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 MANNARIAH
& SONS PRIVATE LIMITED
PETITIONERS:
2. M.G. Venkatesh Mannar
RESPONDENTS:
2. M.M. Subrahmanyam
3. M.S. Meenakshi
4. M.S. Prakash
5. T. Indra
6. Rajalakshmi
7. M.M. Shankaranarayanan
8. M.S. Rajaram
9. M/s Tuticorin Salt and Marine Chemicals Limited
PRESENT ON BEHALF OF PARTIES:
1. Shri C.Harikrishnan, Sr. Counsel …for Petitioners.
2. Shri H. Karthik Seshadri, Counsel …for Petitioners.
3. Smt. Elizabeth Seshadri, Counsel …for Petitioners.
4. Shri A.K. Mylsamy, Counsel …for Respondents 1 to 6 & 9.
5. Shri R.Shankaranarayanan, Counsel …for Respondents 7 & 8.
O R D E R
(DATE
OF FINAL HEARING: 03.09.2002)
K.K. BALU:
1. The
petitioners holding more than 10 per cent of paid-up capital of M/s Mannariah
and Sons Private Limited (“the Company”) have 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 oppression
and mismanagement relate to the allotment of impugned shares, increase of
authorized capital of the Company, illegal removal of the petitioners as
directors of the Company and sale of the products of the Company for less than
the market price, thereby causing losses to the Company etc.
3.
Shri C.Harikrishnan, Senior
Counsel appearing for the petitioners, while tracing the history of the Company
and its promoters has submitted that the Company was promoted in December, 1946
at the instance of one late M.R.Mannar Aiyah
by two of his sons, namely, M.M.Gurunath (“MMG”), since deceased and
Shri M.M. Subrahmanyam (“MMS”). Mannar Aiyah
had three sons, namely, MMG, MMS (second respondent) and Shri
M.M.Shankaranarayanan (“MMSN” - 7threspondent). MMG is sur-vived by the petitioners. The respondents 3 to 6 and respondent No.8
are children of the second respondent.
During the year 1943, Mannar Aiyah
got salt works known as the Karapad
Extension comprising of 50 acres of land to his share in a partition
between him and his two brothers. Shri
Harikrishnan pointed out that the Karapad Extention is a joint family property
of Mannar Aiyah and his three sons – MMG, MMS and MMSN. The Company was incorporated with the object
to purchase and take over of the rights title and interest of Mannar Aiyah in the Karapad extension and with a view to
adopt the agreement referred to in clause 3 of Articles of Association,
according to which, the Company entered into an agreement with Mannar Aiyah ,
whereby he transferred to the Company all his right title and interest in the
Karapad extension. MMG, MMS and MMSN are the directors of the Company. Every member of the Company present or
future is to be deemed to join the Company on this basis. Pursuant to the formation of the Company,
Mannar Aiyah transferred the Karapad
extension in favour of the Company and allotted to himself Rs.2 lakh worth of
shares in lieu of the property acquired by him through the family
partition. Though the properties and
business were carried on in the shape of an incorporated company, it is in
reality a co-parcenary property headed by Mannar Aiyah. In this connection, Shri Harikrishnan
referred to the decision in Murarka Properties (P) Ltd. Vs. Beharilal
Murarka – AIR 1978 SC 300, wherein a joint family consisted of eight
sons and their families had transferred the entire properties of the family to
a Company formed by them with the object of preserving the properties. The Apex Court on consideration of the
entire evidence held that the transaction was only for the purpose of preserving
the properties for all members. There
was no dissipation of the property. The
transaction was for the benefit of the family and as such even if it was found
that there was a joint family property, the transactions would be binding on
all the coparceners. He further relied
on C.Sundaram Vs. Rukmani Ammal – AIR 1975 Madras 83 – to show
that as the father and two sons indisputably lived as members of a joint family
and both the sons used to actively help the father in carrying on the business
started by him without any remuneration for the work done by them, it must be
regarded as joint family business. Upon the death of Mannar Aiyah
in November, 1951, his three sons, MMG, MMS, MMSN divided the shares
held by their father equally, thereby the Company was vested in them with equal
participation and equal sharing of the benefits. The transfer of shares had taken place in the meeting of the
Board of directors of the Company held on 08.12.1951, as seen from the extract
of the report of the directors to the Board.
Accordingly the shareholding in the Company as at December, 1951 was as
under: -
MMG 6,666 334
MMS (R-2) 6,667 333
MMSN (R-7) 6,667 333
The petitioners being sons of late MMG have been residing in
USA and Canada respectively since 1972 and used to visit India
intermittently. The petitioners were
appointed as directors of the Company in the year 1977. The respondents 2 & 7 were carrying on
the affairs of the Company. The petitioners
came to know in the year 1983 that the affairs of the Company were not being
properly managed. The funds of the
Company were diverted and some of the assets of the Company were sold by the
respondent No.7. At the instance of the
petitioners, a meeting of the respondents 2, 3, 7, 8 was held in August, 1984,
wherein it was confirmed that the Company should function for the benefit of
all the three families, namely, MMG, MMS & MMSN in equal proportion, as
evidenced from Annexure P-4. The
Company has been selling the entire salt produced by it to the ninth
respondent, managed by the second respondent and his family members at a rate
less than the market rate, thereby the profits of the Company are being enjoyed
by the ninth respondent and the second respondent, in contravention of the
agreement entered on 06.08.1984. As per
this agreement, all the monetary benefits from the Company should be shared
equally among the branches of MMG, MMS and MMSN. The person in-charge of the
management of the Company should render true accounts at the family meetings
and effect proper distribution of funds.
The products of the Company should be sold directly. Shri Harikrishnan pointed out that the
recitals of this agreement would establish that the Company is a family company
and incorporated only for the benefit of the families of MMG, MMS and MMSN,
with an understanding that no single group should exclude the other nor should
have a better status in the Company and that the business and properties of the
Company are the properties of a Hindu undivided family. In April, 1999 when the first petitioner
came down to India he came to know of the extraordinary general meting proposed
on 21.04.1999, for which he neither received any notice nor consent taken as
director of the Company. The first
petitioner on an enquiry from the second respondent regarding the extraordinary
general body meeting came to know that the petitioners ceased to be directors
of the Company with effect from 26.03.1999.
The Company at its extraordinary general meeting held on 21.04.1999
increased the authorized capital of the Company without entertaining the
proxies by the eighth respondent sent by the petitioners. Thereafter, the petitioners came to know
that the respondents 2 to 6, issued in the year 1992, 60,000 shares of Rs.5/-
each to themselves. The eighth
respondent was allotted 10,000 shares, thereby MMS branch acquired more than 73
percent of paid-up capital of the Company.
The respondents 2 to 6 had allotted further 1,00,000 shares of Rs.5/-
each to themselves on 01.06.1999, thereby the second respondent together with
respondents 3 to 6 took over the Company as a whole and treated the Company in
disregard of the family arrangement entered between the family members of MMG,
MMS and MMSN. Shri Harikrishnan pointed
out that the increase in authorized capital is only to benefit the ninth
respondent and indirectly respondents 2 to 6.
There are no bonafides on the part of the respondents 2 to 6 in having
increased the authorized capital and further allotment of shares. The second respondent excluded the
petitioners with ulterior motive by allotment of the impugned shares
exclusively in their favour reducing the petitioners’ shareholding from 33 per
cent to 6.67 per cent. According to the
petitioners, respondents 2 to 6, save respondent No.4 do not have any known
source of income. They have not
contributed any money towards the allotment of impugned shares. Therefore, both
the allotments should be set aside.
Shri
Harikrishnan, in support of his legal contentions has relied upon the following
decisions:-
·
Trackparts of India Ltd.
Vs. K.N.Bhargava & Smt.
Radhika Bhargava Vs. K.N.Bhargava –(2000) 4 Comp LJ 310 (All) –to show that
the CLB has wide powers for bringing to an end the oppression and mismanagement
and can make any order that it considers just and equitable. The division of assets can also be ordered
by the CLB in appropriate cases while exercising such powers.
·
New Horizons Ltd. Vs.
Union of India – (1997) 89 CC 849 – to
show that in certain exceptional cases the court is entitled to lift the veil
of corporate entity and to pay regard to the economic realities behind the
legal facade and that in the expanding horizons of modern jurisprudence, the
lifting of the corporate veil is permissible.
Its frontiers are unlimited. It
must, however, depend primarily on the realities of situation. In this
case Shri Harikrishnan pointed out that the CLB should go into the details of
the shareholders and the arrangement among them in finding out the reality of
the arrangement among the members.
·
(a) M.K. Haridas Vs.
Asal Malabar Beedi Depot Pvt. Ltd. (2002)Vol. 110 CC 31.
(b) T.V.Prasadachandran Nair Vs. Anandaman-diram Hotels Pvt. Ltd. –
(2002)Vol. 110 CC 394.
(c)
Kshounish
Chowdhury Vs. Kero Rajendra Monolithics Ltd. – (2002)Vol. 110 CC 441.
(d)
Ashok Kumar Oswal Vs.
Panchsheel Textile Manufacturing and Trading Co. (P.) Ltd. – (2002) 110 CC 800
– to show that the CLB has ignored
the plea of delay raised by the respondents while determining the contentious
issue.
·
Pushpa Prabhudas Vora
Vs. Voras Exclusive Tools (P) Ltd. – (2000) 3 Comp LJ 271 (CLB) – to show that in family companies equity plays greater role
than the observance of legal requirements.
·
Dr. Kamal K.Dutta Vs.
Ruby General Hospital Ltd. – (2000) 2 Comp LJ 289 (CLB) – to show that the conduct of the respondent in allotting
shares to himself at the back of the petitioner and in declaring that the
petitioner directors had vacated office etc. and thus taking over the company
is highly unfair and lacks in probity.
·
Micromeritics Engineers
Pvt. Ltd. Vs. S.Munusamy in CMA Nos. 923 & 924 of 2000 (High Court of
Madras) – to show that mere
production of certificates of post is not adequate to prove service of notice
in the absence of production of despatch register of the company or books of
account showing the expenses incurred by the company for posting the letters.
4. Shri
A.K. Mylsamy, Advocate appearing for the respondents, while opposing the
petition has submitted that the petitioners are residing abroad and that they
never participated in the management of the company. The present petition has been initiated at the instance of the
eighth respondent, who has grievances against the respondents. The second respondent and others have filed
CPs No.66 to 68 of 1999 before the CLB in respect of the affairs of M/s
Sudarshana Carbide Private Limited, M/s Gulf Olefines Private Limited and M/s Prasanna Investments Private Limited
respectively, which are under the control and management of the eighth
respondent. M/s Gulf Olefines Private
Limited, controlled by the eighth respondent owes substantial amount to the
Company. Similarly, M/s Archana
Spinners Limited under the management of the eighth respondent is indebted to
the ninth respondent which is controlled by the second respondent. The eighth
respondent is aggrieved on account of these developments and consequently
responsible for the present litigation.
The petitioners are having grievances against the respondents’ group as
they did not agree to pay the enhanced salary sought by them. The eighth respondent had filed a civil suit
in O.S. 4/99 before the District Court, Tuticorin, challenging the holding of
the general meting held on 21.04.1999 yet another suit in O.S. 170/99 after the
general body meeting at the instance of the petitioners. Both these suits were withdrawn by the
eighth respondent in order to file a company petition. The averments made by eighth respondent in
the plaints have been used in the present petition. Thus, the petitioners have put up the eighth respondent. Therefore, there are no bonafides in the
present litigation. As the petitioners
have not come with clean hands, they are not entitled for any equitable relief
from the CLB, in support of which he relied the following decisions: -
(a)
Anugraha Jewellers Ltd.
Vs. K.R.S. Mani – (2002) CC 501.
(b)
Nurcombe Vs. Nurcombe -
1985 (1) All ER 65.
(c ) Srikanta
Datta Narasimharaja Wadiyar Vs. Sri Venkateswara Real Estate Enterprises (Pvt.)
Ltd. – (1991) Vol.72 CC 211
(c)
S.Ajit Singh Vs. DSS
Enterprises Pvt. Ltd. – (2002) Vol.109 CC 597.
Shri Mylsamy
denied that the Company is a joint family company. He made a reference to Article 3 of the Articles of Association
of the Company, according to which, Mannar Aiyah transferred all his right title and interest in the Karapad extension in favour of the Company for a
consideration of Rs.1,20,000. Mannar
Aiyah and his sons are interested in the Karapad extension and they are the directors of the Company and no one
should challenge the agreement on the ground that the directors themselves are
interested in the Karapad extension. He
pointed out that by virtue of Article 3 and the agreement entered between the
parties, the Company became the absolute owner of the Karapad extension. The property cannot continue to be the joint
family asset and the business carried on by the Company cannot continue to be
the joint family business. Clause 3 of
the Articles makes it clear that the Karapad extension, acquired by Mannar Aiyah
in a family partition between himself and brothers, has been purchased by the
Company and the Company has taken over all rights title and interest of Mannar
Aiyah in the said property. After the
death of Mannar Aiyah, the shares held in his name were divided among his three
sons, MMG, MMS and MMSN. According to
Shri Mylsamy, there is no Board resolution or resolution passed in general
meeting of the Company to show that three branches of Mannar Aiyah would have
equal shares and equal representation on the Board. He further pointed out that piercing veil of incorporation does
not arise in the present case, as the particulars of shareholders and the
directors are apparent from the records.
In regard to the minutes of the family meeting held on 06.08.1984 to
share the monetary benefits in the Company equally among the families of MMG,
MMS and MMSN, Shri Mylsamy pointed out that the said understanding was not
acted upon. Moreover, the proceedings
of the Board meeting held on the same date do not also reflect the
understanding reached between the family members. He further submitted that the Company is not bound by the said
memorandum without the same being incorporated in the Articles of Association
of the Company, as held in the following cases: -
(i)
V.M. Rao Vs. Rajeswari Ramakrishnan – (1987) Vol.61 CC 20.
(ii)
V.B. Rangaraj Vs. V.B. Gopalakrishnan – (1992) Vol.73 CC
201.
(iii)
Radhe Shyam Tulsian Vs.
Panchmukhi Investment Ltd. – (2002) 1 CLJ 355.
(iv)
Mrs. Deepa Goyal Vs.
Nanda Devi Builders (P) Ltd. – (2002) 1 CLJ 414 (CLB).
In regard to
the allotment of impugned shares, Shri Mylsamy pointed out that on 02.05.1992,
the Board of directors resolved to issue 60,000 equity shares of Rs.5/- each to
meet working capital of the Company, upon which letters have been sent to the
shareholders advising of decision of the Board to issue shares to all the
members. The notice was sent to the
shareholders by certificate of posting.
Thereafter, the Board at its meeting held on 21.05.1992 allotted the
shares in favour of the members who had applied for. He pointed out that 10,000 shares were allotted in favour of
eighth respondent also. The Company had
filed form-2 with Registrar of Companies on 22.05.1992. The petitioners cannot plead ignorance of
the allotment of shares, especially when the Company has been sending notices
for the general meetings and Board meetings to the petitioners at their
addresses in India. The petitioners had
been receiving dividends regularly as and when declared by the Company. He further pointed out that the Company
while defending a suit (CS No.614/92) filed by the seventh respondent took the
same stand that of 60,000 equity shares were allotted in the Board meeting held
on 02.05.1992. In the written
statement the seventh respondent did not challenge the action of the Company in
allotting the impugned shares to respondents 2 to 6 on the ground that each
family would have equal shareholding and equal participation on the Board. In so far the eighth respondent is
concerned, he is one of the beneficiaries of the impugned allotment made in
1992. He has also not challenged the
allotment. There has been inordinate
delay and laches on the part of the petitioners to challenge the impugned
allotments and hence the CLB cannot grant any relief for which he relied upon
the decision in A.P. Jain Vs. Faridabad Metal Udyog Ltd. - 1998 (18) SEL
page 43 and Ms.Deepa Goyal Vs. Nanda Devi Builders (P) Ltd. –
(2002) 35 SCL 842. In regard to
the allotment of impugned shares made on 01.06.1999, Shri Mylsamy justified
that the Company was in need of funds to reconstruct one of the dilapidated
mill sheds for which the Company took steps to raise the funds by increasing
the capital. which was later leased out to the ninth respondent, which is
paying Rs.1 lakh per year by way of rent after carrying out the renovation. The impugned shares were made in the
interest of the Company, in which case, these allotments cannot be
challenged. In this connection, Shri
Mylsamy relied upon the following decisions: -
(i)
Needle
Industries (India) Ltd. Vs. Needle Industries Newey (India) Holdings Ltd. - AIR
1981 (SC) 1298.
(ii)
Shanti Prasad Jain Vs.
Kalinga Tubes Ltd. - AIR 1965 (SC) 1535.
(iii)
B.M.Jain &
Sons Co. (P.) Ltd. Vs. Bombay Cable Car Co. (P.) Ltd. – (2001) 30 SCL 140.
(iv)
Nanalal Zaver Vs. Bombay
Life Assurance Company Ltd. – (1950) XX
CC 179.
(v)
S.Ajit Singh Vs. DSS
Enterprises Pvt. Ltd. – (2002) 109 CC 597.
He referred to the explanatory statement circulated to the
members for the general meeting for increasing the authorized capital from Rs.5
lakhs to Rs.25 lakhs, wherein it is made clear that right shares will be issued
to the shareholders to mobilize necessary finance for the project. The petitioners are challenging this
allotment on the ground that they did not receive the notice for the general
meeting, which they came to know through the eighth respondent. The petitioners though had given proxies in
favour of the eighth respondent for attending the meeting held on 21.04.1999,
the eighth respondent did not attend the meeting, but came to the Company after
the meeting was over. Shri Mylsamy
pointed out that during the period from 1990 to 1999, the first petitioner had
attended only three Board meetings and one general meeting. The second respondent had attended three
Board meetings only and never attended any general meeting. The petitioners failed to attend 13
consecutive Board meetings till the Board recorded in March, 1999 the vacation
of their office under section 283(1)(g) of the Act. Their investment in the Company is about Rs.70,000/-. In regard to the supply of salt produced by
the Company to the ninth respondent, Shri Mylsamy pointed out that this
arrangement was approved by the Board and accordingly the salt was being
supplied to the ninth respondent at the rate higher than market rate. This practice was in force from the year
1958 onwards, which has been continued by the Company. He further pointed out that the main road,
water, drainage, canal etc are common to the Company and the ninth respondent. All the expenses were used to be met by both
the companies. These companies were
having inter-company transaction since the year 1958. Shri Mylsamy pointed out that the Company did not incur any loss
on account of supply of its production to the ninth respondent, but benefited
by such transaction. He, therefore,
sought for dismissal of the petition.
7. Shri R.Shankaranarayanan, Counsel appearing
for respondents 6 & 7 while adopting the arguments of Shri Harikrishnan,
the learned Senior Counsel for the Petitioners has submitted that the seventh
respondent had filed a civil suit in CS No.614 of 1992 on the file of High
Court of Madras, inter-alia, for declaration that revocation of his office of
Managing Director of the Company is invalid and that the resolutions passed
thereafter by the Board of Directors are invalid. The said civil suit has been transferred to the City Civil Court,
which has been dismissed for default and steps have been taken for restoration
of the suit and the proceedings are pending.
If this prayer is considered by the Civil Court, according to Shri R.Shankaranarayanan,
the allotment made by the Company in the year 1992 would be set aside. He further pointed out that the Company
failed to furnish particulars of persons in whose favour the impugned shares
were allotted and that shares were allotted only to one branch of the second
respondent ignoring the other branches.
8. We have
considered the pleadings and arguments of the learned counsel for the
petitioners as well as respondents. The
question that arises for our consideration is whether the alleged acts of
oppression and mismanagement in the affairs of the Company against the
respondents would warrant interference of the Company Law Board to grant
reliefs sought in the petition.
9. A careful
perusal of the available records reveal that the Company was incorporated on
06.12.1946 by the second respondent and father of the petitioners with the
objects, to purchase, take over and acquire all the right, title and interest
of Mannar Aiyah in the Karapad Extension,
which was allotted to Mannar Aiyah in a
partition made in the year 1943 between himself and his two brothers and with a
view to enter into and adopt the agreement referred to in clause 3 of the
Articles of Association of the Company which reads as under: -
“3.The
company shall forthwith enter into an agreement with Mr.M.R.Mannar Aiyah of
Tuticorin whereby Mr. M.R.Mannar Aiyah will agree to transfer to the company
all his right, title and interest in the salt works known as Karapad Extension
No.3, Salt Factory (Eastern-Block), and situated at Urani, Tuticorin in terms
of the draft agreement expressed to be between Mr. M.R.Mannar Aiyah and the
company and signed for purposes of identification by Mr. R.Narasimhachari and
the directors shall carry out the same with or without modifications. It shall be no objection to the said
agreement that the said Mannar Aiyah the Vendor aforesaid and his son Mr.
M.M.Gurunath, Mr.M.M.Subrahmanyam and Mr.M.M. Sankara-narayan, who are
interested in the said Salt works and in the consideration payable therefore, are
or may be promoters of this company, or that they or some or any of them are
directors of this company, or stand in a fiduciary relation to the company or
that the terms and conditions of the said agreement have been fixed by them nor
shall the said agreement be impeachable on the ground that the Directors of
this company are themselves personally interested in the said Salt works and in
the consideration payable therefore, or that the Board of Directors of this
company do not constitute an independent Board. Every member of the company present or future, is to be deemed to
join the company on that basis.”
The above article shows that Mannar Aiyah transferred his
interest and title in the Karapad Extension to the Company for consideration by
way of allotment of shares in the Company, thereby the Company became absolute
owner of the salt works. Upon the death
of Mannar Aiyah, his three sons MMG, MMS & MMSN divided the shares held by
their father equally. The transfer of
shares had taken place in the Board meeting held on 08.12.1951. Thus, the Company came to be vested in them
with equal participation. This is
further evidenced from the minutes of the family meeting held on 06.08.1984,
wherein the family members had agreed to share the benefits of the Company
equally among the three groups of shareholders, being sons of Mannar
Aiyah. Thus the foundation of this
petition is that according to the petitioners the Company is a family company
and as such the Board of Directors have to act in the interest of all the
family members. It is on record that
both the petitioners and respondents are descendents of Shri Mannar Aiyah. On death of Shri Mannar Aiyah, the shares
held by him were shared equally among the three brothers. All the three brothers/their family members
had representations on the Board.
Eventhough the petitioners were residing abroad, they continued as
directors and were paid remuneration notwithstanding fact they were not regular
in attending the Board meetings. This
has been going on for fairly a long time.
Further the shareholders of the Company are practically the descendents
of deceased Mannar Aiyah, which would indicate that this Company is nothing but
a closely held company. In a number of
cases, this Board has decided that in case of family companies any disturbance
in the shareholding or disturbance in the Board to the detriment of any of the
family shareholders the same could be considered to be acts of oppression. Keeping this background the allegations in
the petition have to be examined. Two
main allegations in the petition are that the respondents had issued further
shares one in 1992 and another in 1999 and that by invoking the provisions of
section 283(1)(g), the petitioners have been declared to have ceased to be
directors on the Board. The petitioners
are challenging the first allotment on the ground that they never received
notice for the Board meeting, wherein the impugned allotments were said to have
been allotted. According to the
respondents, the Company had sent notices for the general meetings and Board
meetings to the petitioners at their respective addresses in India, though the
petitioners have been residing outside India.
In this connection, it will not be out of context to refer to the letter
dated 07.08.1996 of the first petitioner (Page 17 of Counter) requesting the
Company to send monthly payments to his addresses in India. It is also not disputed that the dividend
warrants were periodically sent to the petitioners at their addresses in
India. There is no record to show that
the petitioners ever objected at any earlier point of time that the notices
were not sent at their addresses where they have been residing. Moreover, after the allotment of shares the
Company had filed Form-2 (page 171 of counter). The Company had allotted 10,000 shares in favour of the eighth
respondent who is supporting the petitioners.
The Company had disclosed this allotment in the civil suit filed by the
seventh respondent in CS No.614/92 as early as on 21.05.1992. The respondents 7 & 8 did not challenge
this allotment and they had acquiesced to the disturbance in the
shareholding. The allotment was made in
the year 1992, but the petitioners are challenging the allotment after a delay
of eight years. In view of this, the
CLB will not interfere with this allotment.
In regard to the second allotment made in the year 1999, it is the case
of the respondents that funds were required to reconstruct the mill godown,
which was approved at the Board meeting held on 28.03.1999 (page 183 of
Counter) and as evidenced from the explanatory statement attached to the notice
of EGM of 21.04.1999 and the General Body itself had approved the allotment on
a right basis. According to the Company
offers were made to the petitioners which fact is denied by the
petitioners. Since this allotment had
been made on a date very proximate to the date of the petition and since the
general body itself had decided to make right offer, without enquiring as to
whether offers were made or not, we are of the view that the petitioners should
be entitled to get the shares on the right basis. Therefore, in case the petitioners are interested in acquiring
their proportionate stake on the basis of their shareholding prior to the
allotment in 1999 they may indicate their willingness to the Company in
writing. Thereafter, the Company will
make an offer of the right shares to the petitioners within 45 days and the
petitioners should subscribe to these shares within 30 days thereafter. If necessary, the Company will increase its
authorized capital to facilitate the allotment of the right shares to the
petitioners. In regard to the plea that
the petitioners ceased to be the directors for not attending three consecutive
Board meetings, it is observed that the petitioners attended to affairs of the
Company as and when they used to come to India. It is not denied that the first petitioner had attended only
three Board meetings and one general meeting during the period between 1990 and
1999 and that the second petitioner attended only three Board meetings. This shows that the petitioners did not
evince interest in the affairs of the Company. The letter dated 07.08.1996
(page 17 of Counter) shows that the petitioners are not interested in the
Company as directors. Yet, since the
petitioners had continued as directors even without attending Board meetings
regularly and were getting remuneration for a long time, it would show that the
intention of the parties had been to provide all the branches of the family
some source of income for the Company.
Stopping of this source of income on the ground of vacation of office is
oppressive. Therefore, we direct that
petitioners who were declared to have vacated office under section 283(1)(g)
will be inducted into the Board with immediate effect and they will draw
remuneration as earlier. Notices for
Board meetings should be sent to them by Registered Post well in advance to
enable them to attend the Board meetings and will be subject to disqualification
under section 283(1)(g) of the Act, in future. In regard to the mismanagement in the affairs of the Company,
the records show that the Company had financial transactions with the ninth
respondent since the year 1958 as borne out by Annexure R-17. The Board resolution dated 05.08.1996 (page
179 of counter) shows that the Company was permitted to sell its entire
production to the ninth respondent.
Moreover, there has been no record to show that the Company suffered
revenue loss on account of sale of the salt by the Company to the ninth respondent. There is no merit in the plea of the
petitioners. In the circumstances, the
members may convene a general body meeting after allotment of additional shares
in favour of the petitioners as ordered supra, and hold a meeting of the
shareholders for the appointment of directors and vest with the Board of
Directors the day-to-day management of the Company and the Board may take such
action as may be deemed fit in the interest of the Company and its members.
10.
With the above directions,
the petition stands disposed of, without any order as to costs.
(K.K. BALU) (S. BALASUBRAMANIAN)
Dated this the 7th
day of November, 2002