Dated 16th October 2001
C.P.No: 15/1996
Present: 1. Justice
A.K. Banerji, Chairman
2. Shri S.
Balasubramanian, Vice Chairman
In the matter of
Companies Act, 1956- Sections 397/398
AND
In the matter of
Ramaiya Electronics Limited
Versus
M/S Gujarat Trans
Receivers Limited
PETITIONER:
M/S Ramaiya Electronics Limited
RESPONDENTS:
1.
M/S Gujarat Trans Receivers Limited
2.
M/S Gujarat Industrial Development Corpn. Ltd.(GIIC)
3.
Shri C.D. Vyas
4.
Shri A.R. Patel
5.
Shri Jayesh Desai
6.
Dr. Nayan Desai
7.
Shri Virendra G. Ramaiya
(Date
of final hearing: 22.4.2001)
S.
BALASUBRAMANIAN:
1.The petitioner company holding 49% shares in M/S Gujarat
Trans Receivers Limited ( the company ) has 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. This petition is being prosecuted
by Shri D.K. Ramaiya, a director of the petitioner company.
2.Shri
D. K. Ramaiya, a director of the petitioner company argued as follows: He being a Communication Engineer and an NRI
entered into an MOU with GIIC (2nd respondent) on 9th September, 1980 ( Exhibit A-4 ) to incorporate the company
for manufacture of trans receivers.
This MOU styled as Shareholders’ Agreement provided for GIIC subscribing
to 51% shares and Shri Ramaiya, the balance 49% shares. It is also provided that the number of
directors of the company would be up to 5 out of which GICC would appoint two
directors including the Chairman and Shri Ramaiya will have one representative
as a director. The MD was to be
appointed by joint recommendation of Shri Ramaiya and GIIC. The person so appointed shall be a
recommendee of Shri Ramaiya. According
to him, the company was incorporated in March, 1981. By another Shareholders’ Agreement dated 22.7.19985 it was agreed
between GIIC and Shri Ramaiya that his entitlement of 49% shares shall be
allotted to the petitioner company.
Thus, for all practical purposes, it is Shri D.K. Ramaiya who
effectively controls the 49% shares.
Shri D.K. Ramaiya himself was appointed as the managing director with
effect from 23.4.1981. Till 1994, with
active cooperation between GIIC and the petitioner, the company progressed
well. However, differences between the
two cropped up in the appointment of the 7th respondent as a
director and subsequently as the joint managing director. In 1994, when a large order for wireless
sets was received from Gujarat Police, the 4th and 7th
respondents desired that for procurement of parts and components to meet the
order, they should undertake visits to Hong Kong and Singapore which was
objected to by Shri D.K. Ramaiya on the ground that instead of undertaking
visits, quotations be obtained by
May. Accordingly, Shri Ramaiya obtained
quotations from one Sunteck, Hong Kong which were placed before the then
Chairman of the company. However, the 4th
and 2nd respondents procured lower quotations by altering the
specifications which would not meet the requirements of Gujarat Police. Having obtained the lower quotations on
changed specifications, the 4th to 7th respondents and
the Chairman attributed motive in obtaining higher quotations by Shri Ramaiya
and pressurized him to resign from the post of managing director or else
threatened to get the Gujarat Police order cancelled. With a view to protect the interest of the company, as a loss of
that order would be detrimental to the interest of the company, Shri Ramaiya
decided to proceed on leave for one year and accordingly, he submitted a letter
dated 6.9.1994. In the same letter, he
had also mentioned that the 7th respondent would be the acting
managing director without knowing that the 7th respondent was also a
party in obtaining the lower quotations which fact came to light only
later. Ultimately, the company
purchased equipments from Motorola for supply to the Gujarat Police instead of
manufacturing in the company itself as
originally envisaged. By doing so, the company paid a much higher price than
what would have been if the equipments had been manufactured by the company
itself by procuring the parts and components as per the quotations obtained by
Shri Ramaiya. Thus, instead of getting a profit of over 20% on the equipments,
the company ultimately got a profit of less than 5%. Further, even though, the supply was effected through a local
dealer of Motorola, yet, the then Chairman and the respondents 4 and 7
undertook visits to Hon Kong and Singapore unnecessarily and at the cost of the
company. Even though, the 7th
respondent is a director of the petitioner company and was supposed to look
after the interest of the petitioner, yet, he joined hands with the other
respondents and incurred heavy expenditure on various trips abroad costing over
Rs.3.35 lacs between May and October, 1995.
3. He
further argued as follows: Even though,
his leave expired in July, 1995 and the
7th respondent was to function as the managing director only during
the leave period of Shri Ramaiya, no notice for the Board Meetings were
received by Shri Ramaiya thereafter and the 7th respondent illegally
continued as the managing director.
Therefore, by a letter dated 22nd
August, 1995, Shri Ramaiya informed the Chairman of the company that he would
resume office as managing director ( Annexure A-28-30 ). However, in a meeting with the 3rd respondent who had by then been appointed
as Chairman of the company by Gujarat
Government, Shri Ramaiya was told not to resume duties as the managing director
and was threatened that the 2nd respondent would recall all the
loans given to the company. However, taking into consideration the
interest of the company, Shri Ramaiya resumed his duties as the managing director
w.e.f. 20.8.1995. Thereafter, with a
view to review the working of the company, he called for a Board Meeting in
response to which the 3rd respondent sent a letter stating that Shri
Ramaiya could not resume his office as managing director without the approval
of the 2nd respondent and the Government of Gujarat and that the 7th
respondent was the only legally appointed managing director. In the meanwhile, the petitioner company had
already withdrawn the nomination of the 7th respondent as the
representative of the petitioner company and had informed the company that one
Dr. Dave has been appointed as the nominee of the petitioner company. For a board meeting called for by the 3rd
respondent on 6th September, 1995, no notice was given to Shri
Ramaiya but he attended this meeting in which a committee was appointed with
respondents 4, 5 and 7 as members to examine as to whether raw material and
components could be procured locally or from abroad. Shri Ramaiya was deliberately kept out from the committee in
violation of the provisions of the Shareholders’ agreement and the Articles of
Association. For this meeting, even though the notice was issued to Dr. Dave,
she was not allowed to participate in the meeting on the ground that nomination from the petitioner company had
not been received. By a resolution
dated 3.10.1995, the petitioner company nominated once again Dr. Dave and one
Shri Tamboli as the nominees of the petitioner on the Board of the company and
forwarded the same to the company on 12.10.1995. In the same meeting, the nomination of the 7th
respondent was also withdrawn. However,
the company refused to take notice of this resolution. Thus, the petitioner company holding
49%shares in the company has completely been excluded from the management of
the company contrary to the terms of the Shareholders’ Agreement and the
Articles resulting in grave oppression against the petitioner company.
4. He
further alleged that the company has not been maintaining statutory records and
that it is not holding general body
meetings and not filing regular returns.
In spite of repeated requests by Shri D.K. Ramaiya, the petitioner
company is completely kept in dark about the affairs of the company. Further, even though as per the orders of
this Bench on 24.4.1996 directing the company
to hold a Board Meeting before 25th May, 1996, the
company held a Board Meeting on
16.5.1996, the nominee directors of the
petitioner were not allowed to participate in that meeting. Likewise, notwithstanding the orders of this
Bench on 29.10.1996 that the company should select and appoint a new managing
director, the same has not been done so far.
For non payment of statutory dues, notices have been received by Shri
D.K. Ramaiya. The mismanagement in the
affairs of the company is due to the inexperience of the 7th
respondent, a temporary nominee of the petitioner company, with whom the
nominees of the 2nd respondent have joined hands. The 2nd respondent, has now, in terms of Section 29 of State Finance
Corporation Act has taken over the company and has started disposing of the
assets. At the same time, it has also
proceeded against the petitioner company its directors for recovery of loans
given to the company. Thus, the company
which was doing well has been closed due to the exclusion of the representative
of the petitioner company, namely, Shri D.K. Ramaiya who could have made the
company prosperous in view of his being a technical expert. Having failed in the manufacturing
activities, the company started doing trading activity which also failed
miserably. A reading of the various
allegations relating to purchase of parts and components would indicate that
the profitability of the company has come down drastically and in view of the
inferior quality, the company could not book fresh orders and even the orders
that it had were cancelled. He also
pointed out that the company had recognized only the 7th respondents
as the representative of the petitioner company even though it is Shri D.K.
Ramaiya who was originally the promoter of this company representing the
petitioner company. Just to get rid of
Shri D.K. Ramaiya, the company had made false allegations against him and
forced him to go on leave. Summing up
his arguments, he prayed that in view of the company having become non functional,
the 2nd respondent should be directed to purchase the shares held by
the petitioner company and also make good all the payments made by the
petitioner and his associates for the benefit of the company.
5.
Shri Ashish Joshi, Advocate appearing for the respondents submitted as
follows: This petition is not
maintainable as the petitioner company has not been authorized to file this
petition by a properly constituted Board of Directors. At the time when the petition was filed, the
Board of the petitioner company consisted of Shri D.K. Ramaiya and the 7th
respondent and there was no other director validly appointed on that
Board. The 7th respondent
did not attend the meeting allegedly
held on _____ authorizing the filing of this petition. Since only the petitioner company is a
shareholder, the authority to file this petition should have been given by a
validly constituted Board. Further, the
entire allegation in this petition revolves around exclusion of Shri D.K.
Ramaiya from the management. Since he
is not a shareholder and since directorial complaints cannot be agitated in a
397/398 petitions, this petition is not maintainable as held in Chaurghan
Ram Maurya Vs. U.P. Buildwares Private Limited ( 1985 Tax LR 2030 All ) and P.N. Rao Vs. Rajeshwari Ramakrishnan (
61 CC
20 Mad ). Further, this petition is not maintainable
under Section 398 also in as much as this Section deals with interest of the
company and public interest and not with the interest of the shareholders. Since the allegation of the petitioner is
regarding exclusion of Shri D.K.
Ramaiya from the management of the company, this allegation cannot be
looked into under Section 398 of the Act.
6.As
far as the allegations in the petition are concerned, the submission of the
respondents is as follows: In regard to
the allegation that Shri D.K. Ramaiya was forced to resign as the managing
director, it is a false allegation. It was discovered that Shri D.K. Ramaiya
had placed fraudulent offers for supply of equipments and when he was
questioned, he tried to justify the same on flimsily grounds. Since his
explanation was not satisfying and apprehending that some action might be taken
against him, he voluntarily proceeded on leave by a letter dated 10.10.1994 in
which letter he had also mentioned “ Until such period as may be necessary for
the Board to clean the air “. After he
proceeded on leave, the company discovered further acts of misconduct and
mismanagement on the part of Shri D.K. Ramaiya and therefore it was decided not
to allow him to resume the office of the managing director. Thereafter, the 7th
respondent, being a representative of the petitioner company assumed office as
the managing director. The entire
petition has been based on the premises that Shri D.K. Ramaiya alone
constitutes the petitioner company and his exclusion from the management is an
act of oppression against the petitioner company while the fact is that the 7th
respondent being the managing director has been representing the petitioner company.
7.We have considered the pleadings and
arguments of the counsel.
Since the main dispute revolves around
the issue as to who represents
the petitioner company on the Board of
the respondent company, by
an order dated 29.10.1996 the Board of
the company was
reconstituted with 3 nominees of the petitioner company including
Shri D.K. Ramaiya and the 7th
respondent with 4 nominees of the 2nd respondent to be nominated by
it. It was also directed that a
Committee consisting of Shri D.K. Ramaiya, a nominee of the 2nd
respondent and Dr. I.G. Patel of Indian Institute of Management, would identify
and appoint a Managing Director. It was
to be done by calling for the applications within 15 days. However, it was reported that even by
6.1.1998, no selection has been made for the post of Managing Director.
Therefore, in the order dated 6.1.1998, the company was directed to appoint a
Managing director within a period of two months. Later on it was reported that
in spite of all the efforts taken by the company, no suitable person
could be found out.
8.Even
though the petitioner has alleged various instances of financial mismanagement,
the respondents have in turn alleged fraudulent activities against Shri D.K.
Ramaiya. However, during the hearing, Shri D.K. Ramaiya submitted that
notwithstanding the allegations of financial mismanagement against the
respondents, he would be willing to go out of the company provided the 2nd
respondent purchases the shares held by the petitioner company and also arrange
for payment of all the dues to the petitioner company and its associates. Now
that the company has ceased its activities, the question of giving any
directions to the 2nd respondent to purchase the shares of the
petitioner company does not arise. As far as his main complaint of exclusion
from the management is concerned, we had already passed an order
re-constituting the Board providing for 3 representatives from the petitioner
company. This arrangement,
notwithstanding anything in the Articles of the company will continue as long
as the petitioner company continues as a shareholder notwithstanding the fact
that the present state of affairs of the company would warrant winding up.
9.According
to the company, due to change in the technology, the company was not in a position to continue its
activities and as such the 2nd respondent in terms of the powers
under the State Finance Corporation Act has taken over the assets of the
company.