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TMI Blog2001 (9) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... y seriously the attempt of the petitioner to bring about the economic death of the respondent-company. 3. I have heard both the learned counsel for the parties at length. Both the learned counsel have extensively referred to me the whole of the proceedings and both have cited a number of decisions in support of their contentions. 4. Shri Diwan, the learned counsel for the petitioner has submitted that the respondent-company was formed by the four friends, who became the directors of the respondent-company. It was incorporated on 1-1-2000 and it has a very small staff of only 8 persons. Shri Diwan has pointed out that the petitioner holds 50 per cent of the equity and remaining 50 per cent equity is held by the other three directors of the respondent-company. All the four directors were the first directors of the company and they continued to be the only directors, who had subscribed to the Memorandum and articles of association. According to the learned counsel, from the very smallness of the company it was indeed a quasi partnership between the petitioner and the other three directors. Shri Diwan has called this company as glorified partnership. According to the learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents-company without sending any notices to the petitioner were not legal and valid. Shri Diwan has made a very serious allegation against the respondents-directors that they were siphoning the funds of the company and were indulging in wrongful business dealings. The learned counsel has pointed out that from the unaudited accounts of the company it was clear that there were share trading losses to the tune of Rs. 16,37,591 which ought not to have been incurred as the company was meant to derive its income from brokerage and it was not supposed to indulge in trading of the share. He has further pointed out that there were wrong deal losses sustained by the company to the tune of Rs. 11,62,471 which were attributable to the neglect on the part of the directors. The learned counsel further points out that huge amounts to the tune of Rs. 10,72,579 were paid as professional fees which according to him were disproportionate and unjustified. He has further pointed out that the directors have sold their own cars to the company and that they have increased their personal salary to Rs. 12 lacs per annum each, behind the back of the petitioner. Shri Diwan has made one more serious alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 397 and 398 of the Act which would consider all the facts and circumstances of the matter and would decide the truth or otherwise in the allegations made by the petitioners. Shri Dwarkadas has pointed out section 443(2) of the Act to stress his submission that the petition should be dismissed as contemplated by the said provision. According to the learned counsel, all the allegations made against the respondent-directors are false and baseless. According to him, the company court cannot investigate into the allegations or oppression and mismanagement in the affairs of the company. Shri Dwarkadas has accused the petitioner of suppression of material facts and in particular the written agreement dated 23-2-2001 which was not specifically referred to in the petition. Shri Dwarkadas has pointed out that the petitioner was an investor and was never interested in the working of the company. He had traded through the company and was never looking after the day to day management of the company while the respondent-directors are the professionals and are managing the affairs of the company. The petitioner is not even an authorised signatory in any of the Bank accounts or otherwise. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dodgers and other unscrupulous persons from all walks of life find the court process a convenient lever to retain the illegal gains indefinitely..... A person whose case is based on falsehood, has no right to approach the Court. He can be summarily thrown out at any stage of the litigation. S.P. Chengalvaraya Naidu v. Jagannath AIR 1994 SC 853 (855) ( II )Principles of dissolution in cases of Glorified Partnership 1. The principles of dissolution of partnership cannot be liberally invoked when it is agreed between the members that a particu- lar member would be excluded from the management of the company. Hind Overseas (P.) Ltd. v. R.P. Jhunjhunwalla AIR 1976 SC 565 (574). 2. Where articles of association neither impliedly nor remotely spell out that group representation is the basis of composition of the Board of Directors it is a mitigating factor against the petitioner who contents the Company as a Glorified Partner-ship. Vijaykumar S. Thakur v. Thakur Savdekar Co. Ltd. (unre-ported judgment H.C. O.O.C.J. Co. Petition No. 259 of 1992) (Bom.) 3. When the promoters of a Company, elect to avail of the advantages of forming a limited Company, the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel prays for dismissal of the petition with exemplary costs. 7. The facts and events summarised hereinabove and stated by both the parties in their pleadings leave no manner of doubt in my mind that the relations between the petitioner on the one hand and the three directors on the other hand have lost the basis of mutual trust and confidence which is the foundation for every relation in the life more so in the business life. It may be a partnership or it may be small limited company like the present one. A very crucial fact which cannot be forgotten in the present case is that on 23-2-2001 both sides had signed an agreement to part company with each other. Both had agreed to purchase and sale of the petitioner s shares in the company for a sum of Rs. 2.25 crores. Even this factor would speak for itself that the relationship has mutually severed. It is unfortunate that the agreement was cancelled and annulled finally. From the agreement which is brought on record by the respondents it is clear that the petitioner had agreed to sell and transfer his shares in the company for a sum of Rs. 2.25 crores to the respondents, who had agreed to purchase the said shares for the said agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 433( f ). All these allegations require deeper investigation under sections 397, 398 read with section 402. The company law board can certainly consider the agreement dated 23-2-2001 in the context of its powers under section 402( f ) ( g ). Section 443(2) of the Act is very clear to restrict the jurisdiction of this Court under section 439. Though the petitioner has an alternative and efficacious remedy available under sections 397 and 398 he has been acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. The company law board can investigate into the allegations made by the petitioner. The company law board can further exercise its powers under section 402 in the context of the agreement dated 23-2-2001 entered into by the parties but cancelled and annulled by them subsequently. 8. The Supreme Court has analysed the section 397(2) on the case of Hanuman Prasad Bagri v. Bagress Cereals (P.) Ltd. JT 2001 (4) SC 424 as under : "3. Section 397(2) of the Act provides that an order could be made on an application made under sub-section (1) if the court is of the opinion (1) that the company s affairs are being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or about 1971 and he is a Director. It was noticed that the last Board meeting which he appears to have attended was held on 19-8-1995 but apparently he did not thereafter attend the meeting of 16-11-1985. Thereafter there was no material to show that he went to the corporate office or attended any board meeting. The petitioner no. 1 pleaded that the respondents could not have treated him as having ceased to be a Director in terms of section 282(1)( g ) of the Act. Form 32 had been filed by the company with the Registrar of Companies on 15-1-1988 showing that the petitioner no. 1 had ceased to be a Director with effect from 21-12-1987 and since then it is maintained throughout that petitioner no. 1 ceased to be in the office of the Director of the Company. The Division Bench noticed that the position that petitioner no. 1 ceased to be a Director is seriously disputed and the Division Bench ultimately concluded that the termination of directorship would not entitle such person to ask for winding up on just and equitable grounds inasmuch as there is an appropriate remedy by way of company suit which can give him full relief if such action had been taken by the company on inadequate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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