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 VALE
EXPORTS PRIVATE LIMITED
PETITIONER:
Smt. A. Kalyani
RESPONDENTS:
1. M/s Vale Exports Private Limited
2. Shri C.K. Ashok Kumar
3. Shri K. Sasidharan,
4. Shri V. Ramani
PRESENT ON BEHALF OF PARTIES:
1. Shri T.K. Seshadri, Advocate … for Petitioner.
2. Shri T.K. Bhaskar, Advocate … for Petitioner.
3. Shri V. Ramakrishnan, Advocate … for
Respondents 1 & 2.
O R D E R
(Date of Hearing: 4.6.2002)
K.K.
BALU:
1.
The petitioner constituting
more than one-tenth of the total members of M/s Vale Exports Private Limited
(“the Company”) as well as holding more than 10 per cent of the shares, before
allotment of the impugned shares, has 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 following:
(a) exclusion of the petitioner from the day-to-day affairs and
business of the Company denying her statutory rights as a shareholder;
(b) denying the audited accounts and balance sheets of the
Company for several years;
(c) non-convening of annual general meetings as well as Board
meetings of the Company and non-sending of notices for such meetings whenever
conducted, if any;
(d) illegal allotment of 2,59,000 equity shares in favour of
respondents 2 to 4;
(e) illegal removal of the petitioner as a director of the
Company;
(f) non-issue of share certificates for the shares originally
allotted to the petitioner; and
(g) illegal appointment of directors.
3. Shri T.K. Seshadri, Advocate appearing for the petitioner, while
initiating his arguments submitted that the Company was incorporated in April,
1990 by the petitioner and the second respondent being the wife and husband
with the main objects of carrying on the business of acting as marketing agents,
consultants, brokers etc. The
petitioner and the second respondent were the first directors of the
Company. Apart from the Company, the
petitioner was also running a proprietary concern under the name and style of
M/s Cos. Trades. While the second respondent
was running the affairs of the Company at a loss, the petitioner was making
profits in her proprietary concern which resulted in certain disputes between
them. Subsequently, their matrimonial
relationship became estranged resulting in divorce proceedings initiated by the
second respondent before the family court.
In view of these disputes, the second respondent started ignoring the
petitioner and excluded her from the day-to-day affairs and management of the
Company. The second respondent failed to
send notices for the annual general meetings and the Board meetings of the
Company. The notices said to have been
sent to the petitioner were all addressed to the incorrect address and not
received by her. The petitioner was not
given copies of the audited accounts for the years 1994-95 to 1998-99 and the
balance sheet of the Company for the years ended 31.03.1991 to 31.03.1999 in
spite of the written communications sent to the respondents 1 & 2. The respondents fraudulently raised the
authorized capital and allotted the impugned shares, i.e., 8600 shares to the
second respondent and 200 shares each to the third and fourth respondents at
the Board meeting said to have been held on 5.11.1993 and 2,50,000 shares to
the second respondent at the Board meeting said to have been held on
27.03.1997. The Company being a family
company, the allotment of shares cannot be made to one of the members in
exclusion of other member. By virtue
of the impugned allotment, the petitioner’s shareholding has come down from 26
per cent to 3.4 per cent. The
respondents 4 & 3 were appointed as directors at the annual general meeting
held on 15.11.1993 & 9.9.1994 (Pages 77 & 81 of typed set of documents
by respondents). These proceedings are
void without notice to the petitioner.
The second respondent fabricated several documents and filed before the
Registrar of Companies as though the petitioner ceased to be the director with
effect from 1.3.1995 for not attending three consecutive Board meetings said to
have been convened by the respondents.
According to the petitioner, no Board meetings were convened from May,
1993 and no notice was sent for any of the Board meetings convened, if
any. Thus, the petitioner was excluded
from the day-to-day affairs of the Company, removed from directorship,
respondents 3 & 4 were illegally appointed as directors and the impugned
shares were illegally allotted in favour of respondents 2 to 4.
4. Shri Seshadri has taken pain to point out
several of the irregularities in the conduct of business of the Company as
under:-
· The notices said to have been sent by the
respondents by certificates of posting are concocted. The respondents failed to send notices by registered post in
spite of the written request made by the petitioner in her letter dated
2.12.1999 (page 196 of Petition).
· The minutes of the Board meeting (Page 45 of
typed set of documents by respondents) said to have been held on 01.03.1995
resolving to remove the petitioner from directorship on account of her
consistent absence at the Board meetings is not signed by the Chairman of the
meeting. Again the minutes of the
general body meeting (Page 83 of typed set of documents by respondents) of
members of the Company said to have been held in September, 1995 show that
members resolved that as per Section 283(1)(g), the petitioner ceased to be a
director for non-attending the consecutive Board meetings without leave of
absence from the Board of Directors.
Thus, the minutes of the Board meeting convened on 01.03.1995 as well as
annual general body meeting convened in September, 1995 are concocted.
· The letter dated 23.12.1996 sent by Counsel
for the second respondent to Counsel for the petitioner (Page 162 of Petition)
shows that the petitioner continued to be director as on 23.12.1996.
· The annual return made up to 29.09.1994 (Page
34 of Petition); Memorandum and Articles of Association of the Company (Pages
123 and 135 of Petition) and the register of members and Form-32 (Page 38 of
Petition) contain the full and correct address of the petitioner. However, the
notices (Page 49 to 75 of typed set of documents by respondents) sent by
Certificates of Posting do not contain the complete address. The respondents have not produced
certificates of posting in respect of the other directors.
· The minutes of the Board meetings held on
12.06.1994, 20.12.1994 and 01.03.1995 (Pages 39, 43 and 45 of typed set of
documents by respondents) are not signed by the Chairman and are not in
accordance with the Section 193 of the Act.
· The notice (Page 117 of typed set of
documents by respondents) convening the annual general meeting on 10.09.1999 to
adopt the audited balance sheet, profit and loss account of the Company for the
year ended 31.3.1999 is dated 30.08.1999 and sent to the petitioner on 30.08.1999
as seen from the certificate of posting (Page 119 of typed set of documents by
respondents) produced by the Company.
However, the auditors report (Page 265 of typed set of documents by
respondents) attached to the balance sheet of the Company for the year ended
31.03.1999 is found to be signed on 3.9.1999.
This is not feasible and the notice is concocted by the respondents 2
& 3.
· The letters of the petitioner (Pages 150
& 154 of Petition) requesting the Company to convene Board meetings show
that the petitioner continue to be the director during that relevant
period. However, the minutes of the
Board meetings said to have been held on 12.6.1994 and 1.3.1995 (Pages 39 and
45 of typed set of documents by respondents) reveal that the petitioner did not
continuously attend the Board meetings,
which is contradictory to the requests made by the petitioner. Though the petitioner had again asked for
the Board meeting on 04.11.1993 (Page 154 of Petition) and the Company failed
to intimate the petitioner of the Board meeting held on 05.11.1993. (Page 31 of
typed set of documents by respondents).
· Form No.2 (Page 5 of typed set of documents
by respondents) shows the allotment of 2,50,000 shares on 27.03.1997, but the
Return was filed on 18.11.1999 after the dispute arose between the parties.
· Form No.2 reveals that a sum of Rs.20 lakhs
was paid by cash and the remaining Rs.5 lakhs by way of acquiring the assets by
the Company, but the Company failed to file the requisite form No.3. Return of allotment discloses names of two
allottees, but the register of members does not contain their names. There is no documentary proof for cash
consideration of Rs.20 lakhs made by the second respondent for allotment of
shares. The counter affidavit dated
21.02.2000 (Page 15 of typed set of documents by petitioner) of the second
respondent filed before the family court confirms that he has meager income and
that he has no source for payment of Rs.20 lakhs towards allotment of the
impugned shares.
· Though 200 shares were allotted to the
respondent No.4 on 5.11.1993 (Page 1 of typed set of documents by respondents),
the register of members produced before the Bench does not reveal his name.
· The annual return as at 29.09.1995 (Page 50
of Petition) and the annual return as
at 23.09.1997 (Page 94 of Petition) do not show the name of the fourth
respondent.
· The annual return made up to 29.09.1995 (Page
48 of Petition) shows that the petitioner ceased to be a director of the
Company with effect from 8.3.1995, but form-32 filed with the ROC, Chennai
(Page 3 of typed set of documents by respondents) reveals that she ceased to be
a director with effect from 1.3.1995.
· The minutes of the Board meeting held on
15.11.1993, the original of which was produced before the Bench at the time of
hearing, contains many corrections and are not signed by the Chairman.
· Though the petitioner by her letters dated
3.11.1999, 2.12.1999 (Pages 172, 192 and 195 of Petition) requested the Company
to send notices for any meeting of the Company and also minutes by registered
post forwarding the demand drafts to meet the expenses in this behalf, the
Company did not adhere to the request of the petitioner.
5. While summing up his arguments, Shri
Seshadri reiterated that the petitioner has been deliberately excluded from the
affairs of the Company; that the petitioner’s shareholding is reduced from 26%
to 3.4% by the illegal allotment of
shares to respondents 2 to 4 and that respondents 3 & 4 were illegally
inducted on the Board. He, therefore,
sought for the reliefs made in the petition.
Shri Seshadri in support of his legal contentions relied upon the
following decisions:-
(i)
(1997) 4 Comp LJ 440
(CLB) – Mahendra Sing Mewar Vs. Lake Palace Hotels and Motels (P) Ltd.– to show that the plea of limitation does not apply to
the Company Law Board proceedings and cannot constitute a ground for
non-maintainability.
(ii)
(1995) 3 Comp LJ 418
(Raj) – Maharani Yogeshwari Kumari Vs. Lake Shore Palace Hotel (P) Ltd.– to show that the Company Law Board is empowered to look into
the acts of oppression and mismanagement which occurred three years prior to
the date of filing petition and continuing upto to the date of petition.
(iii)
AIR 1968 Supreme Court
1413(V 55 C 276) Gopal Krishnaji Ketkar Vs. Mohamed Haji Latif and others – to show that if a party in possession of best evidence which
would throw light on the issue in controversy is withholding it, the Courts
ought to draw an adverse inference against him notwithstanding that onus of
proof does not lie on him.
(iv)
(1997) 88 Comp Cas 245 Akbarali A.Kalvert
Vs. Konkan Chemicals Pvt. Ltd.
&
(v)
AIR 1966 CALCUTTA 512 (V
53 C 91) Ramashankar Prosad Vs.
Sindri Iron Foundry (P) Ltd. – to show that mere production of certificates
of posting issued by the Postal authorities would not be conclusive proof of
having served the communications upon the addressees.
(vi)
AIR 1958 CALCUTTA 644 (V
45 C 159) Hulas Kunwar Vs. Allahad Bank Ltd. – to show that in the absence of evidence of posting the
letter, there is no presumption of due delivery of the letter upon the
addressee.
(vii)
(1974) 44 Comp Cases 1
Parmeshwari Prasad Gupta Vs. Union of India – to show that unless due notice has been given to all the
directors, the meeting of directors cannot be deemed to have been duly convened
and that the business transacted at a meeting not duly convened is invalid.
(viii)
(1999) 96 Comp Cases 919
S.T.Ganapathy Mudaliar and Another Vs. S.G.Pandurangan and others.
&
(ix)
(1997) 1 Comp LJ 268
(CLB) Vijay Krishan Jaidka and others Vs. Jaidka Motor Co. Ltd. –
to show that in the absence of proper service of notice upon the directors,
vacation of their office by absenting themselves for the Board meetings should
be proved by the Company. In the
absence of proof of service of notice upon the directors vacation of office by
them under Section 283 is not proper.
(x)
(1995) 82 Comp Cases 563
Rashmi Seth Vs. Chemon (India) Pvt. Ltd. – to show that the directors of a company cannot utilize
their fiduciary powers over the shares purely for the purpose of destroying an
existing majority or creating a new majority.
If the power to issue further shares is exercised by the directors not
for the benefit of the Company, but simply and solely for the purpose of
consolidating and improving their voting power to the exclusion of the existing
majority shareholder, the Court cannot allow exercise of such powers, which
have been delegated by the Company to the Board of Directors.
6. Shri
V.Ramakrishnan, Counsel appearing for Respondents 1 & 2 recapitulated several of the proceedings
pending before the various forums between the parties. According to him, this petition is filed
only with the intention to harass the second respondent. He pointed out the strained relationship
between the petitioner and the second respondent not only in the company’s affairs,
but also on account of personal affairs.
According to him, the alleged acts of oppression and mismanagement took
place in the years between 1993 and 1997, but the petitioner has approached the
CLB only in February, 2000 after a lapse of more than three years. He, therefore, urged that the petition is
barred by limitation, in support of which he relied upon the decision of the
Company Law Board reported in 2002(1) CLJ 177 to show that the
provisions of the Limitation Act will be applicable to the proceedings under
Section 111 before the CLB. He further
drew our attention to the decision of the Apex Court in (2000) 2 Comp LJ
161 (SC) Corporation Bank Vs. Navin J. Shah to show that even if the
Limitation Act does not apply, the claim must be made within the reasonable
period of three years. Even otherwise,
the petition should be dismissed on the ground of laches, for which he relied
upon the decision in (1998) 5 Comp LJ 561 (CLB) A.P.Jain Vs. Faridabad
Metal Udyog (P) Ltd. The
petitioner has failed to explain the long delay in initiating the proceedings
before the CLB and therefore, not entitled for any relief. He further pointed
out that on account of the matrimonial disputes which arose from May, 1993
between the petitioner and the second respondent, the petitioner never showed
any interest in the affairs of the Company till October, 1999. All the letters sent by the petitioner are
prior to the year 1993.
7. Shri
V.Ramakrishnan, while arguing the matter on merits referred to the notices for
all the Board meetings (Pages 53 to 73 of typed set of documents by
respondents) sent to the petitioner under Certificates of Posting and
categorically stated that the covers were properly addressed and posted. In this connection, he made a reference to
the decision in AIR 1981 MADRAS 277 M. Meenakshisundaram Vs. S.
Venkatesan to show that in case of letters sent by certificates of
posting the presumption is that the letters are delivered to the
addressee. The petitioner never chose
to attend the Board meetings, continuously held in February, 1994, 31.03.1994,
12.06.1994, 26.08.1994 and 20.12.1994, despite the notices and she therefore
ceased to hold the office under the provisions of Section 283(1)(g). Accordingly, the Board of Directors at its
meeting held on 01.03.1995 (Page 45 of typed set of documents by respondents)
recorded cessation of directorship of the petitioner. The cessation is on account of operation of law, in which case,
the petitioner cannot be re-instated as a director in support of which he
relied upon the decision reported in (2000) 2 Comp LJ 354 (CLB) Vinod
Kumar Mittal Vs. Kaveri Lime Industries Ltd.
Though the petitioner was requesting to convene the Board
meeting in her various letters, later she did not evince interest in the
affairs of the Company and failed to attend the Board meetings and annual
general meeting as and when called by the Company after due notice to the
petitioner. He pointed out that the
petitioner did not express any grievance in her letter dated 3.11.1999 (Page 172
of Petition) regarding cessation of her directorship. Shri Ramakrishnan strongly contended that the petitioner cannot
rely on the letter dated 23.12.1996 (Page 162 of Petition) addressed by Counsel
for the second respondent to the petitioner in the matrimonial disputes to show
that the petitioner continued to be a director, in view of the fact that the
said letter was sent “without prejudice”.
The said letter cannot be produced as evidence in the proceedings before
the CLB. In this connection, he referred
to AIR’s Commentary on Section 23 of the Evidence Act. Section 23 ensures that letters sent without
prejudice cannot be relied on as evidence in all proceedings and not just the
proceedings in which the letters were exchanged. According to Shri V.Ramakrishnan the impugned allotments were for
the benefit of the Company and not for any oblique purpose. The allotment of the impugned shares was
partly in kind with a view to avoid recurring cash out flow for the Company on
account of periodical lease hold rent. In the circumstances, the allotments are
in the interest of the Company. The
petitioner has not been reduced to a minority shareholder in view of the fact
that the petitioner is always in minority. He further pointed out that though
the minutes of the meetings have not been signed by the Chairman, the minutes
does not become invalid, but only the presumption under Section 195 with regard
to their validity will not be available.
However, taking into consideration the facts and circumstances of the case,
the minutes produced before the CLB reflect the true proceedings of the
meetings of the Board. While concluding
his arguments, he submitted that by setting aside the allotments made from year
1993 running of the Company will be affected and the Company’s Banker will
recall the loan. In this connection,
he cited the decision of the CLB reported in (2000) 4 Comp LJ 262 (CLB)
Ashok V.Desai Vs. Doshi Times Industries (P) Ltd. where the CLB has
declined to grant such a relief. He
further submitted that though the second respondent was willing to purchase the
shares held by the petitioner, the present financial position is not favourable
to buy out the petitioner. However, the
second respondent is willing to maintain the petitioners’ shareholding at 25 per
cent by allotting further shares at par value.
He, therefore, sought for dismissal of the petition.
8. We have considered the pleadings and
arguments of Counsel for the petitioner and the respondents.
9. Before going into merits of the case, we
shall deal with the issue of
limitation. While it is the
contention of the respondents that the petition is barred by limitation and
that the petitioner is guilty of laches, it is denied by the petitioner. The CLB has considered this issue in quite a
number of cases and categorically held that plea of limitation does not arise
in the case of proceedings in relation to Section 397/398 proceedings. In this connection, reference is invited to
the decision in Lake Palace Hotels and Motels (P) Ltd. Case cited
supra. The decision in 2002 (1)
CLJ 177 cited by Shri Ramakrishnan in regard to limitation is not
applicable to the facts and circumstances of the present case. Moreover, the CLB is exercising equitable
jurisdiction in its proceedings under Section 397/398. We cannot, therefore, debar the petitioner
from claiming the equitable relief on merits of the case. In the circumstances, the plea of the
respondents must fail.
10.In regard to the plea of the petitioner
that the Company had never sent notices for the Board meetings, the Company
claims that the notices were sent to the petitioner properly addressed and
posted. The correct and complete
address of the petitioner is found in Memorandum and Articles of Association of
the Company (Pages 123 & 135 of Petition), annual return made up to
29.09.1994 (Pages 34 of Petition). But
all the certificates of posting (Pages 51, 55, 59, 63, 67, 71, 75 of typed set
of documents by respondents) produced by the Company do not specify the road
name. There is no record to show that
the notices have been served upon the petitioner. In the circumstances, there is no necessity to deal with the
cases cited by both the Counsel in regard to the validity of service of notice
by certificates of posting. In the
absence of proof of service of notice upon the petitioner for the Board
meetings, the proceedings of the Board are not valid as has been held in (1974)
44 Comp Cases 1 Parmeshwari Prasad Gupta Vs. Union of India. Therefore, the plea that the
petitioner ceased to be a director by virtue of Section 283(1)(g) must
fail. Moreover, in the minutes of the
Board meeting said to have been held on 1.03.1995 (Page 45 of typed set of
documents by respondents), the cessation of the petitioner as a director is
found to be recorded. Again, the
minutes of the annual general body meeting of members said to have been held in
September, 1995 (Page 83 of typed set of documents by respondents) show that
the petitioner ceased to be a director for non-attending the consecutive Board
Meetings without leave of absence from the Board of Directors. Thus, the cessation has been recorded on
01.03.1995 as well as in September, 1995, both of which cannot be correct. The letter dated 23.12.1996 (Page 162 of
Petition), unequivocally shows that the petitioner continued to be a director
as on that date. The plea of the
respondents that the said letter cannot be relied upon in the present
proceedings is not tenable, in view of the fact that the said letter is in
relation to the divorce proceedings.
Therefore, in our view, the said letter can be relied on as evidence in
the proceedings before the CLB. For all
these reasons, the petitioner cannot said to have ceased to be a director by
virtue of Section 283(1)(g).
11. From
the various instances pointed out by Shri Seshadri, we are convinced that there
has been manipulation of the minutes of meetings of Board of Directors and as
such they cannot be relied on in so far as allotment of shares impugned in the
petition is concerned. There is nothing
on record to show that offers were made to the petitioner even though she was
the only other shareholder in the Company.
Even though the respondents have contended that the petitioner had
always been a minority and therefore non-allotment of further shares to her cannot
be considered to be either for creation of a new majority or for conversion of
a majority into minority, yet, when there are only two shareholders, allotment
of shares to only one of them is a clear act of oppression. While, we do find that by allotment of
further shares, the Company has been benefited, yet, in our view, the
petitioner should have been offered further shares.
12.On a overall assessment of the facts of the
case, we are convinced that the petitioner has made out a case under Section
397 and as such deserves to be granted appropriate relief. The second respondent is willing to allot
further shares to the petitioner to maintain 25 per cent shareholding which is
not acceptable to the petitioner. It
is on record that matrimonial disputes between the parties have been going for
long and they are not in talking terms.
They are living separately. In the circumstances, by either allotting
shares to the petitioner to her entitlement or setting aside the impugned
allotments and restoring her directorship would not put an end to the acts
complained of. Moreover, by setting
aside the impugned allotments, the affairs of the Company and interest of its
Banker will be adversely affected.
Therefore, mere restoration of the shareholding position as it existed
before the allotments of the impugned shares and putting the petitioner in the
Board would only result in the percolation of the matrimonial differences into
the affairs of the Company. Even
though, our advice that the petitioner could consider going out of the company
was accepted by both the parties, yet they could not reach an acceptable term
of settlement. Under these circumstances, taking into consideration the
interest of the Company and also to put an end to the acts complained of, we direct
the second respondent to purchase the shares held by the petitioner. The consideration for the shares could be
either the investment made by the petitioner together with appropriate rate of
interest or the fair value of shares based on the balance sheet as on 31st
March, 2000, being the proximate date of petition. Therefore, we give the option to the petitioner to decide as to
which of the two options she desires to choose. In case she desires to have the investment made by her to be
returned, the same will be returned together with a simple interest at the rate
of 20 per cent per annum from the date of investment till the date of
payment. In case, she desires to have
the fair value determined as on 31st March, 2000, the same will be
determined on the basis of all the shares that were in existence on that date,
since the amount received as consideration for the further shares that were
allotted and impugned in the petition had been utilized by the Company for a
long period. She should indicate her option
before us on 09.08.2002. In case she
desires to get her investment back with interest, the same should be paid to
her by the second respondent within a period of 30 days from the date of
exercising the option. In case, she
chooses the second option of having the fair value determined, we shall appoint
an independent valuer to value the shares.
13.The petition is disposed of in the above
terms, keeping it open only for ascertaining the option of the petitioner and
if necessary for appointment of an independent valuer.
(K.K.
BALU) (S. BALASUBRAMANIAN)
Dated this the 5th day of July, 2002