9911796707
TMI Blog1998 (6) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... parts and automobile machinery. Apart from these, the company is also carrying on the business as distributors, dealers and agents for the manufacturers of various kinds of automobiles, spare parts, and lubricants. In addition, it is also engaged in the repair, servicing and body building of all kinds of vehicles. The company employs about 800 workers. 3. It is alleged in the petition that, the second respondent being the Chairman of the company to whom the petitioners are closely related, has been siphoning the funds of the company and is also oppressing the minority shareholders as elaborated in the petition. The petitioners have cited certain alleged acts of oppression and mismanagement and siphon- ing of funds by the second respondent in SRMT, another company in which the petitioners are shareholders and the second respondent, the Chairman. Since the petitioners have already filed a petition under section 397/398 in respect of SRMT and that this petition is not against the affairs of SRMT, we are not dealing with the allegations in respect of SRMT in this order. The main allegations in the petition are as follows : u Diversion of funds for the personal gain of the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty of diverting the company funds by using 3 clerks employed in the company, by paying them sales commission for sale of tractors and other vehicles. According to the learned counsel, there was no need to pay commission to the clerks of the company for selling the tractors when there is a huge demand for the same and that there is always a waiting list of customers desiring to purchase the tractors. The commissions so paid to the clerks works out to about ₹ 5 lakhs every year and this amount is later collected by second and third respondents from these clerks. In the same way, the second and fourth respondents opened a firm in the name of Shri Aruna Industries which is a benami in the name of one Shri D. Prasad, an employee of the company. This firm manufactures automobile parts and sells the same to the company. These parts are purchased at a price much higher than the market price and the difference is later on passed on to the respondents. 7. He further submitted that the respondents are also guilty of raising fictitious debts in the books of the company and showing as if these debts have been discharged by making payments. All the payments made against these fictitiou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulfil the requirement of section 399 to file a petition under section 397/398. According to the counsel, the company is not at all in need of additional funds especially when it has been earning handsome profits every year. Even otherwise, since the main business of the company, as could be seen from the turnover, the business from manufacturing activities is negligible and therefore the question of modernising the plant and machinery does not arise. 11. Even assuming that the company needed funds, the counsel submit- ted that the same could have been raised internally, by prudent business practices. He pointed out that in the year 1995-96, the company spent ₹ 40 lakhs for purchase of lorries which were given to SRMT on hire for ₹ 12 lakhs per year. After deduction for depreciation, overheads, income-tax, etc., the net income would be only ₹ 2 lakhs working out to less than 5 per cent on the investment. According to the learned counsel, this sum of ₹ 40 lakhs could have been spent for modernisation instead of asking the shareholders to contribute towards the new shares amount- ing to ₹ 28 lakhs. 12. Summing up his arguments, Shri Gupta submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to him, this petition is essentially a petition under section 398 as no act of oppression has been alleged except relating to the right issue of shares, and the petitioners have not made out a case to convince the Board that the affairs of the company are being carried out in a manner oppressive to them justifying winding up of the company but such winding up would be prejudicial to them. Even the acts of mismanagement as alleged, do not contain full particulars and have been made only on suspicion and surmises. 15. Dealing with the allegations in detail, Shri Raghavan submitted that the respondents have not opened any firm in the name of the company's employees. It is true that Shri Ram Das Trailers is a proprietor concern of Sri Appa Rao Babji, a clerk in the company up to 1996. He is not a benami of respondents 2 and 3. The company has not bought any trailers from this firm after 1991. From 1986 to 1991, the company had purchased only 15 trailers from this firm that too at prevailing market rates. These trailers are bought only when a customer purchasing a tractor in the company desires to purchase tractor also. Whenever the trailers are bought at the demand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed from shareholders and public as deposits, complying with the provisions of section 58A of the Act. Therefore, the allegation that the fictitious liabilities is wrong and unfounded. He further submitted, in regard to Shri Aruna Industries that the respondents have no connection with this firm and even the dealings with the firm has been stopped from April 1991. 19. Dealing with the allegation relating to fall in profits, non payment of adequate dividend etc. Shri Raghavan submitted that the increase in the turnover of vehicles was on account of increase in the sale price and the company is entitled to a fixed margin as fixed by the manufacturer. Therefore, to say that fall in profits is due to siphoning of funds by payment to fictitious person is not correct. In regard to the income-tax proceedings in the criminal court in relation to an amount of ₹ 52,500, Shri Raghavan submitted that the complaint of the Income-tax Depart- ment had been dismissed by the High Court of Andhra Pradesh and as such this allegation need not be gone through by us. As far as payment of dividend is concerned, he stated that the rate of dividend is to be decided by the Board taking into consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esulted in filing of this petition. As rightly pointed out by Shri Raghavan, no details or particulars have been given on the alleged kick back received by the respondents from alleged benami firms. In the absence of some particulars, if we weigh the allegations with the explanations provided by the respondents, which we have elaborated earlier, we find that the explanations offered are convincing. In view of this, since we have elaborately summarised the allegations as well as the replies, we do not propose to once again to with the same in relation to the allegations relating to Shri Ram Das Trailers, payment of commission to 3 clerks, creation of fictitious liabilities, Aruna Industries, criminal case filed by Income-tax Department etc. 23. In regard to the allegation that profits do not commensurate with the turnover, the stand of the petitioners is that respondent Nos. 2 to 4 are diverting the income of the company in the form of commission and other expenses being paid to fictitious purchases and agents by showing false vouchers. In the rejoinder, they have also countered the explanation of the respondents that the mark on vehicles sold remains the same and the sale price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 58A of the Act from members of public. Perhaps, the apprehension of the petitioners seems to be justified, in the absence of clear classification in the accounts. Even though, the auditors, have in their report, stated the company has complied with the requirements of section 58A, indicating therein that the company has accepted public deposits, the same has not been shown separately in the accounts. However, we find from the annual report for 1996-97 that the same has been classified properly in Schedule 4. Under these circumstances, we would like to go by the explanation given by the company. 25. With regard to the allegation relating to inadequate dividend and appointment of managing director, we feel that, when the general body of members, in their own wisdom, have approved the decision taken by the Board in these matters, we should not intervene, as in a corporate democracy, it is the will of the shareholders which has to prevail, the exception being that the shareholders are not misled with ulterior motive. The petitioners have not been able to substantiate any mala fide intention either in reducing the rate of dividend or in the resignation and appointment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany will comply with the request. 27. Thus, on an over all assessment of the allegations and the explanations offered on the allegations, we find that the petitioners have not made out a case for grant of any of the reliefs sought for and as such the petition deserves to be dismissed. During the hearing, in view of the close relation- ship between the parties, we suggested that the disputes should be resolved amicably. Towards this end, the petitioners were prepared to sell their shares to the respondents on a particular price which was not acceptable to the respondent. As a matter of fact, Shri Raghavan argued that the main motive behind the petition was to armtwist the respondents to purchase the shares of the petitioners at a high price which the respondents were not prepared to accede. The respondents were also not prepared for the valuation of the shares by an independent valuer. Under the circumstances, while we do not pass any orders for the respondents to purchase the shares of the petitioners, yet we suggest to the respondents, to avoid any future litigation, to purchase the shares held by the petitioners at a reasonable price taking into consideration the family relat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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