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 THE
KANTHIMATHY PLANTATIONS PRIVATE LIMITED
PETITIONERS:
1. S. Veerasubramonia Sarma
2. S. Lakshmana Sarma
3. S. Kanthimathy Ammal
4. S. Lakshmi Ammal
5. S. Meenakshi Ammal
6. V.Sivaramakrishnan
7. T.S. Rajalakshmi
8. V. Kalyani
9. K. Mahesh
10. V. Lalitha Lakshmi
11. V. Parvatha Vardhani
12. V. Kanthimathy
RESPONDENTS:
1. The Kanthimathy Plantations Private Limited
2. S. Krishna Sarma
3. T.P. Nair
4. D. Parameswaran
5. The Peermade Tea Company Limited
6. The Braemore Estates Limited
7. The Peninsular Plantations Limited
PRESENT ON BEHALF OF PARTIES:
1. R. Murari, Advocate … for
Petitioners.
2. R. Thirunavukarasu, Advocate … for Petitioners.
3. V. Ramachandran, Sr. Advocate … for
Respondent No.2.
4. Anita Sumanth, Advocate … for
Respondent No.2.
5. N. Muthukumar, Advocate … for
Respondent No.2.
6. R. Shankaranarayan, Advocate … for Respondents 3 & 4.
O R D E R
(Date of Hearing: 7.6.2002)
K.K. BALU:
1.
The petitioners together with
the consenting shareholders constituting more than one-tenth of the total
members of M/s Kanthimathy Plantations Private Limited as well as holding 45.03
per cent of the shares, have filed this petition under Section 397/398 of the
Companies Act, 1956 (“the Act”) alleging oppression and mismanagement in the
affairs of the Company.
2.
The main acts of oppression
and mismanagement relate to the illegal appointment of directors/Managing
Director/Chairman, illegal purported postponement of 31st Annual
General Body meeting of the Company and illegal transfer of 1,21,181 equity
shares of respondents 5 to 7 held by the Company in favour of the second
respondent with a view to bring to an end these illegalities, the petitioners
have sought the following reliefs:-
(a) to declare that the appointment of the second respondent as
director, Managing Director and Chairman of the Company as invalid;
(b) to declare that the respondents 3 & 4 have ceased to be
directors of the Company;
(c) to set aside the transfer of impugned shares;
(d) to declare that the purported postponement of the 31st
Annual General Meeting by respondents 2 to 4 is illegal; and
(e) to direct an investigation into the conduct of the second
respondent in regard to the affairs of the Company.
With
a view to settle the disputes amicably among the petitioners and the second
respondent, all belonging to the family of late S.S.Iyer, we have by a consent
order dated 7.6.2001 ordered for
convening a general body meeting for the purpose of electing five directors to
the board under the chairmanship of the Bench Officer. Accordingly, in the general body meeting
held on 27.06.2001, the petitioners 1 to 5 were elected as directors of the
Company. Later, on our advice, the
second respondent was also taken on the board as a director. At present, the Company is being managed by
the board of directors consisting of the petitioners 1 to 5 and the second
respondent. After the constitution of
the new board of directors, the Company duly convened the 31st
annual general body meeting and transacted the business as per the agenda. The Company is now smoothly
functioning. In the circumstances, the
disputes in relation to the appointment of directors and convening of the
annual general body meeting have come to an end. Therefore, the only remaining act of oppression and mismanagement
relating to the transfer of 77,081 equity shares of M/s The Peermade Tea
Company Limited (“Respondent No.5”), 40,800 equity shares of M/s The Braemore
Estates Limited (Respondent No.6) and 3,300 equity shares of M/s The Peninsular
Plantations Limited (“Respondent No.7”) held by the Company in favour of the
second respondent is considered in the petition.
3. Shri R.Murari, Advocate appearing for the petitioners, while
initiating his arguments submitted that the Company, being a plantation company
is primarily engaged in managing rubber plantations. The Company is a closely held family concern with Shri S.S.Aiyar,
since deceased, father of petitioners 1 to 5 and second respondent and closely
related to petitioners 6 to 12 either as grand father or father-in-law,
together with his family members, holding controlling interest in the Company. The Company owns 508.65 acres of rubber
plantations situated at Kanyakumari district in the State of Tamil Nadu. The second respondent holding 26 per cent of
the shares was appointed as Chief Administrative Officer of the Company during
the year 1976 and later redesignated as General Manager exclusively looking
after the day-to-day affairs and management of the Company. The Company was
holding shares in respondents 5 to 7, namely, 36 per cent of paid-up capital of
fifth respondent, 47 per cent of the paid-up capital of the sixth respondent
and 3,300 equity shares of the seventh respondent. These shares are part of the major assets of the Company. The fifth respondent owns a tea plantation
having an extent of over 2,500 acres. The sixth respondent owns a rubber/tea
plantations of more than 750 acres. Shri Murari pointed out that the second
respondent who was the Chief Administrative Officer/General Manager of the
Company since 1976 had resigned from the post of General Manager on 17.07.2000
and on the very same day, he got himself appointed as the Managing
Director. Immediately thereafter, i.e.,
21.07.2000, he became the Chairman of the Board of Directors of the
Company. In the meanwhile, the second
respondent misusing his position in the Company had transferred the impugned
shares, i.e. shares of the fifth respondent at Rs.15/- per share and shares of
the sixth respondent at the rate of Rs.20/- per share in his favour on
28.06.2002. The consideration does not represent the true value of the impugned
shares. The second respondent has made
enormous personal gain at the expenses of the Company and its
shareholders. There is no necessity for
selling these shares at the relevant point of time. He further pointed out that the Company has enormous bank deposits
and other assets and that the Company does not have any cash crunch initiating
such distress sale of shares which resulted in huge loss to the Company. The respondents 2 to 4 (3 & 4 being
directors) ought to have made an offer to the shareholders of the Company,
ought to have invited offers from others and fixed the upset price at which the
shares should be sold. Shri Murari
relied upon the valuation reports made by M/s P.K.R. & Company, Chartered
Accountants (Pages 81 & 82 of Petition) based on accepted principles of
valuation, according to which, value of each share of the respondents 5 & 6
is Rs.755.44 and Rs.643.84 as against Rs.15/- and Rs.20/- per share
respectively, paid by the respondent No.2 for these shares. Shri Murari invited our attention to the
minutes of the board meeting dated 28.6.2000 of the Company which do not
reflect any offer having been received for sale of the impugned shares. The
second respondent has admitted in the civil proceedings that no offer has been
received before transferring the shares in favour of the second
respondent. This has been confirmed at
page 71 of the counter filed by the second respondent. He pointed out that the minutes of the board
meeting held on 28.06.2000 do not comply with the requirements of the provisions
of Section 193 and 195 of the Act. They
are not even initialed. The valuation
reports of Mr.A.G.Krishna relied by the Board of Directors of the Company for
the purpose of value of shares are dated 12.07.2000, but these reports were
said to have been considered by the board of directors in its meeting held on
28.06.2000, which is not feasible and absolutely false. The valuation report of Shri A.G. Krishna
dated 15.06.2000 produced before the CLB does not reflect the intrinsic value
of the impugned shares. The valuation
reports of L.U.Krishnan & Co.
produced by the respondents are signed by Shri T.S.Rajagopalan who is a
director on the board of the Company being the fifth respondent in the present
proceedings. He, therefore, urged that no value can be attached to any of the
valuation reports produced by the respondents.
Shri Murari made a reference to the balance sheet of the Company as at
31.03.1997 (Page 48 of Rejoinder) reflecting the market value of 77081 shares
of the fifth respondent held by the Company as Rs.55,49,832 and the total value
of the fixed assets of the Company during the said year as Rs.25,52,646/-. The
second respondent has misused his position as well as the position of the
respondents 3 & 4 as directors, having no stake in the Company and got them
to pass a resolution on 28.06.2000 transferring the impugned shares in favour
of the second respondent. Shri Murari
further pointed out that the fifth respondent being a listed company is governed
by SEBI (Substantial Acquisition and Take Over) Regulations, in terms of which
any acquisition beyond five per cent of the paid-up capital of a listed company
would require the requisite disclosure and any acquisition beyond 15 per cent
requires a public announcement. The
transfer of 36 per cent of the paid-up capital of the fifth respondent company
not complying the SEBI Regulations is invalid. The respondent cannot claim any
exemption from the requirement of the SEBI regulations as the prescribed
exemptions are inapplicable to them.
Likewise, the transfer of shares of the sixth respondent in favour of
the second respondent is invalid transaction constituting oppression and
mismanagement. The seventh respondent
is also a listed company and the transfer of its 3,300 shares requires to be set
aside. He pointed out that respondents 3 & 4 have not filed counter,
denying the allegations made in the petition.
While concluding his submissions, Shri Murari emphasized that the
illegal transfer of the impugned shares in favour of the second respondent
constitute oppression and mismanagement in the affairs of the Company and
sought to set aside the transfers in the interest of the Company and its
members.
4. Shri V.Ramachandran, Senior Advocate
appearing for the second respondent, while justifying the transfer of impugned
shares by the respondents 5 to 7 held by the Company in favour of the second
respondent, invited our attention to the sorry state of affairs of the Company
as borne out by the report of the directors attached to the balance sheet as at
31st March, 2001, according to which, the Company’s estates are in a
bad condition due to various reasons including long neglect. The Company could not also declare dividend
for the year ended 31st March, 2001. He further urged that the Company’s banker has already initiated
recovery proceedings against the bank for recovery of its dues before Debt
Recovery Tribunal. According to this
respondent, the transfer of impugned shares in favour of the second respondent
was pursuant to the decision taken by the board of directors as early as in
1988. The Company could not get any
purchaser all these years. In the
circumstances, the second respondent offered a better price for the impugned
shares and accordingly acquired the shares for a just and fair price. Shri Ramachandran categorically submitted
that the second respondent is willing for valuation of the shares afresh and in
case the value is found to be higher, his client is prepared to pay the price
so fixed by the valuer. He, therefore,
sought for suitable directions of this Bench.
5.
Shri R.Shankaranarayanan,
Counsel appearing for respondents 3 and 4 has adopted the counter filed by the
respondents 1 & 2.
6.
We have considered the
pleadings and oral submissions made on behalf of the petitioners as well as the
respondents. The only issue that arises
for our consideration is whether the transfer of impugned shares held by the
Company in respondents 5 to 7 in favour of the second respondent requires to be
set aside, as the transfer being against the wishes of the Company. A careful perusal of records will show that
the impugned shares, i.e. 77,081 equity shares of the fifth respondent, 40,800
equity shares of the sixth respondent and 3,300 equity shares of the seventh
respondent held by the Company have been transferred to the second respondent
in the board meeting held on 28.06.2000.
The shares of the fifth respondent have been sold at the rate of Rs.15/-
per share and of the sixth respondent at the rate of Rs.20/- per share. As per the valuation reports submitted by
the petitioners (pages 81 & 82 of Petition), value of the shares of the
fifth respondent is shown at Rs.755.44 per share and the value of shares of the
sixth respondent at Rs.643.84 per share.
We find a huge difference between the value as valued by the petitioners
as well as the respondents. Admittedly respondents 5 to 7 hold extensive
immovable properties in the form of plantations, the present market value of
which is rather relevant for the purposes of valuation of the shares. The balance sheet for the year ended
31.03.1997 reflects the market value of 77,081 shares of the fifth respondent
held by the Company as Rs.55,49,832/- and the total value of assets held during
the said year as Rs.25,52,646/-.
Therefore, the consideration paid by the second respondent for the
shares does not appear to represent the true value of the impugned shares. Admittedly the Company has enormous bank
deposits. The respondents have not
established any necessity for sale of
the
shares. There is also no record to show
that any offer made to any member before sale of the impugned shares or invited
offers from others. We do not find
transparency in transfer of the impugned shares. Since we are convinced that the sale of these shares had been
effected at a consideration prejudicial to the interests of the Company and in
favour of the second respondent, we set aside the transfer of the impugned
shares. Accordingly, the Company will
refund the consideration received by the Company from the second respondent in respect
of these shares, under authority of this order. On proof of having refunded
consideration to the second respondent is produced before the Board of
Directors of fifth respondent, sixth respondent and seventh respondent, they
will rectify the register of members of these three companies by removing the
name of the second respondent and inserting therein the name of the first
respondent company. The second
respondent on receipt of refund of consideration shall hand over the said share
certificate to the Company, failing which the respondents 5, 6 & 7 shall
issue duplicate certificates in respect of these shares to the Company.
7.
With the above directions, the
petition is disposed, however, without any order as to cost.
(K.K. BALU)
(S. BALASUBRAMANIAN)
Dated this the 9th day of August, 2002