2005 (9) TMI 663 - Board - Companies Law

Summary

Issues Involved:
1. Allotment of rights shares to the respondent group excluding the petitioners.
2. Allegations of siphoning of the Company's revenue and misappropriation of its assets.
3. Non-accounting of "sale of raw silver" in the profit and loss account of the Company.
4. Non-reconciliation of raw-films sold and raw-films received from customers.
5. Non-confirmation of balances from debenture holders and creditors.
6. Failure to update the quantitative particulars and location of fixed assets and to carry out physical verification of all such fixed assets.
7. Write-off of huge amounts as bad debts.
8. Extending advances to directors and other private companies where the respondent-directors are interested, in violation of the Act.
9. Improper charging of depreciation on the assets without meeting the requirements of the Act.
10. Failure to insure precious and expensive equipment, causing huge loss to the Company.

Detailed Analysis:

1. Allotment of Rights Shares:
The petitioners alleged that the respondents allotted rights shares to themselves, excluding the petitioners, thereby reducing the petitioners' shareholding from 28.33% to 2.88%. The petitioners claimed they submitted applications for the shares, but the Company unilaterally refunded the amounts standing to their credit without allotting the shares. The court found that the respondents allotted shares to themselves against credit balances but did not afford the same opportunity to the petitioners, which was deemed discriminatory and oppressive. The court ordered the second respondent to transfer the shares to the petitioners at Rs. 100 per share.

2. Allegations of Siphoning of Revenue and Misappropriation of Assets:
The petitioners accused the respondents of siphoning off the Company's revenue and misappropriating its assets. However, the court found these allegations unsubstantiated, noting that the petitioners did not provide concrete evidence to support their claims. The court emphasized that mere suspicion without proof does not warrant interference.

3. Non-accounting of "Sale of Raw Silver":
The petitioners claimed that the sale of raw silver was not accounted for in the profit and loss account from 1983 to 1992. The court observed that the sale of raw silver was included under "Miscellaneous Receipts" and later under "Sale of by-products/scrap" after 1992, following a decision made by the board of directors, including the third petitioner. Thus, the court found no basis for the petitioners' grievance.

4. Non-reconciliation of Raw-films:
The petitioners alleged non-reconciliation of raw-films sold and received from customers. The court noted that the statutory auditors had repeatedly qualified the accounts regarding this issue, but the petitioners, including the third petitioner who was on the board, did not raise it earlier. The court found no concrete material to warrant interference.

5. Non-confirmation of Balances:
The petitioners alleged that the respondents did not obtain confirmation of balances from debtors and creditors. The court found that the petitioners' claims were based on mere suspicion and lacked specific details or evidence.

6. Failure to Update Fixed Assets Register:
The petitioners claimed that the fixed assets register was not updated, leading to the removal of valuable assets. The court noted that the fixed assets register had been brought up to date and found no evidence to support the petitioners' apprehensions.

7. Write-off of Bad Debts:
The petitioners alleged that the Company wrote off huge amounts as bad debts. The court found that the write-offs were approved by the board of directors, including the third petitioner, and were a commercial decision not warranting judicial interference.

8. Advances to Directors:
The petitioners claimed that advances were extended to directors and private companies in violation of the Act. The court found no loss suffered by the Company due to these advances and noted that the petitioners did not provide proof of any fraudulent intent or injury to their rights as shareholders.

9. Improper Charging of Depreciation:
The petitioners alleged that the Company charged depreciation at rates prescribed under the Income-tax Act, ignoring the Companies Act. The court noted that any statutory violations could be addressed by the relevant authorities and did not constitute mismanagement.

10. Failure to Insure Equipment:
The petitioners claimed that the Company failed to insure expensive equipment, resulting in losses due to a fire in 1993-94. The court found that this was a past transaction and could not be considered an act of mismanagement.

Conclusion:
The court concluded that the allotment of shares to the respondents in exclusion of the petitioners was oppressive and ordered the transfer of shares to the petitioners. However, the court found no substantial evidence to support the allegations of mismanagement and declined to order an investigation under sections 235 or 237(b) of the Companies Act. The court also ordered the impleadment of Prasad Media Corporation Ltd. to address the issue of alleged diversion of funds. The matter was adjourned for further directions on specific charges.