TaxTMI 
TaxTMI 
2009 (5) TMI 969
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.... the respondent-company be directed to be managed in accordance with sound principles so that there is no mismanagement and diversion of funds; (b) an independent chairman of the company be appointed; (c) the respondents be directed that they shall not take any action in regard to the disposal of any of the fixed and liquid assets of the company till the decision made in these proceedings; (d) the appointment of an independent company secretary be ordered to maintain the minute books and other statutory books of the company; (e) the appointment and investigation by a special auditors be ordered to ascertain the funds diverted and misused by the respondents and order making good of such amount; (f) reconstitution of a board of directors be directed where both the petitioner and respondents Nos. 2 to 4 have equal number of directors; (g) in the alternative the equity shares held by the petitioner be ordered to be purchased by the majority group at a price of Rs. 500 per equity share, in the alternative the petitioner be given 25 per cent, of the equitable land which is presently under tea cultivation; (h) in case respondents Nos. 2 to 4 are not willing to buy the shares of the petiti....
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....& Sons and executed an agreement for sale in respect of the said tea estate in its favour contrary to the nomination of and understanding with Bholaram (the petitioner's father), the estate was purchased for Rs. 30 lakhs. As per the actual understanding this estate was to be purchased in the name of a company Hukanpukhri Tea Co. P. Ltd., which was incorporated in December 9, 1970, in which the petitioner's father, Nandlall and respondent No. 2 were promoters. It was pointed out that in absolute disregard of this understanding Shri Nandlall purchased the estate in the name of his firm, which was floated specifically for this purpose. Upon coming to know of Shri Nandlall's intention the petitioner's father vehemently protested. Shri Nandlall then gave an assurance that he would transfer his firm to a joint stock company and M/s. Nandlall & Sons Tea Industries P. Ltd., was formed on June 15, 1976, by taking over the business of the firm M/s. Nandlall & Sons. Thereafter the petitioner's father extended a loan of Rs. 9 lakhs to respondent No. 1 company with the understanding that shares would be allotted to M/s. CLPL, there is a letter of confirmation dated November ....
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....ns could at all times misappropriate and siphon of funds from the company. Drawing my attention to the discrepancies in the balance-sheets it was contended that (i) there is a vast un-ignorable discrepancy between actual sales and sales as per the balance-sheets and profit and loss account for the years 1977 to June 1985 and 1992-93 to 1996-97; (ii) Price per Kg of tea as shown in the balance-sheets of the company was much less than the sales realisation per Kg of tea in case of other tea companies having tea estates in the same area when compared with their manufacturing expenses and turnover as well; (iii) in spite of making such heavy losses it is surprising to see that the company has spent an exorbitant percentage of its sales on maintenance and upkeep; (iv) details of losses suffered from 1974; (v) percentage of the sales spent on maintenance and upkeep were shown; (vi) comparison with manufacturing expenses and turnovers of some other companies were made; (vii) without having or showing any investment in shares in the previous year in the year 1991-92, the balance-sheets show an amount of Rs. 1,79,710 towards "income from other source" where the major sub-head is "income fro....
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....kdown and the old machineries were not conducive to manufacturing quality tea, it was contended that this statement was never brought to the notice of the shareholder by the management in any of the previous years instead the management always took the shelter of bad weather and low demand of tea in the international market, deteriorating of the political condition, etc., as per the directors' report for the years 1991-92,1992-93,1993-94,1994-95, etc. The management has spent Rs. 18 lakhs for modernisation during the years 1992-93 to 1994-95. Despite the alleged investment in modernisation the production declined, losses increased, cost of the labour also increased. It was contended that on the one hand the respondent is alleging that the company was passing through financial stringency, and the rate of the interest on the loan generously given by the petitioner was reduced but the payment of the same was also denied, on the other hand the directors increased their remuneration substantially. 8. Further, it was pointed out that the respondents have stated that considering the financial difficulty the directors have allowed the transfer of their outstanding remuneration to th....
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....oner, the valuation of the garden at the time was approximately rupees four crores, but the consideration money received from the petitioner did not match the share value has no relevance as Smt. Santi Devi Kasera daughter of late Nandlall Agrawalla got married to the petitioner's father in 1953, shares were allotted in 1981 after 28 years of married life. 10. Counsel for the petitioner pointed out that there are discrepancies in the tea waste sold by them in different years and what is disclosed to the excise authorities. The respondents have not sold the tea waste every year. Hence there should be some stock at the end of each year. If, it is admitted that the figure now submitted by the respondents are as per form R. T-12 under central excise is correct, then it would mean that the respondents are using different figures for different purposes. The petitioner has computed the figures of turnover and average realisation on the basis of audited accounts. As regards 93 per cent, of the tea sold through Gauhati Tea Auction, evidence of the same has not been produced. The respondents have contended that the higher sales realised do not necessarily mean higher gross profit of a....
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.... to how the auditor has signed the accounts and issued the audit report on the accounts of the company for similar accounting year on two different sets having different figures. It was pointed out that unsecured loans and current liabilities have not been disclosed one set of audited balance-sheet on September 19, 1994, but has been on the other set of audited balance-sheet which was issued subsequently, in one set of audited balance-sheet this has been stated that the closing stock of the tea includes the stock of green leaves whereas the other set of audited balance-sheet is silent on this aspect. Stores consumed has been charged under different revenue heads of accounts, figures cannot be ascertained under the head, the figure for insurance and taxes have not been disclosed in one set of the audited balance-sheet. Similarly, figures for power and fuel, repairs of company building and plant and machinery have not been disclosed in one set of the audited balance-sheet but the same has been disclosed in the other set of the audited balance-sheet. The company has incurred a loss of Rs. 16.41 lakhs against the sale of Rs. 192.59 lakhs in the year 1993-94. As such, it is evident that....
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....s representative that the sale agreement can be made in the name of Shri Nandlall Agarwalla or his nominee, the respondents with a motive to defraud the petitioner formed a firm in the name of M/s. Nandlall & Sons. The said garden was acquired in the name of M/s. Nandlall & Sons. When the petitioner objected, he was given the assurance that the new joint stock company would be formed to take over the ownership and management of the said garden. In the said company, it was also agreed that the petitioner also be associated as a director. But, he was never associated as a director in the said company. It was contended that Nandlall Agarwalla's family has fraudulently and dishonestly taken absolute control of the management of the company and causing illegal and unlawful acts. The respondents never explained to the petitioner as to how this money was utilised in the account. The respondents have committed financial irregularities and manipulated the accounts to mislead the shareholders, exchequers, creditors and other various authorities. 4. My attention was brought to the discrepancies in the notice calling an annual general meeting on September 28, 1994, which was adjourned t....
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.... be directed to purchase the shares of the petitioner at the valuation of the company as on date of filing of the petition in the year 2001. Counsel for the petitioner pointed out that the contention of the respondent that the workers grievances cannot be a ground for mismanagement is far fetched and liable to be rejected. The Company Law Board has several times in the past held that subsequent event can be brought to the notice of the court to mould the relief prayed for. In this case, the details mentioned in the additional affidavit have bearing on the petition as it would affect the interest of the petitioner as a shareholder of the company. It was contended that the details have come to the notice of the petitioner in the year 2003 and the petitioner has every right to produce the same before the Company Law Board. It was pointed out that the respondents have time and again tried to cover up their misdeeds by taking shelter in the non-existing threats received from them and on account of the alleged industrial unrest. All other tea gardens in the area are not suffering the same fate as the respondent-company and, therefore, the respondent-company is suffering only on account o....
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....court has appointed a valuer to value the petitioner's share so that they could be sold as respondents' shareholding. It was argued that in the present case, the petitioner has been totally excluded from the management and there are serious cases of oppression and mismanagement pointed out by the petitioner, it was, therefore, prayed that it is a fit case for removing the present management and investigating into the affairs of the company. 19. Shri Anil Agarwalla, counsel for the respondents taking preliminary objections argued that (a) the petition has been filed by one Binod Kasera the alleged attorney of the petitioner, he was not been authorised by the petitioner to file any petition against the said company before the Company Law Board; (b) the petition has been filed by suppressing material facts, the petitioner with ulterior motive intentionally made false and incorrect allegations in the petition to create an impression that the said tea estate was purchased and managed out of the funds provided by the petitioner whereas on persuasion of the relatives he was allotted only 40,000 shares and was not allowed to participate in the management of the company; (c) the ....
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....r on the other hand had never been co-operative with the management of the company, he has undue influence on his father-in-law, late Shri Nandlall Agarwalla to give him 25 per cent, shareholdings in the company, the valuation of the garden at that time was approximately Rs. 4 crores. Consideration money received from him did not match the share value. Since 1986 onwards, he started writing letters with the request of repayment of loan. He never cared to think about the company. He filed a petition for liquidation of the company which is still pending. However, the company, with all its strains, started paying his loan on quarterly instalments beginning from August, 1998. Four instalments of Rs. 50,000 each have already been paid. It was contended that there was no any fraudulent act or any assurance given by Nandlall Agarwalla to associate the petitioner in the management after conversion of "Nandlall and Sons" to a joint sector company or that the said firm was persuaded to give a loan of Rs. 9,00,000 in the name of "Nandlall and Sons" to run the said estate or that the said loan was given on any assurance of Nandlall Agarwalla to associate the petitioner in the management or to ....
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....6 per kg that about 93 per cent, of tea was sold in Guwahari public auction and the remaining tea was sold by private sale. It was pointed out that the average sales realisation in private sale was much higher than the average sales realisation in auction sale. With the fall of production and quality, sales realisation was only Rs. 30.36 per kg. The annual general meeting for the year 1992-93 was held on September 30, 1993 and the purported letters dated May 9,1994 and September 6, 1994 of the petitioner were received long after the annual general meeting of the company where the accounts were accepted and passed. 22. The petitioner himself has given loan of Rs. 5,16,016 to the respondent No. 1 and he received loan confirmation statement. The said 30,000 kgs was tea waste and in the turnover the value of the said waste was included. Tea waste was not included in the production of salable tea as the same was not considered as salable tea. It was contended that there was no manipulation or maneuvering of books of the respondents or that the accounts were signed by the auditors on August 19, 1994. Along with the notice dated October 10, 1994, convening the adjourned annual general ....
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....ounsel for the respondents pointed out that the petitioner with ulterior motive has falsely alleged that the said 40,000 shares were allotted to late Bholaram Kasera out of the said loan of Rs. 9 lakhs given by the said firm or that the said loan is still continuing and remains unpaid, the alleged balance of a sum of Rs. 5 lakhs was never kept with the company, late Bholaram Kasera had also deposited a sum of Rs. 3,50,000 by three cheques with the respondent-company under the cover of his letter which clearly states that the "said amount will not be withdrawn under any circumstances at any instance unless the company decides otherwise". The petitioner had also filed a winding up petition against the company for recovery of the said amount. 25. Replying to the petitioner's allegation that the state of profitability of the company turned into losses after the said tea estate was taken over by the respondents or that there was negligence or mismanagement of the affairs of the company or that the funds were siphoned off, the respondents contended that the petitioner late Shri Bholaram Kasera was paid about Rs. 9,60,000 as dividend from 1981. The allegation by the petitioner of m....
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....such no grievance can be made for the period prior thereto during which the petitioner's father was not even a shareholder. It was argued that this fact itself goes to prove that the only aim and motive of the petitioner is to harass the respondents and the only motive is to extract money by unlawful means and pressure tactics. 28. Replying to the allegations regarding stock. position or production reflected in the balance-sheets and profit and loss accounts for the financial years ended 1977 to June 1985 or 1992 to 1996-97 alleged to be sham or bogus or contrary to all accounting principles or that the respondents have knowingly or deliberately given a misleading picture of the company's profitability, it was argued that the petition does not give a correct position, the figures shown in the balance-sheets includes the sale of tea waste, labour and sampling charges, etc. Furthermore, tea being an excisable commodity, the same is required to be shown in Form RT-12 return which is assessed by the Central Excise authorities and which refers to the respondents' labour and sampling charges. My attention was drawn to the figures set out in annexure I to the counter affida....
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.....S. Mothilal v. K.S. Kasimaris Ceramique P. Ltd. [2007] 135 Comp Cas 609 (CLB) : [2007] 77 CLA 70, for seeking an investigation into the affairs of the company by the Central Government in a petition under Section 237 before the Company Law Board, the petitioner has to establish beyond slightest doubt, and not for conducting roving enquiry. 32. I have considered the pleadings and the arguments of the parties in C.P. Nos. 32 of 1999 and 31 of 2003 and the case law relied upon by them. It is noted that on December 23, 1998, company petition under Section 235(2) read with Sections 236 and 237 of the Act praying for appointment of inspectors to investigate into the affairs of the company was filed. On May 25, 2000, the petitioner, namely, Shri Bholaram Kasera expired. On September 14, 2001, another petition C.P. No. 31 of 2003 was filed under Section 397/398 of the Act by his son Shri Binod Kumar Kasera alleging oppression and mismanagement. Late Shri Bholaram Kasera was a shareholder of the respondent-company and an active partner of the firm--M/s. Chunnilal Pannalal & Co. He had negotiated with M/s. Jokai (Assam) Tea Co. Ltd., for sale of a tea garden for a sum of Rs. 30 lakhs. Sh....
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.... Section 209 of the Act. The Registrar of Companies vide its report dated July 23, 2008, gave the status report regarding inspection on June 27, 2001, under Section 209A of the Companies Act, 1956, in the matter as under: Sections RD's instructions Action taken by ROC PART 'B' Directorate's letter No. RD/T/2156/I This office has filed the prosecutions on 31.05.2003 in the court of the CMM, Kolkata, vide case No. C/2864/2003 and the case has been disposed off by the court on 18.07.2003 by imposing fine of Rs. 300/-for each director. The total fine was Rs. 900/-out of which an amount of Rs. 450/- was awarded as cost to Registrar of Companies Persons of default: (1)Shri N.K. Agarwal 209(3)(b) nsp. Dated 29.07.2002, to file prosecutions (2)Shri A.K. Agarwal (3)Shri Parshuram Agarwal 211 (treatment of stores, spare parts in the books of accounts Directorate's letter No. RD/T/2156/I nsp./2867 dated 05.08.2008, to file prosecutions. Prosecution are being filed in the court of the CMM, Kolkata Persons of default : (1)Shri N.K. Agarwal (2)Shri A.K. Agarwal (3)Shri Parshuram Agarwal PART....
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.... the petitioner's father was never allowed to participate in the management and his rights as a shareholder were at all time denied so that Shri Nandlall and his sons could at all times misappropriate and siphon off funds from the company. Drawing my attention to the discrepancies in the balance-sheets it has been contended that (i) there is a vast unignorable discrepancy between actual sales and sales as per the balance-sheets and profit and loss account for the years 1977 to June 1985 and 1992-93 to 1996-97; (ii) price per kg of tea as shown in the balance-sheets of the company was much less than the sales realisation per Kg of tea in case of other tea companies having tea estates in the same area. The petitioner's case is that he came to know that there was misappropriation of Rs. 15,13,712.61 being profit made by JTC for the year 1974 by the respondent. No mention of this amount was made by JTC in 1978. In 1974 JTC paid Rs. 3,63,596 being profits for the years 1971, 1972 and 1973. However, the same was recorded in the balance-sheet as on June 30, 1985, as reserves. 34. It is the petitioner's case that Nandlall Agarwalla's family has fraudulently and dishonest....
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....suffering the same fate as the respondent-company and, therefore, the respondent-company is suffering only on account of mismanagement. The respondents have not explained in their counter affidavit the discrepancies pointed out by the petitioner, the defence taken by the respondents is vague, without any support and is a general denial, without any explanation whatsoever. Further, the respondents have not explained the mismanagement and fudging of the accounts by the respondent-company. The profit and loss accounts do not bear the true and correct picture of the accounts. 36. The respondents' case is that the petitioner was given umpteen numbers of opportunities to file rejoinder in the main petition (C.P. No. 31 of 2003) but the petitioner despite having taken so many opportunities and adjournments from the Company Law Board did not file any rejoinder. Because of acute disturbance in Assam most of the tea estates based in Assam were passing through bad time for a long period. Over and above, there had been steep increase in labour wages and other output costs which had led to losses. The petitioner has deliberately made wrong and false statements. From the conduct of the pe....
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....lined, losses increased, cost of the labour also increased, company was passing through financial stringency. Almost 83 per cent, to 95 per cent, loan, which was mostly taken from the shareholders, relatives and sister concerns are contribution from management side. 38. The respondent's case is that no case is made out requiring investigation under Section 235(2) read with Sections 236 and 237 of the Act and the petition under Section 397/398 of the Companies Act also is not maintainable and is liable to be dismissed inasmuch as the same is obliquely motivated and is filed by the minority shareholder of the company with the sole purpose of unlocking his shares in a perennially sick company. The allegations contained in the said affidavit do not in any manner constitute mismanagement or oppression. 39. Sections 235 to 251 provide for investigation of the affairs of a company and for sundry matters related to such investigations. They follow the scheme of Sections 164 to 175 of the English Act of 1948. Section 235 enables the Central Government to appoint inspectors for investigation and report generally if the Registrar reports under Section 234 and also if a stated number....
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....n is subjective but the existence of the sine qua non for action must be demonstrable. If the action is questioned on the ground that no circumstances leading to an inference of the kind contemplated by the section exists, the action might be exposed to interference unless the existence of the circumstances is made out. The conclusions must relate to an intent to defraud, a fraudulent or unlawful purpose, fraud or misconduct or the withholding of information of a particular kind. In the present case, there is no hint even in this affidavit that the circumstances were such as to suggest fraud, intent to defraud or misconduct, this is to say circumstances under which investigation can be ordered. A court can act only on the materials placed before it; and those materials should at least be such as to satisfy the court that a deeper probe into the company's affairs is desirable in the interests of the company itself. The materials should be such as would result in proceedings being taken under Sections 242 to 244; no investigation could be ordered merely because a shareholder feels aggrieved about the manner in which the company's business is being carried on. Investigation of....
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....to the issue of a fact finding commission by a civil court for looking into the accounts or making an investigation and does not amount to a judgment within Clause 15 of the Letters Patent, so as to enable an aggrieved party to appeal. An order of investigation is not an end by itself, it is only a means to find out the full facts of the acts complained of. It is nothing but an exploratory measure to be proved or disproved with reference to the facts later on ascertained. This discretionary power of the Company Law Board has to be exercised in good faith. An investigation may be ordered when public interest is involved or detriment to the interest of the shareholders had been caused surreptitiously. Such investigation should not be taken lightly. Unless proper grounds exist for investigation of the affairs of the company investigation cannot be ordered. 43. In the circumstances of this case I come to the view that allegations made in the petitions are insufficient to maintain C.P. No. 32 of 1999, no case has been made out under Section 235(2) read with Sections 236 and 237 of the Act. However, in this matter the Registrar of Companies has already carried out inspection under Sec....