9911796707
TMI Blog2003 (2) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of 987.27 hectares. The Chairman and Managing Director of the company is a share holder of about 30 per cent of paid-up shares. Life Insurance Corporation has got 18 per cent shares and has a nominee in the Board of Directors. Bangur group is holding about 18 per cent of the total shares of the company. Company petitioner holds only 50 shares in the respondent company which is less than 0.02 per cent of the total shareholdings of the company. 2. The company has to discharge some outstanding liabilities to the banking institutions such as Federal Bank, Bank of India, IDBI etc. The company has sufficient assets but not much cash reserve so as to pay off the liabilities. The Board of Directors were contemplating the sale of some of its assets so that substantial liabilities of the company could be wiped off. The financial institutions have been pressurising the Board of Directors to discharge their liabilities. The Federal Bank has filed OA.167/2000, OA.141/2000 before the Debt Recovery Tribunal, Ernakulam. Bank of India has also filed OA.210/2000 for recovery of debts due to them. In the wake of these petitions, the Board of Directors in their wisdom thought it would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances one of the feasible options, available to the company is to sell some of the assets (immovable properties) of the company and utilise the sale proceeds thereof in meeting its financial obligations particularly towards banks/financial institutions. Considering the fact that the company is engaged in business of plantation, sale of immovable properties on which the company has been carrying on plantation activities can be deemed to be sale of undertakings of the company. As per the provisions of Companies Act, 1956 sale of whole or substantially whole of the undertakings require approval of the members of the company. Your directors therefore thought it fit to hereby seek your approval for sale of any or whole of the immovable properties as mentioned in the resolution at serial No. 6 under consideration. The consent of the members has been sought with a view to confer upon the board of directors the necessary authority enabling them to take appropriate decision for the purpose of sale/lease/assignment as and when the company receives an acceptable proposal/offer in respect of any of the immovable properties of the company. None of the directors of the company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g its wisdom to that of the Annual General Meeting or the Board of Directors. We find sufficient safeguards have been made in the order stating that the company should effect sale of such extent of properties that would be necessary for the discharge of the liabilities. In such circumstances, we find no reason to entertain this appeal. It is accordingly dismissed." Attempts were also made by some of the shareholders to see that resolution passed in the general body be not given effect to by the Board of Directors but without any success. 3. The general body meeting was accordingly convened on 7-12-2001 and accorded sanction under section 293(1)( a ) to the Board of Directors to take steps for sale of the immovable property of the company to utilise the sale proceeds for reducing the financial liabilities of the company. The Board of Directors has therefore, authority to take appropriate decision for the purpose of sale when acceptable proposal is received. The Board of Directors on the strength of the consent given by the annual general body issued a public notice dated 2-4-2002 for the sale of its estate called Kinalur Estate admeasuring approximately 987.27 hectares. Sealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeking stay of all further proceedings to sell the properties of the company as per public notices dated 2-4-2002 and 13-4-2002 including the receiving of bids as published and also to appoint a provisional liquidator or to appoint existing Joint Receivers appointed by the Debt Recovery Tribunal, Kochi as the provisional liquidators to receive the bids, open the bids and do all other formalities of the sale. 6. Company then filed an affidavit on 12-6-2002 stating that the company petition is misconceived, dishonest and not maintainable and is an abuse of the process of this Court and therefore liable to be dismissed with costs. Further it was stated that the petitioner has suppressed several material facts from this Court and has come to this Court with unclean hands. Further, it was also pointed out that the grievances raised in the petition were in the nature of matters pertaining to sections 397 and 398 of the Companies Act, 1956 for which the petitioner has other alternative remedies. Company brought to the knowledge of the Company Court that the petitioner holds only 50 shares in the respondent company which is less than 0.02 per cent of the total shareholding of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idavit was filed by the company in that petition stating as follows: At the outset I submit that the present application ex facie shows that the petitioner is not acting bona fide as a shareholder of the company, but is merely the front for some third party who has a vested interest in insuring that the sale of the companies land for the purposes of paying of the liabilities of the company is blocked. It was pointed out in view of the urgency to generate funds for repayment to banks and financial institutions, as well as to the workers it is not possible to apportion the said property and sell it in small lots. In the affidavit company also stated as follows : "The Board of Directors of the Company are entrusted with the responsibility of managing and running the company and in taking all decisions pertaining thereto and consequently the persons best qualified to make a decision in this regard decided the interest of the company." It was also pointed out that the petitioner in the present petition is nothing but a stooge in the hands of N.K. Mohammed Ali and is trying to misuse and abuse the process of this court. An affidavit was then filed by the petitioner on 19-6-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... weighed with the Board of Directors to do so was that the offer made by P.K.C. Ahammedkutty was more favourable to the company since he had agreed to discharge the entire liabilities. If the liabilities are taken up the bid made by P.K.C. Ahammedkutty would come to more than Rs. 31.10 crores. Under such circumstance offer made by P.K.C. Ahammedkutty was accepted by the Board of Directors in the meeting held on 7-9-2002. The representative of the LIC who is also a Director of the company also agreed with the proposal. Paragraph 14 of the said resolution is extracted below. Mr. Jimmy Gazdar, Chairman, placed before the meeting the two bids that were received by the company in response to the public notice given by the company in connection with the sale of the company s property at Kinalur Estate. Mr. Jimmy Gazdar requested Mr. Ajay Vazirani, Advocate and Solicitor present at the meeting to give the details about the bids to the meeting. Mr. Ajay Vazirani informed the Board that in a company petition filed by Mr. P.V. Abdul Khader, one Mr. T.P. Abdulla alongwith Mr. N.K. Mohammed Ali had approached the Court to be permitted to put up a bid for purchase of the Kinalur Estate Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en filed CA.295/02 in CP. 22/02 praying for a direction to set aside the resolution of the Board of Directors dated 7-9-2002 accepting the bid of P.K.C. Ahammedkutty and seeking a declaration that N.K. Mohammed Ali be declared as the successful bidder. An affidavit was filed on behalf of the company explaining the reasons why the bid of P.K.C. Ahammedkutty was accepted. Relevant portion of the same reads as follows : I submit and that the company has chosen a buyer who has undertaken to pay of the liabilities due to the banks with which the said land is mortgaged. This will straightaway reduce the liabilities of the company by a sum of approximately Rs. 22 crores and will leave the company with another 9.60 crores in its hands to use for the process of reviving the company. I do not admit that the said P.K.C. Ahammadkutty is not worth Rs. one crore as alleged and I put the petitioner to the strict proof thereof. I submit that the petitioners unsubstantiated allegation in this regard must be dismissed with the contempt its deserves.... I submit that dues to the bank are approximately in the region of Rs. 22 crores. I deny that the liability of the bank cannot be ascertained at thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainability of filing CA. 298/02 by N.K. Mohammed Ali was also questioned by the company. 11. Learned Company Judge heard CA. 295, 298 and 313 of 2002 and passed a common order. Learned Judge held that CP. 22/02 is maintainable but question whether it could be admitted was not examined. Learned Judge interfered with the resolution of the Board of Directors dated 7-9-2002 and held that the amount quoted by N.K. Mohammed Ali and T.P. Abdulla would come to Rs. 31.6 crores. CA.313 of 2002 was dismissed and CA.295/02 and 298/02 were allowed. The company petitioner also filed CA.331/02 to appoint a provisional liquidator or any other officer with power to supervise and complete the sale. Another application was also filed by the shareholder Abdul Khader seeking a direction to restrain the company and Ahammadkutty from taking any further steps with regard to Kinalur Estate except for day to day functioning of Estate and also restraining the company from committing any waste. Order of status quo was passed by the Company Judge on the said petition. CA. No. 373 of 2002 was also filed by N.K. Mohammed Ali restraining the company and Ahammadkutty from taking any further steps with regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 114. Counsel also submitted the company petition at the instance of the shareholder who is having 50 shares is not maintainable and is not liable to be admitted and the various company applications filed at his instance are also not maintainable. Counsel also submitted Company Judge was not justified in directing the company to accept the bid made by T.P. Abdullah and N.K. Mohammed Ali in preference to P.K.C. Ahammadkutty at the instance of an ordinary shareholder. The Board of Directors has taken the decision in the best interest of the company and its creditors after obtaining necessary permission from the general body as per section 293(1), counsel submitted, the decision taken by the Board of Directors is a matter which comes within the internal management and the principle applicable is private law and not public law. Counsel also elaborated the reasons why the Board of Directors which includes representative of LIC accepted the bid of P.K.C. Ahammadkutty. Various provisions of the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 were also taken note of by the Board of Directors before acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders have not been protected and taken into consideration neither by the shareholders nor by the directors. Sri. Raghuraj, counsel for the appellant in MFA. 1158/02 supported the counsel for the company. 15. The Cochin Malabar Estates and Industries Ltd. is having three rubber estates, one tea estate apart from Aqua-culture unites at Goa and an office building at Bombay. One of the estates owned by the company is called Kinalur Estate. The balance sheet produced before us as on 31-3-2001 would indicate that the company has got fixed assets worth Rs. 64,73,39,154. Secured and unsecured loans would constitute only Rs. 29,83,29,620. Current liabilities would come to Rs. 5,39,71,546. The balance sheet would indicate that the assets of the company far exceeds the liabilities. Like many companies, this company had also availed of loans from various financial institutions. The price of rubber had gone down considerably for the last few years and therefore the company could not repay the loan availed of from the various financial institutions. Due to delay in repaying the amount some of the banking institutions approached the Debt Recovery Tribunal. The Federal Bank filed OA.141/200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been parties to the winding up proceedings. Shareholder has no case that the company is commercially insolvent. Facts would reveal what the shareholder s intention is only to see that the company s assets be purchased by his associates one T.P. Abdulla and N.K. Mohammed Ali. 18. The company petitioner has no case that he is a contributory. A petition under section 433 would normally be filed only by a creditor. Company petitioner is not a creditor. He has no liability as a contributory. Contributory can maintain a petition under section 433 only if he has made up a special case of winding up of the company. We fail to see how the present company petition would lie under section 433( e ) of the Companies Act. Apart from bald averment that the company is unable to pay its debts absolutely no details have been furnished by the solitary shareholder. This court in Pothen v. Hindustan Trading Corpn. (P.) Ltd. s case ( supra ) held even in the case of a contributory in order to maintain a petition under section 433 he would show special reasons. Question as to whether a fully paid up shareholder could move a winding up petition was also examined by this Court in V.V. Krishna Iy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an a winding up so that sub-section (2) of section 443 would come into play...." (p. 417) With regard to the powers of a shareholder to bring an action against a company, reference may also be made to the judgment of the Division Bench of the Madras High Court in N.V.R. Nagappa Chettiar v. Madras Race Club AIR 1951 Mad. 831 (2). 19. Learned Company Judge without admitting the company petition issued various orders in the company applications, which has got far reaching consequences so far as the company and its creditors, who have moved the Debt Recovery Tribunal are concerned. The Company Judge may in appropriate case, under section 443 of the Companies Act on hearing the admissibility of the company petition, make any interim order that it thinks fit. Company Judge in the instant case has been passing various orders at the instance of a solitary shareholder effectively sitting in judgment over various business decisions taken by the Board of Directors. If the Board of Directors is mismanaging the affairs of the Company or Board of Directors are conducting business prejudicial to the interest of the shareholders they could always move the Company Law Board after complyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceptable to Mr. B. Rangarajan, representative of the Life Insurance Corporation of India. P.K.C. Ahammedkutty had undertaken to discharge the entire liabilities of the company. The offer of P.K.C. Ahammedkutty was found beneficial to the company since over and above Rs. 9.60 crores, he had undertaken to discharge the entire liabilities. Board of Directors also felt that if the other offer is accepted it may violate the provisions of Foreign Exchange Management Act, 1999 as well as Regulation 4 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 which prohibits an NRI to make investments in India in any firm, any company or partnership firm engaged in agriculture or plantation sector. Regulation 3 says that a person resident outside India who is a citizen of India may acquire any immovable property in India other than agricultural/plantation/farm house. This is also one of the additional reasons which weighed with the Board of Directors in not accepting the bid of Abdulla, who is away in Gulf and also of Mohammed Ali. 22. The Board of Directors has specifically stated in the public notice that the sale would be confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Law Board and not before High Court. The Company Court would not as a general rule interfere with internal management of a company. It is for the Board of Directors to decide the manner in which the affairs of the company are to be carried on. Courts determine questions of law and not questions of business management. Company Court shall not interfere with the lawful decision of the Board of Directors of a company. Even a commercial misjudgment would not amount to oppression or mismanagement. The Board of Directors may error, every error cannot be a ground for action and the Company Court is not a correctional court for all errors. Shareholder has to yield to majority rule and the decision of the Board of Directors who are also invariably be shareholders. Shareholder cannot come to the Company Court with the fanciful idea that he could move the machinery of the Company Court to set right what he thinks correct and what the Board of Directors does is wrong. Shareholder if could procure the aid of the court in each and every action taken by the Board of Directors it would lead to endless litigation and pin down the company within the four walls of a company court. The Company Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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