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TMI Blog1994 (5) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... inspection was carried out by the Commissioner and his report was submitted to us. 3. Even though the major portion of the arguments was heard by the then Chairman, Shri S.P. Upasani, and Shri S. Balasubramanian as member, at the final stages the case was heard by Shri S. Balasubramanian as chairman and Shri A.R. Ramanathan, as member, due to the transfer of Shri S.P. Upasani from the Company Law Board. Therefore, the case was argued afresh for the benefit of Shri A. R. Ramanathan and orders have been passed thereafter. 4. The main acts of oppression and mismanagement, as narrated in the petition, may be summarised as follows : (1) Irregular transfer of shares in favour of respondent No. 2, Shri H.S. Dureja, and his family members with a view to increase his holding of shares beyond 50% of the issued capital which is in violation of Article 9 of the articles of association. (2) Non-allotment of shares to one Shri R.K. Kandhari up to 50% of the authorised share capital of the company in violation of the decision taken in the meeting of the board of directors of the company on June 29, 1990. (3) Underbilling of sales of both skimmed milk powder as well as desi ghe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the company. The other reliefs that the petitioners have sought for relate only to issue of directions to the respondents to furnish various details in respect of the allegations made in the petition. In other words, the petitioners have not sought for any substantial relief that is normally sought in a petition under Section 397/398. 7. Shri J. S. Narang, counsel for the petitioners, submitted that the company was in need of funds for modernisation and, accordingly, one Mr. R.K. Kandhari, husband of the third petitioner, with whom the company had dealings for a long period by virtue of his having a dairy in Delhi was approached for necessary funds. Accordingly, Shri R.K. Kandhari and one Shri Sadhu Ram Aggarwal jointly agreed to contribute a sum of ₹ 12.50 lakhs for a 50% share in the company and this decision was minuted in the board meeting held on June 29, 1990. Even though at a later stage, Shri Aggarwal withdrew his offer of participation, the company failed to allot the agreed 50% of the share capital to Shri R.K. Kandhari though necessary funds belonging to Shri R.K. Kandhari and his family were available with the company. 8. Shri Narang further stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been supplied to Goa cannot be consumed there. With regard to our query whether the Goa feature was a new or old one Shri Narang replied that it is a new feature and in fact it started only in 1991. Likewise with regard to supply of desi ghee to Goa, Shri Narang invited our attention to annexure A-25 to show that the insurance cover was taken only up to Delhi as afterwards, the same is diverted to parties in Calcutta to whom the same is sold at much higher prices. 11. With regard to the allegations in para 9(vi) of the petition that the production does not tally with the milk purchase and no details of total milk purchased per day and production per day are maintained by the company, when we drew the attention of Shri Narang to annexure S-1, he pointed out that the plant is actually running at 72 to 75% capacity but production is being shown at 35 to 40% which is not even the break-even point and the plant will not be viable. Even if the claim of the company that 49,000 to 50,000 litres of milk per day are purchased, is accepted, the real production in the light of annexure S-l should be much higher. He also pointed out that out of 10,000 litres of milk at 6% fat 600 kg. mil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady stated, Mrs. Sudesh Dureja herself has been shown as a working director. 15. Regarding the allegation relating to sale of three vehicles, Shri Narang challenged the plea taken by the respondents that the vehicle No. PCT 1695 had been sold for ₹ 80,000 because it met with an accident. Shri Narang stated that such a sale was never brought to the notice of the board of directors nor was the procedure for sale in such cases ever got approved from the board of directors. It is also strange that another vehicle No. PCT 1696 which met with three accidents could be sold for ₹ 1,00,000 but the vehicle No. PCT 1695 which met with one accident was sold for ₹ 80,000 only. It is also not correct to say that the vehicle No. PAT 8299 was sold only for ₹ 1.2 lakhs. He alleged that these vehicles were sold for much higher prices, and the difference between the actual price and the recorded price, which may be in the region of ₹ 3 to 4 lakhs had been pocketed by Shri Dureja. All these vehicles had been comprehensively insured and for the repairs, compensation must have been obtained from the insurance company. 16. The respondents have stated that the two chil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partners it is a case of oppression. (In the present case the petitioner has virtually been thrown out of everything). (3) Gajarabai M. Patny v. Patny Transport Pvt. Ltd. [1966] 36 Comp Cas 745 ; AIR 1966 AP 226--Once a will is there transfer of shares cannot be denied and non-transfer of shares transmitted through will is oppression. (4) Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; AIR 1981 SC 1298-A liberal construction should be given to the word oppression . (5) Suresh Kumar Sanghi v. Supreme Motors Ltd. [1983] 54 Comp Cas 235 (Delhi)--The scope of the powers of the court under Section 397/ 398. (6) B.R. Kundra v. Motion Pictures Association (No. 2) [1978] 48 Comp Cas 564 (Delhi)--Power of the court to regulate management. (7) Mohan Lal Chandumall v. Punjab Co. Ltd. [1962] 32 Comp Cas 937 (Punj)--Power of court can be exercised to prevent corruption and mismanagement. (In the present case, evasion of sales tax by showing the goods to have been consigned up to Delhi only whereas the goods were actually transported to other places which amounts to corruption). (8) N.R. Murty v. Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d are neither based on the personal knowledge of the petitioner nor the records of the company nor his own personal knowledge. The affidavit states that the averments made in the various paragraphs in the petition are based on the information given to the petitioner by two employees of the company, Shri K.P. Singh and Shri Rajeev Nigam, who have by affidavits, denied to have given any such information. 21. He further stated that none of the allegations made in paragraphs 9.2 to 9.23 are based on records. In respect of para 9.19 counsel submitted that, except for a copy of the partnership deed, no other document has been produced. In so far as para 9.10 regarding purchase of 8 acres of land is concerned, the sale deeds produced refer to 3.3 acres only. Regarding para 9.18 dealing with acquisition of shares in names of benamis, the document annexed in connection therewith is purportedly a forged document. The respondents' counsel submitted that they have filed affidavits of the aforesaid two persons to the effect that no information has been given by them to the petitioner. He submitted that if according to the respondents, the affidavits have been produced on duress, the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the parties have fallen out. Counsel stated that there is no violation of Article 9 as made out, as no member had complained against the transfer. 24. Counsel referred to the allegation of the petitioner regarding non-transmission of the shares held by the late R.K. Khandhari to his heirs, Shri Vishal Kandhari and Shri Vikas Kandhari, as per the will executed by the deceased shareholder. Counsel submitted that by such non-transmission, the rights of the petitioners cannot be said to have been affected and it is for the heirs of Shri R.K. Khandhari to challenge the company's non-transmission. The issue is, therefore, not relevant for an action under Section 397/398. Even otherwise, according to counsel, the will was not produced to the company, and even now, it has not been given to the company. 25. The petitioner had alleged that the Khandhari group was to be given 50 per cent. of the capital of the company, but, according to counsel for the respondents, there was no such agreement. The board meeting dated June 29, 1990 (A.52 annexure to the petitioner's rejoinder) refers only that Sadhuram Aggarwal and R.K. Khandhari shall contribute ₹ 12.50 lakhs toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion should be such that the company is fit to be wound up acts should be continuingland transaction one-half years back. (4) C. K. Gupta v. PannaM Gir-dhari Lal Put. Ltd. [1984] 55 Comp Cas 702 (Delhi) : (5) Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [1964] 34 Comp Cas 777 (Guj) : Past-concluded acts will not count as oppression. (6) Mohta Bros. (P.) Ltd. v. Calcutta Landing and Shipping Co. Ltd. [1970] 40 Comp Cas 119 (Cal) : Petitioner to give full grounds. Winding up not justified. (7) C. P. Gnanasambandam v. Tamilnad Transports (Coimbatore) Pvt. Ltd. [1971] 41 Comp Cas 26 (Mad) : Oppression should be burden some not an isolated act. (8) Suresh Kumar Sanghi v. Supreme Motors Ltd. [1983] 54 Comp Cas 235 (Delhi) : Mismanagement should be prejudicial to interest of the company. (9) V. ]. Thomas Vettom v. Kuttanad Rubber Co. Ltd. [1984] 56 Comp Cas 284 (Ker) : Petitioners to satisfy the allegations. 29. The company was originally incorporated in 1985 with Shri Dureja and his wife as the first directors of the company. As per the shareholding pattern furnished in the petition, there were 36 shareholders as on March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the respondents' group without following the procedure prescribed in the articles of the company. 32. As far as allotment of shares to the extent of 50% to Shri R.K. Khandhari is concerned, both the petitioners as well as the respondents have relied on the minutes of the board dated June 29, 1990 (exhibit A-52). While the petitioner relies on this as a commitment of the board to allot 50% to Shri R.K. Khandhari, the respondents' contention is that 50% was agreed to be allotted jointly to Shri Kandhari as well as Shri Aggarwal and, therefore, when Shri Aggarwal withdrew his participation, it cannot be presumed that the entire 50% would be allotted to Shri Kandhari. It is an admitted position that Shri Khandhari and his wife put together now have been allotted 42% of the share capital of the company and this entire allotment was made after June 29, 1990. If the contention of the respondent is that Kandhari was entitled to only 25% of the shares, then how shares up to 42% were allotted, was not explained. However, the wording of the board resolution is that Shri Kandhari and Shri Aggarwal would collectively contribute ₹ 12.5 lakhs towards share capital, so that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the share capital. When the board took a decision to refund the amount deposited by Shri Aggarwal on July 14, 1991, there was no decision as to how these shares have to be further allotted. The allotment of shares as indicated in the resolution dated June 29, 1990, was for the purpose of mobilising more funds. In the instant case, the company which was to adjust the loan of ₹ 2.3 lakhs for shares, actually refunded the amount. At the same time they did not take any decision to whom to allot these shares. In other words, the decision of June 29, 1990, had already been implemented but after withdrawal of Shri Aggarwal if the understanding of 50% was to continue, there-should have been a separate board resolution at least when they took a decision to. refund the amount. The argument of the petitioner that there was sufficient amount of Kandhari Dairy with the company for adjustment towards the balance shares and these shares should have been allotted to Kandhari does not hold much water. In this case, we are not in a position to find any offer of shares which was not taken by Shri Aggarwal to Kandhari and, therefore, the question of adjusting any amount available with Kandha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to his wife/ her husband/son/daughter or vice versa in consideration of natural love and affection or otherwise. 36. Sixteen shareholders holding in all 29,650 shares transferred the shares to Shri Dureja and his family. As admitted by the respondents, these transfers took place on October 5, 1990, December 6, 1990, and December 10, 1990, and at the time petitioner No. 1 was a director of the company and he did not object to the same. It has also been stated by the respondent-company that since these transfers took place in 1990, it cannot be considered as a continuing, oppression. It is evident from the minutes book of the board of directors that these transfers were never placed before the board. The transfers are patently in violation of the relevant provisions of the articles of association. The respondents have also not been able to establish that these transfers fall within the exceptional categories under Article 12. Under these, circumstances, the petitioners are right in questioning these transfers. The petitioners have also rightly cited the case of Bhubaneshwar Singh v. Kanthal India Ltd. [1986] 59 Comp Cas 46 (Cal) where, in an identical situation the Calcutta High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f manipulating the invoice to show that the goods are sold in Goa but are actually diverted to other places, like Calcutta, Gauhati, etc., showing the recovery rate at lesser rate than the actual rate, and underbilling the invoices. They have relied on annexures A-11 to A-23 to show that all the purported sales to Goa actually are consigned only up to Delhi and even the insurance is taken only up to Delhi. This fact of consigning up to Delhi and taking insurance up to Delhi has not been denied by the respondents. But their contention is that the goods have been sold ex-Delhi and it is the responsibility of the consignees to arrange for onward despatch to Goa. They have also relied on certain certificates issued by the sales tax authorities in Goa. According to the respondents, it is the normal practice of many traders to consign goods to Goa where sales tax is much lower than at other places and then despatch goods to other places. This is nothing but a tax avoidance practice, it was contended. They also produced the sales tax assessment made at Malerkotla. The respondents have also questioned the validity of the arrangement with M.J. Thakraso as revealed in a copy of the letter da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of shares standing in the name of Shri R.K. Kandhari to his sons as per the will executed by Shri Kandhari. The respondents have referred to their letter addressed to petitioner No. 3 asking her to produce a copy of the will which according to the respondents was not furnished to the company nor has proper certificate been furnished. Counsel for the respondents, indicated during hearing that the company would not have any objection in recording the transmission once the will and no objection certificates from the other heirs are produced. In view of this submission, there is no need for our intervention on this. 40. Another allegation is that ₹ 1,000 each was accepted by the company in the name of Shri Jagdip Dua, Shri Kuldip Dua and Shri Anurag Dua, as share application money for which receipts were also issued, as share application money, the same has been converted into long-term loan by the company without the knowledge of these persons. The respondents have stated that these amounts were converted into long-term deposits, only with the consent of petitioner No. 1 and he never objected to the same during the last six years. It is a fact that petitioner No. 1 was a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rates on a day to day basis and the rates compare well with the rates at which the company had sold its products. In the absence of any material evidence before us that during the period when Shri Dua was in the company, such fluctuation was not there or that the products were sold at much higher price by other manufacturers on the basis of the records produced to us, we find that the allegation of underbilling has not been substantiated. 43. The same is the position with regard to the alleged siphoning off of funds at the retail stores at Malerkotla. Except for an assertion that the sale is about ₹ 8,500 to ₹ 10,000 per day which is accounted to be ₹ 1,500 and ₹ 2,000 per day, the petitioner has not placed before us any material to substantiate this charge. According to the respondent actual sales are always accounted for, which vary from day to day. According to them the sale in April, 1992, was ₹ 10,000 per day on an average. 44. As far as the running capacity of the plant is concerned, the petitioner asserts that the capacity to handle milk is between 70 to 75% and production of the skimmed milk powder should be between 6 to 7 tonnes and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e thrown some light on the veracity of the allegations especially in the absence of supporting details/evidence. No doubt the petitioner has suggested that an investigation into all the aspects would throw some light on the allegations, yet it is the settled rule of law that the petitioner should make out his own case instead of seeking a roving enquiry. None of the court decisions cited by counsel for the petitioner would be of any avail to him in respect of these allegations. 46. Certain allegations pertaining to the conduct of respondent No. 2 have been made. One is that he is running a partnership through his wife and is holding the general power of attorney in his favour and as such he is functioning as the manager of the firm while functioning as a managing director in the company, which is against the provisions of the Companies Act. While the respondent does not deny that he holds a general power of attorney, he has denied acting as manager of the firm. According to the petitioner, the firm is dealing in cattle feed and the suppliers of milk to the company are forced to buy cattle feed from this firm. This way, the petitioner alleges, respondent No. 2 is compromising his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny while he was on bail. The respondents have not denied the fact of the conviction of Shri Harish Dureja but their contention is that as long as the revision petition pending in the High Court is not disposed of, there is no legal impediment to his holding office as director of the company. This issue is purely a question of law. The petitioners have other remedies to follow rather than agitating the same through this petition. Along with this allegation, there are certain other allegations regarding appointment of close relatives of Shri Dureja and also as to why Shri Dua left the company. As far as appointment of relatives is concerned, it is purely the prerogative of the management as long as the same is not in violation of the provisions of the Companies Act and as far as the statements relating to Shri Dua are concerned it is extraneous to the petition and there is no need for us to deal with the same. As far as the allegation relating to disposal of trucks belonging to the company is concerned again we find that it is based on surmise that these vehicles have been sold at much higher prices than what has been accounted for without any details. The respondents have shown t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held (at page 745) : In my view, it is not only in case of fraud, but in case of all other allegations relating to mismanagement, misappropriation or other improper conduct with which a party is charged in applications under Sections 397 and 398 of the Act, full particulars must be set out in order to enable the party charged to understand what he is charged with, and also to enable him to answer such charges. If vague and general charges are made without giving any particulars or setting out any material facts, this court should ignore such charges and not proceed to investigate them. The party charged must be given the opportunity of answering the charges made against him, and this he cannot do unless he knows what he is charged with. General and vague allegations of misappropriation, misapplication of funds, mismanagement or other improper conduct in the management of the company's affairs do not justify this court in making any order on such allegations . 53. The court further observed (at page 745) : I have already expressed my views in this matter, and I need only add that when a party is charged with acts of mismanagement, misappropriation or improper cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, and in favour of the petitioner. 55. In Bengal Luxmi Cotton Mills Ltd., In re [1965] 35 Comp Cas 187, the Calcutta High Court observed that if an applicant before the court wants to rely upon charges of fraud and other misconduct and investigate it, he must give particulars. Mere vague allegations of fraud and other misconduct would not be enough and the court will deny to embark upon investigation into such charges of fraud and misconduct. 56. The above decisions become relevant in this case because not only are most of the allegations not within the knowledge of the petitioners but they have also, sought, in the prayers for relief that the Company Law Board should direct the respondents to furnish full details regarding all the allegations and, if need be should deposit into the books of account, the money siphoned off by them. 57. From an overall assessment of the allegations made by the petitioners and the replies given by the respondents, it is seen that the petitioners have not been able to establish any of the allegations relating to siphoning off of funds by the respondents except throwing some doubt on sale of the company's products to the parties in Go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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