BEFORE THE COMPANY LAW
BIOARD
PRINCIPAL BENCH
Dated 15th
November 2001
2. Sh.S.Balasubramanian,
Vice Chairman
And
In the matter of K.M Chandak
8 others
Versus
M/s Acrow India Limited
PETITIONERS:
1. Shri
Kirshnagopal M. Chandak
2. Shri Motilal
M. Chandak
3. Ms. Priti K.
Chandak
4. Ms. Indumati
M. Chandak
5. Shri Rajesh
S. Daba
6. Ms. Sarla D.
Soni
7. Ms. Seema M.
Sarda
8. Shri Vijay N.
Bangad
9. Ms. Ranjana
K. Khatod
RESPONDENT:
M/S Acrow India Limited
Present on behalf of
parties:
1. Shri Vibhu Bakhru,
Advocate
.. for petitioners
2. Shri Vivek Sibal,
Advocate
.. for petitioners
3. Shri D.U. Kamath,
Consltant
.. for respondents
4. Shri V.K. Bodas,
Co.Secy.
.. for respondents
5. Shri Ashish Wad,
Advocate
.. for respondents
(Date of final hearing:24.7.2001)
S.BALASUBRAMANIAN:
1.
The petitioners claiming to hold 12.4%
shares in M/S Acro India Limited ( the
company ) have filed this petition under Sections 397/398 of the Companies Act, 1956 ( the
Act ) alleging acts of oppression and mismanagement in the affairs of the company.
2. Shri Vibhu
Bhakru, advocate appearing for the petitioners submitted: Even though this petition is under Sections 397/398, the
allegations of the petitioners mostly relate to mismanagement in the affairs of the
company attracting the provisions of Section 398 of the Act. There has been gross financial mismanagement and
also siphoning of funds by the directors of the company.
The petitioners started acquiring shares in the company purely by way of investment
from 1996 onwards and presently they hold collectively 12.4% shares and as such they are
genuinely interested in the welfare of the company. The
main allegation relate to acquisition of Industrial Machinery Division of M/s Ravalgaon
Sugar Farm Limited, inter-corporate deposits, bad debts and siphoning of funds of the
company. The company has purchased Industrial Machinery Division of M/S Ravalgaon Sugar
Farm Limited which is also under the control of Shri
Harshwardhan Doshi who is the Chairman of the company.
This Division was not a profit making division and as a matter of fact M/S
Ravalgaon Sugar Farms Limited itself had indicated in the Annual Report for 1996-97 that
it would be in the interest of that company to
dispose of this division. Therefore by
acquiring a loss making division, the interests of the company have been jeopardized. Such a decision was taken only because the other
company is also under the control of Shri Harshwardhan who seems to have been more
interested in welfare of the other company than
the respondent company. The amount incurred
in acquiring the division was about Rs.2.7 crores. Even
though it is claimed by the company that the
proposal to acquire this Division was approved in the 38th AGM, the petitioners
did not receive notice for this meeting and therefore the decision to acquire the division
had been taken behind the back of the petitioners who hold substantial shares in the
company. Further, even though the company has claimed that it would be in the interest of
the company to acquire the division, nothing
has been said in the reply as to what benefit that the company has derived from this acquisition. The acquisition
was made only to benefit the other company and the diversion of Rs.2.7 crores for this purpose is detrimental to the interest of
the company.
3. He further
submitted: A perusal of the financial
statement for the years 1993-94 to 1997-98 at Page 8 of the Petition would reveal that the
financial position of the company has deteriorated over the period of time. While the
Income from sales which was over Rs.200 lacs in 1995-96 and 1996-97, it has come down to Rs.130 lacs in 1997-98. At the same time in the year 1998-99, the expenses
went Rs.250 lacs. The statement further indicates that right from
1993-94 to 1997-98, the company has been incurring huge operating losses. Further, the company owns properties at prime
location at Mumbai and other places and systematically the properties are being sold and
very megre consideration is shown in the accounts. Either
these properties were sold at throw away prices to the sister concerns of Shri
Harshwardhan or the higher consideration received had been pocketed by the management. Simultaneously, the company is also purchasing
properties at exorbitant rates. Even though the company has discharged all its workers
from its unit at Aurangabad by a voluntary retirement scheme, yet, the operational
expenses are found to be still high indicating that money is being siphoned of. The sale consideration of huge amount received are
kept as inter corporate deposits with the sister companies.
However, the interest collected on this amount shows a decreasing trend indicating
that the sister companies are shown favoritism in the matter of interest. In spite of the petitioners demanding details of
the loans/inter corporate deposits given and the interest charged, the company is not
furnishing any information for fear of detection of fraud.
The statement at Page 8 of the petition indicates that the company has been writing
of huge amounts ranging from Rs. 30 lacs in
1993-94 to Rs.107 lacs in 1995-96 as bad debts. How a company having a turnover of hardly
Rs.200 lacs could afford to write off such a large sum as bad debts require a thorough
investigation.
4. Summing up his
arguments Shri Bhakru submitted that there is gross financial mismanagement in the company
arising out of siphoning of funds and therefore to
ascertain the correct position and also to
sur discharge the directors, it is essential that, in exercise of powers under Section 402
of the Act, the CLB should pass an order of
investigation into the affairs of the company.
5. The learned
counsel for the respondents submitted: This
petition is not maintainable in as much as the petitioners do not satisfy the requirements of Section 399 of the Act on the ground that the
acquisition of shares was in violation of SEBI Guidelines on Substantial Acquisition of
Shares. The company has already filed a
complaint with SEBI in regard to the acquisition of shares by the petitioners. The petitioners desired to sell their shares to
the company at more than two and half times than the price at which they purchased the
shares and when that offer was rejected, they resorted to various acts detrimental to the
interest of the company and also with the view to harass
directors. First they complained
to ROC with the same allegations as are in the petition
and later they filed this petition. Therefore this petition should be dismissed in
limine.
6. On merits of
the case, he submitted: The company was carrying on the business of manufacturing
shuttering, scaffolding and industrial storage system.
Due to stiff competition from unorganized sector and small scale unit in
scaffolding business, the business of the
company was very much affected by which the
turnover of the company which was over Rs.10
crores in 1991 came down to Rs.1.5 crores in 1993-94.
Therefore, the management of the company decided to discontinue the business of
manufacturing shuttering and scaffolding and concentrate on the manufacture of industrial
storage system. In view of this, a large
number of workers and staff were offered voluntary retirement scheme. The company shifted its factory from Aurangabad to
Rawalgaon. The Board of the company consists
of eminent persons who have been taking decisions only in the interest of the company. In
view of the closure of the main business of the company, since it did not need the large
corporate office in Mumbai and therefore, it was let out for a rental of about Rs 94 lakhs
per annum. It also sold it property at
Chennai on a profit of over 5.7 crores. Since it has rented out the huge corporate office,
it has purchased a small office in Mumbai out of the profits made from the Chennai
property. The company has entered into a technical collaboration with an Australian
company for manufacture of weighing machines. This background should be kept in mind in
examining the allegations of the petitioners.
7. In regard to
the acquisition of industrial division, the learned counsel submitted that it was a wise
business decision taken by the management after making a detailed study. The proposal to
acquire the division was made known to the shareholders in the Annual Report for the year
1997-98 and even though notices were sent to the petitioners, they did not attend this
AGM. With the acquisition of that
division, the company is able to carry on all its manufacturing activities from Rawalgaon
and has started making operative profits and during the first two quarters of 1999-2000,
the company has earned a profit of Rs.28 lacs compared to a profit of Rs.14 lacs during
the corresponding period of the earlier year. Therefore
to allege that the division was acquired to benefit the other company is not based on
facts and this acquisition is proved to be very profitable to the company.
8. As far as the
financial statement at Page 8 of the Petition is concerned, the learned counsel pointed
out that the figures shown therein do not correspond with the figures in the annual
accounts and by showing wrong figures the petitioners are trying to mislead this Bench. It
is true that the company’s affairs were on a low key during the years 93-94 to
1997-98, but it was due to competition. The closure of the main business itself would
indicate that the company was helpless. Yet it had to keep the business going and that is
why there had been marginal operating losses. Further due to the voluntary retirement
scheme, the company had to incur a large amount towards compensation. To offset the
adverse impact on the company due to the slow down in its activities, the company let out
its properties on taking huge deposits, thus earning rent and also interest on the
deposits received by making inter corporate deposits. The reduction in the turnover as
complained by the petitioners is due to abandonment of the scaffolding business and
therefore cannot be said to be due to mismanagement.
As far as the fall in the quantum of interest earned on the inter corporate
deposits, the amount received on the sale of Chennai property was deployed in the form of
inter corporate deposit at the usual commercial rate, and when the company purchased
office accommodation in Mumbai, the deposit was withdrawn and utilized to pay the
consideration fro this accommodation, and therefore, there was a reduction in the interest
earned.
9. Summing up his
arguments the learned counsel submitted: The entire petition is based on suspicion and
surmises drawn on the basis of the Annual Reports of the company. Even though the
petitioners have claimed many reliefs in the
petition, finally, the counsel for the petitioners restricted his prayer only for
investigation into the affairs of the company. The settled law is that for seeking
investigation, full particulars should be furnished and mere comparison of the previous
figures in the Annual Report cannot be a ground for seeking investigation. It has been held in M.M. Dua Vs. Indian
Dairy and Allied Services (86 CC 657 CLB) and in Mohta Brothers Private Ltd.
Vs. Calcutta Landing & Shipping co. Ltd.
(40 CC 119 Cal) that for
seeking investigation, full and detailed particulars should be given. Further, the petitioner should establish a case of
oppression or mismanagement justifying winding up of the company on just and equitable
grounds as held in Shanti Prasad Jain Vs. Kalinga Tules ( 35 CC 351 SC
) which the petitioner has failed to establish.
Further, the motivation for filing the petition is that the management of the
company was not willing to purchase the shares held by the petitioners on an exorbitant
price. As has been held in Nurcombe V Nurcombe ( 1985 1 AER 65
), petitions with oblique purposes should not be entertained. Therefore, on every count this petition deserves to
be dismissed.
10. We have considered the
pleadings and arguments of the counsel. The company has raised an objection on the
maintainability of the petition on the ground that the petitioners have violated the
provisions of SEBI Regulations in regard to the substantial acquisition of shares. It has only taken a stand that it has already made
a complaint to SEBI. We note that the company has not advanced any arguments before us for adjudicating this matter as a preliminary
issue. Till such time, an appropriate authority adjudicates this allegation, this
allegation, since the petitioners are registered members of over 12% shares in the
company, they can maintain this petition in terms of Section 399 of the Act.
11. We note that the petitioner
has not impleaded any of the directors of the company even though practically all the
allegations relate to financial mismanagement. No effective adjudication of the
allegations is possible without impleading the directors
are responsible for conducting the affairs of the company. Even otherwise, as
elaborated hereinafter, the petitioners have not made out any case for granting any of the
reliefs sought for in the petition, more particularly in regard to investigation into the
affairs of the company.
12. In so far as the acquisition
of the industrial division is concerned, we note that the same had been included in the 38th
Annual Report as a part of the Directors Report and had been considered by the general
body. Further, the company has also explained that the acquisition has been proved to be
beneficial to the company. Under these
circumstances, on the complaint of the petitioners, this Bench cannot question the wisdom
the Board of Directors/general body in acquiring this unit. As far as the other instances
of alleged financial mismanagement are concerned, we find that these allegations have been
based on the annual reports of the company. The petitioners have given a summary of the
reports from 93-94 to 97-98. We find that come of the figures do not tally with the
figures in the annual reports. For instance, the learned counsel for the petitioners urged
that the company had written off a substantial amount as bad debts every year. While
according to the petitioners, the figure of bad
debts in the year 1994-95 was Rs.51.11 lacs, as per the Annual Report, it was only Rs.7.88
lacs. Likewise, for 1995-96, according to the
petitioner, it was Rs.107.38 lacs, but as per Annual Report, it was only Rs.22.56 lacs. In the year 1996-97, as against the
petitioner’s figures of Rs.102.90 lacs, as per the Annual Report, it was nil. In the same way, according to the petitioners, bad
debts were Rs.91.49 lacs in 1997-98 while as per the Annual Report, it was only Rs.2.21
lacs. Therefore, we do not find any substance
in the allegation that huge bad debts have been written off by the company. The company
has also explained that the reduction in the turn over was due to abandonment of the
scaffolding business, which is also evident from the fact that a large number of workers
had been offered voluntary retirement scheme.
13. In relation to the
allegation of under selling the assets of the company, the petitioners has not furnished
any details to justify this allegation either
by assessing the real worth of the properties or by giving any comparative details. Therefore, this allegation cannot be considered by
us for want of full particulars. As far as
the apprehension of the petitioners, on the basis of reduction in the receipt of interest,
that the funds of the company have been given
to the sister concerns of the directors at no/lesser rate of interest, we find that the
company has explained the position satisfactorily and as such nothing survives on this
allegation.
14. The petitioners have made a
bald allegation that the directors of the company have siphoned of the funds of the
company without any particulars. Such allegations without particulars and without
impleading the directors as parties to the
proceedings cannot be adjudicated. The manner in which the allegations have been made
justifies the stand of the company that this petition has been filed for an oblique motive
which is evident from the fact that at the time of hearing, the learned counsel for the
petitioners restricted his prayer only to seek an investigation into the affairs of the
company which in any way in view of the settled position of law that for ordering
investigation, sufficient material should be made available to form an opinion that the
affairs of the company should be investigated, cannot be granted in the absence of full
particulars.
15. Accordingly the petition is
dismissed with no order as to cost.
(S. Balasubramanian)
(A.K. Banerji )