2007 (7) TMI 702 - Board - Companies Law

Summary

Issues Involved:

1. Misappropriation of funds.
2. Unlawful increase in monthly rent and lease deposit.
3. Unlawful increase in sale consideration of property.
4. Non-payment of salaries, statutory liabilities, and electricity bills.
5. Unauthorized payments towards commission and interest on loans.
6. Failure to discharge loans from bankers and financial institutions.
7. Financial irregularities and unauthorized expenses.
8. Non-disclosure of the true financial position.
9. Unlawful surrendering of transplantation license and closing of dialysis department.

Issue-wise Detailed Analysis:

1. Misappropriation of Funds:
The petitioners alleged that the second respondent unlawfully withdrew huge funds from the company through IOUs, self-cheques, and loans to discharge personal borrowings, violating Section 295 of the Companies Act. The special audit report indicated that the second respondent owed Rs. 1.73 crore to the company as of 31.07.2003. The second respondent contended that all transactions were for company expenses and duly authorized by the board. The court noted the pending civil suit filed by the company for recovery of these amounts and observed that the second respondent had ceased to be a director, making some of the petitioners' claims redundant.

2. Unlawful Increase in Monthly Rent and Lease Deposit:
The petitioners claimed that the second respondent unlawfully increased the monthly rent from Rs. 40,000 to Rs. 4 lakh and paid a lease deposit of Rs. 100 lakh without board approval. The second respondent argued that the registered lease deed was not acted upon, and the increased rent was approved by the board. The court found that the company had been paying higher rent than stipulated in the registered lease deed for years, indicating that the registered lease was not followed. The court did not find grounds to direct the respondents to return the excess rent or lease deposit.

3. Unlawful Increase in Sale Consideration of Property:
The petitioners alleged that the second respondent increased the sale consideration of a property from Rs. 145 lakh to Rs. 430 lakh to adjust her excessive withdrawals. The court noted that the balance sheets and board approvals indicated the payment of Rs. 430 lakh was fair and acknowledged by other directors. The court found no merit in the petitioners' claim for the return of Rs. 285 lakh.

4. Non-payment of Salaries, Statutory Liabilities, and Electricity Bills:
The petitioners claimed that the second respondent failed to pay salaries, statutory liabilities, and electricity bills, resulting in disconnection of power and other issues. The court observed that these were past and concluded acts, not amenable to the jurisdiction of Section 397/398 of the Companies Act.

5. Unauthorized Payments Towards Commission and Interest on Loans:
The petitioners alleged unauthorized payments towards commission and interest on loans. The second respondent contended that all payments were for company purposes and approved by the board. The court noted the lack of primary records to substantiate the petitioners' claims and drew adverse inference against the petitioners for non-production of evidence.

6. Failure to Discharge Loans from Bankers and Financial Institutions:
The petitioners claimed that the second respondent's mismanagement led to the company's loans becoming non-performing assets. The court observed that the company had already initiated proceedings for recovery of amounts and noted the lack of corroborative evidence to support the petitioners' claims.

7. Financial Irregularities and Unauthorized Expenses:
The petitioners alleged various financial irregularities and unauthorized expenses by the second respondent. The court found that the board had approved many transactions and noted the pending civil suits addressing these issues. The court did not find sufficient grounds for relief under Section 397/398.

8. Non-disclosure of the True Financial Position:
The petitioners claimed that the second respondent failed to disclose the true financial position of the company. The court observed that the balance sheets and board approvals indicated transparency in financial matters and found no merit in the petitioners' claims.

9. Unlawful Surrendering of Transplantation License and Closing of Dialysis Department:
The petitioners alleged that the second respondent unlawfully surrendered the company's transplantation license and closed the dialysis department. The second respondent argued that these actions were taken to protect the hospital's image due to unethical practices by the petitioners. The court found these to be past acts and not within the jurisdiction of Section 397/398.

Conclusion:
The court concluded that the petitioners failed to make out a case under Section 397/398 and were not entitled to any relief. The court noted the lack of corroborative evidence and the pending civil suits addressing many of the issues raised. The petition was dismissed with no order as to costs.