Present: 1. Shri S. Balasubramanian, Vice-Chairman.
2. Shri K.K.Balu,
Member.
IN THE MATTER OF COMPANIES ACT, 1956 (1 OF 1956)
AND
IN THE MATTER OF M/S GRAPHIC
IMPRESSIONS (MADRAS) LIMITED
PETITIONER:
Shri S.B.P. Anand Mohan
RESPONDENTS:
1. M/s Graphic Impressions (Madras) Limited
2. Shri K. Cherian
3. Shri S. Thiruchelvam
4. Shri V. Aswath
PRESENT ON BEHALF OF PARTIES:
1. Shri Krishna Srinivasan, Advocate … for Petitioner.
2. Shri Arvind P. Datar, Senior Advocate … for Respondents.
3. Shri R. Venkatavaradan, Advocate … for Respondents.
O R D E R
(DATE OF FINAL HEARING: 02.07.2002)
K.K.
BALU:
1.
The petitioner holding 14.83 per
cent of the issued and paid-up capital in M/s Graphic Impressions (Madras)
Limited (“the Company”) has filed this petition under Section 397/398 of the
Companies Act, 1956 (“the Act”) alleging acts of oppression and mismanagement
in the affairs of the Company.
2.
The main acts of alleged
oppression and mismanagement relate to exclusion of the petitioner from the
affairs and management of the Company, diversion of business and funds of the
Company, manipulation of the expenses incurred by the Company, unauthorized
sale of the assets of the Company, unlawful writing off huge debts of the
Company and misappropriation of funds.
3.
Shri Krishna Srinivasan,
Advocate appearing for the petitioner while initiating his arguments submitted
that initially the printing business was carried on by the respondents 2 &
3 as a partnership concern, wherein the petitioner was subsequently inducted as
a partner in April, 1986, all the three being equal partners and the petitioner
being a qualified technical partner.
With the growth of business, the partnership was converted into a
private limited company in May 1993, which subsequently became a public limited
company in March 1995 with the capital of Rs.1.27 crores. The petitioner was the whole-time director
upto 1996 and was taking care of production.
During
the year 1996, the Company made a profit of Rs.20 lakhs and had an accumulated
reserve of Rs.37 lakhs for the year ended 31.03.1996. At this stage, the respondents
had diverted the business of the Company to their own partnership concerns,
which used to give job work to the Company adversely affecting the profit
position of the Company. The second
respondent has started yet another similar business in the premises of the
Company with his family members utilizing the entire infrastructure of the
Company amounting to unfair prejudice of the shareholders and entitling the
petitioner to obtain appropriate relief.
In this connection, he relied on London School of Electronics
Ltd., Re 1985 BCLC 273 and Stewarts (Brixton) Ltd., Re BCLC 4, 8 (Ch 2) to
show that the diversion of a business opportunity from the company to another
company controlled by a director holding majority shares of the first company
is oppressive. In the meanwhile, the
respondents prevented the petitioner from carrying on his functions and started
excluding him from the affairs of the Company.
Consequently, the petitioner stopped working as a whole-time
director. The respondents had incurred
huge liability by borrowing from Global Trust Bank, which is totally unnecessary. The respondents had disposed the assets of
the Company for a loss. The Company had
to incur a loss of Rs.95 lakhs in the year 1999-2000 on account of the mismanagement
by respondents 2 to 4. The respondents inflated
consumption of raw materials at more than 90 per cent and manipulated the
expenditure, which has gone as high as 158 per cent. In the process, the respondents
diverted profits of over Rs.48 lakhs to themselves. The annual general meeting of the Company for the year 1999 was
held in September 1999. Annual general
meeting for the year 2000 was conducted after 20 months. The respondents have not chosen to finalise the accounts for the year 2001 violating the provisions of
Section 166 of the Act. The respondents’ mismanagement resulted in
non-performing assets of over Rs.90 lakhs. The respondents have deliberately mismanaged
the Company and siphoned off the funds to their own private enterprises. Shri Krishna Srinivasan while concluding his
arguments, pointed out that the affairs of the Company are being conducted
continuously in a manner prejudicial to the interest of the Company and
oppressive to the members and sought for the reliefs made in the petition, in
support of which he relied on (1984) 55 CC Page 702 – Chander Krishan
Gupta Vs. Pannalal Girdhari Lal Private Limited and others and (1988)
64 CC Page 19 – Col. Kuldip Singh Dhillon and Others Vs. Paragaon Utility
Financiers P. Ltd. And others.
4.
Shri Arvind P.Datar, Senior
Advocate appearing for the respondents, while refuting the charges of
mismanagement and misappropriation leveled against the respondents has
submitted that the petitioner did not evince any interest whatsoever in the
affairs of the Company. He pointed out
that the petitioner had availed a loan of Rs.12.50 lakhs from Mr. Bijal Patel
towards his share capital in the Company through personal contact of the second
respondent. The said loan was guaranteed by the
second respondent. The petitioner never bothered to repay the said loan, which
was ultimately cleared by the second respondent. The wife of second respondent has lent Rs.38 lakhs to the
petitioner. No interest is paid to
her. The petitioner, therefore, has no
locus-standi to question the acts of respondents. According to Shri Datar, even though the petitioner continues to
be a director of the Company he never participates in the management and
affairs of the Company. He further
pointed out that the petitioner himself had started his own printing business
in 1986-87, without the knowledge of the respondents, which incurred a huge
loss and has bank liability of Rs.20 lakhs.
According to Shri Datar, the petitioner sought the assistance of the
respondents to bail him out from the financial difficulties resulted on account
of his private business, which was declined by the respondents resulting in
filing of this petition. Shri Datar
justified the borrowal from Global Trust Bank as well as the sale of land by
the Company, by which the petitioner has never been aggrieved. Shri Datar pointed out that the Company was
facing declining sales from 1998 onwards due to recessionary trends as well as shifting of clientele to other
medias. The machinery belonging to the
Company is rather old and the print quality is not up to the mark, which
resulted in poor business of the Company.
The Company could not generate sufficient cash flows and liabilities
mounted. Shri Datar pointed out that
the loss is on account of imposition of sales tax; the sale as waste paper of
semi-finished products accumulated over a period of years and bad debts to the
tune of several lakhs. He further
pointed out that the Company removed the old papers from the stock and sold
them at a market price by the Company, which resulted in reduction of closing
stocks by about Rs.40 lakhs. This is the
reason for the figures showing increased raw materials consumption. These
factors are beyond the control of the respondents resulting in losses. In the circumstances, the respondents
started giving job works to the Company through the private units at higher
rates. Consequently, the Company could
run 2 to 3 shifts every day, could survive on job working and repay about
Rs.137 lakhs in favour of the bankers and SIDBI. He, therefore, urged that there are no acts of oppression and
mismanagement on the part of the respondents.
He further pointed out that the petitioner has not given the proof of
acts of oppression and siphoning off funds by the respondents, without which
such allegations cannot be sustained.
In this connection, he relied on
(i)
Ravi Shankar Taneja V.
Motherson Triplex Tools (P) Ltd. – (2001) 4 CLJ 102 (CLB) – to show that in case of allegations of mismanagement,
siphoning off of funds without giving any particulars or details, no
adjudication on these issues is possible on the basis of suspicion and
surmises;
(ii)
Allianz Securities Ltd.
V. Regal Industries Ltd. – (2001) 4 CLJ 314 (CLB) – to show that the allegation of diversion and siphoning of
funds for personal use without particulars substantiating such allegations
cannot be taken cognizance by the CLB;
and
(iii)
Jaladhar Chakraborty and
others Vs. Power Tools And Appliances Co. Ltd. And others - (1994) 79 CC Page 505 – to show that the acts of oppression must not only be
alleged with sufficient particulars, but they must also be proved to the satisfaction
of the Court.
Pointing out the conduct
of the petitioner, Shri Datar submitted that the petitioner could not seek any
remedy against the petitioners, in support of which he relied on:
(iv)
Desein Pvt. Ltd. V.
Electriom India Ltd. – (2001) 3 CLJ 459 (CLB)
(v)
Anand Kumar Saigal V.
Manu Properties (P) Ltd. – (2001) 3 CLJ 425 (CLB)
(vi)
Ajit Singh Vs. DSS
Enterprise – (2001) 4 Com.LJ 421 (CLB).
-
to show that the conduct of
the parties is an important aspect in moulding relief by the CLB.
5.
Shri Datar while concluding his submission submitted that in case the petitioner is
asked by the CLB to get out of the Company and shares are valued, the CLB may
take into account the interest payable to the relatives of the directors who
have given loan to the petitioner and also the loan amount guaranteed and paid
by the second respondent enabling the petitioner to subscribe to his share
capital of the Company.
6.
We have considered the
pleadings and arguments of the Counsel.
The main grievances of the petitioner are that being a director of the
Company he has been excluded from the management and the affairs of the Company
since 1996; that the respondents have diverted the business of the Company to
their own partnership concerns; that the respondents have incurred huge
unnecessary liabilities; that they have disposed of assets of the Company which
is already incurring losses and that they have inflated the consumption of
raw-materials and manipulated expenses. The petitioner on his own admits that
he had been excluded from the management from 1996 on wards. There is nothing on record to show that at
any point of time, he had attempted to enforce his rights as a director for
this long period. More so, when he
claims himself to be the only technically competent person. Therefore, as far as allegation that he has been
excluded from the management cannot be considered at this belated time. In respect
of other acts of mismanagement like diversion of funds, manipulation of
expenses, unauthorized sale of assets etc. as alleged by him have not been
substantiated, without which we are not inclined to grant any relief, as has
been upheld by the Courts in the cases cited supra. However, considering the facts of this case that the petitioner
was one of the partners of the firm, which was later, converted into a Company,
on equitable consideration we should grant him appropriate relief. Such relief in the facts and circumstances
of the case is that the respondent/the Company should purchase the shares held
by him on a fair consideration. Since
the Company had incurred losses and since the petitioner has not been
associated with the affairs of the Company as per his own admission, we
consider it appropriate that the shares of the petitioner should be purchased
at par either by the Company or the respondents. During the course of hearing, it was urged by the learned Senior
Counsel for the respondents that the amount of Rs.12.50 lakhs invested by the
petitioner was taken as loan by him from M/s Chittamoor Holdings and Finance
Pvt. Ltd. (Rs.10 lakhs) and M/s Chottabhai and Company (Rs.2.50 lakhs) with the
guarantee given by the second respondent and since the petitioner had failed to
repay the same, the second respondent had to refund the amount. In other words, according to the learned
Senior Counsel for the respondents, the petitioner has not invested any money
on his own for the shares allotted to him and as such even the order to
purchase his shares were to be issued, nothing would be payable to him. Normally, when the name of a person is on
the register of members and shares have been allotted to him, we would not go
into as to the source of investment.
However, since the respondents had produced an affidavit from Shri Bijal
K.Patel, who is purported to have arranged the loans through M/s Chittamoor
Holdings and Finance Pvt. Ltd. And M/s Chottabhai and Company to the petitioner
for subscribing to the shares, which was later repaid by the second respondent,
we gave the opportunity to the petitioner to rebut the same. The petitioner has now produced two letters
dated 21.06.2002 and 10.07.2002 from M/s Chittamoor Holdings and Finance Pvt.
Ltd. The letter dated 21.06.2002 shows
that loans were taken by the petitioner and respondents 2 & 3 during June,
1995 from M/s Chittamoor Holdings and Finance Private Limited. These loans were settled by them during the
financial year 1996-97. It further
confirms that these loans were given only against promissory notes and not guaranteed
by anyone. In the reply affidavit to
these letters, the respondent has pointed that in spite of directions given by
this Bench, the petitioner has not produced his bank statements to evidence the
repayment of the loan by himself. The
letter given by M/s Chittamoor Holdings and Finance Pvt. Ltd. only indicates
that the loan taken by the petitioner had been refunded without indicating as
to how and by whom this amount was repaid.
Therefore, no reliance should be placed by this letter.
7.
In this petition, what we are
concerned is the affairs of the Company and the relationship between the
shareholders and the Company. It is on
record that the petitioner had subscribed to the shares issued to him and his
name is in the register of members in respect of these shares. The issue relating to as to how and in what
manner the petitioner mobilized funds for investment in the shares and whether
the loan borrowed by him was repaid by the respondent etc are irrelevant as far
as these proceedings are concerned.
Since we had already directed in para 6 of this order that the shares of
the petitioners should be purchased at par either by the Company or the
respondents, the investment made by the petitioner for these shares should be
paid by the purchaser of these shares at par.
As far as the claim of the respondent that he had repaid the loan taken
by the petitioner is concerned, he may initiate appropriate proceedings if so
advised in this matter. In case the
Company purchases the shares, it is authorized to reduce the share capital of
the Company to the extent of face value of the shares. The consideration for the shares should be
paid on or before 31.12.2002. In case
the shares certificates had been delivered to the petitioner, he will hand over
the same along with the blank transfer forms to the purchaser of these shares
at the time of receiving the consideration.
8.
With the above direction, we
dispose of this petition with no order as to cost.
(K.K.
BALU) (S.
BALASUBRAMANIAN)
Dated this the 9th day of August, 2002