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TMI Blog2005 (10) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... t this background, the petitioners are seeking the following reliefs: (i) To cancel the shares allotted to the fifth respondent and delete its name from the register of members of the Company; (ii) To reconstitute the board of directors of the Company including the representation of the petitioners and appoint a new chairman of the Company; (iii) To terminate any agreement entered into by the board of directors for sale of any portion of the property belonging to the Company. 2. Shri R. Venkataraman, learned Counsel appearing for the petitioners, while initiating his arguments submitted: The Company was promoted in October, 1974 by among others, (late) E. Ramaswamy, father of the petitioners and (late) T.V.P. Nambiar, father of the third respondent for the purpose 6f extraction of coconut oil, coconut protein and edible coconut flour as per a new formula called SOLVOL PROCESS invented by (late) T.V.P. Nambiar, the then Managing Director of the fifth respondent. The authorized capital of the Company is ₹ 50,00,000/- divided into 50,000 equity shares of ₹ 100/- each and the paid-up and subscribed capital is ₹ 19,00,200/- divided into 19,002 equity shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court under section 397 of the Act, seeking directions against the Company to continue the services of the first petitioner's father, as Managing Director of the Company for the un-expired period of five years as decided by the board of directors of the Company. In view of a large liabilities due to the banks and financial institutions, one of the directors of the Company had filed a company petition (CP 44/1979) before the Kerala High Court to wind-up the Company, which was supported by (late) Ramaswamy on just and equitable grounds. At the intervention of the then Chief Minister of Kerala during September, 1979, (late) T.V.P. Nambiar was afforded yet another opportunity to give satisfactory performance of the plant by giving a demonstration, which could never be achieved until his death in November, 1'979, leading to withdrawal of the company petition (CP 23/1979) by the first petitioner and his (late) father. Later, during February, 1980, the then Minister of Industries, Kerala explored the possibility of reviving the unit, whereby the company petition (CP 44/1979) for winding up the Company came to be withdrawn. The Company ultimately did not go into commercial product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otton Mills Ltd. 1965 (Vol. 35) CC 187, yet the petitioners failed to take any action for nearly three decades and, therefore, their claim must fail. Moreover, the CLB is not empowered under Section 402 to cancel the impugned shares, as sought by the petitioners. The Gujarat High Court in Sheth Mohanlal Ganpatram Vs. Shri Sayaji Jubilee Cotton And Jute Mills Co. Ltd. 1964 34 CC 777, while dealing with the powers of the Court under Sections 397 398 held that the remedy under section 397 can be invoked only when the affairs of the company are being conducted in a manner oppressive to a shareholder or shareholders and similarly the remedy under section 398 is justified only when the, affairs of the company are being conducted in a manner prejudicial to the interests of the Company. The remedy given by these sections is of a preventive nature intended to prevent occurrence or continuance of oppression or mismanagement in the affairs of the Company and is not intended, to set at naught what has already been done by controlling shareholders in the course of such oppression or mismanagement which is past and concluded and no longer a continuing wrong. The Kerala High Court in Palghat Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the financial institutions with the approval of the general body of the Company, as borne out by the notice dated 16.09.2002 issued to all the shareholders, including the petitioners, convening the general body meeting on 06.10.2002. The minutes dated 06.10.2002 of the general meeting of the Company clearly indicate that the board of directors, in fact, intended to proceed with the sale of the Company's properties only after obtaining consent of the shareholders. In the meanwhile, the petitioners approached the Sub-Court, Tirur, seeking an order of interim injunction restraining respondent Nos. 2 4 from selling the properties which was, however, declined and the appeal preferred by the petitioners against the order of the Sub-Court, Tirur, before the Kerala High Court came to be dismissed with the directions that the petitioners shall raise their grievances before the general body and that the Company could go ahead with the sale of the properties, only after obtaining the approval of the general body. In view of the order of the Kerala High Court, the petitioners cannot reagitate the same issue in the present company petition. Accordingly, the board of directors is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the petitioners' father, he was in active management of the Company and on his death in August, 2002, the petitioners came into the picture and there is, therefore, no delay on their part in prosecuting the present company petition. 5. Shri V.B. Unniraj, learned Counsel appearing for the sixth respondent submitted that the Company had obtained, during the year 1976, a loan of ₹ 30 lakhs against the security of mortgage of the immovable properties and hypothecation of the plant and machinery belonging to the Company. When the Company defaulted in payment of the outstanding liability, this respondent was constrained to initiate necessary action for enforcement of the securities before the District Court, Manjeri under Section 31 of the State Financial Corporations Act and ultimately purchased the properties in court auction, which is yet to be confirmed by the Court. In the meanwhile, the petitioners have been attempting to circumvent the enforcement of the securities by approaching the High Court of Kerala and the CLB. Any order, which may be passed by the CLB authorizing the Company to sell its properties, will interfere with the lawful efforts being made by these re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent, relevant of which are set out here under: The fifth respondent shall design, manufacture, transport, erect and commission plant at the site of the Company with a full production capacity of 1,00,000 coconuts per day of 24 hours working with an output of: (a) Protein .. 2% on the weight of the input kernal (b) Invert Sugar .. 2 1/2 % on the weight of the input kernal (c) Coconut Flour .. 5% on the weight of the input kernal (d) Residual oil content. Not more than 7%. The fifth respondent must bring the plant into operation within a period of 12 to 15 months from the date on which Kerala Financial Corporation releases its first instalment of loan provided the Company fulfills all its obligations under the agreement on the due dates. If there is any delay on the part of the Company, the stipulated time would automatically be extended. The fifth respondent would be liable for any loss, which may be suffered by the Company on account of the delay, if any caused by the fifth respondent in implementation of the contract. The handing over of the plant by the fifth respondent shall be effective on the day the plant processes 1,00,000 coconuts per day of 24 hours worki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envisaged in these sections. Any past act which have come to an end would not be taken for the purpose of invoking the court's jurisdiction under section 397. The remedy provided by these sections is of a preventive nature in order to bring to an end oppression or mismanagement in the affairs of the Company and not to allow its continuance to the detriment of the aggrieved shareholders or the company. section 397 can be invoked when the affairs of the company are being conducted in a manner oppressive to a shareholder or shareholders and similarly section 398 can be invoked only when the affairs of the Company are being conducted in a manner prejudicial to the interests of the Company. The decisions cited by Shri Datar, learned Senior Counsel, viz., Sheth Mohanlql Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. and Palghat Exports Private Limited v. T.V. Chandran recognize the essential requirements of section 397 398. The grievance of the petitioners is that the impugned shares were issued in favour of the fifth respondent towards part adjustment of the payment of consideration under the agreement dated 04.10.1975, which never came into effect, notwithstandin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any grievance they can raise the same in the general body. Needless to say Company has to give notice to all the members so that they could get an opportunity to raise their views in the general body and it is for the general body to consider all the aspects of the matter with which we express no opinion. It is so ordered. The present grievances in regard to the sale of the properties of the Company as set out in para 6.36 of the company petition read thus: Now after the disposal of the CMA, the respondents are going ahead with the sale of the company properties to different persons in small plots and to get the ratification of the general body to be convened as per directions of the Hon'ble High Court. By exercise of the strong voting power they hold with Chemical Construction Co (P) Ltd., by holding shares worth lakhs they will be able to get the ratifications approved by the general body which is only a formal ritual to go through and this will be a total negation of the rights of the minority shareholders. The apprehension of the petitioners that respondent Nos. 2 to 4 are acting detrimental to the interests of the Company and that the shareholders are attempting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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