NEW DELHI
(Dated: 30th May 2002 )
Present: 1. Justice A.K. Banerji, Chairman
2. Shri S. Balasubramanian,
Vice Chairman
AND
In the matter of Shri
Prakash Nath and Ors.
Versus
M/S Ashoka Manufacturing
Co. Pvt. Ltd. & Others
PETITIONERS:
1. Shri Prakash
Nath
2. Shri Manu Nath
3. Mrs. Lily
Prakash Nath
4. Shri Prakash
Nath (HUF)
RESPONDENTS:
1. Shri Achal Nath
2. Mrs. Sheila
Ashok Nath
3. Shri M.S. Sud
4. M/S Ashoka
Manufacturing Co. Pvt. Ltd.
5. M/S Abro
Balancing Machines Pvt. Ltd.
Present on behalf of
parties:
1. Ms. Pinky Anand, Advocate
.. for petitioners
2. Shri Rajesh Ranjan,
Advocate
.. for petitioners
3. Dr. Abishek Singhvi, Sr.
Advocate
.. for resp. 1 and 2
4. Shri Krishna Kumar,
Advocate
.. for resp. 1 and 2
5. Ms. Rupali Puri, Advocate
.. for resp. 1 and 2
(Date of final hearing:
27.3. 2002)
S. BALASUBRAMANIAN:
1. It is
unfortunate that the contesting parties who had decided to amicably settle the disputes as
early as in 1992 by dividing the 4th respondent company into two equal divisions, each to be managed
independently and having thus managed, should have come before us through this petition
filed under Sections 397/98 of the Companies Act (the Act) complaining of mismanagement
against each other.
2. The facts of
the case are that the company was incorporated in Lahore in 1939 and the registered office
was transferred to Delhi in 1967. The parties
to the proceedings are family members of two brothers.
The 1st petitioner Shri Prakash Nath, is one of the brothers and the 1st
respondent is the son of the other brother, Shri Ashok Nath. The company was being managed by both the brothers
jointly till about 1990. On 8th
April, 1990, a family settlement was arrived at between the brothers in the presence of 5
Panches. In pursuant to this family settlement, further discussion were held between the
parties with the assistance of the Panchas and finally, the company was divided into A and
B Divisions w.e.f. 30th November,1992
in pursuant to a Memorandum dated 29th
August , 1992 by which Division A was taken over by Shri Ashok Nath while Division B was
taken over by the 1st petitioner and these Divisions are being independently
managed by these two groups right from 30.11.92. A balance Sheet as on that day was also
got prepared to identify the assets and liabilities as on that date. Presently, both the groups hold 50% shares
each in the company. In addition to the
company, there are two other companies, namely, the 5th respondent ( ABRO ) and
Ashok Brothers Impex Private Limited within the family. The petitioners’ group filed
this petition alleging various acts of oppression and mismanagement in the affairs of the
company by the respondents’ group. Considering
the fact that there had already been a family settlement by which the company had been
divided into two divisions 5 years back, to
be independently managed by the respective groups, in the hearing held on 9.12.1997, it
was suggested by this Bench that once the liability of the company is divided between
these two divisions, the disputes between the parties could be finally settled and this
suggestion was accepted by the parties. Accordingly,
this Bench, by an order dated 9.12.1997 appointed M/S V. Shankara Iyer & Co.,
Chartered Accountants to examine the books of accounts to identify the various items of
liabilities shown in the books of accounts as on the date of the division of the company
and give their recommendation on apportionment of these liabilities between these two
divisions. However, both the sides
represented that the report given by the Chartered Accountants did not cover all the
claims made by each division on the other and as such the report was not acceptable to
them and as such no further progress could be
made. Thereafter, from time to time, the parties were reporting that compromise talks
were going on between the parties. In the meanwhile, on an application made by the
respondents complaining that the petitioners’ group was taking action to close the
Division B, this Bench passed an order on 16.9.1999, directing the petitioners’ group not to proceed with the closure application
pending with the Government. Thereafter also
some attempts were made by this Bench to get the matter resolved amicably but without any
result. In spite of the division of the
company into A and B Divisions between the two groups, yet, various issues relating to the
ultimate parting of ways remained incomplete resulting in filing of this petition.
3. The main
allegations in the petition are that shareholders belonging to Division A, being the respondents, are guilty of diversion
of funds of the company through ABRO and Ashok
Brothers Impex Private Ltd. (ABI ) and that in spite of division of the company into
Divisions A and B, the Division A has been
withholding legitimate claims of Division B and that various other issues relating to the
division are not being implemented by Group A. On
the basis of these allegations, the petitioners have sought for directions to Group A to
implement, in full, the terms of the family settlement so as to bring about legal
separation of the company, to compensate the company of all the funds diverted to ABRO and
ABI etc.
4. Ms. Pinki
Anand, Advocate, appearing for the petitioners submitted: Even though as per the family
settlement, all the three companies were to be polled together for the purposes of
division, it was not done so. The benefits of ABRO and ABI were retained by Division A.
ABRO was incorporated as a family company in
1974, yet, it always remained under the control of late Prakash Nath. Over the years,huge amount of the company had been diverted from the company to ABRO. ABRO
supplies electronic boxes and the company is the sole purchaser of these electronic boxes
which are used in the final product manufactured by the company. The final product,
namely, the balancing machines are marketed through ABI.
Before ABRO was set up, the average profit margin of the company was 11.55%. However, after the company started procuring
electronic boxes from ABRO, the average profit margin from 1976 to 1992 came down to 5.17%
and the average profit of ABRO during this period was 36.44% very clearly indicating that
there had been a large diversion of funds of
the company to ABRO. The chart enclosed with
the written submissions would indicate that a sum of Rs.1.52 crores have been diverted and
with interest the diverted amount comes to nearly Rs.9 crores. Of this amount Division B
is legitimately entitled to get Rs 4.5
crores.
5. She further
submitted: In ABI, Group A holds 51% shares and Group B 49%. ABI is the sold selling agent of the company right
from 1965. Till 1974 i.e. before ABRO was
incorporated, ABI was charging around 6% commission which was later hiked up to 13% by
group A. As per the agreement with ABI, it is
to bear all selling and business promotion expenses.
However, the company has been bearing all these expenses but at the same time is
paying 13% commission. For the period from
1965 to 1992, the company had paid Rs.3.83 crores as commission to ABI. Payment of such a
huge amount of commission reflects mismanagement on the part of Group A. Even assuming that ABI could retain 25% of the
said amount as commission, of the balance of Rs.2.87 crores, Division B should get Rs.1.44
crores. Since both ABI and ABRO have no
infrastructure assets of their own, they are using all the facilities of the company. The over draft facility taken by the company was
being used for the benefit of ABI and ABRO. The
amount of interest paid by the company for the overdraft facilities attributable to ABRO
and ABI works out to nearly Rs.6.4 crores which should be recovered from ABRO and ABI. Of this Rs.6.4 crores recoverable from ABRO and
ABI, Division B should get Rs.3.4 crores.
6. Dealing with
the issues relating to division of the company, the learned counsel submitted: In the proceedings before M/s Sankara Iyer &
Co Division B had made a claim of Rs 1.9
crores against Division A while Division A
had made a claim against Division B of Rs 0.8 crores. In all fairness, Sankara Iyer & Co should have awarded Rs 1.01,
being the difference between the two claims, but awarded a sum of Rs.21.9 lacs which has
also not been paid by Division A to Division B. Adding interest on this amount, the total
amount payable by Division A to Division B works out to Rs.33.75 lacs. Even though the
Bench appointed M/S Shankar Iyer & Co. to settle all the claims between the parties in
terms of the family settlement, yet, they have not dealt with the claims of Division B on
account of diversion of funds to ABRO and ABI and also in respect of interest on over
draft and the other actual claims of Division B. Thus, there has been no final settlement
in regard to the inter-se settlement within the parties.
7. Summing up his
arguments, the learned counsel submitted that all the three companies are family companies
and therefore all the assets and liabilities of these companies should be clubbed together
and should be equally divided between Division A and Division B. If this is done, DivisionB would be entitled for
nearly Rs.9 crores from Division A. Till such time the same is done, Division A should be
directed to pay at least Rs.22 lacs determined by M/S Shanker Iyer & Co. together with
an interest of 24%. This Bench should pass an
order effectively dividing the company into Division A and Division B to enable each group to independently manage the divisions
pending final order by competent courts.
8. Dr. Singhvi
appearing for the respondents submitted: This petition is not maintainable as all the
events complained of relate to years prior to 1992 when the division took place. Since the
alleged acts are past and stale, there could
be no cause of action to file this petition.It has been held in Shanti Prasad Jain V
Kalinga Tubes Ltd (35 CC 351-SC), Chander Ktishan Gupta V Pannalal Girdhari Lal Pvt Ltd (
55 CC 702-Del)Palghat Exports Pvt Ltd V TV Chandran (79 CC 213-Ker) that there
should be continuous acts of oppression/mismanagement continuing up to the date of the
petition, which is not the present case. Therefore, this petition is not maintainable.
Further by this petition, the petitioners seek to implement the family settlement which is
not permissible in a Sections 397/398 petition. No
family arrangement or private agreement could be sought to be enforced through this
petition as contractual obligations cannot form part of this petition. Further, the 1st petitioner has been a
director of the company for a long time and as such he had full knowledge of the
transactions between the company and
ABRO/ABI. By having not raised any objections for over 20 years, the petitioners are
estopped from raising these issues on account of acquiescence, participation and waiver.
9. On merits, he
submitted: The main allegations in the petition relate to ABRO and ABI. The
allegations against these two companies relate to the period before 1990 and as such do
not deserve to be examined at this point of time. ABRO
was incorporated in 1973 by Shri Atul Nath (S/o Ashok Nath). The petitioners’ group never participated in
this company. Shri Atul Nath being an
electronic engineer developed dynamic balancing machine at the laboratories of IIT Delhi
and there after set up his own factory. With a view to have a synergy, while electronic
component was supplied by ABRO, mechanical aspect was done by the company. Both had
separate cost and adding a margin of profit to be shared by both, composite product was
marketed. By this business and commercial association, the turnover and the profit of the
company went up between 1976 and 1990 as would be evident from Annexure A-1 to the reply.
None of the resources of the company was ever utilized by ABRO and this fact is known to
the petitioners. Therefore, this allegation of diversion of funds of the company to ABRO
is absolutely false.
10. In regard to ABI, the
learned counsel submitted: Both the groups are shareholders in the company. The 3rd
petitioner has been a director of this company. This
company was appointed as the sole selling agent of the company and in addition it also
handled imports and other products. The appointment of this company as the sole
selling agents had been going on right from 1971 with the approval of the Company Law
Board. As a matter of fact, many of the applications to the CLB were 0 signed by the 1st
petitioner himself. The rates of commission
payable had also been approved by the CLB. This company had its own infrastructure and as
such none of the facilities of the company was being used by ABI. Even otherwise, since the petitioners’ group
hold substantial shares in ABI, even if abnormal commission had been given to ABI, the
petitioners also had the benefit of the same.
11. He further submitted: One of
the promoters of the company Late Ashok Nath was the father of the 1st
respondent. At the time when the disputes arose, Ashok Nath family held majority shares
and the petitioners group held only 28% shares. At
the time when the family settlement was arrived at, all factors had been taken into
account and it was decided, as a matter of good will,
that even though the petitioners were not equal shareholders, they would be given
50% shares in the company and that the company would be divided into two Divisions, each
group taking one Division. The whole
settlement was arrived at with the assistance of 5 Panches. It was also agreed that the
parties would abide by the decisions of one Shri M.S.Sud, Chairman of the company. After a
number of discussions, by an agreement dated 21.10.92, de facto division was finalized. A
separate Balance sheet as on 30.11.92 was
prepared and all assets and liabilities were separated as per this Balance Sheet. From
that date, the two divisions were being managed independently by the two groups. Even though, there had been a number of further
discussions, finality was given to the family settlement
on 27.1.1994 as is evident from the document signed by both the groups and also by
Shri Sud ( Page No.366 of the petition
). According to this, Division B was to take
the bank liability of Rs.32,31,633 which the Division B has not taken over so far and has
also not implemented some of the decisions of Shri Sud.
If Division B had settled these issues, there would have been no need to file this
petition.
12. He further submitted: At the time of division, Division B got more
favourable terms in the nature of products, part of the land of the factory etc. After the
petitioners took control of Division B, they have been mismanaging this Division. Right from 1996 onwards, this Division has started
incurring losses and there has been siphoning of funds.
Presently, this Division remains closed affecting nearly 120 employees.
This closure was done without the
approval of the Board. All products which were given to Division B have
become outdated as no steps had been taken to introduce technological updates. As on date, the liability of Division B is over
Rs.4.7 crores which includes workers’ liability of about Rs.3.2 crores. The net worth
of Division B has been completely eroded. Since
Division B could not clear the dues to
suppliers, one M/S Bright Tips Private Limited to which Division B owes Rs.66.8 lacs has
filed a winding up petition before the Delhi High Court. Having divided the company and
taking control of Division B, now the petitioners are trying to sell away the assets of
Division B and pass on the huge liabilities to Division A.
13. Summing up his arguments,
Dr. Singhvi submitted: The 1st petitioner is guilty of diversion of the
business of the company. Even though the
parties have divided the company into two
Divisions, yet, the company is not a party to the family settlement and for all legal and
practical purposes, the company alone would
be responsible for actions of these two independent Divisions. Any liability of Division B would be the liability
of the company and therefore the fortunes of Division A also will be affected. The very fact that the petitioners have closed
down the activities of Division B, would indicate
that they are no longer interested in the welfare of the company. It is further strengthened by the fact that the petitioners had sought for
vacation of the interim order dated 2.4.1997 wherein this Bench had ordered that none of
the movable and immovable properties of the company would be disposed or parted with. By getting the order vacated, the petitioners seek
to dispose of the assets of Division B. The
Board of Directors of the company comprising of majority from the respondents’ group
is not in a position to take any decision in view of the order of this Bench dated 2.4.97.
De-merger of the company as prayed for by the petitioners is not practical as the
liabilities of Division B is more than its assets and that retrenchment cost of the
workers of that Division would be substantial and that the creditors of Division B have
filed a winding up petition against the company claiming over Rs.80 lacs. Therefore, practical solution to the disputes
would be, since the petitioners have mismanaged the affairs of Division B and since none
of the allegations has been established, this
petition should be dismissed, the 1st petitioner be removed from the Board and
the Board should be allowed to take appropriate decisions in regard to Division B. Or else an independent valuer be appointed to
ascertain the present value of Division B and that if the value is negative, the
petitioners should be asked to compensate the same. In
other words, the entire company should be allowed to be managed by Division A.
14. Ms. Pinky Anand, in reply,
submitted: The contention of the respondents that the allegations of oppression and
mismanagement did not continue up to the date of the petition is not correct in as much as
the diversion of funds to ABRO and ABI has resulted in substantial loss to the company and
this had the effect till the date of filing of the petition. Even though, through a family
settlement, all the disputes were sought to be settled, yet, due to the obstacles created
by Division A, no finality could be given to the family settlement and the implementation
was being discussed till the filing of the petition. Since non implementation of the
family settlement itself is an act of oppression and mismanagement, such non
implementation till the date of filing of the petition. Therefore, the contention of the
respondents that there has been delays and latches cannot be accepted. As far as the
contention that this petition has been filed to seek implementation of the family
settlement which cannot be done through this petition, the Company Law Board has inherent
powers to do justice in the interest of the company and the shareholders. The admitted
position is that all the 3 companies are family companies and the principles of
partnership could be applied in resolving the disputes between the family members. In Pushpa
Prabhudas Vohra Vs. Vohra Exclusives Tools Private Ltd. ( 2000 36 CLA 377
), this Board has applied the principles of quasi partnership in a family company. Since both the sides have agreed to settle
the disputes by division of the company, the only issue remaining settlement is
compensating Division B of all the funds diverted to ABRO and ABI. If this is done, there will be complete settlement
of all the disputes. Further, this Bench has
already recognized the family settlement while appointing M/S Shankar Iyer & Co., to
give a finality to the family settlement by assessing the liabilities to be shared by both
the Divisions. Therefore, the respondents cannot claim that the family settlement cannot
be sought to be implemented through this petition. In other words, by consenting to the
appointment of M/S Shankar Iyer & Co., the respondents have subjected themselves to
the jurisdiction of this Bench in implementing the family settlement and as such they are
estopped from claiming that the family settlement cannot be implemented through this
petition. Further, both the parties have
acted upon the family settlement by dividing the company into two Divisions and
independently managing the same for over 10 years. When is now required to be done by this
Bench is only to ensure that all the assets and liabilities of the 3 companies are pooled
together and divided between the two Divisions. This pooling of the 3 companies has also
been agreed to by the respondents in view of letter of 9.4.1998 from M/S Shankar Iyer
& Co., suggesting such pooling.
15. She further submitted: It is wrong to say that the agreement dated
27.1.1994 had given a finality to the family settlement.
This agreement related exclusively to the Bank liability and not other pending
issues. As a matter of fact, there were
further meetings with Shri Sud as is evident from the documents dated 24th
September, 1994 ( Page 339 of the petition ), 25th October, 1994 ( Page 340 of
the petition), 12.6.1995 ( Page 341 of the petition ).
Till filing of this petition, various other
issues more particularly relating to division of assets and liabilities of the company and also pooling of the assets and liabilities of
ABRO and ABI remain unresolved in relation to the family settlement. Further, Division A
was to pay a sum of Rs.20 lacs to ANZ Grindleys Bank by sale of a plot in Okhla Industrial
Estate in terms of agreement dated 25.10.1994. However,
it had failed to do so and the bank has filed a suit before DRT. However, Division A had sold this plot and has
pocketed the money. The contention of
Division A that it had cleared dues of Rs.50 lacs to ANZ Grindleys is false as is evident
from the fact that this amount has not been indicated to M/S Shankar Iyer & Co. as
having been made.
16. As far as the allegation of
the respondents that Division B has accumulated huge liabilities is concerned, the learned
counsel submitted that the respondents have execrated the liabilities of Division B. This Division started making losses due to acts of
mismanagement by Division A. As on date, the
liabilities of division B is about Rs.2.3 crores and the Division has sufficient assets to
take care of these liabilities and therefore it is wrong to say that the net worth of
Division B has become negative. Therefore,
the prayer sought for by the petitioners should be granted.
17. We have considered the
pleadings and arguments of the counsel. As we have indicated in first paragraph, it is
unfortunate that inspite of having mediated through 5 Panchas and having agreed to abide
by the decision of Shri Sud, both the sides have complained that the other side has not
complied with the various decisions given by Shri Sud.
To resolve the disputes relating to apportion the quantum of liabilities, this
Bench had appointed M/S Shankar Iyer & Co., Chartered Accountants and this effort also
failed in bringing about complete settlement between the parties. The entire episode only
reflects uncompromising attitude of the parties.
18. In regard to the various
objections raised by the respondents that the petition suffers from delay, latches and
that the acts complained are stale and past and that the acts complained of did not
continue upto the date of petition etc, we agree that
these objections are very valid. But, in the present case, these objections cannot be
taken as the respondents, had, by their agreeing to the appointment of M/s Shankara Iyer
& Co abandoned their right to advance these objections. Therefore, we are not looking
into these objections to test the maintainability of this petition. When we come into the
merits of this case, these aspects would be considered.
19. Before we proceed with the
merits of the case, it is essential to reproduce the order of this Bench dated 9.12.97 as
it would have a bearing on the merits. The said order
reads “When the matter was heard it was brought to our notice that, there had
already been a family settlement between the parties according to which the assets of the
company have already been divided into Division A and Division B and taken over by the
respective parties. The only disputed issue relates to the apportionment of liability of
the company which has to be apportioned between Division A and Division B. The counsel for
the parties have agreed that the liability that is shown in the books of accounts on the
date of division would be examined by a Chartered Accountant and on the basis of the
findings given by him, the same will be apportioned between
Division A and Division B. They have sought our directions in regard to the appointment of
a Chartered Accountant. We hereby appoint M/S Shankara Iyer &Co,. Chartered
Accountants to examine the books of accounts to identify the various items of liabilities
shown in the books of accounts as on the date o division of the company and give their recommendations on apportionment of
these liabilities between the two divisions. ……..”
20. In the background of this
order we have to examine the allegation of the petitioners. Their main grievance is that
late Ashok Nath of Division A had diverted the funds of the company to ABRO and ABI. As
far as ABRO is concerned, the petitioners have not furnished the manner and mode of the
alleged diversion. Since the company was procuring electronic parts from ABRO, the only
manner by which the funds could have been diverted is by paying excessive prices for these
electronic parts. No details have been given in this regard. The petitioners, it appears,
seem to have raised this allegation purely based on the comparative percentage of profits
of the company and that of ABRO. Another
allegation is that ABRO had no assets or resources of it own and that the resources of the
company were being utilized by ABRO and this
has been denied by the respondents. Since ABRO is a limited company, the petitioners could
have produced the Balance Sheets and Profit Loss Accounts of the company, from which we
could have found out whether ABRO had its own resources. We note that even the respondents
have not produced these documents. Further, the period of alleged diversion was between 1972-1990, that is over a period of 15
years during which period, the 1st petitioner was on the Board of the company.
Therefore, in view of absence of proper material to substantiate this allegation of
diversion, and the 1st petitioner was a director of the company during the
relevant period, we cannot hold that the respondent shareholders had acted in a manner prejudicial to the interests of
the company in its dealing with ABRO or that funds had been diverted to ABRO. .
21. As far as ABI is concerned,
we find that the petitioners are also substantial shareholders in this company with one of
them on the Board and that the 1st
petitioner had signed the applications for getting approval of the CLB for payment of
commission to ABI. A party to a decision can never allege mismanagement, that too, after a
period of a decade. Therefore, we do not find any merit in the stand of the petitioners
that by paying commissions to ABI, the
respondent shareholders had acted against the interest of the company. In regard to
allegation that ABI was suing the resources of the company is concerned, we reiterate our
observation in regard to ABRO in this respect.
22. Having held that the
petitioners have not established the two main allegations in the petition regarding
diversion of funds of the company, the next issue for consideration is as to what remains in the petition to adjudicate.
The petitioners have claimed that as per the family settlement, the resources of all the
three companies were to be pooled together and division was to take place and that it has
not been done. The learned counsel for the respondents contended that this petition cannot
be invoked for implementation of a private/family agreement especially when the company is
not a party. A reading of the order of this
Bench dated 9.12.97 would indicate that both the sides had agreed for the implementation
of the family settlement in these proceedings subject to the apportionment of the
liabilities between the two divisions as determined by a Chartered Accountant. When the
parties themselves had agreed as above, as far as these proceedings are concerned, the
issue as to whether a family/private agreement between the shareholders
could be implement through a petition under Sections 397/98 has become redundant and as
such we are not examining the same.
23. As far as the contention of
the petitioners that all the resources of the three companies are to be pooled together
for a meaningful division is concerned, we do not find any scope to do so in view of our
order date 9.12.97 according to which the only issue, as per the statement of the parties,
that remained for determination was the quantum of liabilities to be apportioned as per
the books of accounts of the company on the date of the division of the company and
accordingly this Bench also appointed M/s Sankara Iyer & Co only for determination of
the same. This being the case, no other issue
could have been raised for determination before M/s
Shankara Iyer &Co and they were right in
not entertaining any other claims other than the liabilities recorded in the books of accounts of the company on the
date of division. We find from the report of the Chartered Accountants that both the sides
had raised issues which were not related to entries in the books of accounts of the
company on the date of the division and that has led to the present stalemate.
24. In regard to the contention
of the respondents that the document dated 27.1.94 has given finality to the division, we
find that the same is not borne on facts. As rightly pointed out by the petitioners there
had been 4 other meetings subsequent to that date wherein issues relating to the division
had been discussed and recorded. Further, the very fact of the respondents agreeing to the
appointment of M/s Sankara Iyer &Co indicates that there were issues still to be
settled. This being the case, it is quite possible, as contended by the petitioners, that
the document dated 27.1.97 relates only to
the apportionment of the bank liabilities between the two divisions.
25. The main object of the
provisions of Section 397 and 398 is that the acts complained of should be put an end to.
In family companies where the shareholding is more or less equal, if the disputes arise
between the two groups of shareholders, the best way of putting an end to the acts
complained of is either to direct one of the groups to go out of the company on receipt of
fair consideration for their shares or divide the company so that each group could manage
one part of the company independently of the other.
In a number of such cases, with
the view to put an end to the acts complained of, this Bench had ordered that one of the groups should go out of
the company on receipt of fair value for their shares. In some cases, wherein the
shareholding is more or less equal and that the possibilities of a company being divided
existed, this Board had also ordered division of the company ( K.N. Bhargava Vs
Trackparts India Ltd- 2000 2 CLJ 275) each part to be to be independently managed
by the warring groups. This decision was
upheld by Allahabad High Court.
In the present case, the parties themselves had
divided the company and each group has been
managing the affairs of a particular division independent of the other for over 10 years,
but without formal division into two separate companies. It is the reason why the
respondents are complaining that the liabilities of Division B would fall on the company
to be taken care of by Division A. In view of this, the
respondents have sought for allowing them to take decisions regarding Division B while
the petitioners desire for formal division after pooling of the assets of the 3
companies. We have already held that the pooling of the 3 companies is beyond the scope of
the consent order dated 9.12.97. Since the
company had already been divided and that the two groups are managing the affairs of the
divisions independently for nearly 10 years, it would be more appropriate to formalize the division of the
company especially when we find that both the divisions are independently maintaining
separate accounts which are consolidated for the purpose of preparation of the annual
accounts of the company. Therefore, in exercise of our powers under Section 402 of the
Act, we direct as follows: The petitioners will incorporate a new company in respect of
Division B within a period of 3 months. All assets and liabilities of Division B as on date shall be taken over by
the new company. The existing company will consist of Division A along with its assets and
liabilities. All the assets acquired and liabilities incurred by or attributable to Division B with effect from
30.11.1992 shall be with the new company and the assets acquired and liabilities incurred
by or attributable to Division A shall be with the company. As far as the apportionment of
the
unapportioned
liabilities as on 30.11.92 between the two
divisions is concerned, since this issue is pending for long inspite of intervention of third parties viz Shri Sud and M/s Shankara
Iyer& Co, we direct, even if it is to
cause some prejudice to one of the groups, that
these liabilities on that day should be divided equally between the two divisions as
the shareholding of each group is equal. Likewise, undivided assets also will be divided
equally. If either of the divisions had incurred any expenditure on behalf of the other
Division or cleared any liability of the
other division after 30.11.92, adjustments should be made. In view the directions in regard to the liabilities, Group A
need not have the apprehension that it may have to shoulder the liabilities of Division B
which apprehension is found to be their main objection for formal division of the company. The statutory auditor of the company will recast
the accounts of both the Divisions in terms of the above directions within a period of 3
months to enable the parties to part way. Once the new company is incorporated, the share
capital of the 4th respondent company will be reduced by 50%.
26. The petition is disposed of
in the above terms with no order as to cost.
(Balasubramanian)
(A.K.Banerji)