9911796707
TMI Blog2010 (11) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Rs. 10 each. The company is engaged in the manufacture of paper and paper boards. Out of the total number of six members of the company, one of them is dead, and the petitioner is one of the remaining five members. Respondents Nos. 2 to 5 are the other shareholders/directors of the company. The petitioner is holding 30 per cent. shares. The second respondent is holding 95,040 shares (30 per cent.) and he is the managing director of the company, the third respondent is holding 90,000 shares (30per cent.), respondent No. 4 has 15,000 shares and respondent No. 5 has 5,400 shares in the paid-up capital of the company. The petitioner and respondents Nos. 2 to 4 are also permanent directors of the company. On December 27, 2004, the articles have been amended with the petitioner and respondents Nos. 2 to 5 as the directors. Respondents Nos. 2 to 5 are related to each other. As on March 31, 2007, the company had a sum of Rs. 62,47,596 as secured loans, out of which working capital facilities utilised was Rs. 33,94,742 and the same was borrowed from the State Bank of India (SBI), and the term loan borrowed from the Tamil Nadu Industrial Investment Corporation Ltd. (TNIIC) was Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner who occupies the position of a partner is entitled to disclosure of all the actions of the respondents. The affairs of the company are conducted in a manner not only oppressive to the petitioner but also prejudicial to interest of the company. In view of the irreconcilable dead lock in the affairs of the company, a stale mate has been created. Unless the dead lock is resolved the interest of the company will be severely jeopardised. So directions may be issued to sell the shares of one party to another party. The petitioner is willing to acquire all the shares of respondents Nos. 2 to 5 at a fair price. 4. After the filing of the counter by the respondents, the petitioner has come to know that a meeting of the board of directors was held on June 21, 2008, which resolved to call an extraordinary general meeting on July 17, 2008, to decide on effecting borrowing from TNIIC and to replace the existing auditor. The petitioner submits neither the notice of the board meeting was served on the petitioner nor the items that were to be transacted in the meeting were disclosed in the notice. The repeated attempts by the petitioner to inspect the books of account and minutes book did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided to withdraw even the collateral security given for availing credit facility from the Tamil Nadu Industrial Investment Corporation Ltd. (TNIIC) and the State Bank of India (SBI), Udumalpet, as has been made clear from the letters written by him on November 12, 2007, May 15, 2008 and May 19, 2008. Accordingly, the company took steps to relieve the petitioner from the personal guarantee and collateral security given by him. Since the TNIIC insisted for extension of the entire collateral security offered by the petitioner, the petitioner could not be relieved. Since the petitioner refused to continue the personal guarantee and collateral securities, the loan could not be availed. Similarly, the State Bank of India also insisted to execute personal guarantee by all directors in respect of the facilities availed earlier, and since the petitioner refused to furnish the personal guarantee, the company was unable to utilise the cash credit facility from the State Bank of India. The registered office was shifted in view of the conduct of the petitioner. The petitioner was given notice of the board meeting held on April 11, 2008, in which the board decided to shift the registered of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank and in associating with the management of the company, the registered office has been shifted from his residence. The respondents have no intention to alter the existing board of directors and to issue further shares. The company has already put up a construction for expansion to comply with the statutory requirement of the Pollution Control Board and the Factories Act, 1948 at a cost of Rs. 35 lakhs, and a sum of Rs. 16 lakhs is required to complete the expansion. All the books and records of the company are maintained in accordance with the provisions of the Act, and the petitioner can visit and inspect the accounts at the registered office. The petitioner is being outvoted at the business decisions and directorial complaints cannot be agitated under sections 397 and 398 of the Act. There is no deadlock in the company, since the respondents have the majority at the general meeting. There is no lack of confidence and transparency between the two groups. The unilateral action of the petitioner in revoking the personal guarantee resulted in the refusal by the bank and TNIIC to sanction and disburse further loan. So the petitioner cannot take advantage of his own wrong. Becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following averments : It is stated by the petitioner that being a minority shareholder he is being oppressed and has been kept in dark about several important matters and since he questioned respondent No. 2 and respondent No. 3 regarding cash and material transactions they wanted to exclude the petitioner and remove his powers to operate bank account. It is submitted that the respondents have conveniently omitted to file the proof of having sent to the petitioner any notice of the meeting on April 11, 2008 and the minutes thereof in violation of democratic principle that the burden of proving the reach of notice to the concerned member is always cast on the company and the person responsible and therefore the proceedings dated April 11, 2008, be declared as illegal, null and void. 7. The withdrawal of personal guarantee by the petitioner was purely an action with business mind and that this stand of his was vindicated by the refusal of TNIIC and SBI to grant fresh facilities to the company. The petitioner is not allowed to have access to the books of account and registers in contravention to article 43 of the articles of association and section 36 of the Companies Act, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008, in which an extraordinary general meeting was called for on July 17, 2008, that a new auditor was appointed, an annual general meeting was due and held on September 24, 2008, etc., without notice to the petitioner. The petitioner has challenged these meetings as illegal and oppressive. By an order dated May 5, 2009, this Bench allowed the amendment and directed the respondents to file counter to the amended company petition. 9. On July 14, 2009, respondents Nos. 1 and 2 filed an application (C. A. No. 18 of 2009) seeking modification of the order dated July 23, 2008 and permit the company to create a charge in respect of the plant and machinery, land and building in order to avail the loan of Rs. 99 lakhs. By an order dated August 6, 2009, this Bench allowed the application as hereinunder : (a)The company can create or modify a charge already created in respect of plant, machinery, land and building of the company in favour of the TNIIC to avail the loan of Rs. 99 lakhs as per TIIC letter dated March 31, 2009 ; (b)The applicants may enhance the share capital to Rs. 60 lakhs from Rs. 30 lakhs in accordance with its memorandum and articles of association and as per law ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of accounts and reappointment of auditors at the ninth annual general meeting shall be subject to the outcome of the petition ; and (d)to direct the respondents to convene any board meeting/general meeting in the factory premises, to make such further orders as to render justice. 13. By an order dated October 27, 2009, this Bench dismissed the application, by holding that the company is entitled to hold its annual general meeting at the registered office of the company in compliance of section 166(2) of the Companies Act, and there are no reasons to shift the venue to the factory premises. As per the original clause 15 of the articles of association, the petitioner herein and four others were the permanent directors of the company. As per the resolution in the extraordinary general meeting held on December 27, 2004, clause 15 in the articles of association has been deleted by substituting clause 16 which provided that all directors shall retire every three years by rotation but they will be eligible for re-election. In C. A. No. 82 of 2009, the petitioner challenged this amendment to the articles of association on the ground that no special resolution was ever passed by the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was it produced before the Commissioner. According to learned counsel for the respondents, even if no notice is given, no prejudice is caused to the petitioner who is a minority shareholder. It is pointed out that the conduct of the petitioner justified the shifting of the registered office, as is evident from the records that even prior to April 11, 2008, the petitioner wrote to the bank that he is withdrawing his personal guarantee, and hence the company could not avail of the loan. It is true that the registered office was located in the house of the petitioner. Hence it is probable that he was aware when the office was shifted from his residence. But the fact remains that the registered office was shifted from his residence, without serving a notice of the board meeting dated April 11, 2008, on the petitioner. 16. Evidently and admittedly, the petitioner and the respondents have been jointly managing the affairs of the company, including the operation of the bank accounts till September, 2007. Prior to April 11, 2008, the bank accounts were jointly operated by the petitioner and respondent No. 2. Besides the shifting of the registered office, the board meeting held on April 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained by the company and he was in the know of everything happening in the company. With regard to the board meeting held on August 26, 2008, also notice was sent to the petitioner who attended the meeting, which fixed the date of the eighth annual general meeting on September 24, 2008 and also proposed a resolution for appointment of a new auditor. As per the amended articles of association (clause 16), the petitioner was due to retire by rotation on October 28, 2009, eligible for reappointment. But the annual general meeting held on October 28, 2009, did not re-elect him as a director. Though the petitioner had filed an application seeking a status quo with regard to the composition of the board of directors, by order dated October 27, 2009, this Bench dismissed that request, the details of which are already referred to at paragraphs 9 and 10 of this order. According to learned counsel for the respondents, because the petitioner voluntarily decided to keep away from the affairs and management of the company, he was out voted at the business decisions and directorial complaints are usually not entertained under sections 397 and 398 of the Act. It is, therefore, pointed out that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation (TNIIC) and the State Bank of India. The relevant portion of the letter is as follows : "I am now no longer keen on giving/continuing the personal guarantee and collateral security already given to the bank and financial institution. Therefore through this letter, I request you to inform the said bank and the financial institution that my personal guarantee and collateral security are to be revoked. I also hereby express my intention to revoke the personal guarantee and collateral security in order to use them for my other business operations. You are hereby requested to do the needful under information to me. " 20. Thereupon, by letter dated January 5, 2008, the respondents requested the TNIIC to exempt the petitioner from this open term loan, as he had expressed his intention to keep away from the business of respondent No.1 company. But the request was turned down, on the reasoning that the loan has been sanctioned to the existing units as a privilege and hence it is necessary to extend the entire collateral security already offered and also the personal guarantees. By letter dated March 18, 2008, the TNIIC directed the respondents to execute the documents and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inated director every relief. 21. As per the order in C.A. No. 18 of 2009, the company was permitted to create charge and enhance the share capital, keeping aside the 9,000 shares to be allotted to the petitioner. But the petitioner refused to subscribe despite a letter issued on September 22, 2009. Learned counsel for the respondents invited my attention to some of the complaints by depositors in the form of affidavit alleging that the deposits received were not accounted by the petitioner. Evidently, the vouchers for the receipt of the money are initialled by the petitioner and the office staff. Copies of the letters from the so called creditors and credit vouchers are made available for my perusal. The letters are received after the filing of the company petition. There is mention in the letters that the company has been paying interest at the rate of 24 per cent. till March, 2009. The affidavit of the cashier goes against the petitioner. So these documents cannot be brushed aside as an after thought. Since no further action had been taken by the company on this allegation, I am not heavily relying on the above documents. 22. By order dated September 23, 2008, the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany was not prejudicially affected by that act, and the respondents also did not derive any undue advantage, or rather the petitioner himself caused it due to his non-co-operation. 24. There is an allegation that the minutes have been manipulated and the balance-sheet is shown to have been signed by the auditor on a date after his leaving the company. Currently, I am not entering into all those details in view of the final order that I propose to pass. 25. As clear from the facts discussed above, the starting point of the dispute is the unilateral decision by the petitioner to withdraw the collateral security and the bank guarantee furnished by him. He was not signing cheques from September, 2007 onwards. In November, 2007, he revoked the collateral security. These acts have triggered all the subsequent acts. The shifting of the registered office without notice, in the above facts and circumstances does not amount to oppression, since it was done in the best interest of the company. There is nothing on record to show that the objects of the company have been hampered or the petitioner has suffered any loss due to the shifting of the registered office. So it cannot be said th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his name was not proposed in the general body meeting for his re-appointment. Considering the entire materials on record, I see no merit in the contention of the respondents that no relief need be granted to the petitioner in view of his conduct which was detrimental to the interest of the company. Therefore, I am of the considered opinion that it will be in the interest of all concerned that the petitioner is allowed to go out of the company. The petitioner holds 30 per cent. of the total paid-up capital, respondents Nos. 2 to 6 hold 70 per cent. of the total paid-up capital. It is the contention of the petitioner that the respondents who are the majority may be directed to sell their shares to the petitioner as held in Probir Kumar Misra v. Ramani Ramaswamy [2010] 154 Comp Cas 658 / 104 SCL 174 (Mad.). But the facts of the two cases are not identical. In the case in hand, the petitioner and respondents are the original promoters, whereas the minority group in the above cited decision is the promoter and the majority was the investor who had also agreed to go out of the company. Moreover, the above decision has been reversed by the hon ble High Court of Madras Probir Kumar Misra ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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