9911796707
TMI Blog2006 (10) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that until otherwise decided by the general meeting, the company shall have not less than three and not more than nine directors; (c)to direct the company to redeem the preference shares in accordance with article 3(c) of the articles of association; (d)to direct the company to issue duplicate share certificates in respect of 2,84,000 equity shares issued and allotted to the petitioner; (e)to amend article 4(a) of the articles of association of the company in the following manner : (i)Any share may be transferred by a member to any other member or the spouse or major child of such member. Provided that the board of directors shall be bound to recognize and record such transfers; (ii)Any share may also be transferred to any person other than members of the company provided no member is willing to purchase the same. 3. The Company Law Board by its order dated 20-7-2004, issued the following directions : "I am therefore of the considered view that the petitioner has, prima facie, established that the shares held by him are in his individual name and not in the capacity of karta of the Hindu undivided family. In these circumstances, the second respondent will purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principal Bench, Chennai, in C.P. No. 2 of 2004, dated 16-8-2004. 5. The appellant has also filed C.M.P. No. 1249 of 2004 so as to obtain stay of the operation of the order passed by the Company Law Board, setting out almost the same grounds as found in the grounds of appeal. 6. Per contra, the first respondent, herein filed the counter-affidavit, inter alia, with the averments which run thus : The C.M.A. itself is not maintainable. The Company Law Board did not hold that the contentions of the first respondent herein were not tenable. The Company Law Board, while considering the facts and circumstances of the case, held that there was deadlock in carrying out the affairs of the company and that the only alternative for the smooth functioning of the company was to pass such a direction. The Company Law Board passed orders based on the evidence placed before it. The appeal filed under section 10F of the Companies Act, 1956, is confined only to the question of law arising out of the order of the Company Law Board. The finding of the Company Law Board that there was deadlock is based on appreciation of facts and that cannot be challenged in this appeal. The Company Law Board, held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Quintessentially and tersely, the case of the petitioner as stood exposited from the averments and the arguments advanced on his side would run thus : (ii)The petitioner/M.S.D. Chandrasekara Raja is the father of Radha Ramanan the second respondent in C.P. No. 2 of 2004 and they are the directors of the first respondent-company. 10. The first respondent-company which was originally a private company, subsequently was deemed to be a public company by virtue of turnover in terms of section 43A of the Companies Act with effect from 1-1-1993, and yet thereafter as per the option exercised, it once again got reverted as private company with effect from 16-1-2002. 11. The petitioner has been the managing director of the company right from its inception. Both the managing director and the director are eligible for remuneration. However, the second respondent with an intention to disrupt the smooth functioning of the company, by taking undue advantage of his status as equal shareholder and director of the company created a deadlock, in the management of the company. He refused to participate in the meetings or take decisions except on certain occasions which were found suitable for him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003, but the minutes book was not produced. 17. The second respondent attended the meeting on 6-9-2003. The board meeting was convened for adoption of annual account and for convening the annual general meeting of the company. During such meeting he signed the attendance register. However, he alleged that it was not properly maintained. He also demanded for the minutes book. 18. Thereafter, the second respondent addressed a letter to the petitioner on 30-10-2003, that the minutes were not recorded relating to the board meetings. He also additionally alleged that minutes book was withheld from his inspection. The second respondent purposely and deliberately chose to raise untenable allegations with an intention to stall the smooth functioning of the company. 19. The petitioner and the second respondent attended the board meeting held on 14-11-2003. But the second respondent with an intention to disrupt the smooth functioning of the company unreasonably objected for surrendering 100 KVA of electricity out of 1,250 KVA sanctioned by the Tamil Nadu Electricity Board for running the textile mill of the company. The company initiated legal proceedings against. M/s. Sri Krishna for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... un thus : 24. The company petition was not maintainable. The shareholding pattern of the company as on this date is as follows : Name of the shareholder Equity shares of Rs. 10 each Redeemable non- cumulative preference shares of Rs. 10 each Sri M.S.D. Chandrasekara Raja (petitioner) 2,84,000 0 Sri M.S.D.C. Radharama- nan (second respondent) 2,83,999 25 M/s. Viswa Bharathi Textiles (P.) Ltd. 1 0 Other shareholders (25 share- holders) 0 25 5,68,000 50 25. The equity shares held by the petitioner are all in his capacity of the karta of the Hindu undivided family. In the wealth-tax statement also it was referred to as such. There is no partition of the Hindu undivided family under the Hindu Succession Act. The daughters of the petitioner got married before the Tamil Nadu Hindu Succession (Amendment) Act of 1989 has come into vogue. As such, the petitioner and the second respondent are the only two coparceners. The shares are the family wealth of such Hindu undivided family. The preference shares were allotted on 30-3-1985. But no dividends have been declared so far and no shares have been redeemed. 26. The second respondent has not been disrupting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned stubs and registers may please be produced before the board. (ii)Neither does the second respondent possess any such certificates and hence the managing director may please be requested to issue share certificate to the second respondent also. (iii)Has the proper procedure for re-issue of lost certificates, such as advertisement in the newspapers regarding the loss, furnishing of indemnity bonds, etc., been carried out properly by the managing director? 30. The very fact that the petitioner could not keep the share certificates properly proves his inability. During the board meeting, held on 25-4-2003, request was made by the second respondent on the following two grounds: (i)The non-disposal undertaking submitted to IDBI specified that the substantial shareholders, who have also signed their personal guarantees for the loans to the company shall not dispose the shareholdings. (ii)The shares held by the petitioner are in his capacity as the karta of the Hindu undivided family and hence he had to be prevented, from unauthorisedly attempting to dilute the assets of the Hindu undivided family to the detriment of the other claimant of the Hindu undivided family property. 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent alone cannot be blamed in this regard" would speak volumes that the second respondent was also an obstacle for the appointment of A. Jayakumar. The contention of the second respondent as set out supra would show that according to the second respondent, he was not in good terms with Jayakumar as they could not see eye to eye. There is nothing on record to show that the second respondent suggested for appointment of some other person as director. Even though, the second respondent pleads that he has been putting his heart and soul for the welfare of the company and that he has been ready and willing to become the managing director, in view of the fact that his father, the septuagenarian, is no more fit to be the managing director, yet he failed in his duty to suggest a third person of his own choice to be a director so as to resolve the impasse and deadlock. 37. The contention of the second respondent is that the consent of IDBI-the creditor of the company was required for inducting a new director, is nothing but a mere stooge to camouflage and conceal the real intention to deseat the petitioner. It is therefore, crystal clear that from the available materials placed befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd respondent unjustifiably objected to it. Admittedly, the second respondent was not in favour of such surrender on the ground that it was required for future expansion of the factory activities. Such a plea of the second respondent is based on mere conjectures and surmises and not borne out by any proposed project for future expansion. As such the Company Law Board very well could have held that the second respondent was oppressive. Non-issue of duplicate share certificates : 40. This is with regard to non-issuance of duplicate share certificates. There is nothing to show that such duplicate share certificates should not be issued. It is the contention of the petitioner that the second respondent could have very well agreed for such proposal to issue duplicate share certificates. The Company Law Board referred to the board meeting held on 23-3-2004, during the pendency of the matter before the Company Law Board. However, on 2-5-2003, the second respondent could have very well agreed for such issuance. The Company Law Board relied on the following words of the second respondent. "Was not in a position to take a decision." 41. The second respondent was not justified in simpl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to restrict appointment of managing directors over the age of 70 without prior permission of the Central Government. Such provisions have been thoughtfully provided considering the inherent weaknesses that will emerge out of old age. In order to continue the smooth functioning of the enterprise, it would be very much conductive if the managing director gracefully retires from the post and lets a much younger and still experienced person to take over the mantle of the company. And furthermore, considering that the younger person is the only son of the present managing director, it is quite natural that the takeover of the mantle that should be mooted. 5.8. Further, there seems to be no reason as to why the second respondent should not aspire to become the managing director of the company. 5.9. The petitioner has been the managing director of the company from its inception, i.e., from 6-1-1984. He is aged about 78 years. The second respondent is the only son of the petitioner and he is about 48 years. He is the only other director in the company. He has also been the whole-time director since its inception. He possesses the requisite experience and knowledge gained out of more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yet there is no clinching evidence. It is very easy to make allegations, but difficult to prove it. As such allegations were made by the second respondent but not made out. The petitioner would explain that the said sum of Rs. 8,15,000 was withdrawn from the company's account for making advance payment to cotton suppliers in concinnity with the prevailing practice and it was entrusted to him by the accountant. However, the said cash was remitted into company's bank account on the very next day itself, which is evident from the company challan and bank statement extracted from the account maintained by the company vide pages 75 to 80 of the company petitions. The respondent could not in any way discredit such explanation by any other clinching evidence or probabilities. Hence, in these circumstances, it is crystal clear that the Company Law Board was right in considering all these allegations made by the second respondent in arriving at the conclusion that the allegations are very serious and that the second respondent lost all his faith in the petitioner. 49. The unassailable facts are that the petitioner and the second respondent being father and son are the only directors who vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a family concern like the one here, even though nomenclatured as company, it should be treated for the purpose of section 397 as a partnership concern, by applying the principle of piercing the veil so as to put an end to all the problems. 56. Learned counsel for the respondent also cited the following prece-dents : (1)Kilpest (P.) Ltd.'s case (supra). (2)Eastern Linkers (P.) Ltd.'s case (supra). (3)Krishan Lal Ahuja v. Suresh Kumar Ahuja [1983] 53 Comp. Cas. 60 (Delhi). 57. In the decisions cited supra, it was held thus : "Whenever there is inter se factional disputes between the groups in a company, it could be ordered that the shares of one group to be ordered to be purchased by the other and in case of default by both the parties, the company would be liable to be wound up." 58. Considering the fact that here there are only two directors, namely, father and son and that there are irreconcilable disagreement between the two, the Company Law Board has chosen to give such direction relating to the purchase of shares by the son from the father. 59. The decision of the Madras High Court in V.M. Rao v. Rajeseswari Ramakrishnan [1987] 61 Comp. Cas. 20 , would be to the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to him, great resemblance to the facts before us. The following observations in that case are of striking relevance (at page 1040 of 68 ER; 536 of 10 Hare) : 'As has been well-observed during the course of the argument the view taken by this court with regard to morality of conduct amongst all parties-most especially amongst those who are bound by the ties of partnership-is one of the highest degree. The standard by which parties are tries here, either as trustees or as co-partners, or in various other relations which may be suggested, is a standard, I am thankful to say so, far higher than the standard of the world; and, tried by that standard, I hold it to be impossible to sanction the removal of this gentleman under these circumstances.'. . . Even though, the company petition fails and the appeals succeed on the finding that the holding company has failed to make out a case of oppression, the court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of May 2, were held in accordance with law. . . . We must make it clear that we are not asking the Indian share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here there is no proof of oppression, yet by applying the principles which are applicable to the partnership, in respect of companies where there are only two shareholders, namely, father and son or only those family members who could not see eye to eye relating to the smooth running of the company, orders could be passed under section 402 of the Indian Companies Act. Accordingly, the point is decided. Point No. 3 : 68. The bone of contention in the argument advanced by learned counsel for the petitioner in the C.P. would be to the effect that there was already partition between the father and son as envisaged in the partnership deed, there was severance of status between the two; it is also evident that in the articles of association, the petitioner was cited as an individual and not karta of the Hindu undivided family; and that the shares acquired by the petitioner were all from out of his own source of income. 69. Per contra, learned counsel for the second respondent in the C.P. petition would argue that such a contention raised on the side of the petitioner, remains only his ipse dixit, and was made unmindful of the specification found in the wealth-tax assessment. 70. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendency of this C.M.A., in the civil suit, the shares have not been, cited. It is open for the parties concerned to petition the civil court in this regard and contest the respective rights of parties over the shares held by them in the company. It is a trite proposition of law that the civil court has got jurisdiction to decide the matters of this nature and the actual ownership over the shares. However, for the purpose of the disposal of the C.P. and to meet the point raised by the second respondent in the C.P. the Company Law Board correctly held that the petitioner in the C.P. has prima facie established that the shares held by him are in his individual capacity and not as the karta of the Hindu undivided family. The Company Law Board but for adding the words "prima facie established" could have fallen into error in giving the finding. 76. We make it clear that untrammelled by such finding, the civil court shall have jurisdiction to decide relating to the status of the shares standing in the name of the petitioner and for that matter, the shares in general standing in the name of the petitioner and the second respondent in the C.P. for the purpose of resolving the deadlock. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pass such further orders under section 402 of the Companies Act, in commensurate with the views expressed by this Court, for the smooth running of the company. 82. In view of the reasons given for deciding the aforesaid point this civil miscellaneous appeal is partly allowed by modifying the order passed by the Company Law Board. The submission made by learned counsel for the petitioner is recorded as aforesaid. 83. Learned counsel for the appellant herein would cite the following two decisions : Cosmosteels (P.) Ltd. v. Jairam Das Gupta [1978] 48 Comp. Cas. 312 (SC). Naini Oxyzen & Acetylene Gas Ltd. v. Bisheshwar Nath [1986] 60 Comp. Cas. 990 (All.). 84. The aforesaid decisions relates to, the shares being purchased by the company itself. In the event of the company purchasing the shares of the either parties, there will be a consequent reduction of share capital. Those decisions also would contemplate that creditors are not entitled to any notice on that score. 85. We are of the opinion that the aforesaid relief granted in this appeal would be sufficient and yet one other additional alternative, viz., enabling the company to purchase the shares, at this stage, does not ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
