TaxTMI 
TaxTMI 
2001 (12) TMI 827
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....innappa Reddy exposing how corporate gains rush 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. . .....
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....or compromise and to settle the disputes amicably keeping the 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....
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....ctor of Vijaya Engg. Works and (5) Director in the main company. 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 (Petit....
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....mination in chief is must followed by cross-examination in view 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 t....
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....d by a Division Bench of this Court in its order dated 26-8-1998 in C. Sri 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 alrea....
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....o be brought on record. But they have not chosen to come on record. On the next date of hearing, 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 ....
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....company apart from other powers conferred on it. 18. In the light of the overwhelming representations received 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 B....
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....ibed in the Code need not be strictly followed, yet they have to be guided by those provisions in discharge of their functions. 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 o....
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.... clear that even an apprehension in the minds of minority shareholders is sufficient to cloth the Board to give directions under section 402 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 secti....
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....n Shoe Specialities Ltd. v. Standard Distilleries & Breweries (P.) Ltd. [1997] 1 Comp. LJ 243 a Division Bench of Madras High Court held as follows :- "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 ....
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....rted in R. Khemka's case (supra). 30. In Re. H.R. Harmer Ltd. [1958] 3 All ER 689, Lord Denning in his separate judgment having observed that the object of the 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 share....
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....nority shareholders even if they fail to establish the allegations levelled against them. Whether the procedure followed by the board can be sustained in law 37. Now let me examine 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 ....
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....ion conferred under section 33A(2) of the Act prima facie is a judicial one and having reviewed the case law held that if an administrative body is empowered to determine questions affecting 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 authorit....
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....follow rules of procedure while discharging judicial functions. 44. Hence it cannot be said that the provisions of the Code of Civil Procedure are not altogether applicable to the proceedings of the Board. 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....
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....plicable to administrative enquiries. Often times it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are now 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 10....
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....rders even without looking into the original records when the petitioners complained that the respondents have fabricated the records, which resulted in miscarriage of justice. Observance of the principles of natural justice does 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 ge....
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.... learned counsel for the petitioner desires to lead any evidence by petitioners it may be done through personal appearance of such petitioners. It is interesting to see from the order of the Board that the learned counsel for the respondents strenuously 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 emphas....
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....s required to be exercised has to be in accordance with law and set legal principles. . . ." (p. 2505) While considering the duty of Mahapalika, a body corporate constituted under U.P. Municipal Corporation Adhiniyam, 1959, to construct and maintain public 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....
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....ustration (g) of section 114, the evidence, which could be, and is not produced, would, if produced, be unfavourable to the person who withholds it the Court is expected to draw an adverse inference against the person who is in possession of the information and failed to 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 a....
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....ry evidence. The High Court rejected them and it was plainly right in so doing . . . ." (p. 1461) 61. In Pradeep Kumar Sarkar v. Luxmi Tea Co. Ltd. [1990] 67 Comp. Cas. 491 the learned Judge of Calcutta High Court held as follows: "since the audited accounts for the relevant period 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 : ....
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....duced, it is not possible to know whether the entries relating to payment of rent are entries made in the regular course of business. It is only in the case of Bankers' Books Evidence Act, 1891 that certified copies are allowed or the case must come under section 65(f) or (g) of the Evidence Act. Private 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 bu....
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....er by filing affidavits or by oral evidence. This action of the Board proves beyond doubt that it treated the parties differently and it has not acted dispassionately and good faith. In one word the scales of justice heavily swung in favour of the respondents. 69. It is not the case of the respondents that the Board 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 e....
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.... facie case exists, it intends to say that the case of the plaintiff is not without merit. It is an opinion rendered on the state of the evidence then existing on the record, and it is open to the trial court to take a different view when all the evidence has been let in and the suit itself has to be decided. In some cases, a pure 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 th....
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....s as res judicata held in para 7 as follows : "7. No doubt, the appellate court while considering an appeal has power to alter or modify an interlocutory order which does not decide the merits of the controversy in issue in the suit, but is only a step in reaching the decision in the dispute. In other words, all interlocutory orders will 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 procee....
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....nce, it can be presumed that his pleas in the written statement are not established and suit can be decreed on the basis of the evidence adduced by the plaintiff." In that case, the respondent No. 2, father of the 1st respondent, issued a cheque for a sum of Rs. 7,000 from the account of his son as a loan to the appellant. When the amount was not repaid, 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 ....
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.... Court as held by the Supreme Court in Iswar Bhai C. Patel's case (supra). 84. While confirming the Judgment of the High Court, that the findings of the First Appellate Court were not based on proper appreciation of evidence, their Lordships of the Supreme Court in Rajappa Hanamantha Ranoji v. Mahadev Channabasappa [2000] 6 SCC 120, observed that : "Though the High 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 [199....
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....pondents is not fatal as no documents were marked on behalf of the petitioners 88. The Counsel for the respondents contended that the 9th petitioner though was examined on behalf of the petitioners did not speak to a single document filed on behalf of the petitioner and as such the non-examination of the witnesses on behalf of the respondents is not fatal. It is true that the documents 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 muc....
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.... [1993] 4 SCC 6, their Lordships of the Supreme Court considered the effect of Order-8, Rule-(5)(1), where under the defendant is duty bound to deny the plaint allegations specifically or by necessary implication, and held as follows: "13. Order 8 Rule 5(1) reads as follows: Every allegation of fact in the plaint, if not denied specifically or by necessary implication, or stated to be not admitted 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. ....
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...., (i.e.) C.A. No. 69 of 1994 on 11-4-1994 to summon these records. Without calling for original records, the Board passed the orders even after the petitioners brought to the notice of the Board, by filing documentary evidence, that the respondents are refusing to furnish information by stating under what law they are entitled for the information. It is yet another illegality. (3) The petitioner No. 9 went into the witness 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 acc....
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....to be dismissed. In support of his contention, he cited plethora of decisions on this aspect. (1) In CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC), wherein their Lordships of the Supreme Court while considering section 66(1) of the Act, which is in para materia the same as section 10F to find out whether a question of law has arisen out of the order or not summarized the discussion in the Judgment at page 611 as hereunder : 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 proposit....
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....nt facts and has adopted an unjudicial approach then it would certainly be open to the appellate court - and in many cases it many be its duty - to interfere with the trial court's exercise of discretion. In cases falling under this class the exercise of discretion by the trial court is in law wrongful and improper and that would certainly justify and call for interference from the appellate court. These principles are well established..." [Emphasis supplied] (p. 1159). 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....
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....nt for determination is one of pure fact or mixed question of law and fact... Under section 66(1) of the Act is it only a question of law that can be referred for decision of the Court and it is impossible to argue that the conclusion of the Tribunal is nothing but one of a fact, it has been held on the corresponding provisions in English Income-tax statutes that finding on a question of fact is open to attack as erroneous in law only if it is not supported by any evidence or if it is 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 a....
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....land as discussed below. There being an error apparent on the face of the orders of the Board, as pointed supra, definitely a question of law has arisen from out of the order of the Board to be decided by this Court under section 10F. Whether matter to be remitted back for fresh disposal in accordance with law 103. In the normal course, the matter has to go back to the Board for fresh disposal in accordance with law. If I adopt such a course, a dispute pending for over a decade will be in the 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 petitio....
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....he case. When the matter was available before the High Court; it should have itself decided the appeal one-way or other. It could have considered the various aspects of the case mentioned in the order of the trial court, ought to be confirmed or reversed or modified. It could have easily considered the documents and affidavits and decide about the prime facie case on the basis of the material available on record." 107. In Shri Bhagwan Sharma's case (supra), their Lordships of the Supreme Court held as follows: "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 c....
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....al by the Board by verifying the xerox copies of the records by summoning the originals, more so in the light of the submission of 9th petitioner that their group is satisfied with the direction given by the Board. But, the counsel for the respondents contended that if the Court feels that the order of the Board is cryptic, it has to remand the matter. In support of his plea, he placed reliance on Shree Consultations & Services Pvt. Ltd. v. K.N. Sankaranarayanan [1995] 84 Comp. Cas. 473^1 (Mad.), wherein their Lordships of 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 ....
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....th the submission. "The object of requiring a party to put forward his 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, come to a finding on a matter which was not in issue and decide the rights of parties on the basis of that finding." (p. 256) I have no manner of doubt that the above Judgment cannot be pressed 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 ....
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....med by the party just and meaningful as also legally and factually in accord with the current realities, the court can, and in many cases must, take cautious cognisance of events and developments subsequent to the institution of the proceedings provided the rules of fairness to both sides are scrupulously obeyed. On both occasions the High Court, in revision, correctly took this view. The later recovery of another accommodation by the landlord, during the pendency of the case, has as the High Court twice pointed out, a material bearing on the 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 re....
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....ding up order if passed would act adverse to the interest of the shareholders. Further, when this clause is invoked, there must be material to show that it is just and equitable not only for the persons applying for winding up but also to the company and all its shareholders. Even in certain cases, violation of statutory provisions was held to be not oppressive act warranting interference under section 402 of the Companies Act." (p. 152) 120. In Venkataramana Devaru's (supra), the Supreme Court held that "the object of requiring a party to put forward his 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. 507^1 (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 ....
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....was framed on certain point by the court below when both parties adduced evidence relating to it, each party known what its case is and avails of the opportunity of producing evidence on the point, High Court can, in an appeal from the decision, record a finding on the point under Order 41 Rule 24 of C.P.C." I have seen the order of the Board, evidence and the written arguments submitted by both the parties. I have no hesitation to hold that sufficient details of the allegations of oppression and mismanagement were given in the petition. The 9th petitioner not only deposed 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 iss....
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....the minority shareholders. Section 397 of the Act does not come into play in the case of wrongful acts being done by the management. That may be a ground for winding up. One of the pre-requisites of the applicability of section 398 of the Act is that the complaint of oppression has to be by the minority shareholders. If an action of the directors is illegal or invalid then the company or the shareholders may take appropriate action in a Court of law by challenging the validity of such an action, but a petition under section 397 or section 398 of the Act is not an appropriate remedy 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....
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....e of assets of the mill are prejudicial to the interests of the company and it could not be said to be a continuing wrong, hence, a petition to set aside the sale under sections 397 and 398 of the Act is not maintainable." In this case the minority shareholders complained against a solitary act of mismanagement, that too selling the mill as it is continuously incurring losses. But in this case not only a series of acts of mismanagement but also acts of oppression were alleged and if the petitioners are able to prove them, this case will definitely attract the provisions of sections 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 resp....
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....herefore, hold that this objection cannot be sustained. (p. 310) 130. In Malleswara Finance & Investment Co. (P.) Ltd.'s case (supra), the question that fell for consideration before the Madras High Court was whether the order of the Board passed on an application filed by respondents 4 to 7 under sections 397 and 398 was violative of principles of natural justice as the petitioner was not given an opportunity to present its case. Answering to the said contention, a Division Bench of the Madras High Court held as follows : "In a proceeding under sections 397 and 398 of the Companies Act, the only 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/shareho....
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........." (p. 4) From the above it is seen that the 1st respondent-company having been incorporated under the provisions of the Companies Act and being the corporate body it can sue and be sued in its name and it can duly authorize any person to sign the plaint or written statement on its behalf and it should be regarded as sufficient compliance under the provisions of order 6, rule 14 of the Code. Secondly, any application filed under sections 397 and 398 the only question that falls for consideration is whether the affairs of the company are being conducted in a manner prejudicial to the public or the interests 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 ....
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.... has a right to argue that the case in the court did not involve any substantial question of law. The proviso to the section acknowledges the powers of the High Court to hear the appeal on a substantial point of law, though not formulated by it with the object of ensuring that no injustice is done to the litigant where such a question was not formulated at the time of admission either by mistake or by inadvertence." (p. 724) Hence, this contention is also rejected. Whether one tenth of the shareholders should be there to continue the proceedings 134. Nextly, the counsel tried to make a feeble attempt by contending that 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 i....
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.... this section including the purchase of the shares or interests of any members of the company by other members thereof or by the company itself with a view to bring to an end or prevent the matters complained or apprehended. The other reliefs that can be granted under section 402 are not being referred to, as 9th petitioner is satisfied with the relief given by the Board, which is being opposed by the respondents. In the light of serious contest put forth by the respondents, it has to be seen whether the directions given by the board can be sustained in law or not. 137. Now I would proceed to examine whether the findings recorded by the 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 ....
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....ng prevented them from stating so while giving reply to the 1st petitioner. For the first time the respondents came up with this plea in the counter filed before the Board. 140. Firstly from the agenda for the Board meeting it is seen that closure of parcel offices was not included in the agenda for discussion. The minutes of this meeting was recorded from page 248 onwards to 262 in the minutes book from 24-6-1986 to 7-8-1992 and pages 263 to 272 were left blank. For the next Board meeting new book was opened. While the first pages of the minutes, i.e., 248 to 250 were written with one pen, the minutes from page 251 from where the new form of 16 pages 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 reco....
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....arcel offices and from which date they were closed. The reply of the Company Secretary dated 3-12-1993 sent to K. Suryanarayana is interesting and it will be useful to extract the same. "Dear Sir, we have received your letter dated 2-11-1993 and the contents have been noted. The matters referred to by you are matters to be dealt with the Management during the day-to-day business. Hence, we are unable to accede to your request." If closure of offices relates to day today business of the company, why the same was placed in the Board meeting dated 7-8-1992 more so under any other item and in other meetings as discussed above having taken blanket authority to 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-6....
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.... of the Act notice of every meeting of the Board shall be given in writing to every director at his usual address. 144. The company seemed to be not in the practice of sending notices by registered post or maintaining notice register to prove that the notices were served on the board of directors in a manner known to law. The specific case of 9th petitioner is that he received the notice on 20-2-1993 saying that the Board meeting will be held on 3-3-1993 and he attended the meeting and signed in the minutes book. It is his case that he raised the issue of closure of parcel offices and sale of lorries, which lead to misunderstanding between him and R2. On the other 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....
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.... the Board meeting on 3-3-1993 that notice was issued. At the same time the notice dated 22-12-1993 for the Board meeting held on 27-12-1993 to consider the requisition resolution for removal of 9th petitioner as director, a note is seen as hereunder: "Note : The meeting to consider these items was originally fixed on 18-11-1993 but due to the order of the Principal Sub-Court, Kakinada in IA 5351/93 and 5352 on 17-11-1993 the same could not be considered and have been deferred till the disposal of the said petitions. These petitions are dispose of on 21-12-1993 and the order dated 17-11-1993, has been vacated. Hence these items are being considered now" But such a note is not there in the notice for 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 me....
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....y proof to show that the notice for the board meeting dated 27-2-1993 was served on 9th petitioner and the notice is not in cancellation of the earlier notice convening the Board meeting on 3-3-1993 and the fabricated letter of leave of absence alleged to have been given by 9th petitioner throws any amount of suspicion on the version spoken by the respondents that the Board meeting has taken place on 27-2-1993. Likewise in the absence of any evidence that the minutes of the Board meeting dated 27-2-1993 were specifically read over and then only the minutes were confirmed, the explanation offered by 9th petitioner in his evidence stands unrebutted and it has to be accepted. 148. In Mrs. Rashmi Seth v. Chemon (India) (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....
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....the same is in the normal course of business. Hence it is not correct to contend that large-scale misappropriation in sale of lorries has taken place. The Board accepted the plea of the respondents by placing reliance on the retracted affidavits of the purchasers of the vehicles filed by the respondents and rejected the contention of the petitioners. At the same time the Board in its order observed as follows: "The average price of lorries sold in the later years was found to be higher by 15 to 20 per cent. Perhaps higher price was taken on the ground of the direction that we gave that there should be more transparency in sale of lorries. Any way we do not find the gap to be such a huge amount of Rs. 1 lakh as alleged by 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 or....
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.... 1. ATP 1212 1981 7th Rank 26,000 2. MEK 8343 1983 6th Rank English (S.K. Ahmed) 29,000 Second Highest Bidder Rs. 28,500 3. ABP 1202 1983 4th Rank 30,000 4. AEP 6746 1976 3rd Rank (Telugu) 25,000 First Highest Bidder ANNEXURE - III M.D. GOUSE Sl. No. Vehicle Number Model Rank How he signed Value In Rs. Comments 1. ATP 1455 1981 3rd Rank 25,000 2. ATP 1554 1981 1st Rank 25,000 3. ATP 1445 1981 7th Rank 27,000 4. ATP 6979 1982 5th Rank 29,000 5. AP 5T 1988 6th Rank 60,000 6. ATP 1221 1981 4th Rank 22,000 7. ATP 7566 1982 6th Rank 27,500 8. ADI 9969 1981 3rd Rank 22,000 9. AP 5T 2928 1983 1st Rank Englis....
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....00 1554 Rank 2. ATP 1981 8th 27,000 1445 Rank 3. ABP 1983 3rd 30,000 5424 Rank 4. ATP 1981 1st 26,000 1122 Rank 5. ADP 1984 5th 25,000 6693 Rank 6. ATP 1982 4th 29,000 6979 Rank 7. AP 5T 1983 1st Telugu 25,500 Second Highest 2226 Rank Bidder Rs. 25,450 8. AEP 1976 9th Telugu 25,000 Second Highest 6746 Rank Bidder ....
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.... 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 1st English 25,000 Second Highest 2360 Rank Bidder 24,900 10. AP 5T 1982 7th 29,000 2620 Rank 11. AP 5T 1982 6th English 30,000 Second Highest 2230 Rank Bidder 29,500 ANNEXURE - VIII B. RAMA RAO Sl. Vehicle Model Rank How he Value Comments No. Number signed In Rs. 1. ATP 1981 5th 27,000 1445 Rank 2. ABP 1983 5th 30,000 ....
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.... 6. AEP 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 ....
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....2928 Rank 12. ABP 1983 2nd 25,000 6286 Rank 13. ABP 1983 3rd 30,000 1256 Rank 14. AP 5T 1982 2nd 24,000 2802 Rank 15. AP 5T 1982 2nd 29,000 2620 Rank 16. AIQ 5524 1988 3rd 18,000 Rank 17. AP 5T 1982 1^st 30,000 2230 Rank 18. AP 5T 1982 5^th 29,500 2801 Rank 19. AP 5H 4th 2,70,000 2552 Rank ....
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.... private sale. While a reply was sent to Suryanarayana stating that the matters referred to by him are the matters to be dealt with, by the management during day to day business, the company produced xerox copy of an acknowledgement dated 27-12-1993 for the alleged registered letter sent on 4-12-1993. This aspect was already adverted to while considering the closure of parcel offices. The specific case of the petitioner is that the issue of sale of lorries came up for discussion in the meeting held on 3-3-1993 under any other item and when he asked for the information, the same was not furnished, and he requested that his objection should be noted in the minutes of the meeting. On that the Chairman informed that the details would be sent later. It is also his case that in the Board's meeting held on 23-3-1993 also, this issue was raised. It is his further case that this issue was raised in the annual general body meeting held on 25-11-1993. The case of the respondents is that the sale of lorries is a managerial function while carrying on day to day affairs of the company. The further case of the company is that on 23-9-1993 the 9th petitioner participated in the board meeting and a....
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....ejected the prayer of the petitioners to lead evidence by affidavits, it is not known how it can rely on these retracted affidavits filed by the respondents. Secondly the Board committed grave illegality in giving credence to the affidavits filed by the respondents when there are two affidavits of one and the same individual contradicting each other without examining him. Thirdly, the affidavits are not verified which is a must as held by the Supreme Court in A.K.K. Nambiar's case (supra). Fourthly, as the amount spent for repairs on the vehicles is too high they neither stated what type of repairs they got done to the vehicles in their affidavits nor at least filed semblance of evidence in support of their claim. Fifthly, they have neither stated in their affidavits in which workshop they got their vehicles repaired nor filed letters given by the workshops to that effect where they got the vehicles repaired. The specific case of the petitioners is that by threatening the purchasers and by involving them in criminal cases the company obtained these affidavits and they filed documents to that effect. Without going into these aspects when a person gives two affidavits contradicting e....
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....y maintained the vehicles in such a worse condition and they are not able to fetch reasonable price when they were sold in an auction ? If we keep the market trend in mind though book value of the vehicles comes down year after year on account of depreciation in reality their value in the market will be much more high. In fact, the Board also felt that the procedure followed by the company is not transparent. Further the case of the petitioners is that all the auction slips were written by one P. Krishna Murthy, the Sales Manager in TATA show room, and those slips were not even numbered though a column is provided to that effect. This Krishna Murthy is no other than the father-in-law of the Managing Director of Hastina Auto Dealers (P.) Ltd., Delhi which was appointed as sole selling agent for north India for marketing the spare parts of the company. But neither Narayana Murthy who seemed to have conducted the auction nor Krishna Murthy who prepared the auction slips were examined to prove that auctions in fact did take place. Nextly, if there is any truth in the contention of the respondents that to maintain good fleet the vehicles were sold, why they have not added even a single ....
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....er to be maintained statutorily under section 301 of the Act for the years 1989 to 1992-93 are not traceable. Here we should keep in mind that the company is engaged in parcel lorry service for transportation of goods in and closed lorries. Closed lorries will not be owned by private persons, unless they enter into a contract on permanent or semi-permanent basis with parcel lorry service companies. The company did not place any material with regard to engagement of number of closed lorries and open lorries. We should also keep in mind that the vehicles sold are less than ten years i.e., before the expiry of the life of the vehicles as fixed under the M.V. Act and no evidence whatsoever was placed before the Board to show that they have become so unroadworthy and they were damaged to such an extent, that they cannot be made roadworthy by a company having dealership for spare parts of Tata Vehicles apart from having an automobile workshop and involved in the manufacturing of automobile spare parts. From the retracted affidavits of the purchasers of the vehicles, filed by the respondents they stated that they have taken loans for repairs of the vehicles. According to them, they spent ....
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....partment it was noticed that certain firms in the benami names of these respondents have been paid substantial commission and as such all this expenditure was disallowed. Subse- quently those firms were dissolved and the company appointed Hastina Auto Dealers (P.) Ltd., New Delhi for the northern region in the year 1989 and V.K. Automotive (P.) Ltd., Madras, for southern region as sole selling agents for the sale of about 400 automobile products manufactured by the company by a make believe process of selection by private consultancy agencies and huge commissions are being paid to these companies whose share capital is in thousands. He has also questioned the genuineness of the reports filed by the consultant companies. 162. In answer to these allegations, the learned counsel for the respondent contends that the Tribunal and the High Court upheld the payment of the commission to those firms. The fact remains that in the written arguments the company admitted dissolution of those three partnership firms against whom the income-tax authorities made adverse comments and that necessitated the company to appoint new agents. The respondents contend that the above two agents were appoi....
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....ed share capital of V.K. Automotive is Rs. 1,30,200 it was paid a commission of Rs. 38,23,000 for the financial year 1992-93. I have gone through the report of Ram Associates filed in the court. In their report they did not say how many applications they have received and with how many people they held discussions. The report of the consultant dealing with Vijay Kumar was only filed in the court. The reasons given for selecting him were that: (1) he is having inherent strengths; (2) he is having exposure to automobile spares for over a decade; (3) he is going to form a private limited company with an authorized capital of Rs. 5 lakhs to give the business adequate capital base; (4) the serious and methodical way he seems to be going about establishing a marketing organization lends further credibility. It is useful to extract preliminary evaluation of this firm. Client :SRMT Limited Assignment/: Evaluation of Applications for StockistsDealership. Name & Address of Applicant Mr. C. Vijayakumar, C-39, LIG Flats, 7th Avenue, Ashok Nagar, Madras 600 083. Present Business and other Relevant Data Appears to the serious about the business. Has stated that he is a....
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....chieved by each dealer. During the year of account the realization out of the business done through various dealers have gone up and similarly the dealers who directly deal; with the company achieved the targets in the higher rate of commission group. Hence the target commission paid to them was more than that of the last year. The Company did not place any material with regard to sale of spare parts to this company and the details of the commission paid to it. The Board completely missed these aspects. Further it is not known when he resigned his job in the company. The fact remains that he registered the company after he was selected and the company was incorporated on the same day under the provisions of the Act and entered into an agreement with the respondent-company on the same day, i.e., 28-3-1989. Agency for North India 166. Likewise the company appointed Hastina Automobile dealer for North India. The Managing Direct or of Hastina Automobile Dealers, New Delhi, Mr. P. Venkata Siva Anjaneya Prasad, is no other than the son-in-law of P. Krishna Murthy, Sales Manager in the company and who prepared the auction slips for the sale of lorries. A notification seemed to have ....
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....ial areas of the country and should have wide net work for supply of spare parts throughout the area for which they are appointed as agents and their marketing skills. While the managing director of V.K. Automotive (P.) Ltd., was at least an employee of the respondent-company for some time, the managing director of Hastina Automobiles (P.) Ltd., is only the son-in-law of one Krishna Murthy Sales Manager in the 1st respondent-company, without any knowledge in marketing Automobile Spare Parts. Although the report of the consultant with regard to Hastina Automobiles (P.) Ltd., says that they are experienced entrepreneurs nowhere it is stated what type of experience the entrepreneurs had. On the other hand the company was initially incorporated with two directors, namely, P.V.A. Prasad and another Smt. Y. Rajeswari, w/o Y.V. Subba Rao on 25-9-1990. 168. Admittedly though no evidence was produced to show that these directors had any experience in marketing field or manufacturing automobile spare parts, for reason best known to the consultants they are recommended to the company for their appointment as sole agents. Without discussing all these aspects the Board brushed aside the comp....
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....ar to the 2nd respondent in his underhand dealings. Donation to a non-existing trust 170. In C.A. No. 65 of 1996 the petitioner brought to the notice of the Board that during the financial year 1995-96 the company gave a donation of Rs. 10 lakhs to Srinivasa Charity Trust in which the 2nd respondent and his family members were trustees which was wound up on 30-5-1992 and in the guise of giving this amount as a donation the 2nd and 3rd respondents used this amount for their personal benefits. This contention was refuted by the respondent-company stating that it is a subsequent event and the Board having dealt with it in C.A. No. 65 of 1996 rejected the said contention, which has become final. Therefore, according to the respondent-company, the matter cannot be opened now. The said con-tention of the respondent found favour with the Board. The law is well settled on this aspect that any orders passed by a judicial forum at the interlocutory stage is only intended to make interim arrangements during the pendency of the main case and any such order is subject to the orders to be passed in the main case. I have already taken a view that though it is an event that has taken place a....
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.... with registrar E.G. District, Kakinada on 24-4-1992. The chairman suggested that in view of our trust being not able 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 thorough discussion the following resolution is unanimously passed: 'Resolved that our trust Sri Srinivasa Charity trust be and is hereby wound up today i.e., 30-5-1992 and all the assets and liabilities as on today (list enclosed) be and are hereby transferred/handover to Sri Srinivasa Educational Society-Regd. Kakinada. Further Sri K.V.R. Choudary, Managing Trustee be and is hereby authorized to complete the necessary formalities in this regard.'" Copy of the resolution filed by the respondents Meeting of the....
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....o the request of the managing trustee, the trustees resolved to take necessary permission from the income tax authority and do all acts that are necessary for finally transferring the property of the trust to Srinivasa Educational Society. It is not known why the trustees, who are no other than the family members of R. 2 passed such a resolution, when the managing trustee himself suggested winding up of the trust. 171. Be that as it may, on 27-4-1992, the Secretary of Srinivasa Educational Society applied for permission for establishment of Sri K.V.R. College of Engineering in Kakinada in an extent of Ac. 31.96 cents of land situated in the backward area of Ponnamanda village of Kothapally Mandal, East Godavari District. This land was shown in the name of the Trust in the list of properties of the Trust as on 30-5-1992 with the signature of the 2nd respondent. The Board without examining the need and purpose in donating Rs. 10 lakhs to this Trust owned by the 2nd respondent's family out of a total donation of Rs. 11,01,382 given by the company during that year, simply upheld the donation on the basis of exemption certificate granted by the Commissioner on 6-3-1995 for a period o....
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....fortunately the Board not only rejected the plea but also gave a certificate to the company for the increase in the turn over during the subsequent years and the Board says that the petitioners themselves agreed that in the subsequent years, the closing stocks and opening stocks are shown properly. Likewise, the Board simply believed the version of the respondent-company that this procedure is being followed for a number of years as gospel truth having observed as follows : "The company has unhesitatingly admitted that the discrepancy in closing stock which was being followed for over a number of years would have been made more comprehensive than what was shown in the balance sheet". The Board further held: "The discrepancies have occurred due to incomplete narration of closing stock in the balance sheet and it is due to non-supply of full description of closing stock and it cannot be assumed that there is diversion of spare parts by the company". In other words the petitioners have not been able to establish that the respondent-company are diverting the products of the company without accounting for the same. 174. In arriving at this conclusion, the Board relied upo....
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....y evidence. 179. From the annual reports, it is seen that the company divided the automobile spare parts that are being manufactured by it into four groups, namely (1) king pins, king pin units, shackle pins, shackle pin bolts, C & BP tubes; (2) tie-rod ends, kits and draglinks; (3) UJ Crosses; and (4) piston pins and the production as well as sales were shown group wise in the annual reports. From the information culled out from the balance sheet, the discrepancies in the stock were shown year wise as follows :- STATEMENT SHOWING THE DIFFERENCE OF MANUFACTURING ITEMS AND ITS COSTS AS PER THE PRICE OF SRMT 1989-90 (1) King Pins (2) Tirod ends (3) U.J. Cross (4) Piston Total value Opening 1,90,707 ... ... 11,946 Stock Production 16,93,546 1,19,502 94,629 2,60,254 Sales 3,43,485 ... ... 1,26,660 Closing 2,33,978 ... ... 22,020 Stock Discrepancy 13,06,790 1,19,502 94,629 1,23,520 (Amount Rs.) 13,0....
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....ock Discrepancy 20,63,800 1,44,537 1,55,651 1,31,650 (Amount Rs.) 20,63,80,000 2,89,07,400 4,66,95,300 65,82,500 2885 1994-95 Opening 72,048 ... ... 3,942 Stock Production 24,90,943 1,83,966 1,44,055 2,42,725 Sales 4,88,413 ... ... 1,49,166 1989-90 (1) King Pins (2) Tirod ends (3) U.J. Cross (4) Piston Total value Closing 1,24,385 ... ... 5,394 Stock Discrepancy 19,50,193 1,83,996 1,44,055 92,107 (Amount Rs.) 19,50,19,300 3,67,99,200 4,32,16,500 46,05,350 2796 1995-96 Opening 1,24,385 ... ... 5,394 Stock Production 39,22,383 1,67,955 1,72,197 1,76,316 &....
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.... 2,42,725 20034 40454 23904 6 6 6 Sale 20327 41111 26516 18363 24861 24223 Closing Stock 1964 16250 2293 1964 899 2293 0 15351 0 Stock Nil 15351 x 461 Rs. Nil Difference per set value Before filing the = Rs. 7076811 After filing the petition in the At the time of filing petition in the Law Board the Petition in the Law Board. Law Board When these discrepancies were shown at the time of considering the plea of the petitioner for appointme....
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....s 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 manufac- tured by the company are reflected in the balance sheet and to their knowledge there are no other engine parts that are being manufactured by the company. Under the caption 'sales' after sale of Tata vehicles for which the company is dealer, sales of SRMT parts were shown and the sale of other engine parts was not shown in any of the....
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....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 has been consistently following the same pattern of disclosing the quantitative particulars of production, sales and stock for the last 25 to 30 years." From the above it can be safely presumed that either the details of the spare parts shown for the years 1980 and 1996-97 should be false or the figures shown in the year 1994-95 should be f....
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....ya 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) causing a state of physical or mental discomfort or weariness. 188. As section 397 being a corresponding section to section 210 of the Old English Act, the counsel for the petitioner placed reliance both on English decisions as well as Indian decisions. 189. In Elder v. Elders Watson's Ltd. 1952 SCOTT, Cases 49, Lord Kei....
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....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), this Court considered the effect of sections 397 and 398 of the Old Act. Justice Jaganmohan Reddy, as he then was, observed that "where there is discrimination by the majority of shareholders or by the majority of the directors to the detriment of minority amounting to oppression, and the affairs of the company....
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....re 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 a meeting are null and void and non-operative. As the petitioner continued to hold 50 per cent shares in the Company and as such she was held to have fulfilled the criteria prescribed under section 399 for filing a petition under sections 397 and 398. In the above Judgment it was further held that ....
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....gainst 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 of company was not in the agenda. It is also his case that in the annual general body meeting held on 25-9-1993, no discussion about expansion or modernisation of the company took place. Be that as it may the petitioners having received the offer of rights on 31-4-1994 applied for sha....
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....en 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 summoned the original minutes book to have a look at the resolutions adopted by the board. The subject 'Replacement/Modernization of machinery was taken up under Item No. 8 (D) in the board meeting held on 29-7-1993 and the resolution adopted under this item is extracted here....
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....oner 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 produced any evidence to show that the death certificate was not received by the company in 1997 nor he elicited anything contra in the cross-examination of the petitioner that he has not furnished the death certificate on 25-5-1994. If there is no mala fide intenti....
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....ly 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 followed and the notice for the meeting did not contain any explanatory statement as envisaged under section 173 and as such the proceedings of the meeting have to be declared as null and void. 210. The case of the respondents is that the company ....
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....ection 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 of Vijaya Engine Volves Ltd., (3) Managing Director of K.V.R. Forgings, and (4) Chairman of Bhavani Castings. From this it is clear that the petitioner was holding important positions at least in four subsidiary companies apart from the p....
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....en 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 hereby removed as Director of the company'. They also stated that 'it may be treated as special notice under section 190 of the Act.' 214. Section 284 deals with removal of directors. Under sub-section 1, a company may, by ....
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....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 published on 27-1-1994 vide answer to Question No. 65 in chief-examination. This statement of the petitioner stood unrebutted. But the Board accepted the version of the company and held that the removal of the petitioner ....
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....e 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 general proposition laid down by the Honourable Supreme Court. But the facts and circumstances of that case are altogether different from the facts and circumstances of this case. Here, the Board is consid....
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....st, 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 the petitioner No. 9 as a director under section 284 is followed as such the finding of the Board that section 169 has to be read independently from section 284 and no explanatory statement need be e....
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.... "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 counsel for respondents did not deny the fact of filing so many criminal cases against 9th petitioner. 4. CRIMINAL CASES FILED BY K.V.V. PRASADA RAO, ANOTHER SON-IN-LAW OF R.2: ....
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....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 is leaving for Hyderabad, the Railway Police arrested and handed over him to regular Police and the said George Babu gave a statement before the Police. As per ....
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....at 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 he was in the good looks of his father-in-law and when the petitioner No. 9 fell from the grace of his father-in-law, another son-in-law by name ....
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....f 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 time until otherwise decided in this regard." Further, even according to respondents an amount of Rs. 1.5 crores were raised through ....
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....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 sought for several details with regard to the financial transactions of the company through registered letter as well as telegr....
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....earing 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 find a place in the register. This being a vital register containing the information whether any director or his rel....
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.... 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 day. Under sub-section 5(b) the Board may also, by order, compel an immediate inspection of the document, or ....
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.... 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 futile exercise, if the required information sought for is neither provided by the company nor cal....
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....s 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), their Lordships while repelling the arguments of the counsel for the responden....
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....tutional 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-law of the 3rd respondent, on that ground the respondents cannot co....
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....nt 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 clearly taken a view that the financial position of the com....
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....f 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 have already tasted success once in 1978. Of course,....
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....abad, 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 parties are given liberty to make t....