TaxTMI 
TaxTMI 
2011 (2) TMI 1279
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....samy 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 He has now been replaced by Mr.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 Company Law Board, under sections 397, 398, 402 and ....
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.... 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. P. No. 1 of 2009. 8. On April 21, 2009, while ordering notice in the....
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....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, if it becomes necessary. 10. With the above background, let me now take a dive....
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....n 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 the company. (e) On June 28, 2002, M/s. K. Muthuswamy, P. Durai and S. Venkatachalam, who are appellants Nos. 1 and 2 and the seventh respondent in this appeal, executed a registered lease ....
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....006. 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, for the tower installed in the terrace of the kalyana mandapam building, by the son of the first appellant (5) the salary drawn unauthorisedly by the first appellant, claiming to be the managing director and (6) the failure to conduct ....
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....lus 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 question of maintainability of the present appeal should detain us for a long time. Section 10F of the Companies Act, 1956, is not akin to section 100 of the Code of Civil Procedure, 1908. Section 10F entitles any person aggrieved by any order of the Co....
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....der 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. (vii) The order of the Company Law Board bye-passing the directions issued by this court in C. M. A. No. 1900 of 2007 is erroneous. So long as the receiver appointed by the court is in charge of the....
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.... 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 June 19, 2006, of the management and administration of the theatre complex comprising of 4 theatres, viz., Udayam, Chandran, Suriyan and Mini Udayam and the kalyana mandapam. Ever since then, the receiver is in charge till date, though the previous receiver was replaced by Justice K.P. S....
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....he 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 that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. It was also pointed out that a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are part of the same transaction, of which, ....
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....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 requirements of section 286 and also reflected an oppressive policy. The allotment was made only to one member without simultaneous offer to others on pro rata basis. A single act of issue of additional shares which would have a continuous effect was held to constitute oppression. 26. In the light of the law laid do....
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....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, was actually like the imposition of a curfew and it was not a voluntary act on the part of the persons in management, with a view to stop all alleged acts of oppression and mismanagement. It was something that was imposed upon the persons at the helm of affairs, by an order of the Debts Recovery Tribunal. It was a supervening a....
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....le 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 No. 2 company including statutory dues, it would be appropriate to constitute an advisory committee consisting of : (a) One representative from the applicant-bank not below the rank of AGM of the nationalised bank. &nbs....
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....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 administration of the business of the company in question. The receiver did not and could not actually replace the board of directors of the company. Moreover, a Debts Recovery Tribunal is not an institution which can really remove a director and appoint any person in his place. 36. At the most, the receiver appointed by the Tribunal, could be treated only like the ....
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....t 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 pleadings made by the impleaded parties and ought not to have accepted the pleadings made without any evidence. 41. Section 10E(4C) of the Companies Act, 1956, vests with the Company Law Board, the same powers, as are vested in a civil court under the Code of Civil Procedure, 1908, for (i) discovery and inspection of documents (ii) enforcing the attendance of witnesses ....
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.... 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 Supreme Court observed as follows (page 786) : "... it is generally unsatisfactory to record a finding involving grave consequences to a person on the basis of affidavits and documents without asking that person to submit to cross-examination. It is true that men may lie but documents will not and often, documents speak louder than words. But a total r....
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....ing 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 running the petrol bunk refused to vacate the property. The Board accepted the request by a resolution dated October 14, 2003 and acknowledged its liability by a letter dated October 15, 2003. (iii) With regard to the rental income from RPG Cellular Company, the appellants have taken a stand in paragraph 17 of their counter that the company borrowed funds from t....
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....rop 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 "any fact from which either by itself or in connection with other facts, the existence, non-existence, nature or extent of any right, liability or disability, asserted or denied in any suit or proceeding, necessarily follows". The Explanation under the definition of the expression "facts in issue" clarifies that whenever any court records an issue of fact, the fact to be asserted or denied in answer to su....
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....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 shop tenants. Let me see if this allegation was proved before the Company Law Board. 57. Since the receiver was impleaded as the fifth respondent before the Company Law Board, he filed a statement on November 28, 2006 and an additional statement on February 26, 2008. He termed them as "statements", in view of the fact that he is not a contesting party and hence he cannot file a counter. In view of the objections ....
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....on. 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 appellants that the Company Law Board committed an error of law in arriving at conclusions on the basis of new pleadings, insufficient pleadings and lack of sufficient proof is wholly untenable and baseless. Question No. 3 61. The third question raised by the appellants is about the correctness of the findings recorded by the Company Law Board on the allegations of oppression and mismanagement. Since the appellants ha....
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....sp;(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 sale deed dated September 1, 2003, by which the petrol bunk property was sold in favour of the first appellant and his wife, is under challenge in a civil suit C. S. No. 570 of 2006. But the first appellant and his wife have admittedly initiated two proceedings, one in C.S. No. 756 of 2004 for recovery of arrears of rent from N. Sankaranarayanan, who is in occupation of the property and another in R. C. O. P. No. 2202 of 2004 for eviction on the gr....
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.... 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 finding regarding stamp duty is wrong, it may not by itself vitiate the whole order of the Company Law Board. Therefore, none of the contentions questioning the correctness of the approach adopted by the Company Law Board with regard to the sale of the petrol bunk property, can be said to be faulty. Lease of kalyana mandapam 67. With regard to the validity of the lease of the kalyana mandapam, the appellants have raised similar contentions as they have rai....
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.... 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. Receipt of advances from shop tenants 73. The allegation that a sum of Rs. 45.15 lakhs was collected as rental advances from the shops, stems from a report filed by the receiver. According to the appellants, there was no iota of evidence to support the said allegation. 74. It is true that apart from the report filed by the receiver on November 28, 2006, there was no evidence on record before the Company Law Board to come to the conclusion that a sum of Rs. 45.10 la....
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....ision 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 affairs. 80. In Barium Chemicals Ltd. v. Company Law Board [1966] 36 Comp Cas 639 (SC), a Constitution Bench of the Supreme Court was concerned with the validity of an order passed by the Company Law Board, appointing 4 persons as inspectors, for investigating the affairs of the company relating to the alleged irregularities and contraventions of the provisions of the Companies Act, 1956. A challenge was made to the said order by the company, by way of a writ petition under article 226. The Hig....
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....cial 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 member Bench decision in Rohtas Industries Ltd. (supra), at least on one aspect namely that the power under section 237(b) is administrative in nature. 83. In A. Ramaiya Guide to the Companies Act, 1956, 16th edition, Reprint 2006, page 2532, the learned author has pointed out that under clause (b), the Company Law Board may take the initiative suo motu or on the application of or information supplied by any shareholder or other person. 84. It is interesting to note that while interpreting sectio....
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....d 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 investigative audit, suo motu in this case. It has done so only on a petition filed by respondents Nos. 1 to 5 herein. The company petition filed by respondent Nos. 1 to 5 herein was not only under sections 397 and 398, but also under sections 402 and 403 read with sections 235 and 237 and Schedule XI. Therefore, all that was required of the Company Law Board was to see whether there were circumstances suggesting the existence of the contingencies stipulated in clauses (i) to (iii), warranting the Board to form an....
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....ief 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 "contributory of a company", section 539 in Schedule XI, uses the expression "member of a company". Section 539 as found in the body of the Act, applies to a company "which is being wound up", while the corresponding section in Schedule XI applies to a company in respect of which an application under section 397 or 398 has been made. Similarly, section 540 as contained in the body of the Act, applies to a company which is subsequently ordered to be wound up or which subsequently passes a resolution for voluntary wi....
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....at 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 company is prosperous and makes substantial profits, is no obstacle to its being wound up if it is just and equitable to do so. Similarly, a legally valid resolution may turn out to be oppressive and a resolution in contravention of the law may be in the interests of the shareholders. Therefore, as pointed out in Needle Industries (India) Ltd. (supra), every illegality may not per se be oppressive nor every legally valid action, per se non-oppressive. 97. In Hanuman Prasad Bagri v. Bagress Cereals (P.) Ltd. [2001] 105 Comp Cas....
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...., 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 of the company and that the courts should lean in favour of such construction of statute whereby its jurisdiction is retained, enabling it to mould the relief, subject of course, to the applicability of law in the fact situation. Therefore, the power under sections 397 and 398 has to be read together with section 402. 101. It is interesting to note that in M.S.D.C. Radharamanan (supra), the apex court made out a distinction in paragraph 33, between the approach to be made in certain cases and the approach to be made in a certain....
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....ceived. 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 bank, but also the interest of the shareholders. Though the Debts Recovery Tribunal rightly rejected the request to go into the inter se disputes between the parties, the Tribunal ultimately appointed a retired judge of this court to be the receiver. While appointing the receiver, the Debts Recovery Tribunal also constituted an Advisory Committee especially to take care of the interest of the bank as well as all the interest of the shareholders/ directors. This can be seen from the last portion of paragraph 16 of the order of the Debts Recovery T....
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....ents 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, the lease of kalyana mandapam, receipt of rental income from RPG etc., were not denied as matters of fact, but were denied only as amounting to oppression and mismanagement. Therefore, the fact that the Board accepted a few documents, even if procedurally incorrect, did not tilt the balance against the appellants. Question No. 7 109. The next question raised by the appellants is with regard to the first part of the impugned order of the Company Law Board, contained in paragraph 12(i). In the said paragraph, the Company Law Board directed the present b....
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.... 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 shall act subject to the order dated May 17, 2005, made in I. A. No. 414 of 2004 in O. A. No. 178 of 2004 by the Debts Recovery Tribunal ; (ii) The notice of board meetings together with agenda thereon shall be forwarded to the eighteenth respondent, fifteen days prior to every board meeting of the company; (iii) The eighteenth respondent is entitled to attend the board meetings convened periodically by the company as an invitee and shall not....
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.... 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 directors were directed by the Company Law Board to act in tune with the order of the Debts Recovery Tribunal appointing the receiver. Therefore, the seventh contention of the appellants that the direction contained in paragraph 12(i) of the impugned order tends to over reach the order of appointment of receiver is wholly untenable. 115. The direction in paragraph 12(i) of the impugned order is also not in conflict with the further directions issued by this court in C. M. A. No. 1900 of 2007. In C. M. A. No. 1900 of 2007, this court directed the board of directors not to take major policy deci....
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.... 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 first appellant and his wife, an offer was made to the lessee in occupation. The Company Law Board held that these letters would not insulate persons in management of the company from the losses suffered by the company. 119. Therefore, a reading of the entire text of the impugned order shows that the letter dated September 1, 2006, allegedly sent by K. Vadivel Murugan, did not weigh so much in the mind of the Company Law Board to come to the conclusion that it did. Hence, the contention on the basis of which the eighth question is raised, is also liable to be rejected. Finale 120. In view of what is s....
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....bsp; (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 agreement, the company would be a perpetual loser and the first appellant Mr. K. Muthusamy's son would be the gainer. (iv) The extent of land leased out as part of the kalyana mandapam, is 8,400 sq. ft. But the area available for kalyana mandapam should only be 6,453 sq. ft., after deducting the extent of 6,347 sq. ft., on which petrol bunk is located, out of the total extent of 12,800 sq. ft., allotted by the Housing Board. Therefore, the difference of 1,947 sq. ft., (8,400 sq. ft.-6,453 sq. ft.) represents an encroachment.....
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....n 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 from the payees are not available. (xi) The total expenditure for the year ending March 31, 2005, came to Rs. 214.33 lakhs. Therefore, the monthly average works out to just less than Rs. 18 lakhs. Hence the peak cash on hand balance, which was more than twice the normal expenditure, casts a shadow of doubt on the authenticity of the books of account. (xii) On a single day, viz., April 15, 2004, the bank book shows a receipt of Rs. 20,029 from RPG Cellular....
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.... (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 shown as paying only a monthly rent of Rs. 18,000 instantaneously agreed to pay a monthly rent of Rs. 1 lakh upon the receiver assuming charge. It was increased to Rs.1,50,000 per month with effect from October, 2007. This development suggests that the previous management did not fully account for the rental income in the books of the company. (xviii) There is substance in the allegation that the unsecured loans said to have been taken by the company, were inflated in the books of account in favour of L. Chinnammal and her daughters (the branch of S. Na....