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TMI Blog2017 (10) TMI 1367X X X X Extracts X X X X X X X X Extracts X X X X ..... also ascertain whether the proceeds have been brought into the books of R1 Company. The independent auditor will also update the accounts of the Company from 01.04.2011 onwards till the current date to ascertain the factual and financial position, with the comments, if any loss has been caused to the 1st Respondent Company by the Respondents 2 to 7, and if so, to quantify the same. 2. A Practicing Company Secretary may also be appointed through mutual consent among the parties to verify whether the procedures and the practices required to be followed in compliance to the Companies Act and various other rules have been followed while selling the shares of R2 to R6 together with the sale of the R1 Company's assets to R7. 3. The Practicing Company Secretary may also provide the details regarding shareholding pattern in the R1 and R7 Companies together with the particulars of their Board of Directors at the time when the assets of the Company and the shares held by respondents No. 2 to 6 were sold/transferred to Respondent No. 7. 4. The independent Auditor and Practicing Company Secretary may submit their reports within two months after their date of appointment. 5. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing its registered office at No. 152 and 154, Maraimalai Adigal Salai, Orleanpet, Puducherry 605 001. The said Company was incorporated on 30th October, 1982 having CIN No. U55101PY1982PTC000194. The authorized share capital of the said Company as on 29.09.2014 is ₹ 4,25,00,000/- divided into 4,25,000 equity shares of ₹ 100/- each. The issued, subscribed and paid up share capital of the company is ₹ 3,23,86,000/- divided into 3,23,860 equity shares of ₹ 100/- each out of which 12,180 equity shares of ₹ 100 each was allotted to the second respondent. The petitioners have stated that this was done for consideration other than in cash. The main objects of the Company are as follows: The main objects to be pursued by the company on its incorporation are: 1. To carry on the business of Restaurants, Refreshment rooms hotels, boardings, loading houses, open air booths, motels, seaside rest house. 2. To manufacture and deal in bread, flour, biscuits, pastry, cakes, confectionery and other allied products. 3. To manufacture, prepare and deal in mineral waters of all kinds fruit juices and soft drinks and ice. Particulars of the Second Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of which 17820 was allotted as payable in cash and remaining 12180 equity shares of ₹ 100/- each was allotted for a consideration otherwise than in cash to Late Mr. M.A. Shanmugam in lieu of selling his property being plot of land measuring 52 Kuzhies and 14 Veesams situated at Pudupalayam Village Oreleanpet, Pudupalayam Village, Puducherry together with an unfinished building constructed over the aforesaid properly. It is submitted that the said shares were allotted in favour of Late Mr. M.A. Shanmugam prior to the execution of the Sale Deed for the above said land and building. However, the Company was put in possession of the said lands and it had completed construction activities for setting up the hotel. The petitioners have stated that as per Form No. 2 dated 14.03.1983 this has been amply demonstrated and have filed the same. They have further stated that the Company was formed by the members of the family and hence the same is in the nature of quasi partnership under the guise of the private limited Company and hence the directors of the Company owe a fiduciary duty to the member's of the Company. 3. The aforesaid Late Mr. M.A. Shanmugam died on 06.06.1984 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 2 to 6 can be seen from the very fact that no further shares were offered/allotted to the other members apart from those allotted by Late Mr. M.A. Shanmugam but on the other hand all further shares of the Company were issued either in favour of the second Respondent or his family members, who are Respondent Nos. 3 to 6 herein and such allotment of further shares to 2nd Respondent's family without offering to other family members is per se illegal and is against the provisions of Section 81 of the Companies Act 1956. 6. The paid up equity share capital of the Company as on 31.03.2011, which is the last known balance sheet of the Company, is 3,23,860 equity shares of ₹ 100/- amounting to ₹ 3,23,86,000/-. The shareholding pattern of the members of the Company as on 31.03.2011 is as follows: S. No. Name of the shareholder No. of shares 1. Dr. M.A.S. Subramanian, (Respondent No. 2) 255860 2. Mr. Santhi Subramanian (Respondent No. 3) 30000 3. Mrs. Suganthi Prabhakar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent in person or by letters. 9. The petitioners submitted that the Company being a family business is more in the nature of a quasi partnership and therefore the Respondent No. 2 and 3 the Directors of the Company, who are also members of family entrusted with the responsibility of the managing the affairs of the Company, owe a fiduciary duty towards the other members as the business is run for the benefit of the family and their exists an element of trust among the members of the family that they would be kept well informed about the affairs of the company. 10. The petitioners submitted that they met and discussed with the second Respondent over the phone and also in person and sought details but the second Respondent was evasive and did not provide any details. While things stood thus, the petitioners had reliably learnt that the Respondent Nos. 2 to 6 and Respondent No. 1 represented by the Respondent No. 2 had entered into a secret agreement with Respondent No. 7 to sell the properties of the Company and as a consequences of the same Respondent No. 2 to 6 had executed a Power of Attorney in favour of the Respondent No. 7 company which in turn had mortgaged the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the family at all points of time. The petitioner submitted that the entire properly over which the hotel was built belong to Late M.A. Shanmugam, who has purchased the same for running a hotel in one portion and while running a theatre in the other. It is for these reason 12180 shares were allotted to him during 1983 for consideration other than cash in lieu of selling his property to the Company. It was also the desire of Late M.A. Shanmugam to expand the hotel and to fulfill the desire of Late M.A. Shanmugam, the other family agreed to relinquish their right either in the joint family properties in favour of Late Mrs. M.A.S. Senganiammal or the Second Respondent herein. 13. The act of selling the shares of 2nd Respondent and his family members along with the assets of the Company pertaining to Hotel Mass alone prove that whole deal has been done surreptitiously and with mala fide intention solely to oppress minority shareholders like petitioners and harass them. The Petitioners as shareholders have not received any notice regarding the said sale or any part of the said sale. The petitioners have been totally discarded by the Respondent Nos. 2 to 6. The petitioners were ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both in detriment to the interest of the Company and other family members. By the said illegal actions of the Respondents 2 to 6, the main and only business of the Company has been sold lock, stock and barrel without the knowledge of petitioning shareholders. 16. The petitioners submitted that by the virtue of the aforesaid illegal sale, the substratum of the Company has been completely lost in as much as the Company was founded for the benefit of the family by the Late Mr. M.A. Shanmugam through joint family properties. It is submitted that the Respondent No. 2 to 7 have indulged in the above illegal activities to deprive the petitioners of their legitimate rights and dues. 17. The petitioners submitted that it is common business prudence to sell the assets of the Company at market price which shall generally be over and above book value. On the other hand, Respondent Nos. 2 to 7 herein have chosen to sell the assets of the Company without any authorization at a throw away price to make an illegal monetary gain out of the transaction. In the case on hand goodwill has not been valued. To add insult to injury the Respondents have till date not brought into the Company the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the company Petition is not maintainable in law or facts and it is barred by limitation. They have stated that the petitioners has not approached this Hon'ble Court with clean hands and that the act of petitioners is an abuse of process of court and law and is hit by res judicata. The Respondents have submitted that the petitioner has not given the exact particulars and equity shareholding of the respective respondent. And the 2nd Respondent has denied the averment that 12180 equity shares of R-1 company were allotted to 2nd Respondent without payment being received and has stated that the shares were allotted to the 2nd Respondent for valuable consideration only. It was submitted by the respondents that the petitioners herein do not have any personal knowledge with regard to the incorporation of the Company and about the shares. There were 30,000 equity shares of ₹ 100/- each. The 2nd Respondent herein along with Mrs. Senganiammal and Mr. Thiyagarajan who held 10000 shares respectively each. It was submitted by the respondents that the company did not have any immovable property as claimed by the petitioners herein. The claim of the petitioner with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng beneficial to the Company, the issue of further share capital was approved. The averments in para 6 are matter of records and subject to proof. Hence, not traversed into The respondents have stated that with regard to para 7 of the Petition that there is no violation of Clause 15 of the Articles of Association. Clause 3 is a general proviso regarding share capital and the petitioner be put to strict proof with regard to the averments made in para 8. The Respondents stated that it is necessary to bring to the notice of the Hon'ble Court that the wife of the 1st petitioner Velvizhi and the wife of the 2nd petitioner vandarkuzhali already had filed the suit O.S. No. 3 of 1996 before the Principal District Judge at Pudhucherry, jointly, wherein the issue raised in this petition has been put forth in the suit and the suit ended up in compromise. Similarly, O.S. 68/2014 has been filed by Velvizhi-the wife of first petitioner. Thus, it has been averted in the reply that the present petition before this Hon'ble Court is hit by res judicata. The Respondents stated that they have applied for the certified copies of the documents no sooner the documents are made ready, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have any credence or name in the market. The Respondents denied that there is any requirement for investigation as claimed by the petitioners when the affairs of the Company are transparent and when the sale of moveable and immovable are in accordance with law. The respondents 2 to 6 prayed for to dismiss the petition with costs. In the Rejoinder, petitioners have denied that the present Petition is hit by Res Judicata. The petitioners had stated that the Respondents 2 to 6 have to prove the contention of the petitioners that 12180 equity shares were allotted as fully paid up against the value of land mentioned in the balance sheet and the Respondents 2 to 6 have not produced any document to disprove the manner of allotment of the shares. The petitioners are now given to understand that in C.P. No. 144 of 2000 filed by the Company, the Respondent No. 2 has disclosed only the names of his family members as the shareholders of the Company and withheld the names of the other family members for the reasons best known to them It was stated that the nature of quasi partnership under the guise of private limited Company is for all practical purposes and hence the Directors o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act 1956. The secured loans of the Company were discharged on 13.06.2011 a date prior to the alleged special resolution dt. 25.06.2011. In addition, the 4th petitioner had filed an application under RTI Act filed by the 2nd Respondent with the election commission during 2006, 2011 and 2016 Assembly Elections to verify the claims made by R2. The 4th petitioner paid the requisite amount and obtained the copies of the affidavits filed by R2 with the Election Commissioner for the three assembly elections referred to above. Based on this, it is seen that there was no disclosures about the unsecured loan given to the Company, the details of assets, it was further revealed that the R2 did not show the Company asset as his personal asset. This according to the petitioners establishes the fact that R2 held the asset as a trustee on behalf of the Company and the same was sold by the Respondents for their personal gain and as stated that the documents listed in the CA were not available to them at the time of filing CP. In CA No. 15/2017 in TCP No. 157/2016 the applicants/respondents Dr. M.A.S. Subramanian 5 others have again reiterated the earlier statements made in their reply and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held it as a trustee who committed breach of trust by selling the assets of the Company by treating it as his personal asset and that the entire sale has taken place in a hurriedly manner for an illegal monetary gain and prayed to dismiss the above application with exemplary cost. The Respondents/petitioners have sought to set aside the sale of 3,15,860 equity share of ₹ 100/- each sold by the applicants/Respondents 2 to 6. In this connection, it is seen that the applicants/Respondents have not adduced any material evidence to prove that the issue of share capital was raised in the Board Meeting and the same was approved as being beneficial to the R1 Company. The applicants/Respondents have stated that there is no violation of Clause 15(3) of the Articles of Association but this has not been proved as could be seen from reading of the relevant provisions contained in the Articles of Association. Moreover, before selling the shares to R-7, the shares should have been offered to the other shareholders. On their refusal to exercise the right only the shares should have been allotted to the Respondents. But no records have been adduced which will substantiate the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed was held in trust by the R2. The Respondents have also not submitted a Special Resolution with the approval to sell the Company's properties by special resolution approved by AGM/EGM. In view of the fact, that it has been established that the property in question pertains to R1 Company. The sale consideration has not been shown by the Respondents 2 to 6 to have been debited to the books of accounts of R1 Company. In view of this, we make the order as follows:- ORDER In view of the facts discussed above, it is clear that the Respondents 2 to 6 have sold their entire shareholding to the R7 Company. They have also sold the properties shown in the last available balance sheet for the year 31.03.2001 of the 1st Respondent Company. All these points have been, at length, discussed above. Both the petitioners and the Respondents have not produced any documents or the accounts of the R1 Company for the subsequent years which could clearly indicate clear financial position of the R1 Company. To enable this Tribunal to arrive at a decision based on facts, it is hereby ordered; 1. That an independent Auditor may be appointed, through mutual consent among the parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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