R.2, but he was not allowed to enter the meeting hall as the gates were closed at 3.30 p.m. and the security told him that they were doing so under instructions. Immediately, he gave a press release, but the same was pub....
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....C. in seeking removal of non-Executive directors in Escorts Ltd. who resisted transfer of shares held by the financial institutions in favour of non-resident Indians with a view to avoid confrontation with the Government and the Reserve Bank and to adopt more conciliatory approach as per the policy of the Government, to earn foreign exchange by attracting non-resident individuals of Indian Nationality or origin to invest in the shares of Indian companies, by providing incentives to facilitate investment by non-resident of Indian Nationality or origin in shares of Indian companies and by liberalising the existing facilities and procedural formalities, and who dragged the issue to the Court. In arriving at this conclusion, they placed reliance on Companies Act by Grower who compared the shareholders and board of directors as legislative and executive organs. Their Lordships opined that the only effective way the members in general meeting can exercise their control over the directorate in a democratic manner is to alter the articles so as to restrict the powers of the directors for the future or to dismiss the directorate and appoint others in their place. I have no quarrel with the ....
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.... permissible, since, that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc." (p. 1373) From this judgment it is crystal clear when fraud or improper conduct is alleged against the majority shareholders, the Board is expected to lift the corporate veil to see whether the majority shareholders acted in violation of the statutory provisions, whether any element of public interest is involved and whether any of the parties are affected by their actions and whether the resolution is moved in good faith. But the Board without seeing whether the removal of the petitioner by the general body is in good faith or at the dictates of R2 and R3, who is controlling the majority shareholders and even without looking into statutory provisions whether the resolution passed by the general body satisfied the test laid down in section 284 simply held that the removal of 9th petitioner as director does not suffer from any legal infirmity. 221. Hence, it is rather difficult to hold that the procedure prescribed for removal of....
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....t to the extent of saying that the incident has nothing to do with the disputes between the co-son-in-law. The learned Judge in his Judgment dated 7-11-1997 recorded a finding as follows : "It is rather difficult to appreciate as to how the Investigating Officer could have expressed any opinion whatsoever about the non-involvement of certain persons whose names are mentioned by the petitioner." In fact this Court directed the Superintendent of Police to entrust the investigation of the case to another Inspector of Police by divesting the Sub-Inspector of Police, III Town Police Station, Kakinada. Even after the Judgment, the result of the investigation has not seen the light of the day till this date. 3. CRIMINAL CASES FILED BY SATYANARAYANA RAO, SON-IN-LAW OF R. 2. 224. It is also his case that the said Satyanarayana Rao filed as many as eight Criminal Cases against him, i.e., C.C. Nos. 434 of 1998, 453 of 1998, 82 of 1999, 93 of 1999, 607 of 1999, 46 of 1999, 56 of 1999 and 94 of 1999. Though these cases were filed after the Company Petition, the fact remains that the persecution of 9th petitioner is continuing and the Court has to take judicial notice of these cases, as the ....
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....ion 3(1)(E) of S.C. S.T. Prevention of Attrocities Act. In proof of the allegation the pamphlet published by Y.D. Rama Rao explaining the circumstances under which he was forced to go on hunger strike at Taxi Stand near Balajicheruvu on 23-9-2000 and also the bail order granted by the I Additional Sessions Judge, East Godavari on 20th September, 2000, wherein Mr. Rama Rao categorically pleaded that defacto complainant has been pressed into service by S.R.M.T. Group in order to foist a false case against him. As this incident is after the Judgment of the Board, I am not taking into consideration, as the same was not brought to my notice in a manner known to law. It is suffice to state that Y.D. Rama Rao is supporting 9th petitioner as seen from the statement of George Babu before Police on 17-2-1994. 7. INACTION OF POLICE AGAINST D. GEORGE BABU, SECURITY GUARD IN S.R.M.T.: 227. The specific case of 9th petitioner is that when the petitioner and his group of shareholders are taking steps to file a Company Petition one Mr. D. George Babu, who is working as a security person in S.R.M.T. followed him to Samalkota Railway Station on 17-2-1994 and on a complaint given by his men, as he ....
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....that the petitioner placed sufficient material explaining not only his inability in not getting the list witnesses to give evidence but also proved that R 2 and R 3 are creating fear psychosis among the list witnesses, that if any one helped 9th petitioner or raised his voice against the activities of R 2, the first and foremost thing would be, that he will be arrested by the Police under S.C. and S.T. Prevention of Atrocities Act. Secondly, the series of incidents, referred supra both before and after filing of the company Petition are clearly intended to prove to the outside world that a man who incurred the wrath of R 2 even if he is his own son-in-law will not be spared so easily and the persecution will continue till he is crushed. At this stage the court is expected to take judicial notice of the fact that in the entire District, the respondent-company is the biggest industrial house with assets worth more than 100 crores and we can imagine how much political clout the managing director of such a company will wield not only in the town, but also in the entire District leave apart the State. 231. We should also keep in mind that Petitioner No. 9 was member of Parliament when....
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....ead of inviting a Judgment on merits. But the respondents flatly refused to purchase the shares by contending that the financial position of the company would not permit such a measure. From the record, it is seen that the annual turnover the company is more than 100 crores and it is having sufficient reserves. This is evident from Resolution 8-B at the meeting of the board of directors held on 29-7-1993 in the following terms: "8-B : Subject : Authority to invest surplus funds in Government securities and shares of Company : Resolution : Resolved that pursuant to the provisions of section 292(1)(d) and (2) and other applicable provisions of the Companies Act, 1956 Shri K.V.R. Choudary, Managing Director and Sri K. Sarathi, Joint Managing Director be and are hereby severally authorised to invest funds of the company in fixed/term deposits with Banks, Body Corporate and in shares and/or debentures (convertible and non-convertible) of Companies and other Government securities (Central or State or semi-Government) provided, however, that the total amount up to which the funds to be invested as aforesaid shall not exceed the sum of Rs. two crores (Rupees two crores only) at any one t....
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....re available at the registered office of the company and he may come and inspect the same during 2.00 p.m. to 4.30 p.m. on any working day with due prior intimation to them". In proof of service of notice, they filed acknowledgement dated 27-12-1993 and petitioner No. 9 categorically denied about the receipt of the said letter. In the witness box also the counsel for the respondents cross-examined the petitioner that he being a director he is having access to statutory books. The petitioner in his deposition categorically stated to question No. 86 in chief that R.2 threatened him to vacate the premises of Padmalaya Finance on 3-10-1993. This issue was dealt separately apart from the attempted attacks on his body by that time. (2) The petitioner No. 9 by his letter dated 17-7-1995, i.e., after filing of the petition before the Board requested for certified copies of the registers duly enclosing Banker's cheque for the purpose and the Company Secretary by his letter dated 20-7-1995 asked him under what provision of law he is seeking certified copies of the said registers as he is no more director by that date." (3) Again in the month of September 1997 when the petitioner No. 9 soug....
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....ady raised, through the documents sought for it is always open to the petitioner to file an application to reopen the hearing for receiving the documents as additional evidence at any time before the Board pronounced the orders and even at the appellate stage in support of his plea. Be that as it may, in the second para the Secretary flatly refused to furnish the information sought for and questioned the petitioner under what provision he is asking the information. 237. As far as register of Contracts is concerned, under section 301 of the Act, every company is bound to keep one or more registers in which the particulars of all the contracts and arrangements covered by sections 297 and 299 have to be mentioned therein. Under section 297, no director of the company or his relative can enter into a contract without the express consent of the board of directors and under section 299 if a director of the company is directly or indirectly concerned with the contract or arrangement, etc. to be entered into on behalf of the company, he shall disclose the nature of his concerned or interest in the meeting of the board of directors and obtain prior approval of the Board and the same should....
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....96, R2 in his letter dated 24-9-1996 gave reply on similar lines. 238. It is to be seen to what extent the action of the respondents in not furnishing information sought for by the shareholder, more so when they filed an application under section 397 and when the Board failed to call for the documents can be justified. Under section 163 the registers that are required to be maintained by the company shall be kept at the registered Office of the company and they shall be open during the business hours for inspection of the members at least for two hours subject to reasonable restrictions. Under sub-section 3, a member, debenture holder or other person is at liberty to make extracts of the registers that are maintained under section 163 without paying any fee and under sub-section 3(b) he may require the company to furnish certified copies of them on payment of the prescribed fee required for copying. On requisition given by the member, the company is bound to furnish them within ten days and under sub-section 5 refusal to permit the member to inspect the records or furnishing of the copies, the company is liable to be punished with a fine, which may extend up to Rs. 50 for every da....
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....erests in the company and to know whether the management of the affairs of the company are in the larger interest of the shareholders or not. As the annual reports deal with the assets and liabilities of the company broadly and as they do not contain the details, generally the shareholders cannot raise the issue in the Annual General Body Meeting. Be that as it may, in this case when the majority shareholders supporting R. 2 are not allowing the minority shareholders to raise any issue by creating a hostile atmosphere and the minority shareholders are afraid to attend the meeting of the office, the only way left for them is to get details, for the information furnished in the report by applying for certified copies of the extracts. They cannot make a grievance without getting required information. In a case of this nature where a right is conferred on the minority shareholders to approach the Board seeking relief against acts of oppression and mismanagement they are entitled to have copies of the documents sought for, to prove their case. Otherwise, the right to seek relief against acts of oppression and mismanagement given to the minority shareholders under the statute will be a f....
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.... fight against the mis-deeds of R2 and R3. The respondents did not rebut these allegations by any evidence oral or documentary. From the conduct of R2 and R3 on various acts of oppression discussed in this Judgment a presumption has to be drawn in favour of the contention of the petitioners. Non-recording of minutes of the general body truly and correctly 246. Likewise petitioner No. 9 in his letter dated 27-9-1993 alleged that the minutes of the previous general body meeting are not recorded properly and truly and the issue referred therein were raised by him in the general body meeting held on 27-9-1993 were wantonly omitted. For this no reply was given by any of the respondents. The will of the majority shall prevail 247. The judgment would not be complete without the answering the she tanker of the arguments of the learned counsel for the respondents that majority directors of the Board as well as the shareholders and at times the petitioners also approved the actions of mismanagement as well as the acts of oppression, the question of granting any relief to the petitioners in this case does not arise. This issue was answered by the Supreme Court in B.R. Kapoor's case (supra....
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.... prevail must give way. ... ... it would be a blatant violation of Constitutional laws to allow her to be continued as the Chief Minister of a State, howsoever short the period may be, on the theory that the majority of the elected members of the Legislative Assembly have elected her as the leader and that is the expression of the will of the people." At some other place their Lordships held that "the Constitution prevails over the will of the people as expressed through the majority party. The will of the people as expressed through the majority party prevails only if it is in accord with the Constitution." From this it is seen that if the decisions taken by the Board or general body is in contravention of the laws of the country and prejudicial to public interest, it cannot be said that the will of the majority will prevail, but not the laws of the lands. Further, for various reasons, the majority of the shareholders in the company might have not dared to open their mouth against the illegal actions of respondent No. 2 having burnt their fingers once in 1978 and having seen the plight of the petitioner, who is no other than the son-in- law of the 2nd respondent and brother-in-....
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.... direction or directions for keeping the company with present holding intact will not serve the purpose as it is impossible for the parties to continue together in the company and at the same time or ordering winding up of a company, which is otherwise solvent is not proper. Hence the only equitable and just relief that can be granted is to direct either of the parties to purchase the shareholdings of other group. But in this case, as the majority shareholders are on the side of the 2nd respondent, it would not be proper for this Court to direct the majority shareholders to sell their shares to the minority shareholders. Hence the only order that can be passed in this case is to direct the respondent- company itself or any one of the shareholders of the company including Respondents 2 and 3 to purchase the shares of the minority shareholders. In fact, the petitioners expressed their willingness for the said course both before the Board as well as this Court, but the respondents 2 and 3 contended that the financial position of the company does not permit the purchase of the share held by the minority shareholders. As far as the financial position of the company is concerned, I have ....
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....ed, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy". 250. In Daulat Makanmal Luthria's case (supra), the Principal Bench of the Board held that in case of deadlock or loss of mutual trust necessary for working together in managing the affairs of the company and if it becomes impossible for the petitioner and the respondent to work together even if an independent chairman was appointed, the only course open to the Board is to direct either of the parties to purchase the shares of the other party. So that the company comes under the exclusive control and management of either of the warring groups. 251. From the beginning both before the Board as well as this Court, the respondents consistently exhibited defiant attitude perhaps they are under an impression that they can resort to acts of oppression of minority shareholders and crush them ruthlessly by dragging the proceedings to the Apex Court level by availing the services of corporate lawyers with the riches at their command; so that no one can dare to raise his voice, in future on administration of the affairs of the company by Respondent Nos. 2 and 3, as they h....
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..../A/2, Road No. 31, Jubilee Hills, Hyderabad, Phones : 3543622 and 4745165 (Res.) is nominated, on behalf of this Court and he will be the Chairman of the Committee. V. Sankarayya & Co., Chartered Accountant (202-301, Satyam Cinema Complex, Ranjit Nagar Community Complex, New Delhi - 8) is nominated as Chartered Accountant by the minority shareholders and S. Daga & Co., Chartered Accountants, 403, Paigah Plaza Basheer Bagh, Hyderabad - 500063) is nominated as Chartered Accountant by the respondent-company Sri Ramadas Motor Transport Ltd. and its board of directors. Their postal addresses are given below the order. 254. The remuneration payable to the Chartered Accountant nominated by this Court is fixed at Rs. 1,50,000 in lump sum. He is entitled to claim actual expenses to be incurred by him towards travelling apart from the above remuneration if he has to leave Hyderabad. He is given liberty to move this Court if the above remuneration is not adequate for the work done by him. As far as the Chartered Accountants nominated by the parties are concerned, both the parties shall bear the remuneration and travelling expenses payable to their respective Chartered Accountants. Both the ....