S.Balasubramanian, - (1.) THE petitioners collectively claiming to hold 50.33% shares in DSM Healthcare Private Limited (the company) have filed this petition under Sections 397/398 of the Companies Act, 1956 (the Act) alleging various acts of oppression and mismanagement in the affairs of the company.
(2.) The facts of the case are that the company was incorporated by the 2nd and 3rd respondents in 1997. The company is(was) engaged in the manufacture of disposable springs for medical use. The present paid up capital, according to the petitioners, is Rs. 153 lacs while according to the respondents it is Rs. l52.200 lacs. The petitioner joined the company in the year 2002 with an investment of Rs. 24 lacs in equity shares and a sum of Rs. 1 lacs as unsecured loan. Thereafter, the 1st petitioner invested a further sum of Rs. 52 lacs against which 26% shares in the company were allotted. In addition, he had also given a loan of Rs. 57 lacs to the company. The 1st petitioner was appointed as an additional director in June, 2004. The 1st petitioner and the 2nd respondent entered into an agreement on 4.6.2004 by which the 1st petitioner was to be the sole signatory to the bank operations. In a board resolution dated 10th May, 2004, the board approved that the 1st petitioner alone would singly operate the bank account, the approval of which was withdrawn within a few days thereafter. Disputes and differences have arisen afterwards resulting in filing of this petition. Shri Thawani, Advocate, appearing for the petitioners submitted: The 2nd respondent is guilty of series of illegal acts. In Needles case, the Supreme Court has held that series of illegal acts would amount to acts of oppression. Initially, the 2nd respondent, by misrepresenting the financial health of the company, induced the petitioners to invest funds in the company by presenting an inflated balance sheet as on 31st March, 2003 wherein it showed an amount of over Rs. l07 lacs as due from debtors which was completely false. Likewise, the amount due to the creditors was much higher than the actual. By this fraudulent representation, the 2nd respondent induced the petitioners to invest money. Even afterwards, to protect their investment, in May 2004, at the request of the 2nd respondent, the petitioners invested further funds. Finding that the company was still in need of funds, with a view to have a check on the financial affairs of the company, the 1st petitioner insisted that he alone should operate the bank accounts of the company which demand was also accepted by the 2nd respondent. Thereafter, by a board resolution dated 10.5.2004, the 1st petitioner was made the sole authorized signatory to operate bank account. However, in violation of the said resolution, by a further illegal act, without notice to the petitioners, the board had purportedly passed another resolution on 2nd August, 2004, canceling the authorization given to the 1st petitioner and the 2nd respondent was made the sole authorized signatory. Thus, the only manner in which the petitioners could have ensured proper financial management was nullified by the 2nd respondent, with a view to siphon of the funds of the company. Even though, the respondents claim that the agreement dated 11.6.2004, having not been made as a part of the Articles, is not binding on the company, yet, vesting the power to operate the bank account by a board resolution and suddenly taking away the same in an illegally held board meeting is nothing but a grave act of oppression. Further, both the 1st petitioner and 2nd respondent agreed to have an investigation into the financial affairs of the company by appointing an independent auditor to carry out a special audit. In this audit report, the auditor has specifically pointed out that the company had inflated the outstanding dues from customers/dealers/agents as Rs. 136 lacs as on 31.3.2004 which according to the auditors, could not be more than Rs. 30-40 lacs. Likewise, the auditor has also pointed out that there was a huge difference between the dispatch and billing of syringes valued at around Rs. 86 lacs. There is no explanation from the 2nd respondent in regard to these discrepancies obviously leading to the presumption that the 2nd respondent had siphoned of the funds of the company. Even though the respondents contend that on the basis of the report of the auditor, no allegation of siphoning of funds could be established without documentary evidence, yet, the fact is that the petitioners have already furnished necessary documents to Delhi Police in this regard.
(3.) THE learned Counsel further submitted: With a view to streamline the working of the company, the petitioners requisitioned an EOGM by a notice dated 17.6.2004 and since the respondents did not convene the said meeting, by a notice dated 19.8.2004, the petitioners themselves convened the meeting on 27.8.2004. None of the respondents attended the meeting in spite of repeated communications. This would indicate that they are not interested to settle the disputes within the domestic forum. Further, in spite of the directions of this Board to call for a shareholders' meeting on 6.5.2005 and place the accounts for the approval of the members, the same was not done by the respondents and the Bench Officer who was appointed as the Observer has also reported accordingly. Thus, the respondents do not even care for the directions of this Board. THE respondents held a meeting of the shareholders on 4.9.2004 without notice to the petitioners wherein the statutory auditor, Shri Rohit Dhar was removed and in his place one Shri A.K. Singh was appointed as the statutory auditor without following the procedure as per Sections 224 and 225 of the Act. Inspite of the fact that in that meeting, it was decided to call for an EOGM on 30.9.2004, no notice was given to the petitioners. Even though the respondents have produced a copy of the envelop in which notice was allegedly sent, the envelop actually contained only blank papers. In that alleged meeting, the company is purported to have adopted the accounts for the year 2003-2004 which had been signed by the new statutory auditor whose appointment itself is invalid. According to the respondents themselves, the books of accounts which were in the custody of the petitioners were handed over to the respondents only in March, 2005. If that is so. accounts could not have been finalized, audited and approved in the AGM.;