TaxTMI 
TaxTMI 
2008 (6) TMI 620
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....t of the Company; (e) to restrain the respondents from forcing the petitioner to transfer the 9.50% shares to the second respondent; (f) to restrain the respondents, their men, servants and agents from alienating or encumbering or in any way transferring the assets of the Company; (g) to make good the loss caused to the Company by the acts of the respondents; (h) to reconstitute the Board of directors of the Company; and (i) to prepare a scheme of administration to conduct, regulate and manage the affairs of the Company. 2. Shri G. Venkataramani, learned Counsel, while initiating his arguments in support of the petitioner, submitted: The Company has been incorporated in November 1985 by one Shri P. Saravanan Chettiar and Shri S. Kandasami, and is engaged in the business of manufacturing and trading in computer forms and pre-printed stationeries. During the financial year 1989-90, the petitioner and the second respondent had acquired each 2000 equity shares from the promoters. As at 15.09.2004, the authorised capital of the Company was of Rs. 25 lakhs and the paid capital accounted for Rs. 23,02,0....
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....the annual general meeting held on 13.10.2004, none of the additional directors including the fourth respondent was appointed and thereby they ceased to be directors of the Company, as a result of which the petitioner and the third respondent alone continued to be director of the Company and the petitioner was managing the affairs of the Company. The balance sheet for the year ended 31.03.2005 brought out later, was signed by the respondents 2 & 3, as the second respondent was not a director of the Company as on 31.03.2005. The respondents 2 & 4 are not lawful directors and, therefore, they have no right to continue in the office of director. Article 34A provides that only a member holding in his own name 2000 shares being eligible for being elected as director, whereas the second respondent has not satisfied this minimum requirement and, therefore, he has no authority to act as a director. 5. The respondents 2 to 4 played fraud on the petitioner by means of a forged letter as well as a board resolution dated 03.01.2005, by which (i) second respondent became Managing Director; (ii) Respondents 2 to 4 were authorised to operate the bank account; (iii) petitioner was removed from ....
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....ting business of the Company, which resulted in losses suffered by the Company. In a winding up proceeding, initiated against the Company by third party creditors, even though provisional Liquidator came to be appointed, the respondents failed to take appropriate steps diligently, protecting the Company's interest. 8. The petitioner is a single majority shareholder and a director, but was not allowed to attend the board or general meetings. No notice of the Board or general meetings was served on the petitioner. The respondents never obeyed the order of this Bench made on 24.05.2005 in furnishing any statement of receipts and payments on account of the transactions of the Company once in 15 days commencing from 01.06.2005. The respondents, during the pendency of the present proceedings, attempted to remove the petitioner from the office of director at an extraordinary general meeting held on 25.07.2005, which was restrained through the intervention of this Bench by an order dated 19.07.2005 made in C.A. No. 86 of 2005. Nevertheless, the petitioner was deliberately removed from the post of director and advised the Company's banker and auditors, in gross violation of the C....
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....ioner's account for income tax purpose and was shown as investment by the petitioner. The petitioner has commenced competitive business even before filing of the company petition. 11. The petitioner admits his signature in the affidavit and other documents containing several undertakings, which are produced before the Bench. The affidavit has been admittedly executed at the factory premises in the presence of the Inspector of Police, a large number of employees, friends and relatives. The Board minutes dated 05.02.2005 duly signed by all the directors including the petitioner speak of among other things, appointment of the second respondent as managing director and appointment of the fourth respondent as director of the Company. A board meeting was conducted on 16.02.2005 in the presence of the Asst. General Manager of State Bank of Hyderabad, wherein all directors including the petitioner recorded a statement that the disputes among them are resolved amicably and the second respondent was re-instated as Managing Director of the Company. The petitioner by his letter dated 16.02.2005 forwarded the minutes of the meeting of 16.02.2005 to the Company's banker, (filed on 20.....
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....ents said to have been made on 08.09.2004. The report of the Chartered Accountant appointed by this Bench shows that the impugned allotments are not supported by any entry in the ledger for receipt of any consideration. Those allotments being oppressive and illegal must be set aside. 13. The second respondent gifted his shares to the respondents 3 and 4, but the gift was not effected in the records of the Company. The shareholding pattern as existed during 2000-2001 remains the same till date. The Directors report dated 01.09.2004 bears the signature of the fourth respondent, whereas she was appointed only on 08.09.2004 and, her signature in the director's report has been forged by the petitioner. The second respondent was not removed from the office of director as reflected in the Board minutes dated 08.09.2004. The Board minutes carry the forged signature of the fourth respondent, as reported by the Forensic Department and the whole matter is under investigation by the Central Crime Branch, Chennai. The petitioner produced one more Board minutes dated 08.09.2004, before the Company's banker, as if the petitioner was authorised to operate the bank account solely, in ord....
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.... making company into a cash crunch company, by siphoning monies of the Company and fabricating records, namely, gate passes, cash vouchers etc. The petitioner, while in the management of the Company had issued a number of cheques to the suppliers, many of which bounced back for want of funds, details of which are given in CA No. 61 of 2005. The petitioner claimed to be in the management of the Company till March 2005, but at the same time pointed out the shortage of stocks maintained by the Company as at 31.03.2005. The petitioner must be held responsible for any shortage of the materials maintained by the Company. However, the Independent Valuer, on verification of the stock registers, goods received notes and delivery challans, did not find any physical shortage of the stock maintained by the Company. 16. The Company was inflating the value of the stock for the past several years, as observed by the Independent Valuer, which according to the Company for the purpose of availing higher financial facilities from the Bank. The bank had renewed the cash credit limit despite the complaint of the petitioner. The petitioner is guilty of producing two different balance sheets drawn and....
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....manner oppressive to any member so as to claim reliefs under Sections 397. The petitioner cannot invoke Section 397 against any careless conduct of a director. The petitioner has not established that the conduct of the respondents is unfair and lacks in probity, causing prejudice to the petitioner, in exercise of his legal and proprietary rights as a shareholder. The petitioner has not shown whether the present state of affairs of the Company would lead to winding up of the Company on just and equitable grounds which would unfairly prejudice the Company and its members. At the same time, certain creditors at the instance of the petitioner initiated winding up proceedings against the Company in C.P. No. 130 of 2006 before the High Court of Madras, which however came to be later set aside. 19. I have considered the pleadings and arguments-oral as well as written-advanced for the parties. The arguments and case laws set out in the written submissions, but not dealt with at the time of oral submissions are not considered, for want of any opportunity to answer those issues by the respective parties. The charges and counter charges by and against each of the parties, raised in the aff....
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.... in the presence of Mr. S. Maniazhagan, Inspector of Police, E-2, Police station and in the presence of large number of employees, friends and relatives! The Petitioner was let out at 10.30 p.m. in the night with a warning and threat of re-arrest if he goes back on his undertaking." (Para 21 in page 10 of company petition.) These grievances of the petitioner on account of coercion and force purportedly exercised by the respondents 2 to 4 can neither be agitated in a Section 397/398 proceeding nor adjudicated by the CLB in a summary proceeding. Nevertheless, it is found that the petitioner and the respondents 2 to 4 have consciously acted upon the decisions taken at the Board meeting held on 05.02.2005, pursuant to the settlement reportedly reached between Them, in the terms of the affidavit dated 05.02.2005 of the petitioner. 22. These are reflected in the Board minutes dated 16.02.2005, the relevant portion reads as under: ITEM No. 1 Mr. R. Madanagopal has informed the board that he attended the bank meeting arranged by Asst. General Manager along with Mr. K. Adiaman and explained with Bank that all the disputes has solved amicably and requested bank to allow the....
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....rth respondent became director of the Company. The respondents 2 & 3 or fourth respondent were jointly to operate the bank account and do all acts of the bank. The authority of the petitioner to operate the bank account was withdrawn with effect from 05.02.2005. The Board minutes dated 16.02.2005 signed by the petitioner and the respondents 2 to 4 recognized the fact of appointment of the second respondent as Managing Director of the Company. According to the respondents themselves, "The second respondent was in fact appointed as a Managing Director from 03.01.2005 by the Board which is evidenced by the form 32 annexed herewith as ANNEXURE III (para 6 of counter). It is, therefore, beyond doubt that the second respondent as Managing Director and the respondents 3 & 4 as directors of the Company had taken charge of the affairs of the Company with effect from 05.02.2005, and are solely accountable for assets of the Company, including the stocks of finished goods and raw materials. The stock statement dated 01.03.2005 under the signature of second respondent discloses stocks worth Rs. 60,18,552.75 lakhs and the audited balance sheet for the year ended 31.03.2005, bearing the signature....
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....nt for the month of March, 2005 was taken away by the petitioner is based on hearsay evidence and not supported by any concrete evidence. 25. The Valuer has reported in his report of 30.01.2006 that "Necessary adjustments were made in the audited accounts of the Company for the year ended March 31, 2005 to the extent of shortfall in the value and the extent of shortfall was treated as claim receivable from the Petitioner. Hence, necessary adjustment was made in the accounts as on 31.03.2005 relating to shortfall in the value of the stock to arrive at the value per equity share" The petitioner cannot be mulct with any liability on account of shortfall in the value, merely on the strength of the Valuer's report. The basis for reaching such conclusion has not been divulged in the Valuer's report. There is no material whatsoever to treat the extent of shortfall as claim receivable from the petitioner and consequently the adjustments made in the accounts as on 31.03.2005 relating to shortfall in the value of stock, as aforesaid are impermissible and the reduction in the value of stock as on 31.03.2005 amounting to Rs. 36,91,120/- effected by the Valuer, while determining the ....
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....llowing charges: * The first accused (petitioner) and the second accused, namely K. Ashan Bee (Manager of the Company), during the period between 01.04.2002 and 31.03.2005 and 01:04.2005 and 30.06.2005, appear to have fraudulently misappropriated funds to a tune of Rs. 80 lakhs. * The petitioner in connivance with the second accused floated another company under the name and style of Deccan Forms and diverted the business of the Company to Deccan Forms. * The petitioner and the other accused filed a fake report of the Directors Responsibility Statement of the Company for the year 2004, before the Registrar of Companies, which contained the forged signature of the fourth respondent. * The petitioner committed fraud by preparing two different balance sheets for the year ended 31.03.2004, one showing profits and the other reflecting losses, with intention to cheat the Registrar of Companies, Income Tax Department and the Company's banker. * The petitioner and the second accused misappropriated an amount Rs. 1.57 lakhs under the guise of supply of PP lay bill to M.T.C. * Misappropriated an amo....
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....ment in the affairs of the Company and misappropriation of funds of the Company involving huge sums of money attributed to the petitioner are the subject matter of the pending criminal proceedings before the Court of Judicial Magistrate, Ambattur and I, therefore, refrain from adjudicating those contentious issues. 30. It is for the same reasons, the conclusions, reached by the Valuer on the financial irregularities reportedly restored to by the petitioner are pre-mature, for want of any finality reached in the criminal proceedings. Similarly, the company petition cannot be dismissed on the ground that the petitioner has not come with clean hands before the CLB, in view of the current pendency of the criminal proceedings and, therefore, decision in Arun Mehra v. Durga Builders (P) Ltd. (supra), wherein the conduct of parties in other proceedings, is held to be relevant, will not go in aid of the respondents. In view of this, the contesting parties will go by the ultimate outcome of the criminal proceedings and accordingly are at liberty to take such steps which may become necessary by either of the parties, as conceded at the time of making oral submissions in the matter. 31.....
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....20 shares in favour of the petitioner (7000); the third respondent (6000) and the fourth respondent (5,020) on 08.09.2004 purportedly made on 08.09.2004 and reflected only in the ROC records. The available Board minutes dated 08.09.2004 do not even whisper about these allotments. The purpose of allotment or details of payment of consideration for the disputed shares are conspicuously not available. The allotment of 18,020 shares of the Company is nothing but a nullity. With the impugned allotments the paid up capital exceeds the authorised capital of the Company. The balance sheet of the Company for the year ended 31.03.2005 does not reflect the allotments challenged by the respondents. It is relevant to point out that learned Counsel for the petitioner submitted across the Bar that the petitioner is willing to forego the allotment of shares impugned in the main petition. 33. The petitioner is seriously accused of carrying on competition business under the name and style of Deccan Forms but there are neither pleadings nor materials as to (a) promoters of Deccan Forms; (b) petitioner's involvement in Deccan Forms; and (c) diversion of the Company's business to Deccan Form....
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.... Company's assets, which will have material impact on the realistic value of shares of the Company. The guideline value does not reflect the market value of any immovable properties, except in the rarest of rare cases, which the Valuer failed to take into account, while determining the value of shares of the Company. The Valuer has not given in his report the market value of the immovable properties belonging to the Company. The valuation of shares based on the guideline value of the assets does not represent the true and fair value of shares. The petitioner has categorically contended in his Memorandum of objections dated 16.06.2006 on the report dated 30.01.2006, that "The Chartered Accountant while arriving at the value of factory land has relied upon the guideline value fixed for stamp duty purposes @ Rs. 436/- per square feet which is much less than the market value of the property. The current value of the land is more than Rs. 1500/- per square feet "...(para 15 in page 6). This value of the land remains uncontroverted either in the counter to the main petition filed on 26.06.2006, by the respondents or at the time of arguments advanced on their behalf. The market value ....
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....(9.5% of 7000 =665) in favour of the second respondent. The petitioner would, therefore, be entitled to receive fair price from the respondents only for 6335 shares, upon which, the petitioner would cease to be a shareholder of the Company, which shall however subject to any claim which may arise against him on final determination of the pending criminal proceedings. 40. The petitioner was sought to be removed from the post of director, during the pendency of the main petition, at the extraordinary general meeting proposed on 25.07.2005, upon which the petitioner moved an application (C.A. No. 86 of 2005), wherein this Bench by an order dated 19.07.2005 restrained the respondents from removing the petitioner from his directorship, until disposal of the main petition. Nevertheless, the petitioner was removed at the extraordinary general meeting of 25.07.2005, subject to the final order that may be made by the CLB. Accordingly, Form No. 32 has been filed by the third respondent, with the Registrar of Companies, notifying the removal of the petitioner "from the Board of Directors subject to the Final order of the CLB, SRB, Chennai in C.P. No. 28 of 2005". It is found that while the....