CP No.38/2000

Present: 1. Justice A.K. Banerji, Chairman

2. Shri S. Balasubramanian, Vice Chairman

In the matter of Companies Act, 1956-Sections 397/398

And

In the matter of Arun Kejriwal

Versus

M/s A.R.Corrogated Containers Pvt. Ltd & others

PETITIONER:

Shri Arun Kejriwal

RESPONDENTS:

1. A.R. Corrogated Containers Pvt. Ltd.

2. Smt. Roma Bhargava

3. Shri Rajiv Bhargava

Present on behalf of parties:

1. Shri Anil Agarwalla, Advocate .. for petitioner

2. Shri Deepak Kumar Jena, Advocate .. for petitioner

3. Shri Adesh Tandon, Practising Co.Secy .. for respondents

4. Shri Mukul Bhargava, Practising Co.Secy .. for respondents

O R D E R

(Date of Final Hearing 9.1.2002)

S.BALASUBRAMANIAN:

1. The petitioner, claiming to hold along with his associates, 67.35% shares in M/S A.R. Corrogated Containers Private Limited ( the company) has filed this petition under Sections 397/398 of the Act ( the Act) with the main grievances that he has been excluded from the management, that he has been denied access to the factory premises, that the respondents are guilty of siphoning of funds of the company and that shares have not been allotted to him and his group against the share application money etc. He has sought for rectification of the Register of Members in respect of the share application money, for restraining the respondents from disposing of the assets of the company, supersession of the Board of Directors and for investigation into the affairs of the company etc.

2. Shri Anil Agarwalla, Advocate appearing for the petitioner submitted: The petitioner and the 3^rd respondent promoted the company with Rs.25 lacs as authorized capital and the company was incorporated in the year 1998 with the understanding that each would contribute equally to the share capital. As subscribers to the Memorandum, both to subscribed to 10 shares of Rs.100/- each. Even though both were the first directors of the company, on resignation by the 3^rd respondent , his wife-the 2^nd respondent was appointed as an additional director. The petitioner and his associates had invested a sum of Rs.11,33,500 as share application money against which the shares are yet to be allotted/issued. Even though, the petitioner was a working director with control of the affairs of the company up to 31^st December, 1999, the respondents have denied him access to the factory premises thereafter. The bank accounts are to be operated jointly by the petitioner and the 3^rd respondent but after January, 2000, the same is being operated only by the other two directors and by doing so more than Rs. 1 lac have been diverted by the respondents to their own sister concern as is evident from the copies of the bank statements at Annexure P-6. When the petitioner took up the matter with the bank, the bank informed the petitioner that it was acting in accordance with the original resolution that the cheques would be signed only by the petitioner and the 3rd respondent. If it is so, then, the signature of the petitioner must have been forged by the respondents on the cheques issued on behalf of the company. Further, the 3^rd respondent had promoted a proprietorship concern for the purposes of diverting the business of the company as is evident from Annexure P-10 wherein the Ledger Account of the company in M/S LMJ International Limited is enclosed. It can be seen from this account that substantial amount has been paid by M/S LMJ International Ltd. to the proprietary concern of the 3^rd respondent viz. M/S R. Bhargava Associates. Further, the company has paid a sum of Rs.10 lacs to M/S Bhargava Associates and no steps have been taken to recover this money along with interest. The respondents are not holding any Board Meeting and have not finalized the accounts of the company. The petitioner is kept in complete dark about the affairs of the company. Since the petitioner was inducted as a financier and also as a director and having majority shares in the company has every right to participate in the management of the company and is entitled for the full information about the affairs of the company. The respondents have denied these rights to the petitioner. The 3^rd respondent has issued a notice as is seen from Annexure P-7 stating that the petitioner has disassociated himself from all the concerns evidencing clearly that the petitioner cannot participate in the affairs of the company. The 2^nd and 3^rd respondents have joined together to oppress the petitioner and are also mismanaging the affairs of the company. To put an end to the disputes, the Company Law Board should direct the company/respondents to refund all the monies invested by the petitioner and his group so that the respondents could independently manage the affairs of the company.

3. Shri Tandon, Advocate appearing for the respondents submitted: The 2^nd respondent has over 15 years experience in the business of Printing Press and Trading Paper. In the course of this business, he came into contact with the petitioner who desired to set up a company on partnership principles with an assurance of investing Rs.25 lacs. Thus while the 2^nd respondent provided the expertise, the petitioner was to provide finance. In terms of the understanding that the petitioner would be in charge of the affairs of the company, he was in control of the company till 31^st December, 1999. He was also getting remuneration. Sometimes in October, 1999, the 3^rd respondent sought for certain accounting details from the petitioner which he could not furnish due to which the petitioner lost interest in the affairs of the company and he voluntarily abstained from carrying on his responsibilities as a director and the respondents never prevented him from entering the factory. Since the company was formed on partnership principles with equality in shareholding, the petitioner cannot claim majority in the company. As the petitioner has invested funds in the form of share application money, the respondents have also invested Rs.5 lacs as share application money. Neither the petitioner nor the respondents have been allotted any shares against the share application money and as a matter of fact, the petitioner even though was one of the directors of the company, never raised the issue of allotment of shares against the share application money nor proposed any resolution in the Board to that effect. Therefore, the respondents cannot be held responsible for non allotment of shares. As far as issue of cheques after 1^st January, 2000 is concerned, the company had issued only 3 cheques after that date which had all been signed by the petitioner himself as a joint signatory before 31^st December, 1999 and the respondents have not forged his signatures on any of these 3 cheques. Further, even though he has made allegation in respect of these cheques, he never made any complaint to the bank and as a matter of fact, the bank has confirmed that it was acting in accordance with the Board Resolution dated 3.4.1998 (Annexure P-4) authorizing the petitioner and the 2^nd respondent to sign the cheques jointly. As far as non holding of Board Meetings is concerned, since there are only two directors in the company, namely, the petitioner and the 3rd respondent, the petitioner himself could have called for the Board Meetings. The petitioner has not alleged anywhere that the 2^nd respondent has been holding meetings without notice to the petitioner. As far as loan of Rs.,10 lacs to M/S Bhargava Associates is concerned, it is to be noted that the company does not own any plant and machinery. The Punching Machine that is being used by the company was taken on lease from M/S Bhargava Associates on a lease rental of Rs.20000/- per month and the company has given a interest bearing security deposit of Rs.10 lacs to M/S Bhargava Associates. In the Balance Sheet and Profit & Loss Accounts of the company as on 31^st March, 1999, these figures are reflected and therefore the petitioner is fully aware of the nature of transactions and as such is estopped from questioning the same now. Further, from 1^st April, 2000, the working of the company has been suspended but the Punching Machine is still with the company. Since, the respondents are not interested in continuing with the business of the company, CLB may direct the petitioner to take over the control of the company after refunding all the money due to the respondents in the form of share application money and other dues after recovery of Rs.10 lacs along with interest from M/S Bhargava Associates after adjusting the arrears of its lease rental.

4. We have considered the pleadings and arguments of the counsel. Both the sides have taken a stand that the company was incorporated with the view to conduct the affairs of the company in the nature of a partnership and as a matter of fact the name of the company itself reflects the same as the first letter of the names of the petitioner and the 3^rd respondent-being the promoters, forms the name of the company. It is unfortunate that disputes have started within less than 2 years of the incorporation of the company. Considering the fact that the petitioner having been admittedly in active participation of the management of the affairs of the company with remuneration till 31^st December, 1999, the scope of our enquiry into the allegations is limited. The main grievance of the petitioner is that he has been denied access to the factory premises by the respondents. The respondents do not accept this charge and submit that the petitioner has voluntary stopped coming to the factory premises. This grievance can be sorted out by directing the respondents to allow access to the petitioner. Likewise, in regard to the allotment of shares also, we could direct the company y to allot shares against all the pending application money. In regard to the allegation relating to the bank operations, we have seen the letter from the bank stating that the bank has not allowed operation of the bank without the petitioner’s signature. In regard to his allegation that his signatures have been forged is a matter which the petitioner has to take up with the bank especially in view of no proof that has been furnished to us in this regard. The company does not seem to have any assets since the Balance Sheet as on 31st March, 1999 does not reflect any asset other than furniture and fixtures worth about Rs.37000/-. Considering the fact that the Profit & Loss Account shows an entry of Rs.2.6 lacs towards lease rent, it appears that the stand of the respondents that one automatic punching machine has been taken on lease from M/S Bhargava Associates, is correct. Another allegation of the petitioner relates to the amount of Rs.10 lacs given to M/S Bhargava Associates which we note finds place in the Balance Sheet as on 31^st March, 1999 signed by the petitioner himself. Whether, this amount is a loan as contended by the petitioner or lease deposit as contended by the respondents, is of no consequence in as much as the same has to be recovered from M/S Bhargava Associates. As far as the allegation regarding non holding of the Board Meetings is concerned, since the petitioner is also a director, in the absence of any averment that the respondents are holding meetings without the presence of the petitioner, he himself could convene Board Meeting with notice to the respondents. On an overall assessment of the allegations, we find that the reliefs that we had indicated above would put an end to the complaints. However, in view of the complete lack of mutual confidence between the parties, which has actually resulted in suspension of the business for nearly two years now, the above reliefs may not bring in a permanent solution to the disputes between the parties and it would be in the interest of the parties and the company that either the petitioner or the respondents go out of the company. Unfortunately, both have expressed their desire to part ways with the company/the other. Since the contribution of the petitioner towards the shares and the share application money is larger than that of the respondents, we give the option to the petitioner to take over the company after paying all the investments made by the respondents towards share capital as well as share application money and any other dues. In case he exercises the option, the respondents should ensure that M/S Bhargava Associates refunds the amount of Rs.10 lacs together with the agreed rate of interest failing which since M/S Bhargava Associates is a proprietary concern of the 3^rd respondent, the dues from this concern will be deducted from the payment to be made to the respondents. Since the company has not utilized the automatic punching machine taken on lease from M/S Bhargava Associates from 1^st April, 2000, no lease rental will become payable. The petitioner should indicate by a written notice to the respondents his option to take over the company within 3 weeks from the date of this order and once he exercises the option, the same will be binding on the respondents. The amount due to the respondents will be paid by the petitioner within 3 weeks from the date of exercise of the option. In case the petitioner does not choose this option, the Board of the company will meet and allot shares against all the application money as indicated in the Balance Sheet as on 31.3.1999. The respondents would be at liberty to invest further funds towards shares to bring their shareholding to 50% of the total share capital of the company. The petitioner/the 2^nd respondent is at liberty to call for Board Meetings with due notice to the other director. The banking operation will continue to be carried on with the joint signatures of the petitioner and the 3^rd respondent till such time the same is modified by a Board Resolution. The company is at liberty to recall the amount of Rs.10 lacs paid to M/S Bhgargava Associates, which is sole proprietary ship of 3^rd respondent, will on such recall, repay the amount with interest due thereon within 15 days on such recall. Simultaneously, the punching machine will be returned to M/S Bhargava Associates.

5. The petition is disposed of in the above terms with no order as to cost.

(S. Balasubramanian) (A.K. Banerji )