C.P. No.41/98

Present: 1. Shri S. Balasubramanian,

Vice-Chairman.

2. Shri K.K.Balu,

Member.

IN THE MATTER OF COMPANIES ACT, 1956 (1 OF 1956)

SECTION 397/398

AND

IN THE MATTER OF M/S ALAGAR SPORTS INDUSTRIES PRIVATE LIMITED

AND

PETITIONERS:

1. Smt. Indumathi Parthasarathy

2. Shri E.P. Parthasarathy

RESPONDENTS:

1. M/s Alagar Sports Industries Private Limited

2. Shri R. Balakrishnan

3. Smt. B. Sathyakumari

PRESENT ON BEHALF OF PARTIES:

Shri K.Mani, Advocate for Petitioner.

O R D E R

(DATE OF FINAL HEARING: 09.05.2001)

S. BALASUBRAMANIAN:

1. In this petition filed under Sections 397/398 of the Companies Act, 1956 (“the Act”) alleging various acts of oppression and mismanagement in the affairs of M/s Alagar Sports Industries Private Limited (“the Company”), the petitioners have sought for appointment of an administrator, reconstitution of the Board, removal of the second and third respondents from the chairmanship and Managing Directorship respectively and for surcharging these respondents for mismanagement.

2. The summary of the petition is as follows:-

The Company was incorporated in September, 1993 and there are six shareholders each holding 11 shares. The petitioners 1 & 2 and respondents 2 & 3 were the directors of the Company. According to the Articles, the second respondent is the life time Chairman of the Company and the third respondent life-time Managing Director. The respondents have not convened even a single board meeting nor any general body meeting so far and no books of accounts of the Company are being maintained. The petitioners had contributed nearly Rs.8.5 lakhs towards the share capital, yet no shares have been issued to them. The Company had borrowed funds for purchase of land and construction of the factory of the Company. In addition to the share capital, the petitioners also borrowed certain funds for the business of the Company for working capital requirements. While the petitioners have contributed substantial funds for the Company, yet the respondents even though are in management have not contributed any funds for the Company. There have been instances of diversion of funds of the Company by the respondents since sale proceeds have not been brought with the accounts of the Company. The petitioners, even though are directors, are not allowed access to the records of the Company. Accordingly, the petitioners have sought for various reliefs as indicated earlier.

3. The respondents have filed a joint-reply, according to which, even though the second and third respondents are the Chairman and Managing Director of the Company, yet the entire affairs of the Company were being carried on by the second petitioner right from incorporation. The registered office of the Company always functioned from the premises owned by the second petitioner. Even in the sales tax registration certificate, the address is that of the petitioner’s house. If at all the complaint of non-maintenance of account could be agitated, it is the respondents who should raise this complaint as the second petitioner was in the management of the Company. The Company had ceased functioning from 1995. It is the petitioners who had mismanaged the affairs of the Company and had misappropriated funds and profits for their personal benefits. The petitioners never contributed Rs.8.5 lakhs towards share capital and whatever money was borrowed by the petitioners, it is in their individual interest and for their personal benefit and not for the benefit of the Company. The land was purchased out of loans raised by the respondents of Rs.9.45 lakhs and registered in the name of the second respondent as is evident from the registration documents. According to the respondents, the petitioners could not have invested such huge amounts in the Company especially when the petitioners were allegedly denied access to the Company’s statement of account.

4. In the rejoinder filed by the petitioners, they have once again reiterated that it is the respondents who had been managing the affairs of the Company as they were life-time Chairman and Managing Director. At no point of time, the petitioners were in management of the Company and that the second respondent had filed sales tax returns for the years 1994-95, 1995-96 and 1996-97. All the averments relating to investment of Rs.8.5 lakhs towards share capital as well as other amounts lent by the petitioners are reiterated in the rejoinder.

5. When the matter was heard on 5.2.2001 referring to the reply affidavit dated 6.9.2000 in which the respondents have stated that they were not in management and that the petitioner desired to take over the management, we advised the Counsel for the respondents to ascertain from their clients whether they would be willing to formally disassociate themselves from the affairs of the Company and report on 15.2.2001. On 15.2.2001, none from the respondents side was present. In the hearing held on 22.3.2001 after notice to the respondents none appeared for the respondents. In the hearing held on 20.04.2001, when the Counsel for the respondents was present we once again advised him to ascertain from his clients whether they were willing to part ways with the Company and report on 9.5.2001. On this day also, none was present on behalf of the respondents and accordingly the petition was heard ex-parte.

6. Since both the sides contended that the other side was in management we called for the records maintained by the Registrar of Companies in regard to this Company and found that other than the initial documents filed in 1993, no further statutory documents had been filed which would have indicated as to who were in the management. According to the respondents, the Company ceased its operations in 1995, yet, according to the learned Counsel for the petitioners, the Company is functioning and about 30 workers are employed. Eventhough, the respondents have offered in their reply that they are not in management, yet, they have also stated that the relief sought for by the petitioners for removal of respondents should not be granted. We find that besides the two petitioners and two respondents, there are two other shareholders each holding 11 shares. Therefore, we consider it appropriate that the shareholders should decide as to who should be in the management. Therefore, notwithstanding anything contained in the Articles, we authorise the petitioners to call for extraordinary general meeting of the Company within a month from the date of this order for election of directors in which two directors should be elected. The names of the directors to be elected will be proposed in the meeting itself. The petitioners will issue notice to convene the meeting under the authority of this order by giving 21 days notice to all the six shareholders. We appoint Shri A.M. Sridharan, Bench Officer, to preside over this meeting and he will be paid a sum of Rs.3,000/- by the petitioners initially which will be later on charged to the accounts of the Company. The directors elected in the meeting will manage the affairs of the Company thereafter.

7. With these directions, the petition is disposed of.

(K.K. BALU) (S.BALASUBRAMANIAN)

Dated this the 11^th day of May, 2001