9911796707
TMI Blog1996 (8) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to carry on the business of manufacturers, buyers, sellers , traders, dealers in and importers and exporters of all types of chemicals used in the manufacture and process- ing of leather and leather goods; (b) to carry on the business of manufac- turers, buyers, sellers, graders, dealers in and importers and exporters of animal glue of various grades, technical gelatine, photographic grade gelatine, edible grade gelatine and other grades of gelatine and their by- products; ( c ) to by, sell, manufacture, refine, treat, modify, import, export and deal in all substances, apparatus, machinery, tools, instruments and any such equipment or processes, technical data, know-how and other information capable of being used in the manufacture or in any such business as aforesaid or required by any customers or persons dealing with the company; ( d ) to buy, sell, import, export and deal in general in raw materials like bones, sinews, leather cuttings, feshings, lime acids and chemicals used in the manufacture or in any such business as aforesaid and refine, cook, crush, pulverise or subject them to any required further processes to make them capable of being used in the manufacture or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Janaki Rs. 78,000 towards allotment of 2,000 snares; M. Nedunchezhiyan Rs. 45,000 towards allotment of 2,000 shares ; M. Subbaiyan Rs. 12,000 towards allotment of 400 shares, D.V. Mohan Rs. 15,000 towards allot-ment of 400 shares; V. Raman Rs. 5,000 towards allotment of 250 shares. Since the other promoters were unable to raise additional capital, the first petitioner was requested to raise the same from his friends and relatives. Finally, at the meeting held on 23-4-1986 the board decided to allot to R. Seetharaman 2,000 shares, Nedunchezhiyan 500 shares, Subbaiyan 250 shares, Arumugham 500 shares, V. Mohan 300 shares, V. Raman 150 shares, Govindaraj an 1,250, Thiruvengadam 1,250 shares, Asaraf Ali 1,250 shares, and Swaminathan 1,250 shares for the amounts already received of Rs. 1,37,500, Rs. 78,000, Rs. 50,000, Rs. 17,000, Rs. 25,000, Rs. 25,000, Rs. 15,000, Rs. 73,094, Rs. 66,000, Rs. 73,000 and Rs. 100 respectively. The Board decided that the share money payable by Swaminathan would be adjusted against the price of the land that he would sell to the company. The first petitioner was in addition entitled to 2,800 shares for technical services. Thus out of the shares allotted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He organised the obtaining of share capital. It was only after he had achieved this level of organisation that respondent Nos. 2 to 5 decided to take over control and fraudulently appropriate the term loan obtained for their own purposes. The first petitioner respectfully states that taking advantage of the fact that the technical planning of the project implementation was by then already completed and further based on the fact that their group consti- tuted a majority in the board, respondent Nos. 2 to 5 set about devising dubious ways and means to oust the petitioners from the management of the company and appropriate to themselves the loan amounts to be received from the TIIC. The petitioners state that they intimated the sixth respondent about the endeavours on the part of respondent Nos. 2 to 5 to oust them from the management and also to receive an appropriate term loan to be sanc- tioned to the company. At the request and directives of the TIIC, the petitioners submitted documentary evidence to establish their rights to be in charge of the affairs of the company. They also held discussions with the officials of the TIIC for grant of loan. 7A. Having received all docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o is closely related to the fourth respondent was associated as a subscriber to the memorandum and articles of association. The first petitioner subscribed for one share of Rs. 100 and apart from that he has not made any investment in the company. There was no agreement between respondent Nos. 2 to 5 and the first petitioner for allotting 2,800 shares to the first petitioner for his technical services. Neither the memorandum and articles of association nor the project report provide for any such allotment of capital to the first petitioner. Even the applications made by the company to the sixth respondent for the financial assistance do not indicate that any such allotment of shares to the extent of Rs. 2,80,000 was to be made to the first petitioner for his technical services. 9. It is incorrect to state that the first board meeting was held on 10-11-1985. The first board meeting was held on 14-11-1985, after due notice in writing to all directors. The first petitioner did not attend the said meeting. The first board meeting of the company was held on 14-11-1985, at the registered office at Alangudi Road, Pudukottai and it was attended by respondent Nos. 2 to 5 and the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le material to establish his contention. On the other hand, respondent Nos. 2 to 5 were able to satisfy the sixth respondent that they are the persons having a majority both on the board as well as in the general body and as such they are vitally interested in the proper functioning of the company. Only thereafter, the sixth respondent has sanctioned the disbursement against an equitable mortgage of personal properties of respondent Nos. 2 to 5 in addition to a charge over the assets of the company. Finding that his efforts to block the progress of the company under the management of respondent Nos. 2 to 5 were not successful, the first petition has resorted to the present proceedings and obtained an ex parte injunction restraining the sixth respondent from disbursing the term loan to the first respondent compa- ny. On an appeal preferred by the petitioners a Division Bench of this court appointed respondent Nos. 2 and 5 as directors in charge and the first petitioner as ad hoc director pending disposal of the company petition. 11 Prior to the incorporation of the company certain expenses have been incurred by respondent Nos. 2 and 5 by way of advances paid for purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng itself, that the sixth respondent decided to disburse the loan to the company under the management of respondent Nos. 2 to 5 and that too against their personal guarantees and against the equitable mortgage of their properties and in addition to charge over the company s properties. It is incorrect to state that the first petitioner and his associates have advanced substantial moneys to the company towards share allotments. The first petitioner by failing to attend the consecutive meetings of the board, in spite of notices being given to him and without obtaining leave of absence has vacated his office as a director of the company and a statutory return to this effect has also been filed with the Registrar of companies by the board after recording the fact of his vacating of the office at the meetings held on 9-8-1986. The sole object of the petitioner in filing this petition is to bring further progress of the company to a standstill and thereby compel respondent Nos. 2 to 5 who have invested substantial amounts in the company to concede his demand for payment of a large amount personally to him. The first petitioner who has virtually no stake in the company cannot claim that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only at the board meeting of 23-4-1986. There is no mention of the appointment of the first petitioner as managing director in the alleged minutes filed by the respondents on 14-11-1985. No board meeting was held on 6-2-1986. The reference to sale deeds being exhibited to the directors at the meeting is an impossibility as the sale deeds were not in existence on that day. The address given in the documents of certificates of posting for the first petitioner is not the address of the first petitioner at the relevant period. The fifth respondent is not authorised to represent the first respondent-company, H.V. Patil is not the author of the project report of the company. He was only consulted by me for carrying out some corrections in the drawings made by the petitioner towards finalising the project report and for taking ammonia prints of the same. There is no evidence on record to show that Swaminathan transferred the lands in favour of the company. There was a clear understanding that the first petitioner was to be allotted 2,800 shares for his technical services. The second respondent has not contributed a sum of Rs. 2,75,945. The documents of sale do not indicate any payment b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nathan with the State Bank of India in the year 1985 with Rs. 1,000. This current account was inoperative till 11-5-1987. No documentary evidence has been fur- nished by respondent Nos. 2 to 5 to show that Rs. 9 lakhs was brought in. According to the petitioners, the balance-sheets prepared by Swaminathan are fabricated. The sixth respondent has not produced the documents before this Court in spite of the letter dated 28-8-1989, by the counsel for the petitioners. The sixth respondent is blindly supporting Swaminathan, a Congress MLA. The petitioner was appointed as managing director in the board meeting as well as in the general body meeting held on 30-11-1985. This was confirmed by the second respondent in his letter dated 28-10-1985, addressed to SBI and market as exhibit P-30. This was also con- firmed by the fourth respondent in his letter dated 28-4-1986, and marked as exhibit P-26. The petitioner and all the shareholders have been allotted 100 shares each. The board also decided to allot 12,900 shares before 31 -12-1986. When the entire allotment process is completed the petition- ers will be allotted 9,000 shares and respondent Nos. 2 to 5 will be allotted 5,000 shares. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-8-1986, and thereafter only the balance sheet has been filed with the sixth respondent showing that the capital of the company is Rs. 9,05,500. Form No. II has been filed with the Registrar of Companies with regard to the allotment of 9,000 shares as early as on 9-8-1986. There were five subscribers to the memorandum and each of them has taken one share each and all the five have been issued shares. Thereafter in respect of the allotment made for 9,000 shares, share certificates have been issued with Nos. 5 to 9005. It is incorrect to state that the balance sheet of the company is a fabricated one and the same has been prepared with a view to mislead the statutory authorities. Neither the petitioners nor respondent Nos. 7 to 10 have any money with the company as alleged. No allotment has been made on 23-4-1986, as pleaded by the petitioner. No allotment has been made on 14-5-1985, and no board meeting has been held on that day. Respondent Nos. 7 to 10 have no connection with the company and, therefore, they cannot seek the assistance of this court to allot shares. The petitioners do not disclose any ground for invoking the jurisdiction of this Court under section 397 and/ or 398 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. There is no agreement in writing between the first petitioner and respondent Nos. 2 to 5 that the first petitioner would be allotted 2,800 shares for his technical services to the company. Neither the memorandum of association and articles of asso- ciation of the company nor the project report of the company provides for such allotment of shares to the first petitioner. Even the application made by the first respondent to the sixth respondent for loan facility does not mention about any such agreement. Even according to the first petitioner all the shareholders have been allotted 100 shares each. The board also decided to allot 12,900 shares before 31-12-1986. When the entire allot- ment process is completed the petitioner will hold 9,000 shares and respondent Nos. 2 to 5 will hold 5,000 shares. According to the first petitioner the allotment of shares has been done in a meeting prior to arising of disputes. Therefore, even according to the first petitioner 2,800 shares were not allotted to the first petitioner, and the first petitioner has not produced any document to show that 2,800 shares were allotted to him and so also there is no documentary evidence to support the plea th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttai. The said meeting was attended by respondent Nos. 2 to 5. The second board meeting of the company was held on 6-2-1986, at the registered office of the company at Alangudi Road, Pudukottai, and not on 28-11-1985, as alleged by the first petitioner. The said meeting was also attended by respondent Nos. 2 to 5. The meetings were recorded in the minutes book of the company. The petitioners state that since the first petitioner was the managing director earlier, he is in possession of the minutes books of the company. Therefore, according to the first petitioner the meetings were not held on the dates as stated by respondent Nos. 2 to 5. According to respondent Nos. 2 to 5, the third board meeting was held on 6-5-1986, but according to the first petitioner the third board meeting was held on 23-4-1986. Since the first petitioner failed to attend three board meetings consecutively in spite of the notices sent to him, he ceased to be director of the company and the same has been recorded in the proceedings of the meeting held on 9-8-1986. The sixth respondent was also informed on 11-9-1986 that the first petitioner ceased to be a director as he did not attend three board meetings co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he letter- head of Asraf Ali. This is also not signed by Asraf Ali. Similarly, exhibit P-2( c ) is also unsigned letter by Asraf Ali. Exhibit P-4 is the copy of the letter dated December 9,1985, to have been written by Asraf Ali, which reads as under: "I am enclosing a statement for Rs. 2,72,500 (Rupees two lakhs seventy-two thousand and five hundred). This was received by me in cash on November 27,1985, from the following persons towards expenditure on boiler. M.S.P. Givindarajan Rs. 46,000 ; R. Thiruvengadam Rs. 10,000 ; Myself (Asraf Ali) Rs. 65,000 ; M. Nedunchezhiyan Rs. 45,000 ; and Yourself (Seetharaman) Rs. 1,06,500. The entire money has been spent. I am left with no balance. I had already given you Rs. 3,000 at Jabalpur. I had not issued any receipt to M. Nedunchezhiyan for his Rs. 45,000 (Rupees forty-five thousand only). I have told Mr. M. Nedunchezhiyan that he would get shares for this." 23. On the basis of the above said documents, we cannot come to a definite conclusion that the petitioners have invested Rs. 3,40,500 as alleged by the first petitioner. There is no documentary evidence for such payment or investment. According to the petitioners respondent Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of that he ceased to hold the office of the director. On the same date the record shows that 9,000 shares were allotted as if a sum of Rs. 9 lakhs in cash was brought in on 9-8-1986. But according to the first petitioner, the board meeting was held on 14-11-1985. It shows as if Mr. Swaminathan was made chairman of the company. According to the first petitioner, no chairman was appointed. According to the petitioners, Swaminathan and the co-promoters have stated that the contributions were made by Seetharaman in accordance with various letters and statements during the cross examination of Swaminathan. Therefore, it remains to be seen that 2,800 shares were not allotted to the first petitioner as alleged by him. So also petitioner Nos. 2 and 3 and respondent Nos. 7 to 10 were not allotted 6,200 shares. 24. The first petitioner raised a doubt with regard to the purchase of the land by the company. Exhibit P-46 is the sale deed. It was placed before the board meeting on 6-2-1986. It is pointed out that stamp papers were purchased on 1-4-1986, and the registration of the document took place on 4-4-1986. Therefore, there is no authenticity of the board meeting for the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oppression and mismanagement as contemplated under sections 397 and 398. 27. In a petition filed under section 397 the petition should contain all material facts. In case of fraud, mismanagement oppressive conduct, etc., full and complete particulars must be alleged in the petition. Subsequent affidavits are not enough. The petitioner must plead all material facts necessary for granting the relief as prayed for. Facts arising subsequent to the filing of the petition cannot be relied upon. The validity of the petition will be judged on the facts alleged therein and existing at the time of its presentation. Lack of essential allegations in a petition cannot be made up by leading evidence. Oppression according to the dictionary meaning is any act exercised in a manner burdensome, harsh and wrongful. Oppression may take various forms like lack of probity and fair dealing in the affairs of the company to the prejudice of some portion of its members. The section confers wide power on the court to deal with such a situation in an equitable manner which it did not have in the case of a company prior to the passing of the Companies Act, 1948. To obtain any relief under this section a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that degree of probity which they are entitled to expect in the conduct of the company s affairs. See also H.R. Harmer Ltd., In re [1959] 29 Comp. Cas. 305 (CA). We do not say that this is necessarily a comprehensive definition of the meaning of the word oppressive in section 210, for the affairs of the life are so diverse that it is dangerous to attempt an universal definition. We think, however, that it may serve as a sufficient definition for the present purpose. Oppression must, we think, import that the oppressed are being constrained to submit to something which is unfair to them as the result of some overbearing act or attitude on the part of the oppressor. If a director of a company were to draw remuneration to which he was not legally entitled or in excess of the remuneration to which he was legally entitled, this might no doubt found misfeasance proceedings or proceedings for some other kinds of relief, but it would not by itself amount to oppression. Nor would the fact that the director was a majority shareholder in the company make any difference unless he had used his majority voting powers to procure or retain the remuneration or to stifle proceedings by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the letters produced by the said Seetharaman. Thiruvengadam and Asraf Ali were not examined. The lands were purchased for the company for which the sale deed was produced. The land was stated to be purchased by Swaminathan from his relatives. There is a registered sale deed. But the resolution for the purchase of the land was stated to be passed at a latter stage. According to respondent Nos. 2 to 5, the first petitioner has not brought in any capital. Service of notices for three board meetings and postal receipts were produced. But the genuineness of the said documents were doubted by Seetharaman. The term loan was obtained to the extent of Rs. 44.30 lakhs. For obtaining the loan respond- ent Nos. 2 to 5 are said to have offered their properties as securities and also offered personal guarantee. In fact the first petitioner failed to attend three board meetings consecutively in spite of notices being given to him and a statutory return to this effect was filed with the Registrar of Companies. Respondent Nos. 2 to 5 also gave an undertaking to the sixth respondent-bank that the loan obtained would be utilised only for the purpose of the company and will not be diverted for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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