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 PRASANNA
INVESTMENTS PRIVATE LIMITED
PETITIONERS:
1. M.M. Subrahmanyam
2. M.S. Prakash
3. Shobana Prakash
RESPONDENTS:
1. Prasanna Investments Private Limited
2. M.S. Rajaram
3. M. Girija Rajaram
4. M. Padmapriya
5. M. Krishna Mohan
PRESENT ON BEHALF OF PARTIES:
1. Shri A.K.Mylsamy, Advocate … for
Petitioners.
2. Shri C.Harikrishnan, Senior Advocate … for
Respondents.
3. Shri H. Karthik Seshadri … for
Respondents.
4. Smt. Elizabeth Seshadri … for
Respondents.
(DATE OF FINAL HEARING: 7.6.2001)
K.K. BALU:
1.
The petitioners holding
more than 10 per cent of the paid-up capital in M/s Prasanna Investments
Private Limited (“the Company”) as well as constituting more than one-tenth of
the total number of members have filed this petition under Section 397/398 of
the Companies Act, 1956 (“the Act”) alleging various acts of oppression and
mismanagement in the affairs of the Company.
2.
The main acts of
oppression and mismanagement relate to non-convening and holding of the
meetings of Board of directors and general body of the Company, illegal
co-option of the third respondent as director, illegal allotment of the
impugned shares in favour of the respondents 2 to 5 and siphoning of funds of
the Company.
3.
Shri A.K. Mylsamy,
Advocate appearing for the petitioners, while initiating his arguments
submitted that the petitioners as well as respondents 2 to 5 are related to
each other. The petitioners are holding
60 per cent of the paid-up capital of the Company and respondents 2 & 3
each holding 20 per cent. The second
petitioner and second respondent being subscribers to the Memorandum of
Association are named in the Articles of Association as the first directors of
the Company. The second respondent has
been in management of the Company and attending to day-to-day affairs of the
Company. The Company has been
incorporated for the benefit of the family members. There are other companies each separately managed by the family
members. The second respondent was
neither convening and holding Board meetings and general meetings nor sending
notices for any meeting. The petitioners were kept entirely in the dark with
regard to the affairs of the Company.
The second respondent is treating the Company as if it is the sole
proprietary concern of his own and failed to comply with the mandatory provisions
of the Act. Though the petitioners have
majority holding in the Company, the second respondent has been ignoring their
interests. The conduct of the second
respondent and his associates is burdensome, harsh and oppressive. It
transpired that the second respondent had stealthily recorded the proceedings
as if the third respondent, his wife was co-opted as director on 21.2.96. The second petitioner did not receive any
notice for the Board meeting said to have been held on 21.2.96. The second respondent would only be the
director who attended the alleged Board meeting on 21.2.1996 and co-opt of the
third respondent as a director is invalid for want of quorum. The Company had allotted 16,300 shares on
1.3.96 in favour of the respondents 2 to 5 without any notice of the Board
meeting to the second petitioner converting majority holdings of the
petitioners into a minority, which is illegal.
Failure to give notice to one of the directors vitiates the proceedings
of the Board, in support of which he relied on the decision of the Supreme
Court reported in 44 CC 1. No
money was brought in by the respondents for the impugned allotments. The Company had neither received share
application from the allottees. There
was no necessity to increase the paid-up capital of the Company, especially
when the Company has not been carrying on any business since the year
1992. The impugned allotments were made
with an oblique motive to convert the existing majority of the petitioners into
minority shareholders, which is illegal. The Company had subscribed to 9,100
equity shares in the capital of Gulf Olefines Pvt. Ltd. with the object to
retain control of the Company with the second respondent. The second respondent had invested without
any proper resolution the Company’s funds in M/s Archana Spinners Limited. The funds were invested without taking into
confidence any of the shareholders. The
investment by the Company in Archana Spinners Limited has not yielded any
benefit either to the Company or its shareholders. The Company had incurred
losses on account of diversion of funds by the second respondent and his family
members. Mr. Mylsamy, has, therefore,
sought for the reliefs made in the petition.
4.
Shri C.Harikrishnan,
Senior Advocate appearing for the respondents while denying the charges
levelled by the petitioners has submitted that the business of the family
members was started at the instance of the first petitioner with the
understanding that the business would be for the benefit of all the three sons
with equal participation and equal rights.
The first petitioner being the father is an autocratic person expecting
absolute obedience by his sons. The
second respondent gave shares of the Company in favour of members of the family
out of sentiment and that none of the petitioners had contributed any cash for
the shares. None of the petitioners
ever took part in the affairs of the Company.
The Company did not carry on any other business apart from investing in
Gulf Olefines Private Limited, for which the required funds were brought by the
second respondent. The second
petitioner being the only other director never showed any interest in the
affairs of the Company and stopped attending the Board meetings. All family companies came to be closed in
the year 1992 and the second respondent had to meet all the liabilities, which
were cleared by him. The funds of the
Company were invested in M/s Archana Spinners Limited, where the respondents’
group is holding 50 per cent of the shareholding. The Board meetings were held informally in view of the
relationship between the directors and both living in the same place. The Company being an investment company and
in order to raise further funds, shares were issued in the Company. The allotment of shares was done with a genuine
object and for the welfare of the Company.
The petitioners have not been objecting investments made by the Company
in Archana Spinners Limited all these years.
Though the meetings were regularly held, the second petitioner did not
attend the Board meetings subsequent to 1994-95. The notices for annual general meeting were never issued to any
member of the Company in view of the fact that they are closely related and
were acting in accordance with the directions of the first petitioner. Nevertheless, the balance sheets of the
Company were used to be signed by the second petitioner, which were duly filed
with the Registrar of Companies. The
petitioners have knowledge about the affairs of the Company. The petitioners not having evinced any
interest in the affairs of the Company cannot be permitted to make wild
allegations against the respondents.
The share capital of the Company was increased with the bonafide
intention and in the interest of the Company.
Mr.Harikrishnan, therefore, sought for dismissal of the petition.
5.
We have considered the
pleadings and arguments of the learned Counsel for the petitioners as well as
respondents. The question that arises
for consideration is whether the alleged acts of oppression and mismanagement
in the affairs of the Company warrant interference of this Bench to grant the
reliefs sought by the petitioners.
6.
Though this petition was
heard on 07.06.2001, we did not issue the order in view of pendency of a
connected company petition in CP No.3/2001.
As CP No.3/2001 has been finally heard now, the following order is made
in this present petition.
7.
Before considering the
merits of the petition, it is relevant to observe that the petitioners and the
respondents are lineal descendents of the deceased M.R.Mannar Aiyah, for whose
benefits the Company was incorporated.
The Company consists of only the family members as shareholders,
indicating very clearly that it is a family company to be managed for the
benefit of all family members. The
second petitioner and the second respondent are the subscribers to the
Memorandum and Articles of Association of the Company, who have been named
under the Articles as first directors.
At present the Company is not carrying any activity. The second respondent has been in control of
the Company. The present petition is on
account of the differences, which arose between the family members of the
deceased M.R.Mannar Aiyah.
8.
The
main acts of oppression and mismanagement are in relation to non-holding of
Board meeting and general meetings, illegal allotment of the impugned shares,
illegal co-option of the third respondent as director and investment of funds
of the Company without authority of the Board.
Admittedly in view of the relationship between the directors and as they
are living in the same place, the Board meetings were held informally and no
notices were issued to any member for the meetings. Against this back-ground, the allotment of impugned shares in
favour of respondents, in exclusion of the petitioners is unfair and against
the principles of equal rights between the family members. The Company was closed in the year 1992, but
the impugned shares were allotted in the year 1996, which according to the
respondents for investment purpose and to meet the liabilities of the
Company. However, the respondents have
not produced any proof of bringing additional funds for the impugned shares and
the actual funds requirement. These
acts are, therefore, unfair and burdensome, which can be remedied by allotment
of shares to petitioners in proportionate to their holding, rather than setting
aside the impugned allotment made as early as in 1996. Accordingly, it is hereby ordered that the
respondents will allot shares in favour of petitioners, according to their
entitlement within 60 days and the petitioners will subscribe to the shares
within 30 days of the offer made by the Company and for this purpose, if the
authorized capital needs to be increased, may be accordingly increased. Thereafter, the Company will convene 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.
9.
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