9911796707
TMI Blog1966 (6) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... despatch thereof. All acceptances to be completed within fifteen days of the receipt thereof. Your name appears on the Share register as the holder of 35 shares. We have accordingly been instructed by the said Munnalal Bhalotia and Co. to make an offer to all shareholders of the Company, which we hereby do, to acquire their shares at the price of ₹ 132/- per share on the above terms. If you wish to accept this offer in respect of the whole or part of your shareholding please arrange to tender to us through your brokers or Bankers the Share Scrip with the relative Transfer Deeds duly executed in blank within the specified time. This offer is being made in order to corn-ply with the above mentioned agreement. Business was last done in these shares on the 16th February, 1966 at the price of ₹ 172.75 per share. (a) The Circular issued by M/s. Manualal Bhalotia and Company through Messrs. G. M. Pyne is unauthorised, illegal, inoperative and void; (b) alternatively the price of the shares to be purchased by Messrs. Munnalal Bhalotia and Co., should be the break up value thereof (which the petitioner fixes at ₹ 870/- per share) including the goodwil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of G.M. Pyne dated the 21st Feb. 1966, is not and cannot be a notice under Section 395. Section 395, it is obvious, applies when there is a scheme or contract involving transfer of shares in a company. It is nobody's case that there is any such scheme or contract in the instant case. The offer made in the said letter of the 21st February, 1966, appears to be a private offer which invites the addressee to dispose of, if he thinks fit, the whole or a part of his holding which could not have been in the contemplation of the framers of Section 395. Secondly, Section 395 applies when there is a transferor company and a transferee company . In Sub-section (5) (b), it is said that a 'transferor company and a transferee company shall have the same meaning as in Section 394. In Section 394(4)(b), it is provided that a transferee company does not include any company other than a company within the meaning of this Act; but a transferor company includes a body corporate, whether a company within the meaning of this Act or not. 5. In the context of these definitions we have to see whether Munnalal Bhalotia and Co., can be said to be a transferee company within the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court on Clause (d) of the prayers in the petition. In this clause, as I have said earlier, the petitioner is asking this Court to direct an enquiry into the affairs of the company. Mr. Chakrabartti drew my attention to Section 237. It would be necessary to quote the entire Section for a proper appreciation of the arguments of learned counsel for the petitioner as well as the respondents. The Section runs thus :-- 237. Without prejudice to its powers under Section 235, the Central Government : (a) shall appoint one or more competent persons as Inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if- (i) the company, by special resolution, or (ii) the Court, by order, declares that the affairs of the company ought to be investigated by an Inspector appointed by the Central Government; and (b) may do so if, in the opinion of the Central Government, there are circumstances suggesting- (i) that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of our Act. So far as the Court's powers are concerned, it is observed in Gower's book that it may be safely assumed that the Court will require evidence at least as strong as that needed to induce the Board to move. 10. Considering the provisions of Section 287 as a whole, particularly with reference to the chapter in the Companies Act in which it is placed, it seems to me that the views expressed in Gower's book should be accepted. In other words, a petitioner must adduce strong evidence in relation at least to matters referred to in Sub-section (b) of Section 237 to induce a Court to make an order for investigation under Section 237(a)(ii). There must be evidence either (1) that the business of the Company is being conducted with intent to defraud (1) the creditors of the company or (ii) its members or (iii) any other person or (ii) it the business is being conducted (i) for a fraudulent purpose or (ii) for an unlawful purpose or (iii) in a manner oppressive of any of its members or (iv) that the company was Formed for any fraudulent or unlawful purpose or (3) that the persons who formed the company or managed its affairs have been guilty of (i) fraud, (it) misfea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays of the date on which they are declared. If the shareholders' money has been converted into the company's moneys by some process or other, the conduct of the persons responsible would undoubtedly be unlawful. But the point on which I have to be satisfied is whether In fact any dividend was declared by the company in any of these years. The petitioner has set out a portion of the Directors' Report to the Annual General Meeting of the 1st July, 1964 in paragraph 12 of the petition. I have quoted this portion of the report. The directors categorically stated that dividends could not be declared from 1956 to 1962 as they were unable to obtain remittances from Pakistan. They say that certain dividends were merely proposed. These proposed dividends they were seeking to transfer to the Contingencies Reserve Account. On these facts, I cannot uphold Mr. Chakrabartti's contention that the directors have wrongfully deprived the shareholders of dividends payable to them. In fact, the said Directors' Report, I find, was passed unanimously at the annual general meeting of the 1st July, 1964. 15. The second contention of Mr. Chakrabartti is that it appeared from the Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned his office as Director of the Company These averments on facts have not been traversed in the affidavit-in-reply of Navratan Mull Surana affirmed on the 13th June, 1966. 20. It is, therefore, not true that the Board of Directors had not the power under the Company's Articles to appoint additional Directors. This power was expressly conferred on the Board by Article 91. The petitioner does not allege that the maximum number of the Directors specified in Article 88 has been violated. In these circumstances, the petitioner's contention that additional Directors have been unlawfully appointed must be overruled. 21. Mr. Chakrabartti then argued that the resignation of M/s. Duncan Brothers and Co. Ltd. who were the Managing Agents of Patrakola Tea Co. Ltd. contravened the relevant provisions of the Companies Act 1956 and the Managing Agency Agreement with Messrs. Munnalal Bhalotia and Co. is consequently of no effect (Vide paragraph 29 of the petition). . 22. Learned counsel first referred to Sub-clause (v) of Clause 3 of the Memorandum of Association of the Company. This sub-clause gives power to the Company-- To carry on all or any part of the business of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Company, or by virtue of its Memorandum or Articles of Association, and includes any individual, firm or body corporate, occupying the position of a Managing Agent, by whatever name called. It is clear from this definition that a Managing Agent is entitled subject to the provisions of the Act to the management of the whole or substantially the whole of the affairs of a Company. 25. Now, in paragraph 5 of the affidavit-in-opposition of Mahabir Prasad Bhalotia affirmed on the 4th June, 1966, I find that the firm of Messrs. Duncan Brothers and Co. were the Managing Agents of the Company upto 1923. Thereafter Messrs. Duncan Brothers and Co. Ltd. were the Managing Agents till the 31st March, 1956. Mahabir Prasad Bhalotia's case is that between April 1956 and August 1964 Duncan Brothers and Co. Ltd. were not the Managing Agents but merely the agents of the Company. The Agents, it is undisputed, resigned in August, 1964. These statements in paragraph 5 of the affidavit-in-opposition are also Dome out by the balance-sheets of the company which have been produced before me. I find, for instance, in the Annual Report of 1963, the notice of the Annual General Meeting to be he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in this paragraph challenges the ability of Messrs. Munnalal Bhalotia and Co., to have the financial capacity to acquire the shares they did without the backing of some secret agency. 28. It is obvious that on vague allegations like these, a Court cannot be expected to make an order for enquiry. Paragraph 32 of the petition has been verified as true to the knowledge of the petitioner in his affidavit affirmed on the 31st March, 1966. The petitioner should have told this Court exactly at what price Duncan Brothers and Co. Ltd., and its associates have sold their shares to Munnalal Bhalotia and Co. The petitioner should have told this Court what other cash considerations were there in respect of these transactions. The petitioner should have told further who the secret agents are behind Munnalal Bhalotia and Co. On general allegations attempting to arouse the suspicion of the Court, the powers under Section 237(a)(ii) of the Act cannot be exercised. (29) Mr. Chakrabartti drew my attention to Paragraph 24 of the petition and the first annexure thereto which was the letter of G.P. Pyne dated the 21st February, 1986. It is true that Munnalal Bhalotia and Co., offered to pay only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company at a ridiculously low figure. On the motive behind the transactions, however, between Duncan Brothers and Co. Ltd., and Munnalal Bhalotia and Co., there is no clear evidence before the Court. 33. In these circumstances, I am constrained to say that at what price Messrs, Duncan Brothers and Co. Ltd., sold their shares to Munnalal Bhalotia and Co., is not a matter which concerns the Patrakola Tea Co. Ltd., at all. The affairs of the Patrakola Tea Co. Ltd., cannot be investigated for the alleged fraud or misconduct of some of its shareholders. The sins of the shareholders should not visit the company. With better materials and stronger evidence I might have been inclined to direct an enquiry; but to my mind it would be unfair to proceed on evidence produced by the petitioner in this application and to make an order under Section 237(a)(ii) The powers of the Court under this Section should be exercised with caution and the Court ought to require far more convincing proof of the allegations the petitioner has made. 34. In the result this application is dismissed. The petitioner will pay one set of costs to the respondents. 35. Certified for counsel. - - TaxTMI - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
