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 SUDARSHANA
CARBIDE PRIVATE LIMITED
PETITIONERS:
1. M.M. Subrahmanyam
2. Shobana Prakash
3. M.S. Meenakshi
4. T. Indira
5. R. Rajalakshmi
6. Hemalatha Satish
7. R. Shrividya
8. R. Thiagarajan
9. T. Madhusudhan
10. T. Jaidev
11. M.P. Dileep
12. M.P. Deepak
RESPONDENTS:
1. Sudarshana Carbide Private Limited
2. M. Girija Rajaram
3. J. Lawrence Inbaraj
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 69 per cent of the paid-up capital in M/s Sudarshana
Carbide 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 meetings of the Company,
unfair allotment of the impugned shares in favour of the respondents, exclusion
of the petitioners from the day-to-day affairs and management of the Company,
illegal co-option of the third respondent as director of the Company and
diversion of funds.
3.
Shri A.K.Mylsamy, Advocate
appearing for the petitioners, while initiating his arguments submitted that
the petitioners as well as respondents are related to each other, excepting the
third respondent. The Company consists
of only the family members as shareholders. The Company was incorporated with a
view to provide income to the members of the family. The petitioners are holding 69 per cent of the paid-up share capital
and the respondents group 24 per cent.
The second petitioner and second respondent are named under the Articles
as the first Directors of the Company.
They have subscribed under the Memorandum and Articles of Association 10
shares each. The second respondent was
the Managing Director till August, 1995 looking after the day-to-day management
of the Company. However, the second
respondent was not convening and holding the meetings of Board and general
meetings in spite of the requests made by the petitioners. The second petitioner was stated to have
resigned from her office as director with effect from 27.09.1990 and the third
respondent, an employee under second respondent’s husband was said to have
co-opted as a director on 27.09.1990.
However, the petitioners did not receive any notice for co-option of the
third respondent as director. None of
the petitioners in spite of holding majority shares is associated with the
day-to-day management of the Company since September 1990, they are not in a
position to know the activities of the Company and they could not have access
to the records. The second and third
respondents have been carrying on the day-to-day affairs and management of the
Company and filing the statutory returns with the Registrar of Companies. Nevertheless the respondents are not making
available the balance sheets of the Company and never used to send notice for
the annual general body meeting for the past three years to the shareholders. The second respondent and her husband have
custody of the books and records of the Company. The second respondent has ignored the interest of the other
shareholders and never allowed the members to enter either the registered
office or the administrative office of the Company. In the meanwhile, the Company had allotted 49,980 shares on
29.03.1989 to 18 persons, who are members of the family, details of whom are
set out in paragraph 6.6 of the petition.
The Company had increased the authorized capital from Rs.5 lakhs to
Rs.10 lakhs at its extraordinary general meeting held on 21.10.93 and made
allotment of 50,000 shares of Rs.10/- each fully paid-up on 28.10.93 in favour
of the petitioners and the second respondent and her children. The petitioners have not been challenging
the authority of the respondents in view of the fact that they all related to
each other save the third respondent.
None of the shareholders has been issued the share certificates. The second respondent diverted the company’s
funds by investing a sum of Rs.1,50,000 in the paid-up capital of M/s Archana
Spinners Limited, belonging to the second respondent and her family members as
borne out from the balance sheet of the Company for the year ending
31.03.1997. The Company has not been
carrying on any manufacturing activity since March, 1997 and statutory returns
are not filed thereafter. The
communication sent to the registered office, by the petitioners are being
returned by the Postal authorities. The
respondents are not looking after the affairs of the Company and never interested
in the welfare of the other shareholders.
Though the first petitioner being the eldest of the family has been
repeatedly taking up with the second respondent for transparency in the
management of the Company, it was never acceded to by the respondents. Shri Mylsamy urged that the object of the
Company at the time of incorporation was to benefit all the shareholders who
are the members of the family. The
petitioners have lost confidence in the respondents’ group. Though the Company has been incorporated
under the provisions of the Act, it is a partnership consisting of family
members and secondly the principles applicable to dissolution of the firm
should be made applicable to the Company.
The facts and circumstances would show that the affairs of the Company
are being conducted in a manner oppressive to its members and to wind up the
Company would unfairly prejudice the petitioners but otherwise the facts will
justify the making of a winding up order on the ground that it is just and
equitable that the Company be wound up, which is likely to affect the
petitioners. In the circumstances, Shri
Mylsamy sought for reliefs made in the petition.
4.
Shri C.Harikrishnan,
Senior Advocate appearing for the respondents while denying the charges made by
the petitioners has pointed out that the alleged acts of oppression are (i)
induction of third respondent as director; (ii) exclusion of the petitioners
from the day-to-day affairs and management of the Company; and (iii)
non-convening and holding of the Board as well as general meetings of the
Company. Refuting the charges of the
petitioners, Shri Harikrishnan submitted that the main object of initiating the
present proceedings is to eliminate the family members of the second respondent
from the business of the Company.
Though the petitioners are the shareholders, none of them contributed
any consideration towards purchase of the shares. The petitioners never evinced any interest in the affairs of the
Company. The Company’s affairs are in
the control of second respondent since the year 1990. The petitioners never complained against the second respondent at
any time prior to the present petition.
The second petitioner was unwilling to continue as director of the
Company and had resigned from the Board in the year 1990, which led to
induction of the third respondent on the Board of directors of the
Company. According to Shri
Harikrishnan, notices of the annual general meetings were duly sent to the
petitioners, but they failed to attend the meetings. The petitioners never denied access either to the administrative
office or registered office or records of the Company. The registered office of the Company has
been kept closed since the year 1995 and no business activity is carried on in
the Company. In regard to the
investment of funds of the Company in M/s Archana Spinners Private Limited,
Shri Harikrishnan pointed out that it does not amount to diversion of funds,
but only investment made by the Company in M/s Archana Spinners Limited, where
the petitioners do have interest. Shri
Harikrishnan further pointed out that the petition is obviously for an ulterior
purpose with an oblique motive and malafide intention to eliminate the family
of the second respondent from the business and should be dismissed. In this connection, he placed reliance on
Shrimati Abnash Kaur Vs. Lord Krishna Sugar Mills Ltd. - (1974)
Vol.44 CC 390 where the High
Court dismissed the petition when found on the facts that the petition was for
an ulterior purpose with an oblique motive and was malafide.
5.
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 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
second respondent are lineal descendents of the deceased M.R. Mannar Aiyah, for
whose benefits the Company was incorporated in the year 1987. The Company consists of only the family
members as shareholders and no outsider holds any share in the Company
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 named under the Articles as the first
directors of the Company who have subscribed under the Memorandum and Articles
10 shares each. At present, the Company
is not carrying on any activity. The
second respondent had been in control of the Company as its Managing
Director. The present petition is on
account of the differences, which arose between the family members of the
deceased Mannar Aiyah. Against this
background, we proceed to consider the contentious issues raised by the
parties.
8.
According to the
petitioners, the second respondent being the Managing Director of the company
till August 1995 did not convene and hold meetings of the Board and general
meetings; excluded them from day-to-day affairs of the Company, co-opted
illegally the third respondent as director, increased the authorized capital,
allotted unfairly the impugned shares and invested the funds of the Company
without approval of the Board in M/s Archana Spinners Limited belonging to the
second respondent and her family. Though the petitioners have leveled these
charges against the respondents in the affairs of the Company relating to the
period from 1989-1997, they never took any initiative in redressing their
grievances. The petitioners have been
inactive and passive without bothering about the affairs of the Company. The petitioners have not made any prayer in
the petition to set aside the impugned allotment and as such we are not passing
any order on the same. Moreover, the
Company is closed and not carrying on any manufacturing activity. In the present circumstances, our
interference in the affairs of the Company is not warranted. However, in regard to the prayer of the
petitioners for three of their representations on the Board is concerned, since
the Company is a family company, it is but appropriate that the petitioners’
group has at least one director on the Board.
Accordingly, we direct that, notwithstanding anything contained in the
Articles, the petitioners’ group shall always have one nominee on the Board at
the choice of the petitioners to be communicated to the Board in writing. Such a nominee shall not be liable to retire
by rotation and can be changed only by the petitioners’ group. For all Board meetings and General meetings,
notices should be sent by Registered Post.
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