TaxTMI 
TaxTMI 
2013 (3) TMI 765
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....s (Original Petitioners) against the Respondents on the ground of oppression of the Appellants who are the minority shareholders of Respondent No. 1 Company and mismanagement of the Respondent Company. 2. The Appellants have submitted that the following important questions of law require determination by this Court. "(1) Whether in a family Company, where there are essentially two groups of shareholders, and two Directors, and when admittedly there is deadlock with regard to the conduct of the business of the Company, the CLB ought to have granted reliefs so as to put an end to the oppression and mismanagement? (2) Whether in a family Company, where all the other Directors and Shareholders received salaries and allowances from the Company, the non­-payment of salary to one Director and non­-payment of allowances to the Shareholders, so also to the Group Company's staff working for those Directors and Shareholders would amount to per se acts oppressive to those Shareholders? (3) Whether the Appellants, having been specifically asked to disengage from the management of the affairs of the Company pursuant to a Memorandum of Understanding entered into between the m....
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....her hold 30.7775% of the issued, subscribed and paid up capital of the Company. A statement indicating shareholding of all the shareholders in the Company is reproduced hereunder: Name of the shareholder Number of shares held in Grentex & Co. (P.) Ltd. (Respondent No. 1 Company) Name of the Shareholder No. of shares % of shares Shri Ravikant Kapur (Respondent No. 2) 840000 22.5201 Shri Ravikant Kapur (Huf) (Respondent No.5) 140000 3.7534 26.2735 Shri Rajeev Kapur (Appellant No. 1) 840000 22.5201 Shri Rajeev Kapur (HUF) (Appellant No. 2) 140000 3.7534 26.2735 Shri Shashikant Kapur (Respondent No. 3) 140000 3.7534 Smt. Benu Kapur (Respondent No.4) 308000 8.2574 Smt. Sharda Kapur (Appellant No.3) 168000 4.5040 Radisson Int. Ltd. (Respondent No.9) 371153 9.9505 Grentex Yarns (P.) Ltd. (Respondent No.6) 112000 3.0027 Grentex Wools (P.) Ltd. (Respondent No.7) 112000 3.0027 GRWM (P.) Ltd. (Respondent No.8) 558847 14.9825 Total 3730000 100 6. Appellant No.3 is the mother of Appellant No. 1. Appellant No. 2 is the HUF of which Appellant No. 1 is the Karta. 7. Respondent Nos. 2 and 3 are the brothers of Appellant No. 1 and sons of Appellant No.3....
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.... would not be sent minutes of the Meeting of the Board of Directors of the Companies of the Kapur Family immediately after a particular meeting, but would be sent the same after several reminders. By an e­-mail dated 5th January, 2005 addressed by the Appellant No. 1 to the Company Secretary of the Company, Appellant No. 1 recorded that he had received copies of various minutes of the meetings "purported" to be held by the Board of Directors of the said companies of the Kapur Family. He also recorded that henceforth the resolutions should bear the signature of Appellant No. 1 so that the resolutions are to his knowledge. Though the Company received the said e­-mail, the resolutions were not forwarded to him for his signature. On or about 27th June 2007, the Appellant No. 1 and his son incorporated a company named Kaposta Carpets Private Limited. 11. According to Appellant No. 1, during September 2006, there was an oral agreement between Appellant No. 1 and Respondent No. 2 qua division of assets of the Companies. However, the said proposal was subsequently cancelled by Respondent No. 2 in September, 2006 itself. Several proposals were discussed/revoked with close....
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....nd January 2008, Respondent No. 2 and the Appellant No. 1 circulated a note informing all concerned that as per the internal arrangement, the business assets group would be under the purview/control of Respondent No. 2 and Respondent No.4 would assist him. By the said note it was also confirmed that all functions and management related to some properties of the property assets group would be carried out by Appellant No. 1 with the assistance of his son and employee of Respondent No. 1. In the said note it was stated that any matter relating to the business and affairs of the Company should be referred directly to Respondent No. 2 for any decision to be taken in the matter. 13. According to the Appellants, since 24th December, 2007, Appellant No. 1 started withdrawing himself from the day to day affairs of the business group though he continued to be a Director of the Company as well as a shareholder and guarantor of the loans taken from Banks and financial institutions. The Respondent No. 2 also took over the production, sales, marketing and customer service of the Company and Respondent No. 8 which was being earlier handled by Appellant No. 1. The Respondent No. 2 also took from ....
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.... son incorporated another company named Kapotex Industries Private Limited. 16. According to the Appellant No. 1, his telephone bills were earlier paid by the Company but since about July 2008, the bills were not paid in time. The Appellant No. 1 vide his letter dated 26th August 2008 addressed to Respondent No. 2 recorded that he had requested for various payments several times but the same were not paid. Appellant No. 1 also stated that he needed cheque books of Respondent No. 7 Company to facilitate various statutory and other relevant payments. Appellant No. 1 also stated that arrears had not been paid to the staff that was working for him whereas all the other staff had been paid arrears. Thus the staff that was working for Appellant No. 1 was being discriminated against by Respondent No. 2 and clearly efforts were made by Respondent No. 2 to harass the staff working under Appellant No. 1. According to Appellant No. 1, his son was also getting some allowances from the Company, in addition to his salary on a monthly basis but since October, 2007 the allowances were not paid to the son of Appellant No. 1. In view thereof, the son of Appellant No. 1 addressed a letter dated 4th ....
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....as harassed by Respondent No. 2 by not paying them their dues/salaries on time including the arrears and yearly bonus as had been paid to all other employees of the group Companies. According to the Appellants, the Company did not have a proper functioning Board of Directors because there were only two Directors on the Board of the Company viz. Appellant No. 1 and Respondent No. 2. Both the Appellant No. 1 and Respondent No. 2 are permanent Directors of the Company and not liable to retire by rotation. About 10 years ago, one Mr. Jayaprakash Shetty was appointed as a Director of the Company but in or about August 2008, the said Jayaprakash Shetty discontinued as a Director from the Company in view of having reached the retirement age and submitted his resignation from the Board of Directors of the Company to Respondent No. 2. 18. According to the Appellant No. 1, though from 24th December, 2007, the Appellant No. 1 withdrew himself from the day to day affairs of the business assets group as requested by Respondent No. 2, Respondent No. 2 did not withdraw himself from the property assets group. According to the Appellant No. 1, since January 2008 onwards various 'without prejud....
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....ith his wife and son. The Respondent No. 2 also stated that the long delay and change in circumstances had completely destroyed the very basis of attempting any family settlement. Further, Respondent No. 2 alleged that his work was constantly sabotaged by Appellant No. 1 and/or at his instance. The Respondent No. 2 also stated that there were many issues concerning the said Companies of the Kapur family which could not be resolved till the management was full and complete and there was a fully functional Board of Directors, committed to the well being of the companies. The Respondent No. 2 also forwarded his resignation in advance, addressed to the Board of Directors. 21. According to the Appellants, by another e­-mail dated 13th November 2008, addressed by Respondent No. 2 to the son of Appellant No. 1, the Respondent No. 2 as a Director of the Company purported to terminate the services of the son of Appellant No. 1 allegedly on account of his misusing the Company's information, goodwill, etc. and also allegedly for poaching the key employees of the Company, by setting up and working for a competing factory as a co­-promoter with his father i.e. Appellant No. 1. 22.....
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....Petition No. 112 of 2008 on 5th /11th December 2008) addressed to the Respondent No. 2 inter alia denied and disputed the allegations made by Respondent No. 2 against the Appellant No. 1 and his son in the three e­-mails dated 13th November 2008, 15th November 2008 and 22nd November, 2008. 25. According to the Appellant No. 1, as far back as September 2006, it became evident to Appellant No. 1 that the assets belonging to the Companies of the Kapur Family would be divided and he would be going his own way. In view thereof, on or about 23rd June 2007, the Appellant No. 1 alongwith his son incorporated a Company named Kaposta Carpets Private Limited ("Kaposta"). The said Company was kept dormant and did not carry on any business. On or about 29th May 2008, the Appellant No. 1 along with his wife and son incorporated another Company named Kapotex Industries Private Limited ("Kapotex") and purchased land, machinery, etc. in GIDC, Sarigam, Distt. Valsad, Gujarat for setting up a factory for the manufacture of woollen textiles. In the Company Petition, Appellant No. 1 has stated that as on 5th /11th December, 2008 (i.e. the date of filing of the Company Petition)....
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....uncil. Since there was an impending division of assets, Appellant No. 1 signed the balance­-sheets and profit and loss accounts of the earlier years uptill 31st March 2007 in good faith. 27. According to the Appellants, the Respondent No. 2 has thus systematically but in a fraudulent manner, taken the support of Respondent Nos. 3 and 4 to gain full control of the Company and hijack the Company and its Board of Directors. On the other hand, the Appellant No. 1 had stood Guarantor for the Company and Respondent No.8 from time to time, and was to be relieved of the same on implementation of the family arrangement. Therefore, on the one hand the Appellant No. 1 has been ousted from the day to day management of the Company (though he continues to be a Director of the Company and also a guarantor for the Company) which is now run by Respondent Nos. 2 to 4, and on the other hand the Appellant No. 1 has not been released from the Guarantees given by him. It is submitted that the Respondent Nos. 2 to 4 are therefore together acting contrary to the provisions of the Act and are also acting against the interests of the Company. The Respondent Nos. 2 to 4 are not acting in accordance with....
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....Company, the contracts entered into between the Company and the loans given by the Company, inter alia being: i. The audited profit and loss accounts, balance sheets accompanied by the auditor's reports of the Company from 1st April, 2007 till the date on which provided; ii. Minutes of Meetings of the Annual General Meetings of the company from 30th June 2005, till date on which provided; iii. Minutes of Meetings of the Board of Directors of the Company from 30th June 2005 till date on which provided; iv. Detailed report of inflow and outflow of funds, and manner in which the same have been deployed/expended by the Company from 1st April, 2007 including any expenditure of capital nature till the date on which provided, together with supporting documents; v. Bank statements of all bank accounts of the Company from 1st April, 2007 till date on which provided; vi. Details of investments made and loans/advances of any nature whatsoever given by the Company from 1st April 2007 till date on which provided; vii. Details of financial arrangements entered into with Banks/Financial Institutions for availing loans by the Company and/or Guarantees/securities furnished by the Company....
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....ants about the alleged ousting of the Appellants and the alleged oppression and mismanagement of Respondent No. 1 is nothing but a mala fide and vain attempt on the part of the Appellants to defeat the rights and powers of the Respondents. 29. According to Respondent Nos. 2 and 5, the Appellant No. 1 has, contrary to what is set out by him in the Company Petition and in complete violation/breach of his fiduciary duty, inter alia, indulged in the following: "(i) carrying on and establishing competing business of Kapotex to the complete detriment of the business of Respondent No. 1 Company; (ii) under­-cutting the contracts/agreements of Respondent No. 1 Company with its regular customers; (iii) poaching the employees of Respondent No. 1 Company; (iv) utilising the business contacts (including the same suppliers, logistics companies, Chartered Accountants, etc. ) of Respondent No. 1 Company to further his said competing business; (v) utilising the assets (including the office premises, office equipment, furniture & fixtures, vehicles, utilities, stationary, IPR data, technical & commercial information, etc.) of Respondent No. 1 Company to further the said competing bus....
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....arketing, product development and customer service in respect of yarn production of Respondent No. 1 Company; and ♦ some administrative, raw material purchases, logistics and legal matters; Respondent No. 2 ♦ the production, quality control, sales, marketing, product development and customer service in respect of wool combing and scouring of Respondent No. 1 Company; and ♦ some administrative, raw material purchases, logistics and legal matters; ♦ liaisoning with various Government bodies on behalf of Respondent No. 1 Company; The accounts and finance were jointly managed by Respondent No. 2 and Petitioner No. 1". 32. The Respondent Nos. 2 and 5 have submitted that some time in April 2004, Appellant No. 1 raised disputes inter alia with regard to the profit sharing and running of Respondent No. 1 Company. Despite attempts made by family members and, close relatives, to sort out matters and to separate the family interests/assets, no finality was arrived at. Several proposals were discussed and discarded as Appellant No. 1 was not interested in a final settlement which was fair not only to Respondent No. 2 and Appellant No. 1, but also to the othe....
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....ry and non­-statutory obligations which require a functional Board of Directors), details whereof are as under: (a) Exports (during the last three years) (Value/Quantities) PRODUCT Year wise FOB (Free on Board) Value (Rs. in lacs) 2006­-2007 2007-08 2008­-09 Total of woollen & blended yarn. 587.74 1,050.41 1,010.88 Total Noils and Wool Tops 534.80 808.13 923.56 Total Export from Sarigam 1,122.54 1,872.45 1,952.79 Outsourced Worsted yarn 1,892.39 1,583.41 810.95 (b) Export orders booked (w.e.f. January, 2008) (Approximately) Product Quality (in tons) Woollen yarn 400 Worsted Yarn 523 34. According to Respondent Nos. 2 and 5, while Respondent No. 2 selflessly and single handedly worked in the interest of Respondent No. 1 Company, the Appellants continued to draw their remuneration, salaries, benefits and/or expenses from Respondent No. 1 Company to the tune of over Rs. Sixty lacs. In fact, substantial amounts were withdrawn by Appellant No. 1 himself signing the cheques for the same. Respondent Nos. 2 to 5 have also relied on copies of cheques dated 8th January 2009, and 5th February, 2009, along with their corresponding vouchers, bearing the....
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....ant No. 1 has and is misusing the assets of Respondent No. 1 Company towards furthering the said competing business; Appellant No. 1 thus completely breached his fiduciary duties towards Respondent No. 1 Company; and under no circumstances whatsoever can the Appellants be either said to be oppressed nor can Respondent No. 1 Company be said to have been mismanaged. 37. Respondent Nos. 3 and 4 also filed their reply on lines similar to the submissions advanced by Respondent Nos. 2 and 5. 38. The Appellants filed their Affidavits­-in­-Rejoinder on 9th November, 2009, and 26th November, 2009 wherein they denied and disputed the submissions advanced by the Respondent Nos. 2 and 5, and 3 and 4. The Appellants did not initiate any proceedings to amend the Company Petition and bring on record any of the subsequent events. However, the Appellants have admitted that in February, 2009, Kapotex started trial production and in March, 2009, started its normal production. The Company Petition was finally heard by the learned Member of the CLB, Mumbai Bench and the Company Petition was dismissed by an order dated 30th January, 2010. A perusal of the order passed by the CLB, Mumbai Bench ....
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....rking for Appellant No. 1 , whilst recording that the Appellants have also drawn several amounts towards their remuneration, salaries, benefits and/or expenses, does not constitute an act of oppression. 43. As regard issue No.5, the learned Member has held that M/s. Gorashyam Enterprises is not in a competing business with Respondent No. 1. However, M/s. Kapotex Industries is directly in contact with the customers of Respondent No. 1 Company. 44. As regards issue No.6, the learned Member has come to a finding that there is no dead­-lock in the Respondent No. 1 Company and the Company is directed to hold the Board Meeting and General Meetings as per the Articles of Association and the law and accordingly comply with the statutory requirements of law. 45. As regards issue No.7, the learned Member has held that in view of the facts of the present case, the decision of the Hon'ble Supreme Court in Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan [2004] 54 SCL 601 would not apply and therefore he is not inclined to pass any orders directing the parties to buy out or sell out their respective shareholding in the Respondent No. 1 Company. 46. Mr. Seervai, the learned S....
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....08 and the ex parte ad­-interim order restraining the Company from holding any Board of Directors Meeting or any General Meeting of the Company was passed on 14th December 2008. It is submitted that nothing prevented the Respondent No. 2 from preparing and circulating accounts of the Company on or before 30th September 2008 as there was no injunction of the CLB restraining the Company from holding any Board Meeting or General Meeting of the Company. Even after 30th January, 2010 i.e. the date when the said Company Petition was dismissed, no audited accounts were presented by the Respondent No. 2 to the Board for approval. To date the last profit and loss account and balance sheet that the Company has filed with the Registrar of Companies is for the financial year ended 31st March 2007. As Respondent No. 2 was solely in management of the Company since January 2008, it is clear that the affairs of the Company are conducted by Respondent No. 2 and his supporters in gross contravention of several provisions of the Act. This ex facie and per se constitutes oppression of the other shareholders and mismanagement of the affairs of the Company. Mr. Seervai submitted that Respondent No. ....
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....ue of ₹ 2,00,000/­ to his mother towards her medical expenses and as a favour to her, which she has not encashed as she wants her legitimate dues from the Company. The Appellant No. 1 addressed an e-­mail dated 8th November 2008 to Respondent No. 2 requesting for payments to be released to him at the earliest. Mr. Seervai has submitted that therefore the conduct of Respondent No. 2 in not paying salaries to Appellant No. 1 and allowances to the Appellants and salaries and allowances to the staff working for the Appellant in the Group Company, is per se oppressive. However, Mr. Seervai also admitted that the Appellants have during the period January 2008 to November 2009 withdrawn over ₹ 60 lacs towards remuneration, salaries, benefits and other expenses from the Company as they were compelled to do so by reason of the conduct of Respondent No. 2 and the employees of the Company who acted on his dictates. However, since amounts due as aforestated, were not promptly paid, the conduct of Respondent No. 2 is per se oppressive. Mr. Seervai also admitted that an amount of ₹ 38 lakhs is withdrawn by the Appellant No. 1 in October, 2011 since he was asked by Respo....
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....s a Director from 1st September 2008 is produced before the Court. It is submitted that as a continuing Director drawing remuneration, nothing prevented the Appellant No. 1 from calling a meeting of the Board of Directors. It is submitted that there is no dispute that upto January 2008, meetings of the Board of Directors were regularly held. It is the case of the Appellant No. 1 that from January 2008, the Appellant No. 1 had himself voluntarily withdrawn from the functioning of Respondent No. 1 Company. As such it is the Appellant No. 1 who did not cooperate with Respondent No. 2 in holding meetings of the Board of Directors. The e­-mail dated 23rd October 2008 relied upon by the Appellant No. 1 suggesting that statutory compliances are not being met with, was in fact sent by Respondent No. 1 Company to the Appellant No. 1, inasmuch as the statutory compliance had not been fulfilled on account of the non­-co­operative attitude of Appellant No. 1. Therefore such reliance upon the said e­-mail is misplaced. Further, there was no default in filing of the accounts with the Registrar of Companies, on the date of this e­-mail. In support of these submissions, Respond....
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....salaries, reimbursements etc. by the Appellants are made in their capacity as Directors of Companies and not as shareholders. The question thereof of oppression of Appellants as shareholders does not arise. 52. As regards the allegation that the Appellant No.3 ( mother of Appellant No. 1 and Respondent Nos. 2, 3 and 4) is not reimbursed even qua her medical expenses, it is submitted that there does not appear to be any allegation in the petition with regard to reimbursement of the expenses of Appellant No.3 and that the allegations are only made across the Bar at the time of oral arguments. It is submitted that in the report of the Company Registrar who was appointed by this Court vide order dated 17th March 2010, to attend the EOGM of the Respondent No. 1 Company, it is clearly recorded that Respondent No. 2 handed over a cheque of ₹ 2,00,000/­ from his personal account which was accepted by Appellant No.3. The Respondent No. 1 in fact vide a letter dated 5th May 2011 forwarded a cheque in the sum of ₹ 2,27,240/­ to his mother towards her medical expenses. Strangely by a letter dated 20th June 2011 (after a period of one year had elapsed since the aforesaid ch....
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....here is no deadlock and if the principles of corporate democracy are followed, the Company would certainly be able to function without any hindrance and/or obstruction from any shareholder. It is submitted that during the period 2008 to 2011, the Appellants have withdrawn from the first Respondent Company a sum of ₹ 1,44,55,441/­ from time to time and even after deducting the amounts paid to the mother (Appellant No.3), the amount withdrawn still remains at ₹ 1,37,07,951/­. It is submitted that the Appellants have been fleecing the first Respondent Company and at the same time making huge profits in their own Company by running a rival business and enjoying benefits both from the first Respondent Company as well as their own Company. It is submitted that the Appellants had made an application before this Court for withdrawal of remuneration on the ground that they need money for their subsistence. Though this Court did not pass any order, the Appellant No. 1 unilaterally withdrew a sum of ₹ 38 lacs from the first Respondent Company by signing his own cheque and thereafter addressed a letter to the second Respondent falsely stating "Thank you very much....
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....ot giving an opportunity of being heard to Defendant No.9. However, he submitted that Respondent No. 9 has always remained neutral qua the affairs of the Company and are anxious that they should be bought out either by the appellant Group or by the Respondent group. 55. In rejoinder, Mr. Seervai, Learned Senior Advocate appearing for the Appellants, whilst denying and disputing the submissions made on behalf of Respondent Nos. 2 to 5, submitted that Mr. Jayprakash Shetty was a Director of the Company till he reached his age of retirement in August 2008. Therefore, from January 2008 till August 2008, Respondent No. 2 could have called a Board Meeting with Mr. Jayprakash Shetty as there was no deadlock. There was also no injunctive order during this period. He submitted that the allegation that Mr. Jayprakash Shetty was induced not to act on behalf of the Company is incorrect and Respondent No. 2 had signed the annual returns of the Company for the year 2006-­2007 on 30th April 2008 along with Mr. Shetty. He submitted that Appellant No. 1 was admittedly asked to disengage from the affairs of the Company from 2nd January 2008. He also had no access to statutory registers, account....
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....able to the facts of the present case. Further the judgment has been considered in the case of M.S.D.C. Radharaman (supra) but not followed by the Hon'ble Supreme Court of India. As regards the decision in Lundie Bros. Ltd's. case (supra) relied upon by the Respondents, Mr. Seervai submitted that non­-maintaining statutory records of the Company, not giving inspection of statutory documents, not holding shareholders meeting, non­-filing of statutory returns in the RoC, siphoning of funds to set up Gorashyam, etc. are acts of oppression against the shareholders. Referring to the decision of the Hon'ble Supreme Court in Sangramsinh Gaekwad's case (supra) relied upon by the Respondents in support of their submission that Respondent No. 2 in his capacity as a Director, did not act against the interest of the Company, Mr. Seervai submitted that the said submission is negated from the facts as brought out by the Appellants and the documents produced by the Sarpanch. It is now clear that Respondent No. 2 always intended to start a small scale industry on his lands at Khopoli and such an industry would compete with the business of the Company. 57. Mr. Seervai has s....
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.... that the Respondents by not paying salaries/reimbursements due to the Appellants; son of Appellant No. 1 and the staff working for the Appellant No. 1; not calling any Board Meeting and/or EOGM and non­-finalization of accounts of the Respondent No. 1 Company have committed acts amounting to oppression of the minority shareholders and mismanagement of the Respondent No. 1 Company. 58. I have considered the submissions advanced by the learned Advocates appearing for the parties as regards the unilateral decisions taken by Respondent No. 2, not providing records, not making payments due to the Appellants and the staff members working for the Appellants, failure to reimburse the Appellants, not calling meetings, non­-finalization of accounts and the alleged deadlock in the first Respondent Company. According to the Appellants, disputes have arisen between the Appellant No. 1 and Respondent No. 2 since December 2003 and despite attempts made by the family members and close relatives to sort out the same, no settlement has been arrived at. It is alleged in the Petition that Respondent No. 2 was conducting the affairs of the Company unilaterally and without consulting Appellant....
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....he said Companies and he has also stated that henceforth the Resolution should bear the signature of Appellant No. 1 so that the Resolutions are to his knowledge. The said e­-mail is annexed as Annexure A­5, page 122 of the Petition. A reading of the said e­-mail shows that the Appellant No. 1 has neither made any reference to the alleged "several reminders" in the said e­-mail nor has he referred to the meetings as "purported to be held". Again, the said e­-mail is addressed only to the Company Secretary of the Respondent No. 1 and not to Respondent No. 2. Even a copy of the said e­-mail is not marked to Respondent No. 2. This also shows that the Appellant No. 1 did not hold the Respondent No. 2 responsible for the alleged delay in forwarding the minutes to the Appellant No. 1. After the said letter, the Appellant No. 1 admittedly continued active participation in the business and affairs of the Respondent No. 1 Company for two years until he withdrew from the day to day affairs of the Company on 24th December 2007/2nd January, 2008. However, not a single letter is produced by the Appellants to show that the instructions recorded in the ....
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.... Mills including the production units of G.R. Woollen Mills at Ghatkopar, Grentex Woollen Godown, Grantex & Company, Sarigam and the plant and machinery at Khopoli will be handled by Ravikant Kapur and the matters pertaining to Grenville Park "A" Wing and flats/Grentex Wools Pvt. Ltd. along with the leasehold land of GRWM at Ghatkopar will be handled by Shri Rajeev Kapur. Appellant No. 1 has alleged that he withdrew from the day to day affairs of the Company as he was specifically asked by Respondent No. 2 to disengage from the management and affairs of Respondent No. 1. Respondent No. 2 has denied this and has submitted in paragraph 19 (b) of his Affidavit­-in­-Reply: " As set out herein, it is admittedly Petitioner No. 1 who has, ostensibly for implementation of the Without Prejudice Proposal but as it now transpires with a view to devote time for his own hidden plans of setting up a parallel and competing business, with mala fide intent withdrawn himself from the day to day affairs of the business assets group (including Respondent No. 1 Company) and therefore voluntarily executed the note dated 2nd January, 2009." No evidence in support of this alleg....
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....g to Respondent No. 7 and the books of account of Respondent No.7 and does not pertain to the first Respondent Company. The letter dated 28th January, 2008 purportedly written by the Appellant No. 1 also does not concern the first Respondent Company and admittedly pertains to the Property Assets Group. The letter dated 25th February 2008 also admittedly pertains to Respondent No.7 and not the Respondent No. 1. According to the Appellant No. 1, he addressed a letter dated 3rd April, 2008 to the Company Secretary of the Company requesting to furnish him Minutes of the Meetings held during the year 2006­-2007 for his records including the AGM of all the companies of the Kapur Family. According to him, though the said letter was received by the Administration Department, there was no reply. According to him, he had also addressed a letter dated 26th April 2008 to the Company Secretary of the Company inter alia asking for share certificate numbers and their distinctive numbers of all shareholders in Companies where returns were being filed. Again, according to him though the said letter was received by the Administration Department, there was no reply. As regards both the letters da....
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....ay 2008 is not a genuine letter. The Appellant No. 1 has in his rejoinder dated 9th November 2009 only denied what is stated by the Respondent No. 2 qua the said letters. Appellant No. 1 has not produced any evidence to show that the said letters were in fact signed by him or on his behalf by an authorized signatory and the same were received by the Respondent No. 2 and/or his office. In any event, the said letters are admittedly either unsigned or not signed by the Appellant No. 1 and the Respondent No. 1 cannot be blamed for not responding to the letters signed by unidentified individuals. There is also no follow up found for these letters in the documents annexed to the petition. It therefore cannot be held that the conduct of the Respondent No. 2 is oppressive qua the Appellants for not responding to the said three letters dated 3rd April 2008 calling for minutes of meetings held in 2006-­2007; 26th April 2008 calling for share certificate numbers/distinctive numbers of all shareholders; and 6th May, 2008 calling for his updated statement of personal account. 63. Section 397 of the Act can be invoked by any member of a company who complains that the affairs of the company ....
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.... and 4, though this Court in Company Application (Lodging) No. 14 of 2011 (Pg. 385 of the Compilation of documents submitted by Respondent Nos. 3 and 4) had not given any directions to the Company qua certain payments/reimbursements to be made to the Appellants, Appellant No. 1 has signed a cheque for ₹ 38 lakhs and after withdrawing the said amount, appropriated the same towards the said payments/ reimbursement and has written a note to the Respondent No. 2 stating, "Thank you very much for arranging the funds for remuneration". The argument now advanced by the Appellant No. 1, that this was done in view of the consent given to him by the Respondent No. 2 cannot be accepted. In my view, therefore the Appellants by making the aforestated allegations of non­-payments/delayed payments of salaries/reimbursements etc. of the Appellants, the son of Appellant No. 1 and certain employees of the Respondent No. 1 Company have failed to establish any oppression of the Appellants shareholders by Respondent Nos. 2 to 5. In fact, no averment is found in the Petition as regards the reimbursements not made to the Appellant No. 3 mother. Question No. 2 set out in paragraph 2 of....
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....No. 1 and Respondent Nos. 3 and 4 for about a year is now further compounded by the serious conflict of interest due to setting up of a competing Wool Spinning business by the Appellant No. 1 along with his wife and son. The deadlock as well as the setting up of a competing business coupled with long delays and change in circumstances has completely destroyed the very basis of attempting any family settlement. Respondent No. 2 has also recorded in his said e­-mail that his work is constantly being check­mated and/or sabotaged by the Appellant No. 1 and/or at his instance. Respondent No. 2 has therefore called upon Appellant No. 1 to immediately answer which of the two choices he wants to exercise and has only with a view to show his seriousness, forwarded his resignation in advance, addressed to the Board of Directors. The Appellant No. 1 could have immediately disputed the allegations made in the said e­-mail dated 13th November 2008. However, he chose not to do so. Instead, immediately on the next day he addressed a letter to the Respondent No. 2 wherein he has not denied or disputed the allegations made by the Respondent No. 2 in his e­-mail dated 13th November 2....
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....k into or look after the interest of Respondent No. 1's business or the business of Grentex Woollen Mills having debarred himself and vacated his position as Director under the Act. Respondent No. 2 gave the Appellant No. 1 the choice to voluntarily step down as Director of the Respondent No. 1 Company or have the said issue dealt with in accordance with law. Respondent No. 2 also recorded in the said letter that the statutory compliances are pending and the Board is stuck because of his (first Appellant) insistence of having only two Directors on the Board. Respondent No. 2 therefore called upon the Appellant No. 1 to immediately formally resign from the Board of Respondent No. 1 and Grentex Woollen Mills Pvt. Ltd. to allow the Companies to work. The Appellant No. 1 by his reply dated 2nd December 2008 addressed to Respondent No. 2 i.e. three days before the Company Petition was prepared (Pg. 37 of the Petition ) for the first time inter alia raised a grievance that the Board Meetings of the Company are not convened, and repeated requests for information of the Group Companies have fallen on deaf ears. The Appellants thereafter on 5th December 2008/11th December 2008 filed Com....
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.... 3 and 4. He also wrote a letter on 23rd January 2008 itself to the Appellant No. 1 requesting him to resolve the disputes between the Property Assets Group and cautioned Appellant No. 1 that in the event of the said disputes between the Property Assets Group not getting resolved, the same may result in litigation. In the meantime, in May 2008, Appellant No. 1 floated a Company viz. Kapotex Industries Pvt. Ltd. to carry out business similar to that of Respondent No. 1. This conduct on the part of Appellant No. 1 who also continued to be a Director of Respondent No. 1, obviously created tension between Appellant No. 1 and Respondent Nos. 2, 3 and 4. In view of the MoU not being worked out and some delays caused in making payments to the Appellants by way of salary and reimbursements, again further friction arose during this period between Appellant No. 1 and Respondent Nos. 2, 3 and 4 and there being only two Directors on the Board of Respondent No. 1, no Board Meeting was called by the Directors of the Company which they ought to have called. These circumstances also resulted in the AGM not being called by 30th September 2008 and the accounts not being finalised. By 5th /11th Decem....
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....or of the first Respondent Company. Despite this, the Appellant No. 1 has not called for any meeting or written a single letter to Respondent No. 2 making a grievance about not calling any meetings or qua accounts not being filed, except on 2nd December 2008 i.e. just before the filing of the Company Petition on 5th /11th December 2008. Appellant No. 1 has also not called upon Respondent No. 2 to call a Board Meeting or a General meeting of Respondent No. 1. The excuse now given that the Appellant No. 1 did not have any papers cannot be accepted. The Appellant has alleged that Mr. Shetty was a Director upto August 2008 and Respondent No. 2 could have called a Board meeting since there was no deadlock on the Board. The Appellant No. 1 could also have done the same thing. Instead as stated in detail hereinafter the Appellant No. 1 in May 2008 floated Kapotex Industries Pvt. Ltd. along with his wife and son to carry out similar business to that of Respondent No. 2 and later took Mr. Shetty in his fold. It also cannot be lost sight of, that the Respondent No. 2 was slow in calling meetings and parting with information of the Respondent No. 1 being vary of the fact that the Appellant ma....
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..... Gorashyam Enterprises, offering products of scoured wool, tops and yarns, carpets, etc. Respondent No. 2 unilaterally and for ulterior purposes declared his proprietary concern M/s. Gorashyam Enterprises as a supporting manufacturer of the Company without any Board Resolution for the same. However, the Registration­-cum­-Membership Certificate which is signed by Respondent No. 2 does not show the said M/s. Gorashyam Enterprises as the supporting manufacturer of the Company. The said Registration­-cum­-Membership Certificate was valid till March 2010 and was being renewed year after year and also shows that the said M/s. Gorashyam Enterprises dealt with identical products. It is submitted that starting in or about October, 2005 and upto 31st March 2007 itself, Respondent No. 2 unilaterally spent an amount of ₹ 1,60,44,000/­ for importing, in the name of the Company, an old outdated mid 80's make scouring plant from New Zealand, and for building on his personal property at Khopoli, the factory shed to house the said imported machinery. Respondent No. 2 as the Proprietor of M/s. Gorashyam Enterprises in furtherance of his desire and determination to sta....
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....oprietary business for competing with the Company. 69. Mr. Seervai has further submitted that though it is alleged by Respondent No. 2 that due to the arbitrary and obstructive whims and fancies of Appellant No. 1 , Respondent No. 2 was constrained to set up his proprietary concern M/s. Gorashyam Enterprises for 'housing' the scouring/wool washing plant due to the alleged 'flip flop' attitude of Appellant No. 1, no evidence in support of the same is produced by the Respondent No. 2. It is submitted that assuming without admitting that the date mentioned in the Mutation Entry No. 853 is erroneous, it in no way detracts from the case of the Appellants that the Respondent No. 2 had every desire to set up a small scale industry on his land at Khopoli competing with the products of the Company. It is submitted that the argument that the Respondent No. 2 was forced to buy the land due to the conduct of Appellant No. 1 is also false. Respondent No. 2 need not have purchased about 7 acres of land just to house the machinery. This only further exposes his desire to set up a full fledged industry. It is submitted that the statement in the list of dates that on 10th January 2....
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....port by Gorashyam of the Wool Scouring Plant was merely the first step towards the desired setting up of a full­-fledged small scale industry on Respondent No. 2's personal land at Khopoli. It is submitted that till the middle of May 2008, Respondent No. 2 was trying to get NA permission and requesting for permission to construct on the land at Khopoli, which was not granted. Hence the Respondent No. 2 shifted the machinery from Khopoli to Sarigam in May/June, 2008. It is therefore submitted that the Respondent No. 2 has been in a competing business since the past couple of years in a clandestine and surreptitious manner in spite of being a Director of the Company and being in control of the day to day management of the Company. Such conduct on the part of Respondent No. 2 is prejudicial to the interest of the Company and is also prejudicial to the shareholders of the Company. 71. Mr. Bharucha, the Learned Senior Advocate appearing for Respondent Nos. 2 and 5 submitted that in early 2005, it was realized that Respondent No. 1 did not possess the machinery of sufficient capacity for its business. It was therefore decided to purchase a scouring/wool washing plant including a....
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....whims and fancies of Appellant No. 1 that Respondent No. 2 was constrained to set up M/s. Gorashyam Enterprises for housing the scouring/wool washing plant. On 5th January 2006, Gorashyam was registered with the Wool Industry Export Promotion Council (WIEPC). Since the import of the said machinery was at a concessional import duty under the EPCG scheme, the said import had to adhere to the 'actual user condition' under the Foreign Trade Policy for the relevant period. Under the 'actual user condition' it was necessary for the importer to either use the machine in his own industrial unit or manufacture for his own use in another unit. In view of the resistance shown by the Appellant No. 1 to Respondent No. 2, there was no question of housing the machinery at Respondent No. 1's factory at Sarigam. Thus, the Respondent No. 2 was constrained to purchase the land near Khopoli to store the said machinery to comply with the EPCG scheme. To protect the machinery from the vagaries of nature, a shed was required to be built wherein the machinery could be stored. The Respondent No. 2 paid various amounts from his funds towards the erection of the said shed and other expens....
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....iness Assets Group, which was to belong to Respondent No. 2. Even at this stage no objection had been raised to the plant and machinery lying at Khopoli as being an act of alleged oppression or competing business. In view of the aforesaid arrangements not fructifying the Appellants who have acquiesced to the same, have with mala fide intentions subsequently raised the competing business bogey as an afterthought to justify their setting up and running of Kapotex. In support of his submissions, Mr. Bharucha has relied on the following decisions: (i) Administrator of the Specified Undertaking of the Unit Trust of India v. Garware Polyster Ltd. [2005] 60 SCL 512 (SC) (ii) Mohta Bros. (P.) Ltd's. case (supra), (iii) P.S. Offshore Inter Land Services (P.) Ltd. v. Bombay Offshore Suppliers & Services Ltd. [1992] 75 Comp. Cas. 583 (Bom.) 592,594]; (iv) R. Easwaran v. Eswar Oil Industries Ltd.[2007] 137 Comp. Cas. 605/[2006] 72 SCL 228 (CLB-Chennai). 74. Mr. Bharucha has produced the statement of the Bank Account of M/s. Gorashyam Enterprises for the period 16th December 2005 till early August 2012 which would show that the said account was funded only for ₹ 25,000/­ and ....
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.... get financial assistance to the tune of ₹ 3 crores from financial institutions to commence the activity of wool washing/scouring within a period of six months. It is submitted that the aforesaid letter does not, at any place mention that financial assistance was required for the operations of M/s. Gorashyam Enterprises. Although preliminary talks were held with Banks for financial assistance, no bank finance was in fact drawn or sanctioned by the Banks for either Respondent No. 2 or M/s. Gorashyam Enterprises. It is submitted that in spite of having obtained land conversion permissions and building permissions for industrial use as far back as 12th March, 2007, Respondent No. 2 chose to shift the machinery to Respondent No. 1's factory in Sarigam, Gujarat in May - June, 2008 (where it was originally intended to be installed) which goes to show the bona fides of the Respondents. 76. Mr. Kamdar, the learned Senior Advocate appearing for Respondent Nos. 3 and 4 has adopted the arguments advanced on behalf of Respondent Nos.2 and 5 qua the allegations made by the Appellants in respect of setting up of Gorashyam Enterprises. He has submitted that the said Scouring machine ca....
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....arch, 2007. It is submitted that the said machine is also shown as part of the machines of the first Respondent Company in the said MoU dated 24th December 2007 and the letter dated 2nd January 2008 and subsequently the said machine was shifted to the first Respondent Company premises some time in May/June 2008. It is submitted that the facts in the matter clearly shows that there has never been any competing business by Gorashyam Enterprises. Therefore, the allegations advanced on behalf of the Appellants that the Respondent No. 2 started a competing business in the name of Gorashyam Enterprises is completely baseless and without any merit. 77. Before I deal with the aforestated submissions, it is necessary to record that after the submissions pertaining to the scouring plant and Gorashyam Enterprises were made on behalf of the Respondents, Mr. Seervai, the learned Senior Advocate appearing for the Appellants submitted before this Court that the submissions made before the Court on behalf of the Respondents pertaining to the purchase of land for setting up the scouring plant are not only incorrect but are made with a deliberate intention of misleading the Court. Mr. Seervai submi....
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....ently substantially delayed the pronouncement of this Judgment, in view of the serious allegations made on behalf of the Appellants involving the judicial system, I have gone through each and every page of the documents produced and I am satisfied that as regards entry 853, there is only a clerical error to the extent of the year 2006 being wrongly shown as 2005 and the statement made by Respondent Nos. 2, 3 and 4 that the lands were purchased in 2006 were not false and/or incorrect as alleged by the Appellants. 78. I have considered the above submissions qua the allegations advanced by the Appellants that the Respondent No. 2 had imported the scouring plant from abroad and has set up Gorashyam Enterprises in order to start a business competing with the business of Respondent No. 1 and the response thereto on behalf of the Respondents. From the Company Petition filed on 5th /11th December 2008, I have noted that the Appellants have avoided stating as to when they came to know that Respondent No. 2 had imported a scouring plant from New Zealand and as to when they came to know that during the period 2006 to 2008 large amounts were withdrawn from the first Respondent Company towards....
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.... made by the Appellants in the Company Petition viz. that the Appellants "recently " became aware that the Respondent No. 2 had unilaterally imported a scouring plant from New Zealand despite objections from the Petitioner No. 1 during September/October 2005 and paid for all the costs/expenses through the Company and had set up M/s. Gorashyam Enterprises for offering products of scoured wool, tops and yarns, carpets etc., is belied by the contents of the letter dated 2nd December 2008 addressed by the Appellant No. 1 to the Respondent No. 2 just a few days prior to the filing of the Company Petition on 5th /11th December 2008, wherein the Appellant No. 1 did not make any allegation whatsoever as regards importing the scouring plant/machinery from New Zealand without the knowledge/consent of the Appellant No. 1 as alleged in the Petition. In paragraph 16 of the said letter, the Appellant No. 1 did not even allege that he has "recently" come to know about the establishment of a propriety firm in the name of M/s. Gorashyam Enterprises by the Respondent No. 2. Instead in paragraph 16, the Appellants have stated as follows: "16. It is a matter of record that yo....
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....d for this project were objected to by him on several occasions because he was not satisfied about the need to incur huge capital expenditure by spending large amounts thereon. However, no objection allegedly raised by the Appellant No. 1 prior to the letter dated 2nd December 2008 qua the expenses incurred for this project is produced by the Appellants. These facts further go to show that the Appellant No. 1 was always aware at least of the fact that the said scouring plant has been imported in the name of the Company but is housed at Khopoli by the Respondent No. 2 and a shed has been constructed to house the scouring plant, and the expenses of importing the machinery as well as putting up the shed etc. are incurred by the Company. The Appellant No. 1 has for reasons best known to him not objected to the same but has in fact signed/approved the accounts of the Company for the year ending 2006­-2007 and 2007­-2008, and has also agreed in the proposed MoU dated 24th December, 2007 and the joint note dated 2nd January, 2008 that the plant and machinery at Khopoli belongs to Respondent No. 1 Company and shall form part of the Business Assets Group. The Appellants have raked u....
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.... use in another unit. In view of the resistance shown by Appellant No. 1 to Respondent No. 2, there was no question of housing the machinery at Respondent No. 1's factory at Sarigam. Thus the Respondent No. 2 was constrained to purchase the land near Khopoli to store the said machinery to comply with the EPGC scheme. 83. The Appellants have themselves stated in the letter dated 2nd December 2008 addressed to the Respondent No. 2 that "It is a matter of record" that he has declared M/s. Gorashyam Enterprises the proprietary concern of Respondent No. 2 as the supporting manufacturer of Respondent No. 1 Company. The Appellants have also relied on the advertisements of M/s. Gorashyam Enterprises in the official publication of the Wool Industry Export Promotion Council. The said advertisement has appeared along with the advertisement of the first Respondent Company and Gokalchand Rattanchand Woollen Mills Pvt. Ltd. If the Respondent No. 2 was carrying on any competing business on the sly in the name of Gorashyam Enterprises he would certainly not have issued advertisement of Gorashyam Enterprises along with the advertisement of Respondent No. 1 and the advertisement of Go....
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....plant is imported by the Respondent No. 1 Company. The Appellants have failed to establish their allegation that Respondent No. 2 in fact was or has been in competing business since the past couple of years as alleged or for any period in a clandestine and surreptitious manner, in spite of being a Director of the Company in control of the day to day management of the Company through Gorashyam Enterprises. The notice addressed by the Advocate for Respondent No. 2 also does not establish that Respondent No. 2 or Gorashyam Enterprises are wanting to set up a small scale industry to do competing business with Respondent No. 1. It is established that from its inception Gorashyam Enterprises was to only act as a supporting manufacturer of the Respondent No. 1 Company. However, this object too did not materialise. As stated hereinabove, from the records produced before this Court, it is established beyond any doubt that Gorashyam Enterprises has at no point of time done any business (competing or otherwise) despite it being established in December, 2005. The statements made by the Appellants in the Petition, including the statement that they 'recently' came to know about the facts....
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.... the Petition that as the draft of the detailed MoU (drawn up in furtherance of the Agreement dated 24th December, 2007) is neither finalised nor signed, the Appellants have neither relied upon nor annexed the same to the Petition. The Appellants have in the Petition admittedly not sought any reliefs qua the MoU between the parties including its specific performance. From the prayers sought in the Petition, it is clear that the Appellants have accepted that the proposed agreement has failed to materialise and the Respondent No. 2 and his supporters be restrained from taking any steps qua the running/functioning of the Company without the consent of the Appellants and without holding any meetings in the absence of the Appellant No. 1 and in the absence of proper notice and agenda, the Respondent No. 2 and his supporters be further restrained from making any changes in the constitution of the Board of Directors of the Company, including removal of Appellant No. 1 as Director of the Company. It is therefore clear beyond any doubt that the Appellant No. 1 in the Petition submitted that Kaposta and Kapotex have not done any business and therefore he should not be stopped from continuing....
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....spondent No. 1. I am therefore of the view that the Appellant No. 1 and his family members are through Kapotex carrying on business in direct competition with the Respondent No. 1 Company. I am also of the view that the Appellants have approached the CLB with unclean hands i.e. after making a representation that Kaposta/Kapotex have not commenced any production and after obtaining interim orders against the Respondents, have immediately started similar business as of Respondent No. 1, thus entering into direct competition with the Respondent No. 1. 86. Respondent Nos. 2 to 5 have also submitted that one Southern Yarns Dyers Inc., USA is a regular customer of Respondent No. 1 since 2005. Respondent No. 1 has been exporting 100 per cent woollen worsted yarn to the said Southern Yarns Dyers Inc. USA. During 2008 Respondent No. 1 sold to Southern Yarns various amount of Woollen worsted yarn at the rate of US $ 3.15 per lbs. Respondent No. 1 Company also had orders worth US $ 3 lakhs from Southern Yarns. For the said orders raw materials have been procured by Respondent no. 1 Company since April, 2008. While Respondent No. 1 was following up with Southern Yarn with regard to the said o....
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....used by Kapotex for carrying out the competing business. The Agreement of Loan is at Page 278 of the Company Application No. 282 of 2009 in Company Appeal No. 15 of 2009 in CLB Company Application No. 57 of 2008 in CLB Company Petition No. 112 of 2008. It is submitted that it is inconceivable that Kapotex would take a loan of this large an amount if no business had been commenced or was being carried out by the said Kapotex. It is apparent that the Appellant No. 1 is using the business connection of Respondent No. 1 to further the competing business of Kapotex. 89. According to the Appellants, the customers of Respondent No. 1 had stopped dealing with Respondent No. 2 in view of his conduct. Within five months of Respondent No. 2 taking over marketing responsibility of the Company, disputes and differences arose between Respondent No. 2 and the Sales Agent/Customer in USA Mr. Chandrashekharan. On or about 11th/12th December 2008 the matter was resolved when Appellant No. 1 on request of Respondent No. 2 and the Logistic Manager mediated and thereafter the Company received about ₹ 70 lakhs towards dues which enabled the Company to despatch 240 feet containers of wool yarns va....
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....tains to a time period which is only 3 to 4 months subsequent to the date when Respondent No. 1 Company supplied Southern Yarn wool at USD 3.15/ LB. These Respondents further submit that, for Appellant No. 1 to have supplied 44, 168.26 LBS of woolen yarn to Southern Yarn in the month of March, 2009, it would have been necessary for it to have manufactured the same over a 2 to 3 month period prior to 26th March, 2009. iv. In view of the above, it follows that the distinction which is sought to be drawn by the Appellants between the prices for the years 2007 and 2009, to counter the allegation of undercutting is baseless, false and inaccurate. v. In the circumstances, these Respondents submit that Appellant No. 1 has while being a director of the Respondent No. 1 Company, in breach of his fiduciary duty deliberately, through Kapotex, attempted to undercut the Respondent No. 1 Company during the same time period in which Respondent No. 1 Company has conducted its business with Southern Yarn. vi. In view of the above, it is submitted that the argument of the Appellants that there was time frame of almost 3 years (2007 to 2009) between the price of USD 3.15/LB offered by Respondent N....
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....y. The accounts of the relevant years are signed by the Appellant No. 1. Question No. 5 set out in paragraph 2 of this Judgment is therefore also answered in the negative. 94. As regards the grievance of the Appellants that the learned Member of the CLB ought to have intervened and exercised the wide powers conferred upon it under Section 402 of the Act and passed appropriate orders for buy out/sell out in accordance with the law, I am of the view that the CLB is not bound to pass orders for buy out/sell out in every petition filed under Section 397/398 of the Act. Though the Appellants have alleged that the facts of the present case cried out for appropriate orders under Section 402 for buy out/sell out in accordance with law and have relied on the ratio laid down by the Hon'ble Supreme Court in the case of M.S.D.C. Radharaman (supra), I am of the view that the decision of the Hon'ble Supreme Court in the said case does not apply to the facts of the present case. In the present case, the Appellants and the Respondents do not hold the entire shareholding in the Respondent No. 1 Company equally. Apart from the Kapur family, the Respondent No. 9 also holds 10% of the equity ....