CHITRA VENKATARAMAN, J. - (1.) THIS appeal filed under Section 10F of the Companies Act, 1956 raises the following questions of law: (1) Whether the Company Law Board was right in concluding that the signature of the balance sheet for the year ended 31 -3 -2001 was that of the first appellant? (2) Whether the Company Law Board was entitled to arrive at any such finding without securing expert opinion in this regard? (3) Whether the Company Law Board on this basis was entitled to ignore the several documents produced by the appellants to show the diversion of funds by the respondents 2 to 4? (4) Whether the Company Law Board erred in not restoring the first appellant to his status as Director in the company especially in view of the fact that it had been established that his removal as such was wrongful? (5) Whether the Company Law Board erred in not setting aside the appointment of respondents 3 to 4 as Directors since the same not only altered the structure of the Board but was intended to exclude the appellants from representation in the Board? (6) Whether the Company Law Board erred in failing to note that the respondents were guilty of various acts of oppression and mismanagement? (7) Whether the mere fact of appellants having minority shareholding in the company would justify their not being granted appropriate relief? (8) Whether in the circumstances of the case the Company Law Board was justified in directing the appellants to sell their shares to the respondents?
(2.) THE petitioners before the Company Law Board are the appellants herein. The appellants filed a petition under Sections 397, 398, 402 and 403 of the Companies Act for relief alleging acts of oppression and mismanagement committed by the second respondent A. Arumugam. The petitioners herein are the members of the first respondent -company by name Venture Graphics Private Limited, Chennai, holding 7,500 equity shares of Rs. 10 each aggregating to Rs. 75,000. There are totally 12 shareholders. It is stated that the appellants have more than one tenth of the total number of members and in terms of the provisions of Section 399 of the Companies Act, they are competent to file the petition. The case of the appellants is that the first petitioner/first appellant before the Company Law Board by name Govindaraj was appointed as a Director in the year 1990 in the first respondent company and he was a Chairman ever since then. Apart from him, there were two Directors who were operating bank accounts. Since 1 -8 -1990 under the Board's resolution, the second respondent as a Chief Executive Officer was permitted to operate the accounts. In the year 1995, the second respondent was inducted as an Additional Director in the first respondent -company. Considering the attitude of the second respondent, the two Directors originally appointed resigned in the year 1998. The first petitioner's allegation is that the second respondent had been showing indifferent attitude and had not co -operated with the first petitioner. No Annual General Meetings were convened ever since 1998. No dividend was also given to the shareholders in spite of profit earned by the company. The petitioners alleged that the income and profits were diverted to the second respondent's personal gain. It is also stated that the company had dealings with the three foreign companies viz, Whitter Publications INC, Allen Press INC and Ensoys Markets INC for doing job work in type -setting, data conversion, E -publishing. A sum of 1,87,030.5 had come into the company on the job work done. The second respondent used these funds to form two new companies, viz., Venture Infosys and Venture Acqua. The appellants contended that the wife of the second respondent, the third respondent herein, was allowed to sign the company's papers and given salary and bonus as a Director, although she, in reality, was not a Director. The appellants contended that the second respondent had diverted the funds of the company by abusing his position as a Director. Apart from this, the second respondent had taken personal loans which the company had been directed to pay. The specific allegation of the appellants herein is that apart from diverting business to his concern, the second respondent forged signatures and misused and abused his position for his personal gain. He also attempted to divert the employees who were trained at the company's expenses. Considering these factors, the first appellant called upon the second respondent to convene a General Body Meeting in its letter dated 2 -2 -2002 and called upon him to be transparent in the company's transactions. There was no reply. A notice dated 8 -3 -2002 was sent purporting to convene an extraordinary General Body Meeting on 5 -4 -2002 for the purpose of appointing two persons as Directors, viz., the third respondent, Shobana and the fourth respondent, P. Kumaravel for a period of 5 years from the end of the meeting. It is stated that the third and fourth respondents are the wife and the brother -in -law of the second respondent. The first petitioner sent a reply on 18 -3 -2002 stating that convening of the Annual General Meeting was illegal and there was no Board meeting convened for taking a decision to hold an extraordinary General Meeting. A reply was sent on 28 -3 -2002 by the second respondent defending holding of extraordinary General Meeting. It is stated that in spite of the objection taken, the meeting was held as proposed. The first petitioner attended and recorded his objections to the procedure followed including the election of third and fourth respondents as Additional Directors. The first appellant further states that on 14 -5 -2002 he received a letter from the second respondent stating that the first petitioner had ceased to be a Director from November 2001 onwards. The appellants state that there was no basis to hold that the first petitioner 'ceased to be a Director'. He further stated that if the contention of the second respondent was taken as correct, then the first respondent -company would have only one Director from November 2001, contrary to Article 35 of the Articles of Association, which required minimum of two Directors. The petitioner contended that he was paid remuneration as a Director till February 2002, as such, the removal claim was wholly unsustainable. He stated that a perusal of the records is clearly proved that the contention of the second respondent as to the first petitioner ceasing to be Director was totally incorrect. The first petitioner wrote a letter to the Chief Manager, Indian Bank, Panagal Park Branch Chennai on 8 -5 -2002 informing about removal of office furnitures and other equipments. In reply to the second respondent's letter dated 14 -5 -2002, he reaffirmed his stand that he continued to be a Director and sought for the payment of his remuneration from February 2002. By letter dated 30 -5 -2002, the first petitioner called upon the second respondent for the issuance of certified copies of minutes of the extraordinary General Meeting held on 5 -4 -2002. It is also seen that the second petitioner sent a complaint on 31 -5 -2002 about the threat made by the second respondent's friends to the life of the first petitioner. It is stated that a notice dated 11 -3 -2002 was issued calling upon the second respondent to provide him with access to all the books and records of the company and also to give notices of all Board and General Body Meeting. The petitioners alleged that no reply was received and instead he closed the company and removed the articles from the company. The petitioners contended that the conduct of the second respondent is clearly an indication as to the various acts and oppression and mismanagement, practised the minority shareholders of the first respondent excluded from the management. In these circumstances, an application was filed before the Company Law Board praying that the first petitioner be directed to continue to be a Director of the company, that the third and fourth respondents were not validly elected as Directors of the Company, discharge the second respondent in terms of Section 406 of the Companies Act read with Schedule XI by directing the carrying out of an investigation in relation to the affairs of the first respondent -company.
(3.) THE first and second respondents filed their counter to the allegations. The second respondent admitted that the first petitioner was a Director of the company as per the meeting held on 13 -11 -1989. He was appointed for a period of four years during the meeting held on 28 -12 -1991. Again in the meeting held on 29 -9 -1995 for a period of three years and thereafter again on 17 -8 -1998 for a period of further three years. The first petitioner was holding the position as a whole time Director till November 2001. All the statutory compliances including finalisation of the balance sheet and profit and loss accounts for the year ending 31 -3 -2001 were carried out by the first petitioner only. The respondents denied the allegations that there was no meeting held for the past three years. He stated that AGM was held on 15 -9 -1999, 14 -11 -2000, and 27 -11 -2001 and all these meetings were chaired by that first petitioner. The last of the meeting was held on 27 -11 -2001 to approve the balance sheet and profit and loss accounts of the company for the financial year 2000 -01 and to fix up the date for the next Annual General Meeting. It is also stated that the first petitioner had full access to the records of the company until he retired as a whole -time Director and the financial statements of the company for the year 2000 -01 were signed by the first petitioner. In the circumstances, there was no substance in the first petitioner's contention that he had no access to the accounts. As regards the allegations on the appointment of the third respondent as a Director, the respondent stated that she was instrumental for starting M/s. Venture Graphics (P.) Limited. It is further stated that the third respondent was reappointed as Director of the company at the Annual General Meeting held on 14 -11 -2000. This was chaired by the second petitioner herself. It is stated that she has also signed in the papers in her capacity as full time Director.;