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TMI Blog2001 (4) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... larly the shares of the third and fourth respondents, the wife and son of the second respondent respectively, were also increased in geometrical progression to Rs. 1,12,31,000 and Rs. 3,15,000 respectively whereas the amount invested by the petitioner remained at Rs. 23,70,000 only. The share certificates were allotted to him only on 16-11-1994. 3. The petitioner was promised by the second respondent to involve him in the improvement of the business of the company and he was made one of the first directors of the company. The hope of the petitioner soon thereafter was shattered and he found the second respondent indulging in fraudulent activities and misuses. The second respondent started fattening his individual coffers, but not that of the company or its shareholders. The second respondent acted as the managing director of the company till 12-12-1994 on which date he was sworn in as a minister in the cabinet headed by the late N.T. Rama Rao. He, therefore, resigned the post of managing director and in his place the third respondent, his wife, was appointed as executive director, which was not mentioned in the memorandum and the articles of association of the company. Her remu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a director. He did not receive any communication from the company accepting his resignation. 7. The share certificates shall have to be issued as and when shares are accepted by the company. But the share certificates were issued to him after a much later date, thus freezing his share capital maiming the amount, contrary to section 113 of the Act. The petitioner strongly believes that the share capital of the petitioner and other shareholders was misutilized by the second respondent for his personal aggrandizement. The lien period for the share certificates is three years, but the share certificates show the lien period as five years, issued by the second respondent styling himself as chairman by usurping the powers. As the share certificates were issued in the year 1994 and as the lien period extended up to 2000 AD, the individual shareholders are incapacitated to use their shares in any way they choose. 8. In the annual reports the amounts were not properly accounted for in the years 1995-96 and 1996-97. An amount of Rs. 2 crores was shown as unsecured loan without furnishing necessary details of it and was not shown in the year 1997-98 without disclosing the fact as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im and that there are no pending litigations against him on economic offences, but the sixth respondent, which is having as large shares, is owned by the family of the second respondent. Thus the declaration made by the second respondent is contrary to section 73 of the Act. 14. The statutory meetings of the company have not been held within the stipulated time violating section 155 of the Act. The board meetings have also not been held as provided under section 166 of the Act. The second respondent is solely acting, making all others dummies and making the company as his sole proprietary concern. Thus the second respondent has been indulging in illegal and fraudulent activities to enrich himself in the name of the company to the detriment of the interest of the promoters. Under the circumstances it is just and equitable to wind up the company. 15. When a notice before admission was ordered, the respondents appeared and resisted the petition by filing counters. The first respondent filed a counter and the second, third and fifth respondents filed separate counters. The case of the first respondent in brief is as follows : The petitioner holds only 2.19 per cent paid up sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the share certificates were issued to the allottees immediately after the allotment of share within two months from the date of closure of subscription list. The date of public issue was 17-11-1994, and the date of closure of subscription list was 28-11-1994 and the two-month period as per the rules expired by 28-2-1995. Thus the allotment of shares was much prior to that date and the petitioner who has not chosen to challenge the allotment within two months from the date of allotment, i.e., before the end of March, 1995, cannot, after a lapse of more than four and half years, contend non-compliance with section 71 of the Act. After the resignation as managing director of the company by the second respondent, he disassociated himself with the business activities of the company and has not even attended any annual general meeting held on various dates. 19. When the shares were allotted on 16-11-1994 under the promoters quota, within less than a month thereafter the second respondent submitted his resignation on 10-12-1994, which was accepted by the board on 11-12-1994, and thereafter he disassociated himself with the business activities of the company. The first respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent to each and every shareholder of the company accompanied by the annual report showing the names of the directors of the company. Notice calling for the annual general meeting and the details of the prospectus would be published in the newspapers at least seven days prior to the meeting. The company issued such advertisements regularly for all the annual general meetings held by it. In the annual general meeting, dividends recommended by the board of directors would be declared by passing a necessary resolution. Accordingly, dividends would be paid to the shareholders and in fact was paid to all the shareholders including the petitioner for the years 1994-95, 1995-96, 1996-97 and 1997-98 and he has been receiving them regularly. By his letter dated 11-11-1998, the petitioner authorised one V. Sudhakar Reddy to receive the dividend warrants. Thus the petitioner cannot express any ignorance of the annual general meeting or the meetings of the board of directors. By his letter dated 3-10-1998, the petitioner informed the third respondent that since the bankers insisted that he resign, he had resigned and that during his tenure as the director he had provided guarantees to vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and he is one among the 15,144 shareholders as on 30-9-1999. It is not known how the petitioner is able to assert that he has 30 per cent of the shares and that is for the petitioner prima facie to substantiate the same. In the rejoinder filed to the counter of the first respondent in para 6 it has been explained that at the inception of the company, the petitioner having 30 per cent of the shares and together with his associates he was holding 42.5 per cent of the shares and the first respondent has been trying to show only 2.19 per cent of the paid up share capital on 30-9-1999. What is material is the date on which the petition has come to be filed. Therefore, there is no gainsaying that the petitioner held 2.19 per cent of the shares on the date of filing of the company petition, which is the crucial date. 26. In the petition, inter alia, the petitioner seeks to highlight certain features, which in his view are sufficient enough to invoke the equity jurisdiction of the company court. The first and foremost is that the sixth respondent-company is a benami of the second respondent and it is not known whether it has been registered or not registered. It has been so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of the petitioner is that when he invested the amount on 31-8-1992, the share certificates were not allotted to him till 16-11-1994, which resulted in loss to him. It is now the case of the respondents that the share certificates were allotted to the petitioner along with the respondent Nos. 2 to 4 and others on 16-11-1994. Therefore, it is not a case of isolation of the petitioner qua the other respondents to his detriment. Furthermore, it has now been sought to be explained with reference to the SEBI guidelines that the allotment shall be made prior to the date of public issue and in this case the company went on for public issue on 17-11-1994, and the allotment of the shares was made on 16-11-1994, a day prior thereto. As per the said guidelines allotment letters or share certificates must be issued to the allottees immediately after allotment of the shares, but not later than two months from the date of closure of subscription list. The date of closure of subscription list was 28-11-1994, and, therefore, obviously the allotment was made within that date. Except stating that the guidelines issued by the SEBI have no relevance for allotment of the shares to the promoters, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the moment he was appointed as whole-time director of the company, he stopped drawing salary or remuneration from the University and that finally be resigned that job though it is subsequent to the filing of the company petition. Therefore, no infraction of any rule or provision can be seen in this case. That apart, the appointment of the fifth respondent is not detrimental to the interests of the first respondent-company or the shareholders thereof. The petitioner is not able to show that the appointment of the fifth respondent has indeed resulted in any loss. This grievance of the petitioner, therefore, cannot be considered as a ground at all, much less a ground that can validly constitute a ground to invoke the equitable jurisdiction of the court for winding up of the company. 29. The other grievance of the petitioner is the remuneration fixed initially at Rs. 20,000 was increased to Rs. 40,000 per month to the third respondent besides paying the commission of 1 per cent on the net profits of the year and providing other perks. The remuneration paid to the third respondent and the fifth respondent has been approved by the shareholders of the first respondent-company in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the extent of an amount of Rs. 2 crores was shown in the annual reports of the company for the year 1996-97 without furnishing any details as to why such huge loan was obtained and for what purpose. Furthermore when at that time the company was running on profits and when it was shown that there had been reserves and surplus amounts of the company, this amount according to the petitioner was not shown in the year 1997-98. This, according to the petitioner, appears to be a shady deal meant to convert the black money of the second respondent to white. Learned counsel appearing for the first respondent contends that even when the company is running in profits and there have been huge reserves in the company, when the question of investment comes there is no prohibition for the company to borrow amount and invest the same in accordance with the business practice. There appears to be some force in the contention of the learned counsel. It has now been sought to be explained by the respondents that the company requires an amount of Rs. 2 crores for the commission of Gokul plant at Kasipenta in Tirupati, it requested Oil Country Tubular Ltd. for an intercorporate deposit of Rs. 2 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany is questionable, it constitutes mismanagement and the same could be questioned under section 398 of the Act. Certainly it cannot be a ground to seek winding up of the company on the just and equitable ground. The other ground which the petitioner highlights is that when he requested through his letter exhibit A-15, dated 22-5-1999, the executive director of the company to furnish memorandum and articles of association, prospectus, copies of application form for allotment of shares, copies of minutes of the board meeting dated 13-9-1993, 19-10-1993, 31-1-1994 and 24-4-1994 and the detailed list of allotment of shares, he was supplied with only memorandum and prospectus and was refused to supply other particulars and, therefore, the case of the petitioner is that the company wants to conceal the information as it has grossly violated the provisions of the Act and the SEBI rules. Confessedly, the petitioner is not evincing any interest in the matters of the first respondent-company and has not been attending to any annual general body meetings. The reason assigned therefor was the alleged hostile attitude of the second respondent towards him and the consequential acrimony bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, he has no moral authority to allege that the statutory meetings, of the company are not being held as per the stipulated times. The allegation that the second respondent is indulging in illegal and fraudulent activities is a wild allegation. No specific details have been furnished therefor, not to speak of the proof at least on a prima facie footing to show that he has been doing so. It may be mentioned here that there is no gainsaying that the petitioner has been receiving dividends through his nominee or agent. The annual prospectus of the company as per the provisions of the Act shall have to be submitted to the Registrar of Companies and it has also to be published in a largest circulated newspaper. There is no gainsaying that the first respondent-company has been doing so. None among the shareholders so far as complained against the company prior to this petition about not holding the meetings either of the board of directors or the annual general meetings of the company as per the stipulated times, it cannot therefore, be said legitimately that the second respondent has been indulging in illegal and fraudulent activities, detrimental to the interests of the company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrar of Companies informing, inter alia, the resignations of the petitioner as well as the said N. Balakrishna. These three documents show that the resignation of the petitioner has been accepted in due course and has been duly informed to the Registrar of Companies. The case of the petitioner is that he has not been informed about the acceptance of the resignation letter and in fact there has been no agenda as such of the meeting of the board of directors to discuss the resignation letter of the petitioner. As discussed by me supra, it is not an isolated case of accepting the resignation of the petitioner alone. When it is the case of accepting the resignation letters of two of the directors and when there has been no gainsaying by the other, the case of the petitioner that there has been no agenda and that he has not been informed, appears to be improbable. On the other hand, these documents probabilize the fact that the resignation has been accepted duly. 36. This then takes me to consider the genuineness or otherwise of exhibit B-1 letter. As aforediscussed, the stand taken by the petitioner qua exhibit B-1 is divergent. Of course, it cannot be expected from him to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us manifest that the petitioner has been the promoter and the director of the company till 1994. Exhibit B-9 letter, if read in conjunction with exhibit B-5 letter, shows that the resignation of the petitioner from the directorship has been tendered some time in the year 1994. These two documents lend assurance to the case of the respondents. Apart from these two positive letters exhibits B-5 and B-9, in exhibit B-19, the second annual report of the company, and exhibit B-20 the prospectus of the company the name of the petitioner as director has been deleted as having been resigned. Similarly in exhibits B-21 and B-25 annual reports the name of the petitioner does not find a place. The petitioner has been supplied with the annual reports of the company continuously. Admittedly, he is being paid the dividends, as a shareholder of the company. In view of this overwhelming evidence, the petitioner cannot now plead any ignorance of his resignation and acceptance of the same. When the resignation was tendered in the year 1994, for the first time under the present company petition, nearly after five years, the petitioner seeks to ventilate his grievance that he has not resigned from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents that the petitioner voluntarily resigned from his directorship. Apparently the petitioner is no more a director on the date of the filing of the present company petition regardless of the fact that he resigned from the directorship on 30-4-1994, as alleged by the respondents or resigned subsequently on the own showing of the petitioner. There is no point, therefore, in saying that he continues to be a director. At any rate, it can be said without any hesitation that the petitioner has failed to show a prima facie case. It may be mentioned here that we are not at the stage when we are concerned with the proof of it. What is required to be seen is only a prima facie case. The above factual matrix and the circumstances, which are manifesting from out of the record, in my considered view, prima facie go against the case of the petitioner. On the fact situation, the petitioner cannot invoke the equitable jurisdiction of this court seeking the relief of winding up of the company on the ground of just and equity. 39. Turning to the legal position, the learned counsel for the petitioner seeks to place reliance upon a judgment of the Apex Court in Hind Overseas (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company. 42. The Apex Court reviewed the earlier case-law in Yenidje Tobacco Company Limited, In re [1916] 2 Ch. D. 426 (CA); Ebrahimi s case ( supra ) and the Privy Council decision in Loch v. John Blackwood Limited [1924] AC 783 (PC) the learned senior counsel for the petitioner relying on those three judgments seek to contend that ultimately it all depends upon lack of confidence and want of probity in the conduct of the company s affairs. It is the contention of the learned senior counsel further that since the petitioner lost every confidence in the respondent No. 2 it is just and equitable to grant the relief of winding up of the company. Countering the said contention the learned counsel for the respondents contends that the interest of the workers of the company shall have to be taken into consideration. The learned counsel seeks to place reliance upon the judgment of the Apex Court in National Textile Workers Union v. P.R. Ramakrishnan [1983] 53 Comp. Cas. 184 . That was a case where a Constitution Bench of the Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ground. The Division Bench found that if a director even if illegally terminated cannot bring his grievance as to termination to winding up the company for that single and isolated act, even if it was doing good business and even if the director could obtain each and every adequate relief in a suit in a court." (p. 497) 43. Even for invoking the jurisdiction under sections 397 and 398 the condition precedent is the fact to justify making of winding up order on the ground that it was just and equitable that the company should be wound up and that the winding up unfairly prejudice the applicants. The winding up proceedings as aforediscussed shall be the last resort. Except the ground that the resignation letter dated 30-4-1994, said to have been given by the petitioner is a fabricated document and his signature is forged thereon, on other grounds enumerated in the petition which have been discussed by me supra, in my considered view, cannot justify the winding up of the company which admittedly is running on sound lines, now in view of the latest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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