TaxTMI 
TaxTMI 
2005 (9) TMI 663
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....ny; l non-reconciliation of raw-films sold and raw-films received from the customers; l non-confirmation of balances from the debenture holders and credi- tors; l failure to update the quantitative particulars and location of fixed assets and to carry out physical verification of all such fixed assets; l write-off of huge amounts as bad debts; l extending advances to the directors and other private companies, where the respondent-directors are interested as directors, in violation of the provisions of the Act; l improper charging of depreciation on the assets without meeting the requirements of the Act; and l failure to insure precious and expensive equipments causing huge loss to the Company. 2. Shri Arvind P. Datar, learned Senior Counsel, while initiating his arguments submitted that the Company was promoted in the year 1956 by late L.V. Prasad to carry on the business of film production. L.V. Prasad had two sons, viz., ( i) Ananda Rao, since deceased and survived by his wife, two sons and a daughter, who are the petitioners herein; and (ii) A. Ramesh, the second respondent and (iii) one daughter, viz., Gruha Laks....
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....or it, as borne out by copies of the letters dated 20-3-2003 and 25-3-2003 and cheques dated 20-3-2003 for Rs. 1,25,20,931 and Rs. 51,05,542 respectively sent by the Company. There is no justification for the unilateral and sudden refund of the amounts in favour of the petitioners. In the meanwhile, the board of directors allotted 1,32,594 equity shares on 20-9-2002 to the respondents group, being their entitlement, against the credit balances lying in their account and further allotted on 29-3-2003 the additional shares earmarked for the petitioners in favour of the respondents group, with intention of reducing the respondents to a minuscule minority of 2.88 per cent from 28.33 per cent originally held by them. This act of denying the rights shares to petitioners, while allotting the shares exclusively in favour of the respondents, apart from being mala fide, is a clear act of oppression on the part of the respondents. The powers to issue shares given to the directors are fiduciary powers, which should not be exercised for gaining in any manner for themselves. The Supreme Court held in Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan [2005] 1 SCC 2121 that when powers of t....
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....naged by the third respondent to implement the IMAX Theatre Project at Hyderabad. The investment was by way of redeemable preference shares to the tune of over Rs. 15 crores, which could be redeemed, on successful implementation of the project by Prasad Media Corporation Ltd. It would have been beneficial to invest in equity shares of Prasad Media Corporation Ltd., as it would have been a permanent capital for the Company. The Company has further given counter guarantee to the tune of Rs. 54.50 crores for the loans extended to Prasad Media Corporation Ltd. by IDBI and Andhra Bank. These came to light on scrutiny of the annual report for the period ended 31-3-2003, which was placed at the annual general meeting held on 21-1-2004. If the project fails and the guarantee is invoked by the financial institution, the Company will be but to irreparable loss and hardship. Instead, if the IMAX Theatre Project succeeds, the entire profits will be reaped by the respondent Nos. 2 and 3 at the cost of Company. The IMAX Theatre Project could have been put up by the Company with its huge financial reserves and substantial profits in terms of the Government order issued by Government of Andhra Pra....
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....profit and loss account for a period of nine years from 1983 to 1992 and the sale proceeds were siphoned of by the respondents during all these years. The Company failed to reconcile the quantity of raw-film sold or received from the customers for processing with the quantity of final processed film and wastage. l The Company did not obtain confirmation of balances from the debtors and creditors, since they have already collected the amounts from the debtors. Thus, the outstanding balances due to the Company have already been realised, causing huge financial loss to the Company. l The Company failed to maintain a fixed assets register with an intention to suppress diversion of the assets of the Company. The fixed assets register has not been brought up-to-date. The respondents had removed many valuable machines and other assets of the Company and transferred them without any consideration to their own concerns, thereby creating resources for themselves. l The Company failed to collect its receivables promptly, but wrote off huge receivables as bad debts over a period of time, causing irreparable loss to the Company and its members. l The Company ....
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....risdiction, but with the relevance of the information placed before it. In the matter of Incab Industries Ltd., In re [1997] 1 Comp. LJ 156 , the CLB ordered for an investigation into the affairs of the company on finding that it blocked substantial funds in another company when the main object is not investment and diverted the project money to various bodies unincorporated etc. The directors are guilty of fraud, misfeasance and mis-conduct towards the Company and its members. Therefore, the CLB has adequate powers to order for an investigation under section 235, despite the petitioners do not have ten per cent shareholding of the Company. Furthermore, the petitioners have sought by way of an interim prayer for appointment of a chartered accountant to investigate the accounts, apart from one of the main prayers to surcharge the respondents based on the auditors' report. Consequently, the CLB, invoking its jurisdiction under sections 402 and 403 can pass appropriate orders for effectively bringing back the diverted funds to the Company. 3. Shri Datar, learned Senior Counsel, while arguing the company application for impleadment of the proposed respondent Nos. 6 and 7 pointed out....
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....affidavits, upon which, the CLB could consider the entire evidence that is placed before it in order to do justice between the competing rights of the parties by which the case of justice will not suffer as held in Binod Kumar Agarwal v. Ringtong Tea Co. (P) Ltd. [1995] 1 Comp. LJ 138 (CLB). Prasad Film Labs (Mumbai) Private Limited (PFLPL) is a wholly owned subsidiary of the Company. The Company acquired 10,000 equity shares of Rs. 100 each of PFLPL at a value of Rs. 1,95,54,221 reflecting a huge valuation of premium equivalent to over Rs. 1,85,00,000, when M/s. PFLPL suffered huge losses as at 31-3-2002 of Rs. 75,72,923 and Rs. 1,23,66,474 during the following year and carried huge bad debts amounting to Rs. 4.72 crores. There is no need for the Company to invest in the shares of the PFLPL, a loss making company. The Company failed to furnish particulars of its subsidiary company, viz., the proposed respondent No. 7 in its balance sheet in gross violation of section 212. It is, therefore, a ruse for siphoning of the Company's funds, through its wholly subsidiary company. The entire investments made in PFLPL must be recovered in the interests of the Company and its shareholders. T....
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....or the benefit of the entire family members was negatived by the High Court in its order dated 6-1-1999. The disposition of 2,740 shares of the Company under the will of L.V. Prasad in favour of the respondent and his family members clearly indicate that the Company is not for the benefit of the family members of L.V. Prasad, but only of the second respondent and his family. The principles of limited partnership cannot be applied on the facts of the case, especially when the petitioners do not have any representation in the board of the Company and the second respondent always enjoyed the majority support in the Company. The alleged acts of oppression and mismanagement do not exist and the present proceedings are just to harass the respondents. The main grievance of the petitioners is that the rights shares have been exclusively allotted in favour of the respondents reducing the petitioners to a minuscule minority. The Company at a regularly and properly convened and conducted meeting increased the authorised share capital and the resolution passed increasing the capital was duly supported by the first petitioner. As on the date of allotment of the rights shares, the Company was....
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....any does not extend to a shareholder so as to entitle him to be informed of all the important decisions taken by the board of directors. Such a broad proposition of law would be inconsistent with the duty of a director vis-á-vis the company and the settled law that the statutory duty of a director is primarily to look after the interest of the company as held in Sangramsinh P. Gaekwad's case (supra). The directors of a company are in a fiduciary position vis-á-vis the company and must exercise their power for the benefit of the company, as concluded by the Supreme Court in Nanalal v. Bombay Life Assurance Co. AIR 1950 SC 172. This isolated incident is not enough for grant of any relief under section 397. It must be shown under section 397 as held in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 (SC) that the conduct of the majority shareholders is oppressive to the minority as members, which must be continuous on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the Company are being conducted in a manner oppressive to some of the members. The conduct must be burdensome, harsh and wrongful. Th....
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....r addressed to a person must have reached in due course to the addressee. However, that is only a permissible and not an inevitable presumption. The presumption may or may not be drawn on the facts and circumstances of case. The presumption may be drawn initially, but on a consideration of the evidence the court may hold the presumption rebutted and may arrive at the conclusion that no letter was received by the addressee that no letter was ever dispatched as claimed. There have been cases in the past, though rare, where postal service and even postal seals have been manufactured. u S. Narayanan v. Century Flour Mills Ltd. [1987] 1 Comp. LJ 25 (Mad.) - to show that it is not always safe to trust mere certificate of posting. It will only show that certain postal envelopes were put into the post office; mere posting by itself will not necessarily mean that there was service on the addressee concerned. When, on the facts, registered posts could be diverted and would not reach addressees, it was held highly risky to place reliance upon the mere certificate of posting. u Stridewell Leathers (P.) Ltd.'s case (supra) to show that in case of despatch under postal certific....
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....t the consent letters together with the applications dated 19-8-2002 under certificate of posting on 26-8-2002. The Debt Recovery Tribunal by an order dated 18-9-1997 restrained the petitioner Nos. 1, 3 and 4 from alienating their shares held in the Company, pending the original application filed by Indian Bank. The Debt Recovery Tribunal by yet another order dated 31-1-2002 restrained the petitioner Nos. 1, 3 and 4 from making any transfer of their shares in the Company or from receiving any payment of any dividend thereon. These restraint orders are still in force. It is, therefore, free from doubt that the additional shares would have been definitely attached by the DRT. Nevertheless, no additional shares could be allotted against the credit balances of the petitioner Nos. 2 and 4, in the absence of any application made by the petitioners with the Company. The DRT by its order dated 11-7-2003 required the second respondent to stop the payment of cheque issued in the name of the fourth petitioner for Rs. 1,25,20,931, representing the amount refunded by the Company, and thereafter, the proceeds of the cheque were handed over to the Recovery Officer of the DRT. The petitioners fail....
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...., but not in the format as required by the auditors. However, the fixed assets register has now been brought up to date. The charges in relation to removal of certain machines belonging to a different company under control of the third respondent were raised in the meetings of the board of directors of the Company held on 13-1-1997, 15-1-1997, 27-1-1997 and 20-2-1997 by the petitioners and appropriately explained by the board of directors. But the petitioners have filed the present company petition in the year 2003 with the very same grievances. u The Company is in the film industry which is a speculative one. The prospects of recovery of dues from film producers entirely depend upon the success or failure of the films at the box office. Therefore, the phenomenon of bad debts is a normal feature in the business of film processing. The quantum of written off debts, viewed in the contrast of turnover and volume of business running into crores of rupees each year cannot be considered "huge", as contended by the petitioners. The Income-tax Department allowed such write off by the Company. The Company has been realising from time to time a part of the written off debts from the....
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.... expense of the Company are vague and not supported by any materials. u The Company, charged depreciation on its assets at the rate prescribed under the relevant provisions of the Income-tax Act, which did not cause any prejudice to the Company. The claim of the petitioners that the depreciation must be charged in terms of section 205 read with section 350 and Schedule XIV of the Act is erroneous. The auditors in their report on accounts for the year ended 31-3-1999 did not qualify on the depreciation at the rate prescribed under the Income-tax Act. u The Company has a policy of taking out the insurance cover depending on the exigencies. The issue of non-insurance of the assets was raised by the petitioners at the relevant board meeting and discussed in regard to the fire accident. The loss resulted in the normal course of business. The non-insurance of the assets is an act of past and concluded one, which cannot be now challenged. According to the respondents, the entire events leading to the allotment of unsubscribed shares in their favour is on account of the undesirable behaviour and conduct of the petitioners. L.V. Prasad promoted and developed the Company....
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....ests of those dealing with a company by providing for an investigation where the management is so conducted as to jeopardise those interests or where a company is floated for a fraudulent or an unlawful object." u Rohtas Industries Ltd. v. S.D. Agarwal [1969] 39 Comp. Cas. 781 (SC)- to show that to exercise the power under section 237(b), the existence of circumstances suggesting that the company's business is being conducted, as contemplated by clauses (i), (ii) and (iii ) must be made out by the parties. u Ashoka Marketing Ltd. v. Union of India [1981] 51 Comp. Cas. 634 (Delhi) - to show that if the parties invoking section 237(b) fail to make out the existence of circumstances justifying the formation of an opinion that there was fraud, misfeasance or mis-conduct on the part of the persons in the management of the company or towards the company or its members, the CLB will not order an investigation into the affairs, of the company. u Mrs. U.A. Sumathy v. Dig Vijay Chit Fund (P.) Ltd. [1983] 53 Comp. Cas. 493 (Ker.) to show that no investigation could be ordered merely because a shareholder feels aggrieved about the manner in which the company's busine....
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....hich may warrant such investigation, as indicated in section 237(b), exist and not otherwise. Shri T.K. Seshadri, learn hri T.K. Seshadri, learned Senior Counsel, while denying every act of mismanagement, elaboed Senior Counsel, while arguing the company application (CA 20/05) to implead the proposed respondent Nos. 6 and 7 pointed out that there are no pleadings on the alleged misappropriation of the Company's funds by the respondents group either in the company petition or rejoinder. All averments in relation to incorporation of the proposed respondent No. 6, implementation of the IMAX Theatre Project, investments made by way of preference shares in the proposed respondent No. 6, incorporated by the respondent Nos. 2 and 3 and the guarantee given by the Company securing the loans availed by the proposed respondent No. 6, not having been raised in the company petition, but only at the time of arguments cannot be gone into by the CLB. The respondents have not been afforded any opportunity to answer those charges ensuring the principles of natural justice, as envisaged in section 10E(5) of the Act. The petitioners have not pleaded regarding the investments made by the company in ....
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....e claim for another is not permissible. The petitioners cannot let in evidence on the matters, which are not pleaded. The charges that there are diversion of funds of the Company by the respondents must be proved, in which case the prayer claimed under section 8(a) of the company application to amend the company petition including the proposed respondents 6 and 7 alone is not sufficient. The applicants have addressed arguments only for impleadment of the proposed parties but not on the remaining prayers. The respondent Nos. 2 and 3 are owning the proposed sixth respondent and therefore, the latter is not a necessary party to the present proceedings. Moreover, the proposed respondent No. 7 being a subsidiary of the Company need not be impleaded. The prayer is merely for impleadment of the proposed respondent Nos. 6 and 7, but no relief has been claimed against them and, therefore, they are not necessary parties. The application is misconceived, mala fide and an abuse of process, made with a view to delay the whole proceedings and, therefore, liable to be dismissed. 5. Shri Vedantham Srinivasan, learned Senior Counsel, representing the respondent Nos. 2 to 4 submitted : Late L.V. ....
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....t, 2002 and their assets are being auctioned. Any allotment of additional shares to the petitioners will go to the benefit of Indian Bank and therefore, the petitioners do not suffer any prejudices on account of non-allotment of any additional shares in their favour. The consent letters and certificates of posting produced by the petitioners are fabricated documents. The amounts due to the petitioners were returned to them in consultation with the auditors, which was not questioned till filing of the Company petition. The cheques sent to the petitioners by the Company were attached by the DRT and the proceeds were realised for the dues of Indian Bank. L.V. Prasad died in June 1994, leaving as will, which resulted in litigations between the petitioners and the respondents before a Single Bench and Division Bench of the Madras High Court and the Supreme Court, wherein the genuineness of the will was upheld. The petitioners making use of these litigations got the third petitioner inducted in the board of directors under the Chairmanship of a retired High Court Judge. The petitioners are parties to the decisions taken at the board meetings and in particular in relation to many of th....
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....is bound to give credit to its customers and therefore, bad debts are inevitable. However, bad debts have been written off on the advice of the auditors and by the collective wisdom of the board of directors, including the petitioners and approved by the Income-tax Department. The Company used to take into consideration several factors, including chances of recovery or failure of pictures at the box office, relationship with the film producers etc., before writing off the bad debts. The statistics for the period from 1993 to 2003 would indicate that the quantum of bad debts written off is a minuscule percentage of either the networth or turnover or profitability of the Company. The petitioners ought to have come with clean hands to claim the equitable reliefs. The charges levelled by the petitioners must be specific so as to order for an investigation into the Company's affairs. The Company is well-managed and its turnover increased over one hundred times. The respondents meticulously followed the articles and the relevant provisions of the Act and no motive or lack of integrity can be attributed to the respondents. The petitioners failed to make out any case of oppression or mi....
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....eld on 13-9-1995 the sitting fee of the Chairman of the Company for the board meetings of the Company was approved and the agenda on setting up of wind power generating plant was discussed. u At the board meeting held on 13-10-1995, the third petitioner sought certain clarifications on the accounts for the year ended 31-3-1993, and therefore, the agenda for approval of the accounts for the year ended 31-3-1993 stood adjourned to a future date. u At the board meeting held on 7-11-1995, certain details on the bad debts were called for, before adopting the accounts for the period ended 31-3-1993 and the wind power generating plant project was discussed. u At the board meeting held on 16-11-1995, while the accounts for the year ended 31-3-1999 were approved, a number of bad debts were written off, after taking the view point of all directors, including the third petitioner. u At the board meeting held on 29-11-1999 the agenda regarding writing off the bad debts was disallowed. u At the board meeting of 4-12-1995, the agenda regarding recovery of the equipments leased by the Company to M/s. Anand Cine Service came up for consideration and the....
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....tes cast against the resolution being more than votes in favour, the resolution was not put through. u At the board meetings held on 31-8-1996 the draft accounts for the year ended 31-3-1994 were considered. u At the board meetings held on 10-9-1996, 12-9-1996, 18-10-1996, 5-11-1996, 3-12-1996, 13-1-1997, 15-1-1997, 27-1-1997 and 24-2-1997, third petitioner endeavoured to ascertain the in-house details of the Company and nothing else. u At the board meeting held on 10-5-1997, the draft accounts for the year ended 31-3-1996 were considered. Shri Shankaranarayanan, learned Counsel, while concluding his submissions reiterated that all the contentious issues which are being agitated before this Bench, were already raised, deliberated and appropriately dealt with by the board of directors, including the third petitioner. Hence, the very same issues ought not to be entertained. Shri Shankaranarayanan, learned Counsel, while opposing the application for impleading the proposed respondent Nos. 6 and 7, submitted that the annual return of the Company for the year 2000-01 clearly indicates that its directors would float a new company to implement the IMAX The....
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.... discretion of the board of directors of the company. When the petitioners are benefited by accepting the offer made by the Company, there cannot be any reason as to why the petitioners would not have accepted the offer for rights shares. By virtue of section 53(2) of the Act, a document duly addressed and stamped and sent under certificate of posting is deemed to have been duly served in the ordinary course of post. The petitioners never made any demand for refund of the balances lying to their credit with the Company for the past 15 years, but the Company unilaterally refunded the monies without any reason by way of cheques, which are still not encashed. The proceedings between the petitioners and Indian Bank before the Debt Recovery Tribunal and the probate proceedings on account of the will executed by late L.V. Prasad have no bearing on the allotment of additional shares. Therefore, the petitioners must be allotted the rights shares offered by the Company. The principles enunciated by the Supreme Court in Dale & Carrington Investment (P.) Ltd.'s case (supra) have not been watered down in Sangramsinh P. Gaekwad's case (supra). Any allotment of shares for personal aggrandisement....
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....ers, several acts of mismanagement and diversion of the Company's funds by the respondents group, which are reportedly oppressive to the petitioners and prejudicial to the interests of the Company. It is on record that the Company was incorporated on 31-8-1956. L.V. Prasad and his eldest son, viz., Ananda Rao, father of the petitioners 1, 3 and 4 were subscribers to the memorandum of association and articles of association of the Company, each subscribing one share of Rs. 100 each. L.V. Prasad and Ananda Rao, along with two others, were the first directors, who were to hold office till the annual general meeting of the Company in the year 1960. Prior to the impugned allotments, while the petitioners group was holding 28.33 per cent, the respondents group held 71.67 per cent of the paid-up capital of the Company. When the authorised capital was increased to Rs. 2,00,00,000 at the annual general meeting held on 6-6-2002, the resolution for the increase in authorised capital was seconded for adoption by the first petitioner, as borne by copy of the minutes dated 6-6-2002 of the annual general meeting of the Company. After giving effect to the increase in authorised capital, the Compan....
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.... service on the addressee concerned. The Supreme Court in L.M.S. Ummu Saleema's case (supra) held that the certificate of posting might lead to a presumption that a letter addressed to an addressee has been posted on the date appearing in the certificate of posting and in due course reached the addressee. But, that is only a permissible and not an inevitable presumption. The presumption may or may not be drawn. On the facts and circumstances of a case, the presumption may be drawn initially, but on a consideration of the evidence, the court may hold the presumption rebutted and may arrive at the conclusion that no letter was received by the addressee or that no letter was ever dispatched as claimed. There have been cases in the past, where postal certificates and even postal seals have been manufactured. The Supreme Court in M.S. Madhusoodhanan's case (supra) categorically held that service of notice by certificate of posting is not reliable and must be viewed with suspicion, when relationship between the parties is already embittered. This Board in Stridewell Leathers (P.) Ltd.'s case (supra) held that in case of despatch under postal certificates, a presumption may be drawn with ....
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....y the Company. In the context of strained relationship on account of a series of litigations between the parties, human conduct of the respondents must be to ensure that the consent letters for additional shares definitely reach the Company, without giving any chance to the respondents denying receipt of any such letter within the stipulated time. However, the petitioners reportedly chose to send the consent letters along with the applications dated 19-8-2002, after a delay of seven days under certificate of posting. There is no explanation as to why such of the essential documents involving valuable right of the petitioners must be sent under certificate of posting, more so, when all is not well between the parties. The petitioners litigating with the respondents in the common course of natural events, would have been diligent enough to send the applications for additional shares in a prudent way and not under certificate of posting. While at one point of time, it is reported that the petitioners sent the consent letters together with the applications by certificate of posting, it is contended at a later point of time that the consent letters were handed over in person to the seco....
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....the claim and counter-claim of the parties in regard to acceptance of the offer by the petitioners for additional shares, it shall be seen whether the impugned allotments are oppressive of the petitioners and if so, whether interference of this Board is warranted providing any remedial measures. The Company at its annual general meeting held on 6-6-2002 adopted a resolution for an increase in the authorised share capital from Rs. 20,00,000 to Rs. 2,00,00,000. The resolution for the increase in the share capital was seconded by the first petitioner for adoption by members of the Company. The share capital was increased to meet the "commercial exigency" of the Company as averred in the reply statement filed on behalf of the Company (para 5 at page 11). After giving effect to the increase in authorised share capital, the board of directors at the meeting held on 10-8-2002 approved the issue of further shares and offered 1,85,000 shares to all the shareholders in proportion to their existing holdings in the Company. Accordingly, the petitioners were offered 1,32,594 shares and the respondents 52,406 shares (22,921 shares to the first petitioner; 313 shares to the second petitioner; ....
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....e. Regarding the shareholders who have already given the share application money, the Board decided to allot the shares." The minutes of the board meeting indicate that the board of directors allotted 1,32,594 shares in favour of the respondent group, since they had already given the share application money. In this connection, it is absolutely relevant to make a reference to the averments made in para 6.1.11 of the company petition to the effect that "...the petitioners, in an attempt to ferret out the truth, made a search of records at the office of the Registrar of Companies, Tamil Nadu, Chennai and came to know that the second respondent, viz., Shri A. Ramesh, had gone ahead and allotted a total of 1,32,594 equity shares to himself and his group on 20-9-2002 against various alleged credit balances lying in their account. Copy of the Return of Allotment (Form No. 2) dated 16-10-2002 filed by the company with the Registrar of Companies for the purported allotment of shares on 20-9-2002 is enclosed as Annexure A8. The search, which was made on 25-3-2003, reflected this position and hence the petitioners now have been reduced to a minuscule minority of 2.88 per cent if the share....
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....er. The second respondent however did not readily agree to the suggestion as the first petitioner owed a sum about Rs. 1.40 crores and a suit had been filed and the same was pending. The copy of the plaint in the above suit is filed as Annexure R-10. 8. The respondent therefore insisted upon bringing in actual cash by the petitioners. The respondent had already been with a restraint order by the Debt Recovery Tribunal attaching the shares held by the petitioners 1, 3 and 4 and prohibiting the respondent from transferring alienation of the said shares. The copy of the said order is filed as Annexure R-11." It is observed that the request of the second respondent for allotment of the additional shares against the amounts due to the petitioner Nos. 2 and 4 was not acceded to by the second respondent for the above given reasons. The civil suit in O.S. No. 680/1994 filed before City Civil Court at Madras against M/s. Anand Cine Services is for an order, inter alia, of mandatory injunction directing M/s. Anand Cine Services represented by its partner, being the first petitioner, to return the outdoor film shooting equipments and not for recovery of the outstanding am....
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....r share application money, shares would be allotted at that time". It is true that the Company could not eternally wait for the allotment of additional shares and that the directors of a company are in a fiduciary position vis-a-vis the company and must exercise their power for the benefit of the Company, as held in Nanalal's case (supra). However, it is obligatory on the part of the directors, in the light of the special circumstances which arose on account of the resolution passed at the board meeting held on 20-9-2002 granting some more time to bring in further share application money by petitioners, send a prior intimation in favour of the petitioners, before allotting the unsubscribed shares in favour of the respondents. This fiduciary duty of directors of the Company has been recognised by the Supreme Court in Sangramsinh P. Gaekwad's case (supra) thus : "In an appropriate case, a fiduciary relationship may come into being having regard to the responsibility undertaken by the directors towards the shareholders by way of a special contract." The obligation becomes more onerous in the light of the fact that the allotment of 1,32,594 shares in favour of the respondents were alre....
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.....) Ltd. (supra) held that even a single act done on one particular occasion, if the effect will of a continuing nature and the member concerned is deprived of his rights and privileges for all time to come in future, such an act is held to be harsh and burdensome and amounts to an act of oppression to the member concerned. Any issue of further shares in a closely held company at the detriment of a part of the shareholders is considered to be an act of oppression by this Board in Deepak C. Shriram's case (supra). This Board, in Binod Kumar Agarwal's case (supra) categorically held that whenever the further issue shares is found to be oppressive, the oppression to be redressed and in S.T. Ganapathy Mudaliar v. S.G. Pandurangan cancelled the allotment of additional shares made in a family company to certain shareholders in exclusion of others. In the present case, it is to be observed that father of the petitioner Nos. 1, 3 and 4, was a subscriber to the memorandum of articles of association of the Company and one of the first directors, but his family members were excluded by the respondents for allotment of the rights shares. This conduct of the respondents is found to be burdensome....
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....implement the new method of maintaining raw-silver and film stock wastage under the head "Sale of by products/scrap" with effect from 1-7-1996. Thus, the third petitioner is a party to the decision of the board of directors for the change in accounting system in relation to sale of raw- silver. Hence, the petitioners cannot have any grievance on this account. The mere plea that the sale of raw-silver and film was not accounted for nine years from 1983 to 1992 and, therefore, siphoned of by the respondents, without any proof of such misappropriation does not merit any consideration, after a lapse of more than a decade. The qualifications of the statutory auditors in relation to non-reconciliation of quantity of raw-films sold and purchased and non-confirmation of balances by the debtors and creditors existed even when the third petitioner was on the board of the Company. Mere suspicion of the petitioners that "In the absence of reconciliation of raw-films sold and bought from the customers, there was reason to believe that the Company has made sales and purchases, which were not obviously brought into books of account resulting in siphoning of huge amounts" in the absence of any ....
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....nagement, more so, when it is past transaction. All alleged acts of mismanagement are either past and concluded transactions or deliberated and appropriately dealt with by the board of directors, including the third petitioner or mere apprehensions without any basis or statutory violations or the petitioners are parties to such acts or qualifications in the auditors' report, as the case may be. This Board in Andhra Pradesh State Civil Supply Corpn. Ltd.'s case (supra), declined to invoke the jurisdiction of section 235 on the basis of a mere statement of facts based on the auditors' report without any corroborative evidence. Mere technical violations may be dealt with other relevant provisions of the Act as held in Chandrika Prasad Sinha's case (supra). This Board, while exercising the powers under section 235 in Rohinten Mazda's case (supra) came to the conclusion that an order of an investigation cannot be made on mere suspicion or surmises without proper materials to enable the Bench to form an opinion that the affairs of the company are required to be investigated. This Bench is not, therefore, obliged to appoint an inspector for the purposes of the investigation, in exercis....
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....15 crores made by the Company by way of preference shares in the proposed respondent No. 6; or (c) the counter guarantee given securing the liabilities of the proposed respondent No. 6 warrants any investigation is separately being considered. The respondents are opposing the application (C.A. 20/2005) to amend the company petition for impleadment of the proposed respondent Nos. 6 and 7 mainly on the ground that there are no allegations in the company petition in regard to the alleged diversion of funds to the proposed respondent No. 6 and the investments in proposed respondent No. 7 by the Company, in support of which Shri T.K. Seshadri, learned Senior Counsel relied upon the decision of the Orissa High Court in N.K. Mohapatra's case (supra). The High Court while considering the maintainability of the application for amendment of the company petition held thus : "The power to allow an amendment is undoubtedly wide and may at any stage be appropriately exercised in the interest of justice, the law of limitation notwithstanding. But exercise of such far-reaching discretionary power is governed by judicial considerations, and wider the discretion, greater ought to be the ....
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....ount, made inter alia, the following statements:- "During the year under review, your company successfully participated in the competitive bid for establishing an IMAX large format film theatre floated by the Government of Andhra Pradesh as a "Tourism Development" initiative. The project envisages an 2D/3D IMAX Theatre and related entertainment facilities, comprising a multiplex of 4 screens, family entertainment centre and shopping. The project was awarded to your company in October, 2000. The estimated project cost is Rs. 6,100 lakhs and the Industrial Development Bank of India and Andhra Bank have expressed their willingness to provide financial assistance of up to Rs. 3,000 lakhs for financing the project. Your Directors have floated a new company namely Prasad Media Corporation Ltd. for implementing the project." The above statements from the board of directors clearly reveal that the Company successfully participated in the competitive bid for establishing an IMAX Theatre Project floated by the Government of Andhra Pradesh and that the project was awarded to the Company in October, 2000. This is brought out by a copy of the Government order dated 19-10-2000 of Gov....
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....in (a) whether the incorporation of the proposed respondent No. 6 by the respondent Nos. 2 and 3; (b) whether the investment of the Company in the preference shares of the proposed respondent No. 6; and (c) the counter-guarantee given by the Company securing the liabilities of the proposed respondent No. 6 will amount to an act of mismanagement/diversion of funds or not, before which the proposed respondent No. 6 must be given an opportunity of hearing on these contentious issues. In view of this, the proposed respondent No. 6 must be arrayed as a party to the company petition. The applicability or otherwise of the decisions regarding fiduciary duty of a director dealt in Charles G. Guth and The Grace Company, Inc., of Delaware's case (supra) and Canadian Aero Service Ltd.'s case (supra) cited by Shri Datar learned Senior Counsel to the facts of the present company petition, will arise only on hearing the version of Prasad Media Corporation Ltd. The prayer for the impleadment of the respondent No. 7 is declined, in view of the fact that it is a subsidiary of the Company and, therefore, the investments made by the Company in its subsidiary company, whether would amount to diversion ....