9911796707
TMI Blog1999 (9) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... board of the company, investigation into the affairs of the company and directing the second respondent to make good the losses sustained by the company. 2. The summary of the petition is as follows : The petitioner is a Government of India undertaking. The company is engaged in various agro-based activities. In the year 1994, the second respondent induced the petitioner to invest a sum of ₹ 4.75 crores in the share capital of the company by presenting a rosy picture of the future of the company that it would establish a forward integration of a fruit processing unit and that the company would export all the produce and the products through the petitioner for a period of five years renewable every five years at the option of the petitioner. A joint venture agreement was entered into on August 25, 1994, incorporating various terms. The agreement provided that the petitioner would be entitled to a service charge of 5 per cent, of the sales realisation of the first 30 per cent, of the total sales turnover in each year subject to a minimum of ₹ 78 lakhs per year and that the petitioner would have two directors as its nominees on the board and that certain decisions in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. In other words, his submission was that whatever has been stated in the reply has no authority of the board of directors of the company. 5. He submitted that the promoters group holding 31.14 per cent, shares in the company and controlling the management have been guilty of various oppressive acts and mismanagement of the affairs of the company without due regard to the provisions of law. The company has paid dividend to all shareholders other than the petitioner for the financial year ended March 31, 1995. In spite of various reminders issued to the company, the amount of dividend due of ₹ 1,18,75,000 (including interest at 18 per cent, for delay in payment of dividend) has not been paid so far in violation of the provisions of Section 207 of the Act according to which the dividend declared should be paid within 42 days from May 29, 1995, when the shareholders approved the payment of 25 per cent dividend. In view of the inaction by the company, the petitioner filed a winding up petition under Section 433/434 of the Act which was later on dismissed by the High Court of Bombay. He further submitted that the company claims to have paid ₹ 78 lakhs towards dividend, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rried through, the same should not be implemented till further orders. However, in violation of the said directions, the registered office was shifted. The ground for doing so as averred by the company is that the lease agreement with the landlord of the building expired on November 8, 1997, and as such it has to vacate. Learned counsel pointed out that the premises belonged to the wile of the second respondent and, therefore, he handed over the property without exercising the option of renewal with mutual consent as provided in the lease agreement itself. The matter of handing over the property was never disclosed in any of the board meetings and by handing over the property, the second respondent has acted against the interest of the company and in favour of his own wife. 7. Learned counsel further submitted that the second respondent is guilty of not sending notices for the board meeting to the nominee directors of the petitioner and also of fabrication of minutes of the board meetings. He pointed out various instances wherein either there were instances of short notices for the board meetings or absence of notice for some board meetings to stress the point that the second re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. However, with a view to enrich himself, the second respondent is exporting the products of the company on its own. The company has also at the behest of the second respondent not been paying the service charges as stipulated in the joint venture agreement. 10. He also submitted that after the petition was filed, there have been other proceedings in the Bombay High Court by way of PIL seeking directions to the company for repayment to investors and other creditors. The Bombay High Court has conducted investigation through the Commissioner of Police and on receipt of the report has directed the company to prepare a scheme for repayment of all the dues. This itself, according to learned counsel, would indicate that the affairs of the company are being conducted in a manner prejudicial to the interest of the shareholders, the company and the public, meriting grant of all prayers made in the petition. 11. Shri Ajay Kumar, appearing on behalf of the respondents, submitted that the petition is not maintainable as it does not satisfy the requirements of Section 397(2)(b) of the Act that there is justification to wind up the company on just and equitable grounds. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h clean hands to seek an equitable remedy before the Company Law Board. 13. On the merits of the case, the learned representative submitted that in so far as the dividend is concerned, the matter has already been decided by the Bombay High Court and as such the Company Law Board cannot once again adjudicate on this issue especially when the Bombay High Court was convinced while dismissing the winding up petition that the company has paid a substantial part of the dividend as claimed. In regard to shifting of the registered office, he submitted that the original proposal of the company was to shift the registered office of the company to Nasik and the resolution placed before the general body in this regard was stayed by the Company Law Board from being implemented, if the same was approved by the shareholders. In deference to the Company Law Board directions, this proposal was withdrawn from the consideration of the general body. Therefore, to say that by handing over the premises in which the registered office for functioning to the land lady, the company had flouted the orders of the Company Law Board is not correct. He pointed out that the premises in which the registered off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pleadings and arguments of counsel. At the outset we would like to record a peculiar event that took place after this petition was filed. One N. Khosla claiming himself to be the managing director of the company filed an application seeking to implead himself in the proceedings. On this application, while the petitioner-company took a stand that Shri Khosla was never appointed as the managing director, the company did not file any reply to this application. Even though Shri Khosla was personally representing himself before us on a few occasions and argued on the application, when the application was posted for final disposal on January 27, 1998, he was not present to pursue the application and accordingly, this application was dismissed. It is also necessary to note that even though the petition was served on the respondents as early as in September, 1997, and notices for hearing were sent to the respondents, they entered appearance only in the hearing held on January 27, 1998, and filed their replies only in March, 1998. Even in regard to this reply, as pointed out by Shri Makheeja, the same has been filed on behalf of all the respondents including the company. Later, respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to form an opinion as to whether the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members but otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. In other words, the onus of forming the opinion is on the Company Law Board in the facts of a particular case. The formation of an opinion cannot be made at the outset but only at the end of the proceedings. Further, under Section 398, there is no such stipulation of forming an opinion regarding the winding up of the company on the just and equitable, ground. While, some of the allegations could be only classified as oppressive and some of them only as acts of mismanagement, it is also possible that some of the allegations could be classified both as oppressive as well as acts of mismanagement. Therefore, when a combined petition is filed, the Company Law Board has to examine as to which of the allegations are acts of oppression or acts of mismanagement or both and on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in this regard. It is on record that the respondent-company had issued a cheque for ₹ 78 lakhs towards service charges, vide its letter dated April 20, 1995, signed by the second respondent (annexure 2 to the rejoinder). It is also a fact that the said cheque was dishonoured. The respondent-company sent a pay order dated June 12,1995, for ₹ 78 lakhs. The issue for our consideration is whether this amount represented both the dividend and part of the service charges as claimed by the respondent-company or represented only the service charges as claimed by the petitioner. The admitted position is that the company declared dividend for 1994-95 on May 29, 1995. While the first cheque was prior in time to the annual general meeting, the pay order is subsequent to the annual general meeting. The respondent-company has relied on a copy of the annual return of deduction of tax from dividend to indicate that pro rata dividend to the petitioner has been paid (exhibit R-l). We find from the return that the date of payment of the dividend is shown as July 1, 1995, while the pay order issued to the petitioner-company is dated June 12, 1995. We have not come across companies paying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and make it a part of the payment scheme to be prepared in accordance with the directions of the Bombay High Court. In view of the financial difficulties of the company, we are not stipulating payment of interest. 21. In regard to the allegation relating to the handing over of the registered office premises, the allegations are that by doing so the second respondent has violated our order dated March 9, 1995, and that the company should have exercised the option to renew, instead of releasing the premises and that the reason for doing so is that the landlady is the wife of the second respondent. As far as violation of our order is concerned, it is to be noted that our order was limited to restraining the company from acting on the resolution, it carried through in the annual general meeting for shifting the registered office to Nasik and did not cover releasing the premises, and as such, by doing so, the second respondent has not violated our order. Relating to the complaint that the premises were released without exercising the renewal option, only because of the personal relationship, even assuming it is so, since the same is a past and concluded event, that took place in 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in his written submissions has stated that the High Court did not observe anything adverse against the management nor has it held that the present management is responsible for the present state of the affairs of the company, the very fact that the High Court had directed the Commissioner of Police to investigate into the affairs of the company and had directed the company to frame a scheme of repayment, shows that there is ample justification for the Company Law Board to make appropriate orders in public interest as mandated by Section 397/398. The petitioner has asked for directions for investigation into the affairs of the company in terms of Section 237 of the Act and since this prayer is without particulars we are not considering the same, more so because the Bombay High Court has already directed the Commissioner of Police in this regard. Considering the state of affairs of the company and the element of public interest involved, we consider it necessary that there should be proper monitoring of the affairs of the company for some time to come. Such monitoring, according to us, could be ensured by appointment of two independent persons having legal and accounts experience o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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