TaxTMI 
TaxTMI 
TaxTMI 
2008 (6) TMI 620
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....he 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 ₹ 25 lakhs and the paid capital accounted for ₹ 23,02,000/- which got increased by ₹ 5 lakhs. The shareholding of the Company underwent changes from time to time as under: Sl. No.....
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.... 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 the list of authorised signatories to operate the bank account; and (iv) obtained consent of the petitioner to transfer 9.5% of his shares in favour of the second respondent, with a view to take control over the financial affairs of the Company. The fourth respondent having already ceased to be a director with effect from 13.10.2004, the Board meeting reportedly held on 03.01.2005 with participation of the fourth respondent is invalid in the eye of law. The....
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....ngs. 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 CLB order, for which the respondents must be punished, as claimed in C.A. No. 139 of 2005. 9. The valuation report submitted by the Chartered Accountant appointed by the Bench is deliberately biased and wilfully ignored all information and documents furnished by the petitioner before the preparation of the valuation report. The Valuer has taken into account only guideline value of the immovable property belonging to the Company, whereas the ma....
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....ber 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 20.08.2007). The petitioner having given confirmation of the settlement of disputes and change of signatories for operation of the account in favour of the bank in February 2005, as borne out by the minutes dated 16.02.2005 would establish that no threat or coercion was exercised against the petitioner to execute the affidavit and other records, as claimed by him. 12. The petitioner had allotted 6800 shares of ₹ 100/- each to himself in violation o....
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.... 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 order to siphon of funds of the Company. Similarly the Board minutes dated 15.09.2004 appointing Shri K. Kalamegam and P.V. Viswanathan as directors and allotting 6,980 shares to the petitioner are manipulated with the forged signature of the fourth respondent and the matter is presently under investigation by Central Crime Branch, Chennai. The petitioner was arrested on 24.04.2006 for manipulating the board resolutions dated 08.09.2004 and 15.09.2004. No....
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....hortage 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 signed along with the statutory auditor for the year ended 31.03.2005 with a clear statement as to why the difference of ₹ 40 lakhs has been added in the closing stock in the balance sheet for the year ended 31.03.2005. The petitioner has been furnishing to the Registrar of Companies and the bank different figures on reserves and surplus, profits and loss, closing stock, sundry debtors, fraudulently with a view to gain unlawfully by furnishing some fi....
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....ld 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 affairs of the Company are required to be examined in order to prevent and bring to an end the matters complained of in the present proceedings. 20. According to the petitioner, the respondents 2 to 4 had played fraud on the petitioner by virtue of a forged Board resolution dated 03.01.2005 thereby, (a) appointing the second respondent as Managing Director; (b) authorizing the respondents 2 to 4 to operate the bank account by withdrawing the authorit....
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.... 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 operation. ITEM No. 2: Further it was informed with Bank that Mr. Madanagopal Has elected as Managing Director of the Company. ITEM No. 3: Further it was informed with Bank that the cheque will be signed by Mr. R. Madanagopal along with Mrs. Rajalakshmi or Miss Geethupriya only. Mr. K. Adiaman also agreed to that with AGM of Bank. • The petitioner being a party to the aforesaid Board resolutions and having acted in tune with the "....
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....selves, "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 ₹ 60,18,552.75 lakhs and the audited balance sheet for the year ended 31.03.2005, bearing the signature of the respondents 2 & 3 speaks of the closing stock of ₹ 55.86 lakhs, whereas stocks worth ₹ 15 lakhs were only in existence during the inspection undertaken on 26.04.2005 and 10.05.2005, by the Company's bank Manager, in terms of his communication dated 17.05.2005. It is not made known under what circumstances the bank had renewed the cash credit facilities, despite the shortage of stocks maintained by the Company. Nevertheless, in normal banking p....
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....ment 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 ₹ 36,91,120/- effected by the Valuer, while determining the value of shares must not only be reversed but also be recovered from the respondents. 26. The prejudices suffered by the Company and its directors on account of dishonour of cheques issued by the respondents in favour of certain suppliers for want of sufficient funds, do not any longer exist, pursuant to the purported withdrawal of cases filed against the Company. I do not either propose to consider the veracity of other charges levelled ....
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....e 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 ₹ 1.57 lakhs under the guise of supply of PP lay bill to M.T.C. • Misappropriated an amount of ₹ 3.08 lakhs against a bogus bill representing the purchase of photocopying paper from M/s. Prince Computer Stationeries, Chennai-6. • Misappropriated ₹ 8.41 lakhs from and out of the sale of End Reel Papers (raw materials) from the Company, without accounting the sale proceeds in the books of account of the Company during the period from April, 2002 to January, 2005. • Fraudulently dispatched papers using Gate Passes to M/s. Milliennium Paper (India) ....
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....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. The respondents are impugning the allotment of 6980 shares exclusively on 15.09.2004 in favour of the petitioner. The Board minutes dated 15.09.2004, the original of which has never been produced before this Bench, would disclose the allotment of 6980 shares of ₹ 100/- each to the petitioner in order to meet the increasing turnover of the Company. There are no particulars available in regard to the existing turnover of the Company, any possible prospects on account of such increase in the turnover and t....
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....p 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 Forms, without which no conclusions could be reached by me. The mere production of certain correspondence exchanged between the Company's supplier and Deccan Forms cannot conclusively establish the present charges levelled against the petitioner. 34. The sequence of events would undoubtedly disclose the mis-trust and differences which are un-reconcilable, between the parties. The relationship got strained to the extent of initiating criminal proceedings against each other, which led to the arrest of the petit....
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....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 @ ₹ 436/- per square feet which is much less than the market value of the property. The current value of the land is more than ₹ 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 of the land at ₹ 1500/- per square feet, as claimed by the petitioner, not having been denied, expressly or impliedly, is deemed to have been accepted by the respondents. 37. Applying the same yard stick, the value of building belonging to the Company, determined at the rate of ₹ 350/- per square feet, not having been disputed, is binding on the petitioner and cannot be discarded by him. However, the petitioner in his written arguments filed on 19.11.2007 showed the mar....
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....ncy 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 Board removed the petitioner from the post of director, further resolved that "the above resolution shall come into force after final disposal of C.P. No. 28 of 2005 in accordance with the Company Law Board order dated 19.07.2005" The Board has not given effect to the resolution removing the petitioner from the directorship in which case, the petitioner continues to be part of the Board of directors of the Company. Therefore, this grie....