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TMI Blog2012 (5) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of the company, but for personal interests which cannot be entertained under sections 397 and 398 of the Act. - CP No. 78 OF 2007 - - - Dated:- 29-7-2011 - Lizamma Augustine, J. R. Rajesh for the Petitioner. P.V. Balasubramaniam and K.M. Aasim Shehzad for the Respondent. ORDER 1. Madurai Hosieries Ltd.-the R1-company was incorporated in 1991 as a public limited company, with an objective to establish an industrial estate for the development of hosiery garment and ancillary industries, with an authorised share capital of Rs. 2 crore consisting of 20,00,000 equity shares of Rs. 10 each and paid-up capital of Rs. 30,75,000. In this company petition filed under sections 186, 235, 237, 397, 398, 402 and 403 read with Schedule XI of the Companies Act, 1956 ('the Act'), the petitioners 1 to 16 jointly hold share capital of Rs. 4,50,000 (45,000 shares of Rs. 10 each) in the company, out of the total issued/paid-up share capital of Rs. 30,75,000. The total number of shareholders of the company is 137. The petitioners have made the following allegations : ( a ) That no returns were filed nor annul general meeting ('AGM') held as contemplated under the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the petitioners called for an EGM, the Board immediately called for the EGM on 1st March, 2007. According to the respondents the intention of the petitioners is to wind up the company and seek sale of the assets and distribution of the same among the shareholders. It is, therefore, alleged that the real intention behind the petition is not the interest of the company in continuing its affairs, but to close down the company. According to the respondents, the petitioners are well aware of the affairs of the company since 1993. They were also the members of the Madurai Hosieries Industries Association (R2), though currently disaffiliated due to non-payment of subscriptions. The R1-company and R2-society are having their registered office at Madurai Hosiery Industrial Estate which is a closely knit unit. The petitioners' proposal to wind up the first respondent-company was defeated in the EGM convened by them. The sale of the land to the second respondent was ratified in the EGM. All the members of R1-company were also members of R2 association, with an idea to set up a private industrial estate. Because R2 could get tax benefits, it was decided that the industrial estate should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in favour of R2, and the then existing market value of Rs. 9,03,392 was received as consideration which is still available with the company. Since at all times the first and second respondents worked in tandem with common objects, shareholders and members, the above sale was a bona fide one. But for setting aside the sale, the petitioners had so far no complaint about the existence of the Board of, directors and the filing of financials of the company. The respondents say that the petition is devoid of any merits. Case laws relied on by petitioners : 1. Westfort Hi-Tech Hospital Ltd. v. V.S. Krishnan [2007] 76 SCL 185 (Ker.) 2. Hindusthon Co-operative Insurance Society Ltd., In re. [1961] 31 Comp. Cas. 193 (Cal.) Cases relied on by respondent : 1. G. Kasturi v. N. Murali [1992] 74 Comp. Cas. 661 (Mad.) 2. Shanthi Prasad Jain v. Kalinga Tubes Ltd. AIR 1965 SC 1535 3. Maharani Lalita Rajya Lakshmi v. Indian Motor Co. ( Hazaribad ) Ltd. AIR 1962 Cal. 127 4. Smt. Saraswathi Gopalakrishnan v. Surana Textile Mills Ltd. [2004] 119 Comp. Cas. 917/55 SCL 669 (Mad.) 5. Suresh Kumar Sanghi v. Supreme Motors Ltd. [1983] 54 Comp. Cas. 235 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he convening of the EGM by R3 is illegal since he ceased to be a director and also there is no Board in existence. Without bringing back the property transferred to R2 the company should not be allowed to be closed since it would be prejudicial to the interest of the company and its shareholders. The shareholders are kept in dark about the affairs of the company after the year 2000. Since no annual return is filed after 2000 it is practically impossible for the petitioners to call an EGM. By letter dated 1st February, 2007, the second respondent made a proposal to all the shareholders to buy-back all the shares for a consideration of Re. 1 per share, on the promise that the company has become defunct with no assets and non-operational for the past five years. It is ascribed that the above acts amount to oppression of the minority shareholders. 6. The company had owned 2.96 acres in the Industrial Estate, Madurai having purchased the same in 1999 and the same is reflected in the annual report for the year 2000, at the price of Rs. 6,45,280 plus stamp duty of Rs. 88,346 and a sum of Rs. 15,74,720 had been spent for the development of the land. On the basis of a search effected, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot invoke the provisions of sections 397 and 398 of the Act by challenging transactions concluded in 2005, the respondents submitted that the sale of the land was a bona fide act as per the consent of the majority Board members and shareholders. It is also ascribed that the petitioners have no interest in continuing the affairs of the company since they sought the sale of the assets and distribution of the sale proceeds among shareholders. 8. There are certain admitted facts in this case. Evidently, the 2.96 acres of land originally belonged to the second respondent. The second respondent originally owned a total extent of 80 acres of landed properties. The second respondent was created under the Tamilnadu Societies Act with an object to create and develop the industrial estate as a private sector. As evident from the directors reports attached to the annual return for 2000, filed by the petitioners, the first respondent-company was promoted by the second respondent society to establish a private industrial estate. All the shareholders of the first respondent-company were also registered as members of the second respondent and had been deriving benefits offered by R2. The sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which date they issued notice to the Board of directors calling for an EGM. Accordingly the meeting was convened by the Board on 1st March, 2007. In that meeting the petitioners moved a resolution to wind up the company but that was defeated. Surprisingly, in this petition they contend that there is no Board in existence since no AGMs are held after 2000. After writing to the Board of directors to convene the EGM the petitioners want this Bench to declare the EGM meeting on 1st March, 2007 as illegal. After having participated in the EGM convened by the Board, the petitioners are estopped from contending that no Board of directors is in existence from 2000 onwards. It proves the lack of bona fides of the petitioners. The petitioners were members of second respondent society as well, as evident from the copy of the list of members of R2 made available for my perusal. The second respondent already made it clear that the petitioners can get their membership revived by remitting the defaulted subscriptions. Even though second respondent is a separate entity, the membership of the petitioners in R2 is a relevant circumstance to assess whether they are bound to suffer any irreparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading wing, while the second respondent-society was to take up infrastructure and other welfare activities relating to the hosiery industry based at the industrial estate. The letter further says that the R1-company is not in operation for the past five years and almost a defunct company with no assets. Following the notice issued by the third respondent, an EGM was convened on 1st March, 2007. Copy of the minutes of the EGM is available at p. 37 of volume-B. The proposal by the petitioners herein to wind up the company was defeated by nine votes against the proposal, and four votes in favour of the proposal. At the same time, some of the members expressed their protest against the sale of land to the second respondent. As demanded by the members this matter was also put to vote and the majority of the members approved and ratified the land sale in favour of the second respondent. There are no justifying reasons to declare this EGM on 1st March, 2007 as invalid and the petitioners are estopped from challenging it. There is no dispute with regard to the proposition that a director who was to retire by rotation at an AGM vacated his office on the last date on which that AGM could ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners is to get the impugned sale set aside, sell the assets of the company, and distribute the sale proceeds among the shareholders by winding up of the company. It is only for that purpose, the petitioners are pointing out the above irregularities. For the reasons discussed above, I decline to hold that the lapses in holding the Board/general meetings and filing the balance sheet and annual return, etc., amounted to acts of oppression. Relief ( c ) and ( d ) are declined. 12. The next question that arises for consideration is whether the transfer of land by the first respondent to the second respondent is liable to be set aside. The sale deed was executed on 6th June, 2005 and the consideration is lying in the account of the company. As already observed the company purchased the land in 1999 for a consideration of Rs. 6,45,280 and sold the same in 2005 for Rs. 9,03,392. Sale deeds pertaining to identical land is made available to show that there is no undervaluation ( vide vol. D, pp. 47 and 71). Identical lands had been sold at a lesser value. Article 30( g ) of the articles of association of the company provides that the directors have the power to sell or dispose of any pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance to the detriment of aggrieved shareholders or the company, and the remedy is not intended to enable the aggrieved shareholders to set at naught what has already been done by the controlling shareholders, and that transaction is liable to be set aside only, if they are part of a continuous and continuing course of oppressive or prejudicial conduct on the part of controlling shareholders. The petitioners are seeking permission to sell the assets of the company and distribute the sale proceeds to the shareholders in proportion to their shareholding in the company. So it is evident that the petitioners are not interested in the affairs of the company but only to share the sale proceeds of the assets. It is settled position that the shareholders cannot claim a share of assets of the company as of right. As already observed, the petitioners are already members of the second respondent-society either on their own name or through relatives. It is still open to them to revive their membership by remitting the subscription arrears. If that is done, the petitioners should have benefited in terms of the consideration received by the R1-company and the land acquired by the second respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this submission. The offer letter issued by the second respondent is available at p. 81, vol. II. It is relevant to extract a portion of that letter : ".... MHL (R1) was initially formed with the objective of carrying out commercial activities that would enhance and ease the members of hosiery industry that were based at our Estate. MHL was the commercial trading wing while MAHIA was to take up infrastructure and other welfare activities. As you all very well know, owing to many factors like the Hosiery Industry facing a downturn, exorbitant and usurious rates of interest charged by TIIC, lack of dyeing facilities, etc., the hosiery segment has gradually collapsed. With it the operations of the MHL also came to a standstill plagued additionally by bad debts, etc. Now MHL is a defunct company with no assets and has largely been inoperational for the past five years. The Board of MHL has decided for winding up and the due legal process is on. In the meantime, we at MAHIA, wish to share a part of the burden of the joint association we have had with MHL and its members. We feel it our way of saying we want to share your losses. We wish to buy-back your shares each for a cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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