Rajeswara Rao Vittanala, Member - (1.) The Company Petition bearing C.P. No. 9/241/HDB/2016 is filed by Mr. M. Venkat Rao, under Sections 397, 398 of Companies Act, 1956 R/w. 402 and 403, and Sections 241 to 244 and other applicable provisions of the Companies Act, 2013, by inter-alia seeking the following directions; a) to restrain the Respondents No. 2 &3 or their men or agents etc., in transferring/transmitting/alienating/encumbering assets of the 1st Respondent Company to any person without the consent of the Petitioner in writing and after following due process of Law; b) to restrain them from removing him from the Board of First Respondent Company as long as he holds shares in the Company; to cancel sale deeds bearing Nos. 2785 and 2786 both dated 17.02.2014 executed by the Respondent No. 1 Company under the hand of the 3rd Respondent on 17/02/2014 and registered on 19.02.2014; c) to direct the Respondents 2 and 3 not to interfere in the affairs of the 1st Respondent Company in view of the oppression and mismanagement of affairs of the 1st Respondent Company and siphoning of the funds of the Respondent No. 1 Company by Respondent No. 2 and 3 etc.
(2.) Before adverting to various disputes raised in the Company petition, it is necessary to mention briefly, history of case leading to filing of earlier and present Company petitions; (a) M/s. Emjay Industries Private Limited (hereinafter referred to as the "1st Respondent Company") was incorporated under the provisions of the Companies Act, 1956, on 11th January 1974 with the Registrar of Companies, Andhra Pradesh, Hyderabad in the name and style of M/s. Ampro Food Products Private Limited, and subsequently the name was changed to M/s. Ampro Industries & Real Estates private Limited vide fresh certificate of incorporation dated 04.10.1991. The 1st Respondent Company had purchased land to an extent of 20 acres and buildings together with Biscuit manufacturing machinery as one unit in UPPAL Industrial Development Area bearing Plot No. A1 & A2, IDA, UPPAL, R.R. District, from the High Court of Bombay as per orders dated 23-04-1980 Company Application No. 196 of 1980 in Company Petition No. 355 of 1973 with an intention to carry on the business of manufacturing of biscuits. Initially, the main object of Company was to manufacture biscuits, it was later amended to include 'Real Estate activities including lease of properties in the year 1991. The 1st Respondent Company was initially incorporated by Mr. M. Janardhana Rao, the second Respondent herein and his brother Mr. Kishan Rao and they are signatories to the Memorandum, each holding 10 equity shares of Rs. 100/- each. Subsequently, by way of family settlement, the second respondent was given 1st Respondent Company, and thus, he came to hold and control over the affairs of the Company. Subsequently, the second respondent has allotted shares to his three sons namely, Mr. M. Venkat Rao (petitioner herein) Mr. M. Rajasekhar (third respondent) and Mr. M. Srinivasa Rao (Respondent No. 21), who is not a party to this petition. The petitioner was only 13 years old boy, when the Company was incorporated. There is no dispute with regard to share holding of father and three sons (i.e. 19.7%, 31%, 18.29% and 31 % respectively. However, the petitioner is bent upon raising several disputes, and never agreed to settle the issues amicably, though the then Company Law Board (CLB) in earlier petition i.e. CP No. 84 of 13, and also this Tribunal made several efforts to resolve the issue amicably, since it is purely a family dispute that too with regard to sharing of remaining properties. Hence, this Tribunal is called upon to adjudicate the issues raised in the petition. It is to be mentioned herein, that founder of 1st Respondent Company, and the second respondent, who is now aged about 85 years, has advised the petitioner to withdraw the present petition and leave this issue to him to settle disputes among his sons, since he alone established and developed the Company. The father of petitioner has conveyed the said wish to the Tribunal through his counsel. This Bench, in order to resolve issue amicably has made several efforts by adjourning the case several times and in fact ascertained details of remaining properties, immovable and movable and liabilities of the Company from both the parties. However, the petitioner did not agree for the said proposal of his father. We have also perused all proceedings of CLB in earlier case filed by the petitioner. The petitioner is selectively choosing the litigation against his family members, and in the long history of more than 4 decades of the Company, he is raising issues since last five years or so, even though so many financial transactions have taken place in the Company. (b) Thereafter, the main business of manufacturing biscuits was never recommenced. In the interregnum, the 1st Respondent Company had sold land to an extent of 7 acres situated at Plot No. A1 & A2, IDA, UPPAL, R.R. District, and settled its labour dues and some of its creditors. So ultimately, only balance land to an extent of 13/10.56 acres, buildings and some machinery situated at Plot No. A1 & A2, IDA, UPPAL, R.R. District remains, which is a prime dispute here. Apart from this land, there is an admitted liability of Company to an extent of more than Rs. 22 crores. (c) Earlier, the petitioner has filed a case bearing C.P. No. 84 of 2013 before the then Hon'ble Company Law Board, Chennai. The same was transferred to this Bench on its constitution, and it was re-numbered as TP. No. 105/HDB/2016. In the course of hearings, Mr. D. Krishana Rao was also appointed as a mediator by CLB to make an effort for the settlement of the dispute, with consent of all parties involved. However, the issue could not reach finality, and thus it was kept pending before the CLB and finally transferred to this Bench. Since, several developments took place in the case after its institution, it required amendment and then replies by other side which would consume lot of time, the Petitioner ultimately had withdrawn the said petition with a liberty to file a fresh comprehensive Petition on the same cause of action. Since the request of withdrawal was not opposed by the Respondents, the Tribunal permitted the Petitioner to withdraw CP No. 84 of 13 by an order dated 1st September, 2016 by granting liberty to the petitioner to file a comprehensive fresh petition for the same cause of action. Accordingly, the present Company Petition is filed and the same was listed before this Bench on various dates viz 6/10/2016, 24/10/2016, 23.11.2016, 05.01.2017, 24.01.2017, 25.01.2017, 06.02.2017, 7.02.2017, 8.02.2017, 16.02.2017, 02.06.2017, 12.06.2017.
(3.) Now, brief contents/allegations/assertions, as raised in the Company petition, are as follows: (a) As stated supra, M/s. Emjay Industries Private Limited (hereinafter referred to as the "1st Respondent Company") was incorporated under the provisions of the Companies Act, 1956, on 11th January 1974 with the Registrar of Companies, Andhra Pradesh, Hyderabad in the name and style of M/s. Ampro Food Products Private Limited and subsequently changed the name to M/s. Ampro Industries & Real Estates private Limited, vide fresh certificate of incorporation consequent upon change of name dated 04.10.1991. The Company had immediately changed the name of the company to M/s. Ampro Industries Private Limited vide fresh certificate of incorporation consequent upon change of name dated 20.12.1991 and finally changed its name to the present name M/s. Emjay Industries Private Limited vide fresh certificate of incorporation. Its Registered Office is situated at 2nd Floor Unit # 210, Amrutha Villa, Raj Bhavan Road, Somajiguda, Hyderabad - 500082. (b) The Authorized Share Capital of the 1st Respondent Company is Rs. 1,00,00,000/- (Rupees One Crore) divided into 1,00,000 (One Lakh only) Equity Shares of Rs. 100/- each. The present paid up Capital is Rs. 45,37,000/- (Rupees Forty Five Lakh and Thirty Seven Thousand only) divided into 45,370 (Forty Five Thousand Three Hundred and Seventy only) Equity Shares of Rs. 100/- each. (c) The main object of the Company, at the beginning was to acquire and take over the business, now being carried on by Ampro Food Products, Hyderabad etc. (d) The 2nd Respondent is a Director and holds 8,940 equity shares (i.e.) 19.7 %, the 3rd Respondent is also a Director and member who holds 14,065 equity shares (i.e.) 31 % shareholding in the 1st Respondent Company. Both the 2nd and 3rd Respondent are holding 23,005 equity shares (i.e.) 50.7 % of the shares (e) The 4th Respondent is Oriental Bank of Commerce, one of the two bankers of 1st Respondent Company. The 5th Respondent is City Union Bank, the other banker of 1st Respondent Company. The 6th Respondent is M/s. Venkateshwara Ready Mix Concrete, a partnership firm to which the 2nd and 3rd Respondents entered into lease agreement (registered) and negotiated to sell the assets of the 1st Respondent Company without the approval of the Board of Directors of the 1st Respondent Company. (f) Respondents 7 to 10 are the purchasers of the impugned sale of land to the extent of 5898 sq.yrds. on 17.02.2014. They conspired with Respondents 2 & 3 while acquiring the property of 1st Respondent Company without proper authority. Respondent No. 11 is Telangana State Industrial Investment Corp. Ltd. (TSIIC) formerly known as Andhra Pradesh Industrial Investment Corp. Ltd. (APIIC). The impugned land being industrial land is under the purview of TSIIC, who is responsible for sub-division, mutation and responsible for collection of statutory dues in respect the land belonging to 1st Respondent company. (g) Respondents No. 12 to 20 are the entities to whom Respondents 2 & 3 claims to have paid money out of the proceeds of impugned sale of land on 17.02.2014. Respondents 2 & 3 filed an affidavit on 12.08.2014 and mentioned these Respondents and claimed they have received crores of rupees from the company. (h) Respondent No. 21 is the other shareholder and brother of the Petitioner holding 8300 shares (i.e. 18.29%). Respondents No. 22, 23 & 24 are the officers of Respondent No. 4 bank who are instrumental and responsible for willful disobedience of the order dated 20.03.2014 of Hon'ble Company Law Board. Respondent No. 25 is the illegal occupant of the lease premises, earlier occupied by Respondent No. 6. Respondent No. 26 is the statutory auditor, who without being properly appointed, certified and gave the audit report for the years 2008-09, 2009-10, 2010-11 and 2011-12. (i) The 1st Respondent Company was incorporated with the 2nd Respondent and his brother Mr. Kishan Rao, being the signatories to the Memorandum, each holding 10 Equity shares of Rs. 100/- each. Thereafter, by way of family partition between the 2nd Respondent and his brother Mr. M. Kishan Rao, the 1st Respondent Company was given to the 2nd Respondent. Pursuant, to the said partition, the 2nd Respondent came to have a hold and control over the affairs of the 1st Respondent Company. Thereafter, the 2nd Respondent had allotted shares to his family members as the 1st Respondent Company is a closely held family company. The shareholding pattern of the 1st Respondent Company as on date is as follows:- (j) The Petitioner states that, the 1st Respondent Company had purchased land to an extent of 20 acres and buildings together with biscuit manufacturing machinery as one unit in UPPAL Industrial Development Area bearing Plot No. A1 & A2, IDA, UPPAL, R.R. District, from the High Court of Bombay as per orders dated 23-04-1980, Company Application No. 196 of 1980 in Company Petition No. 355 of 1973, with an intent to carry on the business of manufacturing of biscuits. The 1st Respondent Company carried it only till 31.03.1996. Thereafter, the factory was shut down due to unforeseen labour unrest and labour problems. In the interregnum, the 1st Respondent Company had sold land to an extent of 7 acres situated at Plot No. A1 & A2, IDA, UPPAL, R.R. District, and settled its labour dues and some of its creditors. (k) It is alleged that the 1st Respondent Company's Plot No. A1 & A2, at IDA, UPPAL, R.R. District, was illegally given on lease to M/s. Venkateshwara Ready Mix Concrete, by way of a lease deed dated 06.08.2011, letting out land to an extent of 2.66 acres equivalent to 12,875 square yards out of the remaining 13 acres for a consideration of Rs. 2,70,000/- as rent per month, the lease was for a period of 7 years much below the then prevailing rental value. The 2nd & 3rd Respondents had clandestinely let out the property of the 1st Respondent Company without a valid Board Meeting and had received a security deposit of Rs. 16,20,000/- during month of July 2011. The said deposit was appropriated by the 3rd Respondent, who had transferred the same to his personal account without the knowledge of the Petitioner on 22.07.2011. Thus, the 3rd Respondent with connivance with the 2nd Respondent had siphoned off the lease deposit in deprivation of the monies to the 1st Respondent Company. The illegal lease of 2.66 acres of the 1st Respondent Company's land for lesser rental value has diminished the share value of the company and the siphoning off the security deposit of Rs. 16,20,000/- by the 3rd Respondent has deprived the 1st Respondent Company its revenue. (l) The Petitioner further alleges that, the 2nd & 3rd Respondents in order to siphon off the security deposit of Rs. 16,20,000/-, clandestinely deposited the said money in the current account bearing No. 10411010007420 with the 4th Respondent without the proper authorization from the Board. The 2nd Respondent is responsible for convening the Board Meetings and that no Board Meetings were convened and no notices of Board Meetings were sent and that fabricated resolutions were being circulated to the bank and that a sum of Rs. 20,00,000/- has been siphoned off to the account of the 3rd Respondent which resulted in misappropriation of the monies due to the 1st Respondent company. The Petitioner being a Director, is entitled to inspect the books of the 1st Respondent Company under section 209(4) and sought the 2nd and 3rd Respondents to produce the records and accounts sought for by the Petitioner for inspection on 01.08.2011. (m) The Petitioner further states that he had approached the 2nd Respondent seeking financial support from the 2nd Respondent for his daughter's wedding. Accordingly the board of the 1st Respondent Company authorized the Petitioner to negotiate, sell and to execute the sale documents for an extent of 5900 sq. yards of property situated in Survey No. 1, in Plot No. A1, IDA Uppal. The board also authorized the Petitioner to utilize Rs. 75 Lakhs as advance to be used for the Petitioner's daughter's marriage. Accordingly the Petitioner had executed two separate sale deeds one for 4861 sq. yards and the other 1039 sq. yards for the total consideration of Rs. 7,43,18,500/- by way of two sale deeds both dated 04-07-2013 bearing Documents Nos. 12527/13 and 12147/13 respectively, for which the Petitioner had received the advance of Rs. 75 Lakhs by way of two cheques bearing No's: 000101 and 000104 dated 02/05/2013 of Rs. 50,00,000/- and Rs. 25,00,000/- respectively. After execution of sale, possession was handed over to the purchaser. The sale consideration received is tabulated below: (n) The Petitioner states that, on 05.07.2013, the Petitioner had been to the 5th Respondent Bank to deposit the pay orders in the 1st Respondent Company's account. The Petitioner states that, on the Petitioner depositing a pay order for Rs. 2,00,00,000/- (Two Crores), the Manager of the 5th Respondent bank called on the Petitioner and informed the Petitioner that the account of the 1st Respondent has been frozen and returned the pay order to the Petitioner after collecting the deposit slip. After several correspondence, the 5th Respondent by a letter dated 19.07.2013 had informed the Petitioner, that they had received a board resolution from the 1st Respondent company to freeze the debit transactions. Based on the above, the 5th Respondent had frozen the debit transactions and had enclosed letters dated 05.07.2013 and 18.07.2013 addressed by the 2nd Respondent to the 5th Respondent along with the circular of resolution dated 18.07.2013. (o) The Petitioner states he had requested the 2nd Respondent to call for the board meeting immediately to discuss about the utilization of the sale proceeds and to deposit in the bank and further pointed out that the failure of the 2nd and 3rd Respondents would compel the Petitioner to call for the board meeting inviting all the Directors. The Petitioner's request to call for the board meeting was neither acceded nor refused but the 2nd and 3rd Respondent shied away from replying to the said request. (p) The Petitioner alleged that the Respondents 2nd and 3rd have not only conducted the affairs of Company, in a manner prejudicial to the interests of the 1st Respondent Company, but also towards the other members including the Petitioner. The Petitioner therefore states that, circumstances exist justifying the winding-up of the Company under Sec. 433(f) of the Companies Act. However it unfairly prejudices the interest of Petitioner and other shareholders of the Company. Therefore, the Petitioner has filed the present petition by seeking the relief as sought for. The petitioner alleges many acts of oppression and mismanagement on the part of the Respondents, which are serious, continuous and are completely against the interests of the 1st Respondent Company and its shareholders. If the Respondents are permitted to usurp control in the manner they are purporting to do, the Petitioner would suffer immense loss and injury. (q) It is alleged that by continuing their oppressive acts, Respondents No. 2 & 3 on one hand not only diverted crores of rupees to their personal accounts and group entities, but deliberately not discharged the direct creditors of the company, obviously with an ulterior motive. He has given the following list of Creditors: 1. Mrs. B. Neerajana Reddy 2. Mrs. K. Anita 3. Sri. K. Sree Rama Reddy 4. Mr. K. Vijay 5. Mrs. K. Puspha Leela 6. Mrs. D. Harsha Reddy (r) Hence, it is just and proper for Respondents No. 1, 2 & 3, should on priority discharge their duty as genuine creditor of the company without further waste of time. In addition to the above, petitioner himself has brought Rs. 1,77,45,000/- by way of loan to the company on different dates. All these loans are deposited with the company's bank account by the petitioner with the approval of the company during the year 2009 to 2011 and were utilized by the company. These credits are duly reflected in the company's bank account. Respondents No. 2 & 3 are refusing to return this loan along with interest to the petitioner. (s) It is contended that the Petitioner, Respondents No. 2, 3 and 21 are the shareholders of the Company. The Petitioner; Respondents No. 3 & 21 are the sons of Mr. M. Janardhan Rao (2nd Respondent). However, Petitioner, Respondents No. 2 & 3 are only Directors of the Company. Therefore, it is a family Company and that too a private Company. Hence, principle of partnership shall be applicable in the affairs of the Company. It is asserted that the above facts would reveal Respondents No. 2 & 3 are conducting the affairs without "at most good faith". The conduct of Respondents 2 & 3, as explainedshows that they have not acted in the true spirit of partnership and in the interest of justice. Hence, the petition may be allowed as prayed for, as winding up of Company, though it is justifiable, would unfairly prejudice the petitioner and therefore, continuation of company is in the best interest of all the members.;