TaxTMI 
TaxTMI 
2011 (2) TMI 1279
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....an Pillai, S. Subramaniam Pillai, S. Karuppasamy Pillai, S. Paramasivam Pillai, S. Sundaram Pillai and S. Kalyanasundaram Pillai promoted Aruna Theatres and Enterprises (P.) Ltd., as a private limited company in the year 1979. Out of the six brothers, 5 are no more. The lone surviving brother is the seventeenth respondent herein. 4. The family had another business venture run by another closely held company by name Annai Mookambigai Flour Mills P. Ltd., which borrowed funds from Karur Vysya Bank. The loan was secured by a corporate guarantee executed by Aruna Theatres and Enterprises (P.) Ltd. For the default committed by them, the bank initiated proceedings in O.A. No. 178 of 2004, before the Debts Recovery Tribunal. Pending the main application, the Debts Recovery Tribunal passed an order on May 17, 2005, in I.A. No. 414 of 2004, appointing Justice K. Swamidurai (Retd.) as receiver/ administrator. He has now been replaced by Mr. Justice K. P. Sivasubramaniam (Retd.), as receiver and he is now in charge of the business of the company. 5. In the meantime, respondent Nos. 1 to 5 herein, filed C. P. No. 64 of 2006 (out of which the present appeal arises) on the file of the Comp....
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....the financial transactions of the company for the relevant period, which shall include all the receipts, payments, expenses incurred on behalf of the company, together with the fund utilisation thereof and irregularities, if any, and serve copies of the report on all the parties, who are bound by the report of the chartered accountant. The whole process shall be completed by April 30, 2009. The company will bear the chartered accountant's remuneration and towards this end, an initial amount of Rs. 50,000 may be paid by March 31, 2009. The matter will be heard on May 15, 2009, at 2.30 p.m., for issue of appropriate consequential directions, after hearing the parties concerned, to safeguard the interests of the company and its members. 13. With the above directions, the company petition and all the connected applications stand disposed of, however reserving the right to issue necessary directions, in terms of this order. No order as to costs." 7. Challenging the said order, respondent Nos. 2 and 3 before the Company Law Board have come up with the present appeal. Pending appeal, the appellants also sought stay of the order of the Company Law Board in M.....
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....en the very appointment of the chartered accountant by the Company Law Board is assailed as wholly illegal, any exercise undertaken by such chartered accountant is also illegal and hence the interim report submitted by him should not even be looked into. The contention of learned senior counsel for the appellants, reminiscing the official secrets regime of the colonial past, was that even this court should not open the sealed cover, but confine it to the dustbin. In view of such a stiff opposition, which in my opinion, bordered on adamancy, I did not open the sealed cover, but permitted the learned counsel on both sides to make submissions only on the correctness and validity of the order of the Company Law Board. As a matter of fact, despite the fact that forbidden fruit is the sweetest, I also imposed upon myself, a restriction not to see the report at all, till I prepared this judgment up to the concluding part. I decided to keep the sealed cover submitted by the auditor in tact, so that the issues raised in the appeal could be addressed independently. I will come back to the issue of opening or not opening the sealed cover submitted by the auditor, at the end of the discussion,....
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....ukrishnan-Son K. Muthu Selvakumar-Son S. Paramasivan Pillai P. Bhagavathi Ammam (Late) P. Mani-Son P. Durai-Son B. Muthulakshmi-Daughter P. Kannan-Son S. Anandhi-Daughter P. Krishnamurthy-Son S. Meena-Daughter S. Sundaram Pillai (Late) S. Gomathi Ammal-Wife M. Shanmugasundari-Daughter P. Muthurajeswari-Daughter G. Vasuki-Daughter S. Balasubramanian-Son R. Lakshmi-Daughter R. Umasankari-Daughter S. Kalyanasundaram Pillai (Late) K. Ulageswari Ammal-Wife (Late) K. Muthuswami-Son V. Anandhi-Daughter K. Shanmuga Sundaram-Son M. Sundari-Daughter S. Sankari-Daughter K. Murugan-Son R. Vallidevi-Daughter (d) When the Tamil Nadu Housing Board promoted the Ashok Nagar Neighbourhood Scheme, a plot measuring an extent of 23 grounds and 1,930 sq. fts., was earmarked for Cinema Theatre and an adjoining plot measuring an extent of 5 grounds and 800 sq. ft., was earmarked for a petrol bunk. These two properties were allotted to the company. On these two properties, a Multiplex Cinema Theatre, a kalyana mandapam and a Petrol Bunk were constructed by t....
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....as the first respondent and M/s. K. Muthuswamy, P. Durai and S. Venkatachalam (who are appellant Nos. 1 and 2 and the seventh respondent in this appeal) were impleaded as respondent Nos. 2 to 4 in the company petition C. P. No 64 of 2006. The receiver appointed by the Debts Recovery Tribunal was impleaded as the fifth respondent. However, in the course of hearing of the company petition before the Company Law Board, all the other shareholders also got impleaded as respondent Nos. 6 to 20. (i) The acts of oppression and mismanagement complained of by respondent Nos. 1 to 5 herein in their petition C. P. No. 64 of 2006 were (1) the leasing out of the kalyana mandapam to the son of the first appellant herein on June 28, 2002, for a rent far below the market value (2) the sale of the petrol bunk in favour of the first appellant and his wife for a consideration of Rs. 60 lakhs (3) the receipt of Rs. 99,000 per month by the first appellant, as interest on the sale consideration fixed for the petrol bunk, on the ground that the possession of the property could not be taken (4) the appropriation of the rent (license fee) paid by RPG Cellular Company,....
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....d came to a prima facie conclusion that the business of the company had been conducted in a manner oppressive of the members of the company at the hands of persons in management. The Company Law Board also came to the conclusion that the surplus income shown by the receiver prima facie supported the charge of mismanagement, requiring a detailed investigation by an independent agency. Even while holding so, the Company Law Board was careful enough to hold that the process of any investigation would certainly involve the grant of adequate opportunity of hearing to all the parties. It is only after reserving such a right of opportunity to the appellants that the Company Law Board passed the order, which is the subject-matter of the appeal herein. 12. At the initial stages, the very maintainability of the present appeal was also questioned by the respondents. Therefore, learned senior counsel appearing for the appellants invited my attention to section 10F of the Companies Act, 1956 and contended that there are questions of law arising out of the impugned order of the Company Law Board and that therefore, the present appeal is maintainable. 13. But I do not think that the questio....
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....omplainants, were erroneous and were not continuing as on the date of filing of the petition. (iv) The Company Law Board cannot order investigation under section 237(b), in a petition under sections 397, 399 and 402. In any case, the essential requirements of section 237(b) are also not satisfied. (v) The Company Law Board erred in reaching conclusions on the basis of the report of the receiver appointed by the Debts Recovery Tribunal. The receiver was appointed to carry on the administration and management, with prospective effect and hence the reports filed by him in respect of the events of the past, were of no value. (vi) The act of the Company Law Board in accepting photo copies of certain documents filed by the parties, after the conclusion of the arguments, without either a proper pleading and proof or an opportunity to the appellants, was violative of the procedure prescribed by law. Therefore, the findings recorded on the basis of these documents are wholly illegal. &nb....
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....in relying upon the photocopies of documents filed after the conclusion of the hearing was in tune with section 10E(5) and (6) ? (vii) Whether the impugned order is in tune with the order of this court in C. M. A. No. 1900 of 2007 ? and (viii) Whether the procedure adopted by the Company Law Board in relying upon a letter written by one Vadivel Murugan, who was neither a party nor a witness to the proceedings, is in tune with the procedure prescribed by law ? Let me now take up these questions of law one after another. Question No. 1 16. There is no dispute about the fact that in I. A. No. 414 of 2004 in O.A. No. 178 of 2004, the Debts Recovery Tribunal-II, Chennai, passed an order dated May 17, 2005, appointing Justice K. Swamidurai (Retd.) as the receiver. The said order was challenged on appeal by the company represented by the second appellant herein, in M. A. No. 69 of 2005, before the Debts Recovery Appellate Tribunal, Chennai. But the same was dismissed by an order dated December 9, 2005. Thereafter, the receiver took charge on ....
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....sh decisions Elder v. Elder and Watson Ltd. [1952] SC 49 and Meyer v. Scottish Co-operative Wholesale Society Ltd. [1954] SC 381, were quoted with approval in one of the earliest decisions of the Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351. It was held in the said decision as follows (page 366) : "There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members." 20. Following the decision of the apex court in. Kalinga Tubes Ltd. (supra), a Division Bench of this court held in V.M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp Cas 20, that there must be continuous acts constituting oppression up to the date of the petition and that the events have to be considered not in isolation but as a part of a continuous story. 21. In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC); the Supreme Court held that an isolated act, which is contrary to law, may not necessarily and by itself support the inference tha....
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.... himself to oppression over a period before he can invoke the powers of the court. If the effects of the single act which is burdensome, wrongful and oppressive are of continuing nature, and the member concerned is deprived of a right and privilege for all times to come in future, then the petition under section 397 of the Act can be filed even in respect of a single act. 24. Agreeing with the said view, a learned judge of the Bombay High Court held in Maharashtra Power Development Corpon. Ltd. v. Dabhol Power Co. [2003] 117 Comp Cas 506/48 SCL 180, that it is ordinarily correct to say that a single act of oppression would not give rise to a cause of action for filing a petition under section 397. However, the learned judge pointed out that it is not a rule of law, but a rule of prudence and that if the effects of a single act which is burdensome, wrongful and oppressive are of continuing nature, then a petition can be filed. 25. In Bhagirath Agarwala v. Tara Properties (P.) Ltd. [2002] 111 Comp Cas 597/39 SCL 943 (Cal.) ; also the removal of a director and allotment of shares were set aside as they were done at a meeting which was convened without complying with the requirem....
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....charge on June 19, 2006, the payment of Rs. 99,000 per month towards interest on the sale consideration of the petrol bunk property, was stopped. But the first appellant and his wife have filed a civil suit in C. S. No. 756 of 2004 for recovery of Rs. 22,99,680 towards arrears of rent, from the person now running the petrol bunk. From October 1, 2003, till May 31, 2006, the first appellant and his wife had already received a sum of Rs. 31,68,000 towards interest on the sale consideration of Rs. 60 lakhs paid by them at the time of purchase of the petrol bunk property. 28. Therefore, the mere fact that the receiver kept on hold any further payments, would neither mean that they were isolated acts nor mean that their recurrence was voluntarily stopped. It must be remembered that the receiver appointed by the Debts Recovery Tribunal, was actually to take care of the interests of the secured creditor. Therefore, the fact that he stopped further payments and the fact that such stoppage enured to the benefit of the company and respondent Nos. 1 to 5 herein does not mean that normalcy had returned. The appointment and continuation of the receiver for the management of the properties, w....
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....he Debts Recovery Tribunal, the right of the beneficiaries to the payments stopped by the receiver, would get revived. Therefore, I am unable to accept the first contention raised by the appellants that the ingredients of sections 397(1) and 398(1) were not satisfied. 32. Apart from the above, it is necessary to take note of the role assigned to the receiver by the Debts Recovery Tribunal, by its order dated May 17, 2005, passed in I. A. No. 414 of 2004 in O. A. No. 178 of 2004. Paragraphs 17, 18 and 23 of the order dated May 17, 2005, read as follows: "(17) After due consideration, this Tribunal hereby appoints hon'ble Justice K. Swamidurai, Judge (Retd.) (High Court of Madras) as receiver/administrator. It is further ordered he shall be assisted by a panelist advocate Mrs. Swarnalatha. In order to assist the receiver/ administrator to take over the management of respondent No. 2 company and to discharge its duty smoothly with a view to safeguard the interest in general of the shareholders as well as of the applicant bank, other secured/unsecured creditors, workers, staff of respondent No. 2 company and for payment of necessary expenses of respondent....
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....er under section 19(13) is akin to Order 38, rule 5 of the CPC. Likewise, the power under section 19(18) is similar to Order 40, rule 1 of the CPC. As a matter of fact, clauses (a), (b), (c) and (d) of sub-section (18) of section 19 are in pari materia with clauses (a), (b), (c) and (d) of sub-rule (1) of rule 1 of Order 40. 34. What could be done by an order of the Tribunal, under section 19(18) of the 1993 Act, could also be done by the secured creditor himself, by virtue of section 13(4)(c) of the SARFAESI Act, 2002. While a person appointed by the Debts Recovery Tribunal under section 19(18) of the 1993 Act, is called a receiver, the person appointed by the secured creditor under section 13(4)(c) of the 2002 Act, is called a manager. A receiver is appointed under section 19(18) of the 1993 Act, for the realisation, management, protection, preservation and improvement of the property and the collection of rents and profits thereof. A manager is appointed under section 13(4)(c) to manage the secured assets, the possession of which had been taken over. 35. Therefore, it is clear that the receiver appointed by the Debts Recovery Tribunal was for the management and administrat....
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.... dated January 5, 2007. In other words, despite the appointment of the receiver, it was the appellants who were in the board till the date of filing of the company petition. In such circumstances, the decision relied upon by the appellants in C.B. Pardhanani v. M. B. Pardhanani [1990] 69 Comp Cas 106 (Karn), is of no relevance. 39. Therefore, I hold on the first question of law that the petition before the Company Law Board was maintainable, in view of the fact that the series of acts complained of against the appellants herein, had a continuing adverse effect upon the company. The temporary suspension of the perpetration of those acts, by the receiver appointed by the Debts Recovery Tribunal for the benefit of the secured creditor, would not entitle the appellants to contend that the affairs of the company "were not being conducted" in the manner alleged, as on the date of filing of the company petition. Question No. 2 40. The second contention of the appellants is that the law of pleadings and the provisions of the Indian Evidence Act, 1872, apply to the proceedings before the Company Law Board. Therefore, the Company Law Board ought not to have taken note of the new ple....
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.... file a reply to the petition along with the documents relied upon by the respondents. Regulation 38 imposes a bar upon the withdrawal of a petition under section 397 or 398, without the leave of the Board. Regulation 47 declares that the Bench of the Board will be deemed to be a court for the purpose of prosecution or punishment of a person who willfully disobeys any order of the Bench. More importantly, regulation 48 empowers the Board, for reasons to be recorded in writing, to dispense with the requirements of any of these regulations subject to such terms and conditions as may be specified. 44. Thus, the law makers have maintained a clear distinction between the rules of procedure to be adopted by the company court under the Companies (Court) Rules, 1959 and the rules of procedure to be adopted by the Company Law Board under the Regulations of 1991. Not only does section 10E(5) and (6) confer a discretion upon the Board to regulate its own procedure and be guided by the principles of natural justice, but regulation 48 goes a step further by empowering the Bench to dispense with the requirements of any of the regulations. 45. In Needle Industries (India) Ltd. (supra), the ....
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....p; (ii) With regard to the sale of the petrol bunk property, the appellants have taken a stand in paragraphs 10 to 16 of their counter that the board passed a resolution on February 3, 2003, authorising the sale of the property, due to the pressure exerted by the Karur Vysya Bank. An offer for sale was made to the Indian Oil Corporation as well as to the person now running the petrol bunk, to buy the property. Since they did not take the offer, the first appellant came forward to purchase the property and the board authorised the first and third petitioners as well as the founder director S. Paramasivan Pillai, by a resolution dated June 30, 2003, to negotiate and sell the property. The first appellant borrowed funds and purchased the property in the joint names of himself and his wife, for a sale consideration of Rs. 60 lakhs. The amount was utilised for payment to the bank and the first and third petitioners were signatories to the sale deed. Thereafter, the first appellant and his wife made a demand for the cancellation of the sale deed and the refund of the sale consideration or payment of compensation at the rate of Rs. 99,000 per month, when the person runni....
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....ellular Company and the receipt of remuneration by the first appellant, are sought to be explained by the appellants, as acts carried out in good faith, after following due process and after taking the consent of respondent Nos. 1 to 5 herein. It means that the fundamental facts on the basis of which the allegations of oppression and mismanagement are built, are not in dispute. 50. Now in the backdrop of the above pleadings, let me test the second contention of the appellants, assuming for a minute that strict rules of pleading and evidence are applicable to proceedings before the Company Law Board. 51. It is a fundamental principle that a fact admitted, need not be proved. If the admission of a fact is made, along with a statement containing an explanation or along with a contention that a different inference is possible in the light of other facts, then the burden of proof shifts. Section 3 of the Indian Evidence Act, 1872, defines a "fact" to mean and includes "(i) any thing, state of things or relation of things, capable of being perceived by the senses and (ii) any mental condition of which any person is conscious". It also defines "facts in issue" to mean and include "a....
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....rted in their counter that meetings were duly held and notices were properly served. Therefore, even in respect of this allegation, the burden of proof was only on the appellants, since they made positive assertions in their counter that respondent Nos. 1 to 5 attended a few meetings and failed to attend other meetings, despite the service of notices on them. 55. Therefore, even if strict rules of pleadings and evidence had been applied, as desired by the appellants, the Company Law Board could not have reached a different conclusion. This is in view of the fact that in respect of 5 out of 6 alleged acts, the burden of proof was on the appellants. 56. It is only in respect of the allegation of receipt of advances from the shop tenants to the tune of Rs. 45,10,000 that the burden was on respondent Nos. 1 to 5. But even here, the allegation made by respondent Nos. 1 to 5 was on the basis of the reports filed by the receiver before the Debts Recovery Tribunal. As stated earlier, the appellants denied this allegation. Therefore, respondent Nos. 1 to 5 herein were obliged to prove this allegation, viz., that the appellants collected advances to the tune of Rs. 45,10,000 from the s....
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.... Nos. 2 and 3 before them) to file a reply to the statements filed by the receiver (the fifth respondent). By doing so, the Board actually complied with the letter and spirit of section 10E(5). 60. Apart from their failure to deny in their reply, the averments contained in paragraph 1(m) of the additional statement of the receiver, the appellants also failed to take any steps to summon the receiver for cross-examination. The main company petition itself was based on the reports filed by the receiver. Apart from making wild allegations against him, the appellants did nothing. As pointed out earlier, the receiver had nothing to do with the internecine quarrel between the parties. He is a retired judge of this court, appointed by the Debts Recovery Tribunal. Though the appellants attributed bias and collusion against the receiver, they never even sought to prove the same. Their challenge to the appointment of the receiver, failed before the Debts Recovery Appellate Tribunal and before this court. Subsequently, the receiver first appointed by the Debts Recovery Tribunal resigned for other reasons and a new receiver is in place as on date. Therefore, the second question raised by the....
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....The property cannot be said to have been sold for a consideration lesser than the market value, since the petitioners before the Company Law Board did not produce proof of market value and the guideline value cannot be taken to be the market value. Considering the fact that the property is in occupation of a lessee, the sale consideration cannot be said to be low. (vii) A civil suit in C. S. No. 570 of 2006 is already pending adjudication with regard to the sale deed. Therefore, at one stage, the Company Law Board itself pointed out that it would refrain from dealing with the validity of the sale deed. But nevertheless, it went on to deal with the same and pronounce a finding. (viii) The finding that stamp duty was paid by the company was wrong, since it was paid by the first appellant's wife. The Company Law Board exceeded the jurisdiction in recording a finding in this regard without even making one of the purchasers as a party and that too without any evidence. 63. It is true that the validity of the sa....
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....rive three benefits, one in the form of a sale unto himself, another in the form of compensation at the rate of 22 per cent. per annum and the third in the form of a suit for recovery of arrears of rent, the Company Law Board was justified in testing the bona fides, for the limited purpose of an enquiry into the allegations of oppression and mismanagement. The Company Law Board's enquiry into the question of adequacy of consideration for the sale and the correct market value of the property, should be understood to be a limited one, in the context of the attempt made by one of the directors to derive certain pecuniary advantage for himself at the cost of the company. As a matter of fact, though the sale consideration was admittedly Rs. 60 lakhs, the first appellant and his wife themselves have declared the market value of the property to be more than Rs. 90 lakhs, in annexure 1A to the sale deed. They had paid stamp duty on the basis of their own declaration of the market value. They cannot now go back on such a declaration and contend that there was no evidence before the Company Law Board, that the market value was more than the sale consideration. 66. Assuming that the findin....
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....e was no need to implead the lessee as a party, since respondent Nos. 1 to 5 were not seeking to set aside the lease. The fact that the receiver stopped payment of this lease amount, cannot really enure to the benefit of the appellants. It was not a voluntary act on the part of the appellants, but an involuntary act imposed by the receiver. Therefore, the sting is not taken out. Receipt of remuneration by the first appellant 71. The only contention raised by the appellants in this regard is that the receiver appointed by the Debts Recovery Tribunal stopped the payment of remuneration to the first appellant, as the managing director of the company and that he also stopped payment of remuneration to Mr. Gomathinayagam and to the drivers appointed. 72. But as pointed out by me while dealing with the first contention, the fact that the alleged acts did not continue up to the date of filing of the petition, cannot be taken advantage of by the appellants. It is not as though the appellants suddenly turned out to be angels and voluntarily stopped receiving the payments. Therefore, the stoppage of future payments by the receiver could not be taken to be a condonation of their acts....
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....on of law raised by the appellants is also answered against them. Question No. 4 77. The fourth question is as to whether in a petition under sections 397 and 398, an investigation can be ordered under section 237(b) and whether in any case, the requirements of the provisions of section 237(b) were satisfied so as to order an investigation under that section. 78. To understand the significance of this question and to find out an answer, it is necessary to have a look at the provision and the way the courts have explored it judicially. 79. Section 237(b) confers a discretion upon the Company Law Board to appoint one or more persons as inspectors to investigate the affairs of the company, if in its opinion, there are circumstances suggesting (i) that the business of the company is being conducted with an intent to defraud the creditors or members or any other persons or in a manner oppressive of any of its members ; (ii) that persons concerned with the management of its affairs are guilty of fraud, misfeasance or other misconduct towards the company or its members ; or (iii) that the members of the company have not been given all the information with respect to its affair....
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....was formed for collateral grounds and was beyond the scope of the statute. 82. While following the decision in Barium Chemicals Ltd. (supra), another Bench of the apex court held in Rohtas Industries Ltd. v. S. D. Agarwal [1969] 39 Comp Cas 781 (SC); that (page 800) : "if the existence of those conditions is challenged, the courts are entitled to examine whether those circumstances were existing when the order was made" and that "the existence of the circumstances in question are open to judicial review though the opinion formed by the Government (now Company Law Board) is not amenable to review by the courts". It is interesting to note that the decision in Rohtas Industries Ltd. (supra) is that of a three member Bench. However, separate opinions were rendered by Hegde J., and Bachawat J. In paragraph 3 of the opinion rendered by Bachawat J., the learned judge pointed out that section 237(b) confers an administrative and not a judicial power. Bachawat J., was a party to the view of the majority in Barium Chemicals Ltd. (supra). Therefore, it is clear that there was no difference of opinion between the Constitution Bench decision in Barium Chemicals Ltd. (supra) and the three mem....
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....ohtas Industries Ltd. (supra); (ii) that the power conferred by the provisions can be exercised even suo motu by the Company Law Board and (iii) that while testing the correctness of an order of the Company Law Board, directing investigation, the powers of the company court are restricted to the parameters laid down in the above decisions. 87. Once it is seen that the power is administrative and can be exercised even suo motu, there is no merit in the contention that in a petition under sections 397 and 398, the Company Law Board was not entitled to appoint an auditor to conduct an investigative audit. The Company Law Board, before appointing an auditor, has taken note of the existence of the circumstances, as stipulated by clauses (i), (ii) and (iii) of section 237(b). In view of the decision of the apex court in Rohtas Industries Ltd. (supra), I have also examined independently, whether the circumstances pointed out by the Company Law Board existed or not and I am satisfied that they did. Therefore, the fourth contention on the scope of the power under section 237(b) cannot be sustained. 88. In any case, the Company Law Board has not exercised the power to direct an investi....
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....as given to the appellants to show that the records were tampered with. Therefore, the reversal was actually on other questions and not on this proposition of law. 90. A similar view as expressed by the learned judge of the Andhra Pradesh High Court, was expressed by A. K. Sikri J., of the Delhi High Court in Caparo India Ltd. (U.K.) v. Caparo Maruti Ltd. [2007] 140 Comp Cas 481/75 SCL 287, where the learned judge held in paragraph 36 that even if a case of oppression is not made out, the court can grant relief and pass necessary orders, in exercise of its equitable jurisdiction. The learned judge took note of the fact that in that case, two sets of shareholders were fighting litigation for years and that there was lack of probity amongst the parties. 91. Moreover, the powers of the Company Law Board have to be understood in the light of various provisions of the Act. By virtue of section 406, the provisions of sections 539 to 544 are made applicable to proceedings under sections 397 and 398, in the modified form as set out in Schedule XI. The difference in the language employed is not very substantial. While section 539 as found in the body of the Act, uses the expression "c....
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....ys provided for winding up, in case it was just and equitable. But at times, when it is found that the company is solvent and that it is not fair to wind up the company for that reason, section 397 provides an alternative remedy. 95. Similar views were echoed in Needle Industries (India) Ltd. (supra), where it was pointed out that in an application under section 397, the court has to satisfy itself before granting relief that to wind up the company would unfairly prejudice the members complaining of oppression, but that otherwise the facts will justify the making of a winding up order on the ground that it is just and equitable to wind up. 96. Therefore there can be no dispute about the proposition that in a petition under sections 397 and 398, the court must find just and equitable clause, apart from oppression, as held by the Division Bench in V.M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp Cas 20 (Mad.). But what is just and equitable is a question which can be addressed only from the facts and circumstances of each case. As pointed out in Needle Industries (India) Ltd. (supra), following the decisions of the Court of Appeal and the Privy Council, the fact that the compa....
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....eedings before the company court by virtue of rule 6 of the Companies (Court) Rules, 1959, would apply (paragraphs 218 and 219 of the report). 100. Hanuman Prasad Bagri (supra), was followed in M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja [2008] 143 Comp Cas 97/83 SCL 451 (SC). But at the same time, the court pointed out in paragraph 13 of its decision, after referring to section 402, that (page 104 of 143 Comp Cas) : "jurisdiction of the Company Law Board to pass any other or further order in the interests of the company, if it is of the opinion that the same would protect the interests of the company, it would not be powerless". Again in paragraph 19, the court pointed out that (page 107 of 143 Comp Cas): "the Company Law Board may not shut its doors only on sheer technicality even if it is found as of fact that unless the jurisdiction under section 402 is exercised, there will be a complete mismanagement in regard to the affairs of the company". As pointed out in paragraphs 20 and 21 of the same decision, the Company Law Board is not powerless to pass appropriate orders, if the consequences of refusal to exercise jurisdiction would lead to a total chaos or mismanagement....
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....f section 237(b) and that the impugned order was perfectly justified. Question No. 5 103. The fifth question of law raised by the appellants is about the evidentiary value of the reports filed by the receiver appointed by the Debts Recovery Tribunal. It is the contention of the appellants that the receiver actually exceeded his brief, by investigating into past transactions and filing reports, though the purpose of his appointment was to run the management of the theatre prospectively. 104. But the above contention is thoroughly misconceived. The very necessity to appoint a receiver arose, due to the failure of the company to pay its dues to the bank. When the Karur Vysya Bank moved an application in I.A. No. 414 of 2004 in O.A. No. 178 of 2004 for the appointment of the receiver, the application was supported by the patriarch of the family Mr. S. Paramasivam Pillai, who is the eldest surviving member of the family. In its order dated May 17, 2005, the Debts Recovery Tribunal noted in paragraph 7 that some of the respondents therein raised disputes about the mismanagement of the company and also sought the intervention of the court to secure not only the interest of the ba....
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....nts herein. All that the Company Law Board has done is to take into account the contents of the report of the receiver just for the purpose of forming an opinion and arriving at a subjective satisfaction as to the existence of the materials prescribed in clauses (i), (ii) and (iii) under section 237(b) for ordering an investigation. Therefore, the attack in this regard is wholly misconceived and question No. 5 is answered against the appellants. Question No. 6 107. The next question is about the action of the Company Law Board in allowing respondents Nos. 1 to 5 to produce photocopies of certain documents, after the conclusion of the arguments, thereby depriving the appellants of an opportunity to answer the documents and also violating the rules of evidence. 108. But this objection, even if sustained, does not advance the cause of the appellants. As pointed out elsewhere in this order, respondents Nos. 1 to 5 went before the Company Law Board complaining of six concrete acts of oppression and mismanagement. Out of them, the appellants actually admitted at least the core transactions relating to four of the allegations. In other words, the sale of the petrol bunk property,....
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..... No. 2 of 2007 in C. S. No. 4 of 2007 filed by one of the shareholders (N. Sankaranarayanan). A condition was imposed by this court that none of the resolutions passed at the meeting on January 5, 2007, shall be implemented without the leave of the Company Law Board. (c) Accordingly, the meeting was held on January 5, 2007 and 36 members took part. Members holding 5,359 shares voted for the removal of the appellants herein (K. Muthusamy and P. Durai) and S. Venkatachalam and for the appointment of respondents Nos. 2 to 5 herein as directors. Members holding 1,459 shares opposed the resolutions. (d) Thereafter, C.A. No. 41 of 2007 was filed before the Company Law Board by respondents Nos. 1 to 5 herein seeking leave of the Board to implement the resolutions passed on January 5, 2007. In that application, the Company Law Board passed an order on August 9, 2007, permitting respondents Nos. 1 to 5 herein to implement the resolutions passed on January 5, 2007, subject to the following conditions : "(i) The board of directors of the company shal....
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....A. No. 1900 of 2007, the Company Law Board disposed of the main petition C. P. No. 64 of 2006 by the order dated February 25, 2009. While doing so, the Company Law Board took note of the further directions issued by this court in C. M. A. No. 1900 of 2007 and only thereafter the Company Law Board issued the direction contained in paragraph 12(i) of its final order, which is impugned in this appeal. 113. It is clear from a perusal of paragraph 11 of the impugned order that the Company Law Board did not pass any order, which was in conflict with the further directions contained in the order passed in C. M.A. No. 1900 of 2007. The order is also not in derogation of the order of appointment of receiver made by the Debts Recovery Tribunal. 114. What was made absolute by paragraph 12(i) of the impugned order, was the order dated August 9, 2007, passed in C. A. No. 41 of 2007. In the order dated August 9, 2007, the Company Law Board made it clear that the newly constituted board of directors should act only subject to the order of the Debts Recovery Tribunal dated May 17, 2005, passed in I. A. No. 414 of 2004 in O. A. No. 178 of 2004. In other words, the newly constituted board of d....
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....The next question relates to the letter dated September 1, 2006, allegedly sent by K. Vadivel Murugan to the receiver. According to the appellants, the letter was erroneously accepted, despite the fact that he was not a party to the proceedings and despite the fact that there was no opportunity to challenge the veracity of the contents of the said letter. 118. It is true that K. Vadivel Murugan was not a party to the claim petition. Respondents Nos. 1 to 5 herein, who were the petitioners in the main company petition, did not drag K. Vadivel Murugan into the picture by themselves. When the appellants herein attempted to justify the purchase of the petrol bunk property on the ground that some of the respondents were parties to the board resolutions and also parties to the sale deed, respondents Nos. 1 to 5 relied upon the letter of K. Vadivel Murugan dated September 1, 2006, addressed to the receiver. As a matter of fact, the letters dated February 10, 2003, February 19, 2003 and February 28, 2003, sent to N. Sankaranarayanan and Indian Oil Corporation, under the signatures of K. Vadivel Murugan were relied upon by the appellants to show that before the property was sold to the f....
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....24, 2009, calling upon them to furnish copies of their submissions. The company's staff, its present directors and the receiver appear to have submitted the records and information called for by the chartered accountant. Based upon the records and the information so furnished, the chartered accountant has reached certain conclusions which can be summarised as follows : (i) The sale of the petrol bunk property has put the company to a loss of Rs. 2.40 crores. (ii) The payment of Rs. 35.20 lakhs (including TDS) to the first appellant and his wife towards compensation for the period from October, 2003 to May, 2006, on the ground that possession of the petrol bunk property could not be handed over, is a clear case of siphoning off of the company's funds. (iii) The lease rent of Rs. 50,000 per month fixed in respect of the kalyana mandapam was too low and especially in the absence of an escalation clause in the lease ag....
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....ayment of remuneration to the managing director K. Muthusamy (first appellant herein) was produced and the provisions of section 302(2) and (7) of the Act, requiring intimation to the shareholders to be given within 3 weeks of appointment, were not complied with. (ix) The company's cash book for the period from April 30, 2004 to March 31, 2005, shows heavy amounts of cash on hand being carried over, though there were also bank overdraft borrowings during the same period with Karur Vysya Bank. If cash had been deposited in the bank on a day to day basis, there would have been no necessity to pay interest to the bank on the overdraft borrowings. This paradox leads to an inference that in reality, there was no cash balance, but it was siphoned off. (x) The cash on hand reached the peak of Rs. 37,62,259.95 on February 28, 2005 and it came down to Rs. 9,57,969.30 as on March 31, 2005. Between these two dates, there were some major payments by way of repayment of shop rental advances. But acknowledgments fro....
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....(e) stands contravened. (xv) The statutory auditor has stated in his report that no interest was charged on the advances granted to the directors and their relatives. But the company paid interest on the loans taken from the directors, their relatives and others. Therefore, diversion of funds to the extent of Rs. 70 lakhs in the form of interest free loans and advances, at a time when the company is facing liquidity crunch, is an act of grave financial impropriety. (xvi) After the receiver took over the management, he could increase the share of the company to 40 per cent. of the collections, from 35 per cent., indicating that the previous management had not accounted for the income fully. However, the allegation that the first appellant was getting 45 per cent. to 50 per cent. and was accounting only for 35 per cent., was not verifiable. (xvii) A tenant by name A. S. Nazeer, who was sho....