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TMI Blog1990 (4) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent herein if found guilty under sections 539 - 542 read with section 406 of the Act, directing him to compensate the company under section 543 read with section 406 of the Act and directing respondents Nos. 1 to 4 to pay the costs of the petition. 2. The authorised capital of the company is ₹ 5 lakhs comprising ₹ 3 lakhs of equity share capital divided into 3,000 equity shares of ₹ 100 each and ₹ 2 lakhs of preferential share capital. All the 3,000 equity shares were issued and subscribed. Petitioners Nos. 1 to 3 were holding 75,300 and 375 equity shares respectively. The first respondent who was the managing director was holding 390 shares, whereas his first son (the second respondent), were holding 390 shares, whereas his second son (fourth respondent) were holding 300,260 and 250 shares respectively. Thus, in all, respondents Nos. 1 to 4 were holding 1,200 shares. There were in all 12 shareholders. The first petitioner, the third petitioner (who was not married) and the fifth respondent are brothers. The wives of the first petitioner and the fifth respondent are also shareholders. The mothers of the second petitioner and the fifth respondent are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said minutes books establish the vital records of the company ; that the alleged extraordinary general body meeting on May 19, 1981, was a fabrication ; that the blank pages 16 to 19 were made use of for that purpose ; that there was no general body meeting of the company after January 12, 1983 ; that on October 5, 1983, petitioners Nos. 1,2 and the fifth respondent took over the factory and godown of the company and took inventory of all the material in the premises ; that on August 7, 1983, the fifth respondent borrowed ₹ 1.80 lakhs from Sri Venkateswara Commercial Corporation, Sri N. Ramalingam and others ; that on October 7, 1983, the electricity charges were paid and electricity supply was got restored ; that various customers. The petitioners alleged that they suspect that respondents Nos. 1 to 4 have secreted and syphoned off vast funds of the company by creating bogus debts and purporting to repay the same, falsified the accounts and books of the company and that thereby the affairs of the company were being mismanaged by respondents Nos. 1 to 4 and in particular the first respondent by bringing the business of the company to a standstill wantonly and without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot up by them. The respondents also denied the allegation of secreting and syphoning off the funds of the company and falsification of accounts and books and stated that the books were seized by the Commissioner appointed in O. S. No. 433 of 1983 from the fifth respondent. Finally, it is pleaded that the petitioners and the fifth respondent cannot take advantage of their own acts to grab the management of the company and to deprive respondents Nos. 1 to 4 their rights and hence company petition is liable to be dismissed. 7. Respondents Nos. 5 and 6 filed a counter-affidavit supporting the petitioners. They pleaded that the sixth respondent-company is facing bankruptcy by reason of the obstructive tactics adopted by respondents Nos. 1 to 4 ; that all the efforts of the fifth respondent to restart the business of the company were thwarted by respondents Nos. 1 to 4 and that the fifth respondent is in no way responsible for the present position of the company. Respondent Nos. 5 and 6, therefore, submitted that unless this court interferes and passes appropriate orders to set right the mismanagement by respondents Nos. 1 to 4, the sixth respondent company will suffer irreparably. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the counter of the respondents? 10. Before taking up the issues, I shall deal with one objection regarding the admissibility of evidence of the first respondent who is examined as RW-2 in the case. His chief examination was recorded and he was cross-examined by learned counsel for the fifth respondent. Subsequently, he was cross-examined in part by learned counsel for the petitioners. At that stage, it was represented that the witness had had a hear-attack and was admitted in the hospital. Later on, the he passed away. Learned counsel for the petitioners relying upon the observations of a Division Bench of the Madras High Court in Maharaja of Kolhapur V. Sundaram Ayyar, AIR 1925 Mad 497 at 537 argued that the evidence of a witness who died before the cross-examination could be completed cannot be rejected as inadmissible. In that case, an important witness for defendants Nos.4 to 11 was ill when she was examined-in-chief and her examination was adjourned after a few sentences of cross-examination were recorded. She died before the cross-examination could be resumed. Their Lordship while holding that the evidence cannot be rejected as inadmissible, however, held that such eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 397 and 398 of the Act for prevention of oppression and mismanagement, it is not permissible to implead the heirs and legal representatives of a deceased director and continue the proceedings against him. In this case, respondents Nos.2 to 4 who are the widow and sons of the deceased first respondent were already on record in the company petition. No material is placed on record to show that the unmarried daughter of the first respondent is entitled to any number of shares. At any rate, the relief prayed for under sections 397 and 398 of the Act is against the company as such and there can be no variation in the number of shares Even assuming that the unmarried daughter of the first respondent is entitled to any shares, the estate of the deceased first respondent is amply represented by respondents Nos.2 to 4 who are already on record and hence I hold that the interests of the first respondent are amply safeguarded. As such, the decision of the Allahabad High Court in J. K. Investment Trust Ltd. v. Muir Mills Co Ltd. (1963) 32 Comp Cas 893, has no application because, the alleged acts of oppression and mismanagement are directed not merely against the first respondent but ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey cannot come forward with a plea in the company petition that the company court has no jurisdiction. I, therefore, overrule this objection also. I accordingly, find on this issue that the company petition is maintained and that the preliminary objections raised by learned counsel for respondents No.1 to 4 to the maintainability of the company petition cannot be sustained. 13. In view of the demise of the first respondent during the pendency of the company petition, some of the reliefs prayed for in the company petition which are directed personally against the first respondent cannot be granted. Therefore, the reliefs of (1) removing the first respondent from the managing directorship of the company, (2) punishing the first respondent under sections 539 - 542 read with section 406 of the Act and (3) directing the first respondent to compensate the company under section 406 of the Act have become infructuous. Hence, it is not necessary to give any findings on issues Nos.5 and 6. 14. Issue No. 1 : The allegations of the petitioners and respondents Nos. 5 and 6 are that the first respondent as the managing director of the sixth respondent company from September 2, 1980 to Sept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, the first respondent failed to retire one railway receipt relating to the goods sent be International Combustion (India) Ltd., and, therefore, they stopped supplying goods to the first respondent and that after making enquires about him (RW-1) in the Guntur market, they started supplying the goods only when RW-1 placed the orders. When he tried to depose that he did not get the letter -heads printed giving his office address as the office address of the sixth respondent company, he was shown some letter-heads. Then admitted that such letter-heads were got printed by the first respondent. He was shown the price list and he admitted that the address of Sri Venkateswara Commercial Corporation is given as that of the sixth respondent company. He tried to explain that the first respondent got the same printed in his name. He admitted that on the letter-head on which he has addressed the letter dated November 10, 1982, to International Combustion (India) Ltd., his office telephone number as well as the extension telephone number were given. He admitted having sent a demand draft for ₹ 2,000 to Brahmeswara Mining Co., Veludurti, on behalf of the company. He however, tried to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said letter was addressed by the third petitioner on behalf of the sixth respondent company to Sri Venkateswara Commercial Corporation requisition, the said corporation to pay lorry charges of ₹ 722 which carried the material to the factory from Brahmeswara Mining Co. While admitting that the third petitioner also might have addressed some more letters, RW-1 tried to explain that all those letters were addressed at the instance of the first respondent. RW-1 admitted that the sixth respondent company is an assessee under the Andhra Pradesh General Sales Tax Act, and that every month, From-II returns were filed on behalf of the company and that the returns dated December 29, 1982, January 29, 1983, and April 26, 1983, were signed by him. The return dated March 28, 1983, was signed by the second petitioner. On September 17, 1982, the second petitioner addressed a letter to the Commercial Tax Officer, No. III, Guntur enclosing therewith a demand draft for ₹ 2,469 towards tax. 16. While admitting that vouchers for payments were prepared and issued either by him (RW-1) or by Satyanarayana (the second petitioner) during 1982-83, RW-1 tried to explain that they have i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first respondent, he has entrusted the monies collected by him to the first respondent. Even the petitioners did not plead in their petition that they have indulged in some of the business activities of the sixth respondent company at the instance of the first respondent. I, therefore, hold that no value can be attached to the explanation sought to be offered by RW-1 in his evidence in this regard. If that explanation is disbelieved, it is evident that petitioners Nos. 1 to 3 and the fifth respondent have also been managing the affairs of the company. It cannot, therefore, be said that respondents Nos. 1 to 4 alone were managing the affairs of the company prior to the filing of the company petition. 17. In the light of the above admissions elicited during the cross- examination of RW-1, I find on this issue that there is no material to hold that respondents Nos. 1 to 4 were managing the affairs of the company oppressively against the other shareholders of the company excluding them from the management of the company and to the detriment of the company and the general body of its shareholders. 18. Issue No.2 : The main attack of the petitioners and the fifth respondent ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radict the evidence of PWs-1, 4 and RW-1, respondents Nos. 1 to 4 have examined RW-3 who is an advocate practising in the High Court of Andhra Pradesh and a notary public. He deposed that the signatures on exhibit B-2 (xerox copy of the minutes book of Farmers Pest Control Ltd.) are his ; that he has signed on all the 23 pages; that the originals were shown to him by the party and that after verifying the same, he has affixed his signatures certifying the photostat copies to be the true copies of the originals as recorded in the minutes book. He further deposed that he has attested the above documents on June 12, 1983. According to RW-3, under the Notaries Act and the rules framed thereunder, affixing notarial stamps is necessary and that it is also necessary to give the serial numbers to the documents which are attested; that he did not find any blank papers in the book relating to exhibit B-2 and that he has affixed the notarial stamps and put the seal on them. During the cross-examination, he stated that Sri Jogayya Sarma, advocate, introduced the party to him on the same day. According to RW-3, pages 16 to 19 of exhibit A-48 minutes book were written when he has notarised the x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive for RW-3 to depose falsely that he has attested exhibits B-2 and B-3 on June 12, 1983. His evidence is further corroborated by the fact that both on exhibits B-2 and B-3 he has affixed stamps, attested all the pages and gave the serial numbers as 1,316 and 1,315, respectively. If the evidence of RW-3 that he found writing on pages 16 to 19 on June 12, 1983, is true, then the statement of PW-4 that he found pages 16 to 19 blank on August 1, 1983, cannot be correct. It is elicited from the evidence of PWs- 1 , 5 and RW-1 that PW-4 has taken keen interest in the affairs of the petitioners and the fifth respondent is not only notarising exhibit A- 48 minutes book as per exhibit A-46, but also accompanying the petitioners and the fifth respondent to the factory premises to figure as a mediator when RW-5 and others took possession of the factory premises by unscrewing the Godrej lock and the inventory was taken. The fact of PW-4 accompanying the petitioners and the fifth respondent to Pericheria from Guntur to figure as a mediator discloses his interestedness in the petitioners and the fifth respondent. 21. As between the evidence of PW-4 and RW-3, the evidence of RW-3, who has ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions dated May 19, 1981, of the general body amending the articles of association of the company are valid. 24. Issue No.3: The contention of the petitioners in support of their allegation that the minutes book of the meetings of the general body and of the board of directors of the company were not being regularly and properly maintained is that subsequent to the meeting dated January 12, 1983, no other meeting has taken place. But pages 22 and 23 of exhibit A-48 contain minutes of the general body meeting held on February 15, 1983. According to the petitioners and the fifth respondent, that resolution is also manipulated subsequently to support the contention of respondents Nos. 1 to 4 that the second petitioner and the second respondent were removed as directors of the sixth respondent company with effect from January 12, 1983. But this contention of the petitioners is belied by the documentary evidence filed by respondents Nos. 1 to 4. Exhibit B-15 is a copy of the complaint in S.T.C. No.414 of 1984 in the Court of the Special Judge for Economic Offences, Hyderabad, filed by the Registrar of Companies under section 220 of the Act against petitioners Nos. 1 and 2 and respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and that the said resolution is pursuant to the articles of association of the sixth respondent company. He further deposed that on the next day the second petitioner in the capacity of director has issued a notice convening the board meeting of the sixth respondent company on October 5, 1983, and that along with the said notice, a copy of the resolution dated September 27, 1983, was also sent to the directors by separate registered post. It is stated that on the advice of the second petitioner, RW-1 also spoke with the first respondent on the telephone and informed him about the board meeting scheduled on October 5, 1983, and that on October 4, 1983, he received a telegram from the first respondent stating that the proposed board meeting on October 5, 1983, is null and void. The stand taken by respondents Nos. 1 to 4 , that the board meeting dated October 5, 1983, is null and void is perfectly correct because the second petitioner who has been removed as director of the company with effect from January 12, 1983, in the eighth general body meeting of the company held on February 15, 1983, cannot have any authority to participate in the alleged meeting on September 27, 1983, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on September 27, 1983, petitioners Nos. 1, 2 and the fifth respondent met and passed a resolution to the effect that the fifth respondent shall also be the managing director of the sixth respondent company with full powers and the first respondent should assist the fifth respondent in the management of the company; that the cheque powers shall be exercised by the fifth respondent or the second petitioner; that the said resolutions were passed by them in view of the bad management of the company by the first respondent and in view of the fact that he was not rendering proper accounts and not holding the meetings; that the work of the company came to a standstill due to the disconnection of electricity; that the minutes books were not being properly maintained and were being kept unauthorisedly with Sri S. Raghuram Murthy, auditor; that the meeting to be held on October 5, 1983, was called for by the second petitioner by notice dated September 28, 1983, sent to the other directors under certificate of posting; that the second petitioner sent the notice by registered post also to respondents Nos. 1 and 2; that the meeting of the board of directors held on October 5, 1983, was attend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tters of the sixth respondent company to the new premises in his name, RW-1 , deposed that in spite of his efforts, the business of the sixth respondent company could not be revived because of the obstacles created by the first respondent and hence, he filed O.S.No.71 of 1984, on the file of the Principal Subordinate Judge's Court, Guntur, against respondents Nos. 1 to 4 and the bank for declaration , for a permanent injunction restraining respondents Nos. 1 to 4 from interfering with the management of the company, for a mandatory injunction directing them to abide by the resolution of the board of directors at its meeting held on October 5, 1983, and other reliefs. The second petitioner as PW-5 deposed that the business of the sixth respondent company could not be revived because of the obstructive tactics adopted by the first respondent, his notice in the newspaper and the non-co-operation of the bank in the management of the company. PW-5 either advertently or inadvertently stated even during the chief-examination that in that suit they could not get any relief and that thereafter he and petitioners Nos.2 and 3 filed the present company petition. 30. As against the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company, has an adverse effect on the conduct of the company's business which has resulted in a complete deadlock or stalemate of the company's business, it is just and necessary that certain directions should be given. It is a factor to be taken into consideration that the complaining parties themselves have contributed to the deadlock and stalemate of the business of the company by passing the resolution dated September 27, 1983, convening the meeting of the board of directors on October 5, 1983, illegally and trying to take possession of the factory premises highhandedly. The evidence is also clear that having failed in their attempt to get any relief in O.S.No.71 of 1984, on the file of the Sub-Court, Guntur, they have filed this company petition. The evidence on record clearly establishes that the parties had irretrievably fallen from each other and their continued collaboration in the management of the company in future is out of the question. 32. It is seen from the evidence on record that it is the first respondent that has commenced the company. It is at his invitation that the fifth respondent joined as a shareholder by purchasing initially 75 shares. The ..... 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