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 ASAL
MALABAR BEEDI DEPOT PRIVATE LIMITED
PETITIONERS:
1. M.K. Haridas
2. M.K. Sumanth
3. K.S. Shine
RESPONDENTS:
1. Asal Malabar Beedi Depot Private Limited
2. M.K. Surendran
3. M.K. Prashanth
4. M.A. Rajeev
5. Ms. Parvathi
6. M.K. Jithesh
7. Mahesh
8. Suresh
9. Ashish
10. A.Chandrasekaran
PRESENT ON BEHALF OF PARTIES:
1. Arvind P.Datar, Sr. Advocate …for
Petitioners.
2. Balachandrasekhar, Advocate …for Petitioners.
3. Chitra Narayan, Advocate …for Petitioners.
4. R.Murari, Advocate …for Respondents.
5. R.Venkataravaradan, Advocate …for Respondents.
6. K.Ganapathy, Advocate …for Respondents.
O R D E R
(Date of Hearing: 2.1.2002)
K.K. BALU:
1.
The petitioners constituting
more than one-tenth of the total members of M/s Asal Malabar Beedi Depot
Private Limited (“the Company”) and holding 3.83 per cent of issued share
capital 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 act of oppression and
mismanagement relates to the allotment of shares in favour of the respondents 3
to 9 in exclusion of the petitioners.
3.
Shri Arvind P.Datar, Senior
Advocate appearing for the petitioners, while initiating his arguments has
recapitulated the various dates and events in relation to the business carried
on by the first petitioner and respondents 2 & 3, being brothers. The first petitioner was originally carrying
on the business of manufacture and sale of beedies, as a sole proprietor. Thereafter, the first petitioner started a
partnership firm in the name and style of M/s M.K.Krishnan and Sons, with the
respondents 2 & 3 as equal partners.
The first petitioner had also acquired the beedi business carried on by
one Shri P.R. Ramaier in the name and style of M/s Asal Malabar Beedi Depot,
upon which a partnership deed dated 17.07.1972 was entered into with
respondents 2 & 3 as equal partners.
The firm M/s M.K.Krishnan and Sons supplied beedies to Asal Malabar
Beedi Depot. In the meanwhile, the
first petitioner was also carrying on the business of manufacture of beedies
under a sole proprietorship concern in Kerala.
The first petitioner was constrained to leave in 1975-76, the
partnership firm on account of the financial problems faced by him in his
proprietary concern business in Kerala and to avoid any adverse impact on the
partnership business. The first
petitioner after settling the liabilities on account of the proprietorship
concern, was readmitted into the partnership firm in the year 1991 by virtue of
a partnership deed dated 1.4.1991 with equal shareholding in the partnership
business. The business of the partnership firm was taken over by the Company
incorporated on 15.10.92 and the first petitioner and respondents 2 & 3 are
the subscribers to the Memorandum of Association subscribing to 100 shares by
each of them. The Company was
incorporated on the premise of parity in shareholding and equal participation
in its management. The business of the
Company continued to prosper. The first petitioner participated in its
management and used to guide the respondents 2 & 3 in carrying on the
business of the Company. However, the
respondents 2 & 3 began excluding the first petitioner from the management
and affairs of the Company and took advantage of the health problem faced by
the first petitioner. In due course, no
notices either for the board meetings or the annual general meetings were sent
to the first petitioner and removed the first petitioner in December, 1977 from
his office of director on the ground of his absence from three consecutive
meetings of the board and immediately thereafter, allotted illegally the
impugned shares in favour of the respondents 3 to 9. When the first petitioner was again re-inducted to the board on
1.4.1998 he came to know of the allotment of impugned shares. According to the petitioners, there were no
reasons or circumstances necessitated the issue of additional shares, in
exclusion of the petitioners. The respondents
have not made out any necessity in the impugned allotment. The allotment is malafide and to secure the
ultimate purposes of the respondents.
The additional shares were allotted in complete disregard of the
principle of parity among the first petitioner and respondents 2 & 3. The allotment of shares to the members of
the families of respondents 2 & 3 to the exclusion of the petitioners
constitutes a clear act of oppression, thereby by reducing the shareholding of
the petitioners’ group from 33.5% to 3.83%. The petitioners have been ousted
from the participation in the affairs of the Company and excluded from its
management, which are acts of oppression and justify its winding up. Moreover, the respondents have not
specifically denied in counter, the averments of acts of oppression and
mismanagement made by the petitioners, in which case, the allegations of
oppression and mismanagement made in the petition have got to be accepted. The plea of the respondents that the
allotment was made in favour of respondents 3 to 9 to bring younger people for
management is not justified in the absence of maintaining parity by such
allotment in favour of younger members belonging to the first petitioner. In the circumstances, Shri Datar reiterated
that the Company should be directed to allot such number of additional shares
to the members of the petitioners’ family so as to achieve parity of
shareholding among the families of the first petitioner and respondents 2 &
3 and order payment of unpaid dividend to the petitioners for the past three
years including dividend accruing to the shares due to be allotted to the
petitioners’ family members.
4.
Shri Datar, in support of his
legal submissions relied upon the following decisions:-
(i)
Pushpa Prabhudas Vora
Vs. Voras Exclusive Tools Private Ltd. – (2000) 3 Com.LJ 271 – to show that in a
family company, where there is parity in shareholding, any change in the
shareholding, without mutual agreement, is an act of oppression.
(ii)
S.T. Ganapathy Mudaliar
Vs. S.G. Pandurangan – 96 CC 919 –
to show that family members having equal shareholding; additional issue of
shares to one shareholder alone without any need for additional funds so as to
give the shareholder undue advantage is invalid.
(iii)
Satish Chandra Sanwalka
Vs. Tinplate Dealers Assn. Private Ltd. – (2001) 3 Com.LJ 284 – to
show that additional issue of shares to one of the two groups of shareholders
in a private company is invalid.
Directions issued to the respondents for resumption of parity in the
shareholding.
(iv)
Senthamarai Munusamy Vs.
Micro Particle Engineers Pvt. Ltd. – 105 CC 526 – to show that further issue of capital without generation of
funds for the company which merely results in conversion of majority
shareholders into minority constitutes an act of oppression.
(v)
Puneet Goel Vs. Khelgaon
Resorts Ltd. – (2001) 2 Comp.LJ 488 – to show that where there is a further issue of shares without any
justification for the same, but only to convert the petitioner into a minority,
the same constitutes a grave act of oppression.
5.
Shri R. Murari, Advocate
appearing for the respondents, while refuting the charges made by the
petitioners has reiterated that the business of the Company was not on the
principle of equal shareholding among the first petitioner and respondents 2
and 3. He pointed out that the alleged
acts of oppression and mismanagement have been reported by the respondents
since 1994-95. Nevertheless, the
petitioners have preferred to file this petition only in the year 2001 and they
are therefore guilty of laches. Though
the first petitioner and respondents 2 & 3 were running the partnership business
with equal shareholding and contributed 100 shares each at the time of
incorporation of the Company, there was no agreement for equal shareholding
among the first petitioner and respondents 2 & 3. In this connection, he referred to the Articles of Association of
the Company which does not envisage such an equal shareholding among the
parties. In this connection, Shri
Murari relied on V.B. Rangaraj Vs. V.B. Gopalakrishnan (1992) 73
Com.Cases 201 to show that any private agreement between the shareholders
for maintaining the parity of shareholding would have to be incorporated in the
articles. Though the first petitioner
was a partner in the partnership business run by the first petitioner and
respondents 2 & 3, the first petitioner voluntarily retired from the
partnership in the year 1975.
Thereafter from 1975 till 1991, the second and third respondent made all
the efforts in building up the business of the firm increasing the turnover
from Rs.1 lakh to Rs.6 crores in the year 1991, during which time the
proprietorship concern of the first petitioner was closed down. The first petitioner never contributed
anything to the growth of the business of the firm or the Company. After incorporation of the Company in
October, 1992, the business of the firm was transferred to the Company and was
efficiently carried on by the second and third respondents as whole-time
directors. Though the first petitioner
received salary from the Company, he did not participate in the management of
the Company. The first respondent did
not attend three consecutive board meetings held prior to 8.11.1997 in spite of
the notices (Annexures E, F & G) sent by the Company and therefore ceased
to be a director. At the request of the
first petitioner, he was again re-inducted on the board in April, 1998, but he
was not attending the board meetings despite sending proper notices to
him. Shri Murari referred to the
notices sent to the first petitioner for the board meeting and also the postal
receipts evidencing sending of the notices to the first petitioner for the
board meetings in accordance with the provisions of Section 53 and accordingly
they are deemed to have been sent to the first petitioner and it is for the
petitioners to disprove the same. According to him, the first petitioner on
re-induction into the Board became aware of the further allotment of shares by
the Board in December, 1997 and January, 1999. The allotment of shares made in
December, 1997 and in January, 1999 is challenged in the year 2001 and the
delay has not been explained by the petitioners, in which case, no relief can
be granted to them, in support of which Shri Murari relied on S.Ranganathan
Vs. Shyamala Pictures & Hotels (P) Ltd. (2001) Vol.33 SCL 636. Shri Murari justifying the allotment pointed
out that the paid up capital of the Company is Rs.30,000 and that the turn over
is over Rs.10 crores which necessitated the Company to increase the paid-up
capital in order to improve the business.
As there was no agreement in regard to equal shareholding, there is no
need for the respondents to offer the shares to the petitioners’ family. He further submitted that out of the
turnover of Rs.11crore made by the Company during the last financial year,
Rs.10 crore has gone to the partnership firm, wherein the first petitioner is
also a equal partner and the remaining Rs.1 crore has been spent for the
business of the Company. The first
petitioner has already been enjoying in equal proportion the profits of the
Company. Shri Murari further pointed
out that the first petitioner is now carrying on a rival business by sale of
his own brand of beedies using the Company’s premises and the amenities
available at the Company. In the
circumstances, Shri Murari sought for dismissal of the petition.
6.
Shri Datar, in his reply, contended
that the plea of competing business of the first petitioner cannot be raised at
this stage without proper pleadings in this behalf. The respondents have not made out any case for allotment of
additional shares. He pointed out that
with paid-up capital of 30,000, the Company could have turn over to the tune of
Rs.11 crores in which case, according to Shri Datar, there is no necessity to
increase the paid-up capital. He
invited our attention to the fact that the first petitioner was removed in December,
1997 and the impugned shares were allotted immediately in December, 1997 in
exclusion of the petitioners, without any justification. This, according to Shri Datar, is with malafide intention. He
reiterated that though there is no written agreement regarding equal
shareholding, there has been a tacit family arrangement as borne out by the
partnership deeds entered into between the first petitioner and respondents 2
& 3 from time to time and the conduct of the parties by subscribing to 100
shares each at the incorporation of the Company. He, therefore, reiterated that the petitioners must be allotted
additional shares so as to have equal shareholding with the respondents 2 &
3.
7. We have considered the pleadings and arguments of Counsel.
8.
The facts not in dispute are
that the first petitioner and respondents 2 & 3, being brothers were
carrying on the business in beedies as equal partners since the year 1972. Subsequently in the year 1975, the first
petitioner retired from the partnership on account of his personal
impediments. However, the first
petitioner was re-admitted into the partnership in the year 1991 with equal
shareholding, by which time, the partnership had achieved turnover in the range
of Rs.6 crores. Thereafter, the
business of the partnership was taken over by the Company in the year 1992 and
the first petitioner as well as respondents 2 & 3 were subscribers to the
Memorandum of Association subscribing to 100 shares by each of them. The first
petitioner and respondents 2 & 3 became directors of the Company. Sometime in December, 1997, the first
petitioner ceased to be a director on the ground of his absence from three
consecutive meetings of the board, but subsequently he was re-inducted on the
board. The Company allotted 1700 shares
on 3.12.97 in favour of the respondents 3 to 6 and 400 shares on 6.1.99 to the
respondents 7 to 9, as per the report dated 7.11.2001 of the Regional
Director. However, the petitioners were
excluded. At this juncture, Shri
Murari’s oral assertions assume importance.
According to him, the profits earned by the Company after meeting the
expenses are going to the partnership firm, which are shared by the partners,
namely, the first petitioner and respondents 2 & 3 in equal
proportion. From these undisputed facts
and circumstances, in our view, there is a tacit arrangement among the first
petitioner and respondents 2 & 3 to share the profits out of the beedi
business among themselves equally. This
arrangement has been in practice ever since 1972 and even after formation of
the Company, the profits of which are taken equally by the partners of the
partnership. We are, therefore,
constrained to apply the principles of quasi partnership and legitimate
expectations in the present case. In
such a family company, any disturbance in the long held shareholding would
amount to an act of oppression. The
feeble plea of respondents justifying allotment of the impugned shares that the
paid-up capital of 30,000 was required to be increased on account of voluminous
turnover is not convincing. The
respondents, in our view, ought to have allotted shares in favour of the first
petitioner’s family in parity with the respondents’ family, which they have
failed. We do not find any
justification to exclude the petitioners when new shares were allotted. The respondents have not acted fairly but in
a manner oppressive to the interests of the petitioners. However, we do not propose to set aside the
impugned allotments in view of the fact that the allotment money has been utilized
for the business of the Company. We propose to restore parity among the three
groups. Therefore, out of 2,100 shares
newly allotted, the petitioners’ group should be entitled to 33.33 per cent of
the shares, which works out to roughly 700 shares. In case the petitioners are willing to acquire these shares the
respondents 3 to 9 should transfer to the petitioners these 700 shares at the
consideration paid by the respondents when they were allotted shares by the
Company. The option to get the shares
transferred should be exercised before 30thApril, 2002 by a notice to the
Company, together with a Demand Draft for the amount of consideration for these
shares. Once the notice is received by
the Company along with the consideration as above, the Company will arrange for
getting the transfers effected by the respondents 3 to 9 within 15 days
thereafter and register the transfers within further 10 days. Identification of 700 shares to be
transferred to the petitioners out of 2,100 shares allotted to the respondents
3 to 9 shall be the responsibility of the Company.
9. With
the above directions, we dispose of the petition without any order as to cost.
(K.K. BALU) (S.
BALASUBRAMANIAN)
Dated this the 12th day of February, 2002