K.K. Balu, Member - (1.) THE petitioner holding 33-1/3 per cent. shares in Doshi Time Industries Private Limited (hereinafter called "the company") has filed this petition under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as "the Act"), alleging various acts of oppression and mismanagement in the affairs of the company and seeking the following reliefs : , (i) to direct inspection of the books of account of the company ; (ii) to declare that the petitioner and second respondent are the only directors of the company ; and (iii) to direct allotment of 9,85,400 shares of the face value of Rs. 10 each in favour of the petitioner or his nominees and 9,75,000 shares in favour of the second respondent or his nominee(s).
(2.) The alleged acts of oppression and mismanagement relate to the following : (a) non-convening of board meetings and the first annual general meeting of the company ; (b) non-allotment of shares of the company in favour of the petitioner ; (c) functioning of the second respondent as chairman of the company without approval by the board of directors ; (d) functioning of the third respondent as director, though she ceased to be a director ; (e) exclusion of the petitioner from the management of the company ; (f) alleged acts of the second and third respondents in respect of the management and affairs of the company in a manner prejudicial to the minority shareholders and against public interest ; (g) manipulation of the records and documents of the company to the detriment of the petitioner and misuse of the funds and assets of the company. V. Ramachandran, senior advocate, appearing for the petitioner, while initiating his arguments, submitted that, the company was incorporated in January, 1997, with a paid up capital of Rs. 3,000 as a family company consisting of the petitioner, his brother--the second respondent and respondent No. 3--the wife of respondent No. 2, each holding 100 equity shares of Rs. 10 each in the company. The main objects of the company are to manufacture, assemble, market, service and export watches and take over the assets and liabilities of Doshi Time Industries, a partnership firm consisting' of the petitioner and second respondent as partners. The company entered into a joint venture agreement (JVA) with Citizen Watches Co. Limited and Citizen Trading Co. Limited, both body corporates having principal place of office in Tokyo, Japan to incorporate a joint venture company. Pursuant to the JVA between the parties, a company under the name and style of Citizen Watches (India) Limited was incorporated in April, 1997, with the object of manufacturing watches. The JVA provided for allotment of 49 per cent. shares in the J. V. company to the first respondent-company. The petitioner, respondents Nos. 2 and 3 were allotted 9 (nine) shares each in Citizen Watches (India) Limited as subscribers to the memorandum and articles of association. Further, the company advanced an aggregate sum of Rs. 1,96,12,000 to Citizen Watches (India) Limited for the purpose of allotment of shares to the company in accordance with the JVA, out of which 4,90,000 shares of the face value of Rs. 10 each were allotted in the name of the company and the balance of Rs. 1,47,12,000 is held by Citizen Watches (India) Limited as share application money pending allotment in favour of the company. Shri Ramachandran reiterated that at the time of incorporation of the company, it was agreed between the petitioner and the second respondent that they would contribute equally to the share capital of the company for investment in the JV company and that they would be equal partners. The third respondent was brought only as a nominee of the second respondent. The petitioner has considerable experience in the watch industry business. The second respondent in due course of time dissociated active connection with watch business ; entered into the business of real estate and is now totally involved in real estate business. The petitioner is solely responsible for the successful implementation of the joint venture business. Because of the understanding" of equal partnership, the petitioner contributed Rs. 98,54,000 and the second respondent Rs. 97,58,000 towards allotment of shares of Citizen Watches (India) Limited in the name of the company. The second respondent has been in charge of the affairs of the company. The company does not have any active business excepting the finalisation of the joint venture proceeding, securing the shares allotted and attending the matters connected with the JVC. The petitioner was actively involved in the watch business and was under the bona fide belief that the affairs relating to the company were properly carried on by the second respondent. However, it came to light that the second respondent did not regularly convene the board meetings and deprived the petitioner from the day-to-day affairs of the company. The first annual general meeting of the company though ought to have been conducted on or before September 2, 1998, was never conducted resulting in retirement of the third respondent as a director of the company. Though the petitioner contributed Rs. 98,54,000 no shares were allotted. On the other hand, the second respondent falsified the records and filed Form No. 2 on July 29, 1998, before the Registrar of Companies reporting that 7,15,300 shares were allotted at 2,38,433 shares each in favour of the petitioner and respondents Nos. 2 and 3. Shri Ramachandran pointed out that by allotting equal number of shares, the understanding of equal shareholding between the petitioner group and respondent group has been infringed. Thus, now the petitioner is having only one-third of the shares allotted against the understanding between the parties that each group will have 50 per cent. shares in the company. Further Form No. 2 lacked details. The annexure said to have been filed with Form No. 2 was not filed along with Form No. 2. This was deliberately omitted by the second respondent with a view to secure an undue advantage to himself and with a view to oppress the petitioner, mismanage the company and misuse the funds and assets of the company. The second respondent was never appointed as chairman of the company by the board of directors, but he has projected himself as the chairman of the company. The second respondent has excluded the petitioner from the management of the company and he is holding the reins of the company and controls its affairs between himself and his wife as directors, though the latter ceased to be a director. The intention of the second respondent has been to exercise control over the company. The board meetings and annual general meeting were never convened and the minutes of the reported board meetings and annual general meeting are fabricated. The petitioner never attended any of the alleged meetings. The respondents have not produced any attendance register to substantiate their claim.
(3.) V. Ramachandran drew our attention to the averments made in paragraph 7 of the counter statement filed on behalf of the respondents to show that it was agreed between the parties that the same principles of profit ratio which applied to the Doshi Time Industries, partnership firm, were to be applied in the company, which took over Doshi Time Industries. The petitioner was not a party to the proceedings of the board meeting allotting the shares in favour of the petitioner as well as respondents Nos. 2 and 3. Further the company has also appointed two additional directors allegedly in a board meeting held on December 22, 1998, without the knowledge of the petitioner. He further submitted that the provisions of Section 81 of the Act are not attracted especially when two years had not expired from the date of allotment of shares. While concluding his arguments, Shri Ramachandran submitted that the JVA provides for two nominees of the company on the board of Citizen Watches (India) Limited which establishes the fact that there should be equal representation on the part of the petitioner and second respondent in the affairs of the company. There is every possibility of refusing nomination of the petitioner in the joint venture by the board of the company and, therefore, the petitioner should be allotted 50 per cent. of the shares in the company in accordance with the understanding between the parties. The acts of the second and third respondents in respect of the management of the affairs of the company are prejudicial to the interest of the company and the minority shareholders and against the public interest. Moreover, the joint venture will also be unfairly affected. The facts and circumstances justify the making of a winding up order as envisaged under Section 397, but to wind up the company would unfairly prejudice the members and accordingly he prayed for the reliefs sought in the petition.;