K.K.Balu, - (1.) THE petitioners collectively holding in excess of 10 per cent. of the issued and paid-up capital of M/s. Janatha Tile Works Ltd. ("the company"), aggrieved on account of certain acts of oppression and mismanagement in the affairs of the company, have invoked the jurisdiction of Sections 397 and 398 of the Companies Act, 1956 ("the Act"), seeking the following reliefs: (a) to stay the annual general meeting of the company for the year 2005-06 ; (b) to order for a free and fair holding of the annual general meeting for the year 2005-06 ; (c) to set aside the 35th annual general meeting held on February 22, 2006 ; and (d) to direct the company to settle all its statutory dues.
(2.) Mr. A.R. Ramanathan, learned counsel, while initiating his arguments in support of the petitioners, submitted as under: The first respondent-company incorporated as a private company became public limited and is engaged in the manufacture of roofing and flooring tiles, firebricks and other articles of clay. The company's activities are not being carried out in a prudent manner, for the past one decade. The statutory dues on account of PF, ESI contribution, sales tax, etc., are not being paid within the stipulated time. The Revenue Recovery Office and EPF organisation have initiated recovery proceedings by attaching the properties of the company for recovery of the sales tax and EPF arrears, respectively. The company has sold some of its immovable properties and is attempting to alienate the remaining immovable properties. The employees have received a notice from the management of the company, invoking the provisions of Section 9A of the Industrial Disputes Act. The welfare measures extended by the Government are not being passed on in favour of the employees on account of the mismanagement in the affairs of the company. The employee-shareholders are not permitted by the management to exercise their franchise according to their will at the general meetings convened by the company and thereby the directors are not conducting the elections in a free and fair manner, towards the growth of the company. If the elections are held by way of secret ballots, the members will be able to cast their votes in a prudent manner. Petitioners Nos. 1 to 3 have filed their nomination for the office of director at the annual general meeting held on February 22, 2006, but their nomination papers have been rejected for nonpayment of a sum of Rs. 500 under Section 257(1) of the Act. At the same time the company failed to implement the aforesaid provisions in respect of the present directors, despite the fact that no fee as prescribed under Section 257(1) has been paid by them. Petitioners Nos. 1 to 3, on the advice of the Registrar of Companies, Kerala at Kochi, in terms of his communication dated April 18/20, 2006, lodged a criminal complaint against the directors of the company under Section 621(1) of the Act, for wrongfully rejecting the nomination of petitioners Nos. 1 to 3. Smt. R. Kalyani, learned practising company secretary, while opposing the company petition, submitted: The action of the petitioners is malicious and vexatious. The reliefs sought by the petitioners are not maintainable either in law or on facts. The company became a public company in the year 1970 with its workers having majority shares, who have been invariably in the management of the company. The statutory dues on account of provident fund and ESI increased to several lakhs of rupees, which ultimately led to the attachment of the company's properties by the PF authorities. However, the payment towards the PF has been regularised since January, 2004, inter alia, by sale of some of the properties of the company. The present outstanding balance under PF dues account, accounting for only Rs. 39,11,329 represents penal damages. The gratuity amount due to the employees is being paid to the outgoing employees directly from the company's funds in instalments and only in a few cases the gratuity has not been paid. The present management comprising of eight directors out of which seven are employees of the company, is taking sincere efforts for settlement of the gratuity dues. The company has been regularly remitting the ESI contribution to the authorities, since October, 2005. The employees are enjoying the benefits under ESI scheme till date. The company has taken steps before the Government of Kerala for waiver of sales tax arrears of only Rs. 5.55 lakhs. The company is operating in losses since the year 1987 and the estimated losses during the year 2005-06 accounted for Rs. 18.5 lakhs. The liabilities of the company have been reduced from Rs. 1.29 crores to Rs. 76 lakhs during the year 2005-06. As the company is being managed by the employees as shareholders, it has been suggested to the appropriate authority under the Industrial Disputes Act, alternative service benefits and accordingly service benefits will appropriately be altered for the benefit of the workers concerned. The company is taking adequate steps for alleviation of the difficulties faced by the employees-shareholders, in spite of the stiff opposition and problems brought out by the petitioners.
(3.) I have considered the pleadings and arguments advanced for the parties. The main grievances of the petitioners in the affairs of the company on account of the respondents are relating to non-payment of statutory dues, improper conduct of the annual general meetings, illegal election of directors and illegal exclusion of petitioners Nos. 1 to 3 from the office of director. Before proceeding further, I deem it fit to deal with the scope of the provisions of Sections 397 and 398 vis-a-vis the charges of the petitioners levelled against the respondents.;