Rajeswara Rao Vittanala, Member - (1.) The present Company petition bearing CP No.40/2011 (TP No.50/HDB/2017) is filed by S.Radhakrishnan and another, against Hyderabad Pollution Controls Ltd and 7 others,under sections397, 398, 402, 403 and 237 of the Companies Act, 1956, by seeking the following reliefs:- (a) To appoint a reputed Chartered Accountant or any other valuer to inspect the records of the 5th and 6th Respondent Company and to direct the said Companies to transfer the profit made by the said Respondents to the 1st Respondent Company and pays the same to the 1st Respondent Company. (b) To injunct the 5th and 6th Respondent Company from dealing with the clients of the 1st Respondent Company. (c) To order investigation into the affairs of the 1st, 5th and 6th Respondent Companies (d) To appoint an administrator to manage the 1st Respondent Company until the investigation is done and the shareholding parity is restored. (e) To rectify the Register of Members of the 1st Respondent Company and substitute the name of First Petitioner in the place of the Second Respondent in respect of 25,550 shares taken away by the second respondent by deceit and fraud. (f) To rectify the Register of Members of the 1st Respondent Company and substitute the name of the Second Petitioner in the place of 7th Respondent in respect of 37058 shares taken away by the Second Respondent and Respondent by deceit. (g) Direct the Respondents not to convert the 1st Respondent Company into a private limited Company. (h) Direct the Respondents not to allot any shares to the 5th or 6th Respondent Companies or any one claiming through or under them.
(2.) The Company petition was initially filed before the then Company Law Board, Chennai in the year 2011, and subsequently, it was transferredto this Bench, on abolition of CLB. On its transfer, the case was taken on the file of this Bench and posted it for final hearing on various dates viz:22.07.2016, 03.08.2016, 09.08.2016, 23.08.2016, 23.09.2016, 26.10.2016, 25.11.2016, 09.12.2016, 13.12.2016, 29.12.2016, 10.01.2017, 24.01.2017, 06.03.2017, 12.04.2017, 24.03.2017, 20.04.2017, 27.04.2017, 04.05.2017, 23.06.2017, 03.07.2017, 26.07.2017 and 26.10.2017. The case was adjourned on those dates at the request of parties on one ground or the other. Finally, it was argued by both the learned counsels and reserved for orders on 26.10.17 by granting liberty to the learned counsels to file their respective gist of arguments in brief. Accordingly, they have filed their gist of arguments.
(3.) The Brief facts, leading to filing of present Company petition, as mentioned in the Company petition, are as follows:- (1) Hyderabad Pollution Controls Ltd, (herein after referred to as 1st Respondent Company ) was incorporated in the state of Andhra Pradesh on 21st December 1978 bearing Registration No.01-2388, having registered office at 90/G, Phase-I, I.D.A, Jeedimetla, Hyderabad-500055. Initially the Company was a Private Limited Company, later on; it was converted into a Public Limited Company on 18.07.1996. Its authorized share capital is Rs.1 Crore consisting of 10,00,000 equity shares of Rs.10/- each and the issued, subscribed and paid up share capital of the Company is Rs.78,26,000/- consisting of 7,82,60C equity shares of Rs.10/- each fully paid up. (2) The main objects of the Company, in brief, are to carry on business as manufacturers, producers, importers, exporters and dealers in machinery, plant equipment of all kinds and descriptions including equipment appliances, systems, etc. However the Company is presently engaged in the business of manufacturing industrial fans both centrifugal, axial flow fans, bag filters, cyclones, roof extractors, air washer units, unitary air filtration systems and other items related to air handling and Air Pollution Control Systems. (3) The first petitioner is a Director and shareholder of the Company holding 121830 equity shares of Rs.10/- each fully paid up constituting 15.57% of the paid up share capital of the Company. The 2nd Petitioner is a shareholder of the 1st respondent Company and wife of the 1st Petitioner. (4) One Mr.N.AyyappanNayar (N.A.Nayar), along with Mr.R.Radhakrishnan had subscribed to the Memorandum and Articles of Association of the Company as First Directors of the Company. Later on, the 2nd Respondent and two more people, Mr.Sirish Kumar Sheroff and Mr.Rajendran joined the Company in the year 1979. The petitioner and the 2nd Respondent are brothers and the 3rd and 4th Respondent are the sons of the 2nd Respondent and Mr.N.A.Nayar is the brother in law of the Petitioner and 2nd Respondent. (5) The petitioner joined the Company in the year 1986 as Marketing Executive at the request of the 2nd Respondent and Mr.N.A.Nayar. On being satisfied with his performance in the Company, the petitioner was offered shares and also was appointed as the Director of the Company in the year 1996. (6) Since Mr.N.A.Nayar was not able to involve in the business actively due to his illness and old age, he decided to sell his entire shares in the Company to both the Petitioner and 2nd Respondent. Accordingly Mr.N.A.Nayar has decided to give 22% of his stake to the Petitioner and 8% to the 2nd Respondent in the year 2007. An agreement on transfer of shares dated 08.04.2010 was also duly executed by all concerned. (7) The shareholding pattern prior to the transfer of shares from Mr.N.A.Nayar to Petitioner and 2nd Respondent is as under: The 2nd Respondent and his group : 42% Mr.N.A.Nayar and group : 30% The Petitioner's group : 28% However, Subsequent to the transfer of 30% shares of NA Nayar, both the Petitioner and the 2nd Respondent are holding equal number of sharesie 50% each. (8) It is stated that in or around the year 2005, the 3rd and 4th Respondents, who are sons of second respondent, have joined the Company, and got themselves involved in the day to day affairs of the Company without acquiring any approval from the Board. Accordingly 3rd respondent raised tooccupy an important position in the Company. The respondents have incorporated the 5th and 6th Respondents Companies with an intention to sabotage image, goodwill of the Company . (09) The 2nd Respondent, being a Managing Director of the Company stands in a fiduciary position with the Company, should always shows loyalty to the Company, and he should not take away the resources of the Company for his own personal benefit. However he has violated the statutory duties by diverting the business of the Respondent No.1 Company to his newly established entities. During the process, the Respondent No.2 has siphoning off the funds of the Respondent No.1 Company. The Respondents have committed the following acts of oppression in collusion with the other respondents. a) The 1st Respondent Company imported fan components from Singapore by using its own import license and releasing the order on its name, on which 15% commission was transferred to SGN Air Systems, the 6th Respondent without any Board Resolution/nor any supported documents. This act of fraud was carried out by using a blank cheque signed by the Petitioner. The signed blank cheque was given by the petitioner when the petitioner went out of station, and the Respondent used the opportunity to clear the commission using the signed blank cheque unauthorised. b) The 3rd and 4th Respondents have incorporated the 5th and 6th Respondent Companies under the support given by the 2nd Respondent. The 2nd Respondent being the Managing Director of the Respondent No.1 Company invested in the new companies by way of providing his land for construction of factory. And the nature of the business of the 5th Respondent Company is similar to that of 1st Respondent Company. Since, the Respondents cannot directly divert the business of the 1st Respondent Company to the new entity, the Respondents are slowly taking steps to destroy the Company and take away the goodwill, clients of the Company to the new entities. The Respondents have deleted important drawing and other technical details of fans and equipments from the computers of the 1st Respondent Company and they also destroyed its hard copies. It is very hard for the 1st Respondent Company to survive without the deleted drawings. All these drawings have been destroyed from the 1st Respondent Company by the respondents to halt the manufacturing activities of the R 1 Company so as to ensure its closure paving the way for developing Respondent 5 & 6 companies. c) Apart from the above illegal acts, the Respondents have been verbally threatening all the employees to stop working and not to take up any fresh orders. Previously all the orders received by the Company were handled by the Petitioner for approval but the 2nd Respondent got into the shoes of the petitioner with a malafide intention to spoil all the valuable orders of the Company. d) The Second respondent has mischievously acted in Ventilation System for Krishnapatanam Project (2x800MW) enquiry dated 9th June 2010 received from TATA Projects Ltd, Hyderabad. This enquiry was sent to the Company on 09.06.2010 with due date of submission of bid on 22.06.2010 which was further extended till 10.07.2010. This tender was never responded by the 2nd respondent for long in spite of knowing that it is a major tender enquiry worth several crores. Thereafter the Petitioner himself worked on the tender and submitted the same within the extended time. Similar, Ventilation System for NTPC-BHEL Power Projects enquiry dated 23.06.2010 Et enquiry for blowers from Abhijeet Project Ltd dated 25.06.2010: Centrifugal fans for NAVA Bharat Ferro Alloys Ltd dated 29.06.2010. Though the Company is a long time customer of the 1st Respondent Company, the 2nd respondent advised the employees not to work on the project. (10) When the disputes between the petitioner group and the 2nd Respondent group reaching to a stage, wherein the affairs of Company cannot be run in normal way, both the parties have explored alternatives for amicable settlement of the issue. Accordingly, they got two proposals made: Firstly, the petitioner expressed his readiness to sell/transfer his and his group shares to the 2nd Respondent and his group, however, subject to payment of agreeable consideration. Failing which, the petitioner has expressed his willingness to purchase the shares of the 2ndRespondent, subject to mutually agreed consideration. (11) Accordingly the above proposals was communicated to the Auditor by the petitioner , and thereafter petitioner and second respondent met privately at their Registered Office, during September and October 2010,and came to a viable conclusion,thereby, the petitioner agreed to sell/transfer all his and his group (50%) shares for a consideration of Rs.2.5 Crores. This consideration had been mentioned to the Auditor and agreed to by the 2nd Respondent and his group. The 2nd Respondent had also agreed for the same during the discussion held in the 1st week of October 2010. (12) The 2nd Respondent, after agreeing for the above proposition, has requested the petitioner to do the following for smooth execution of the share transfer and takeover: i. The 2nd respondent requested the petitioner to transfer 8% of his group share to the respondent group, pending negotiation, so as to save the respondent himself from the fraudulent and wrong revised filling he has done with share ratio of 58% and 42% for 2ndrespondent and petitioner respectively for 3 financial years (2007; 2008 & 2009), which as per original filling was with a ratio of 50% each for Respondent and petitioner group respectively and also was the figure as per record of the 1st respondent Company. ii. In the same meeting the 2nd respondent requested for appointment of his two sons 3rd& 4th Respondents as Directors of the Company since their employment as Sr.Engineer-Design and Purchase Officer was without any Board approval for several years of their joining in the year 2005. The very reason behind the 2nd respondent asking the petitioner for appointment of respondents 3&4 as directors was that respondent 3 who was acting as Sr.Engineer -Design was not a qualified engineer and he was cheating the organization with a forged certificate, of which the veracity on enquiring with the university by the petitioner was found to be fake. It appeared that the certificate the 3rd respondent was forced to forge in connivance with 2nd respondent, in order to satisfy the ISO standard requirement as every employee has to fulfil the requirement of their qualification records depending on their designation and nature of work handled. iii. On informing the matter of forgery done by 3rdRespondentto 2nd respondent by the petitioner, the Bio-date along with the forged certificate filed in the Bio-data file of the 1st Respondent Company was removed from the file the very next day itself. iv. While making the Respondent No.3 &4 as Directors, the spouses of petitioner and 2nd respondent, who were Directors were asked to resign in order to pave way for respondents 3 & 4. v. The 2nd Respondent also expressed his wish to become himself as Chairman and Managing Director instead of Managing Director as well to hike his salary from 87000/- to 97200/-.2nd respondent also requested to transfer the ownership and license of centrifugal fan technology purchased by petitioner from H&R Resources Australia and agreed to reimburse the amount spent to purchase the software by. (13) By believing that the issue in question was going to be settled amicably, the 1st Petitioner transferred his 25,550 shares in favour of 2nd respondent, and 2nd petitioner transferred her 37,058 shares in favour of 7th respondent. To show his bonfide to settle the issue as agreed by 2nd respondent to the petitioner and to Mr.P.Murali Mohan, the auditor of the Respondent 1 Company. All the above favours were done, without taking any amount from him, even though name sake cash receipt as asked by 2nd respondent, are given by the petitioners along with all transfer documents, for the reasons stated above. The petitioners done all the abovethings in good faith trust and with due regard and respect given to 2nd respondent being the 1st petitioner's elder brother, and in complete anticipation of 2nd respondent settling the account by paying 2.5 crores, when the remaining 42% share is transferred. (14) After petitioner complying with all terms and conditions of settlement to the satisfaction of second respondent, he has failed to pay the agreed amount of Rs.2.5 Crores, in return, by merely stating that he has no money to pay. Therefore, the issue in question was not settled as proposed and agreed by the both parties. So the issue has to come to a stage where only Board resolution dated 27.02.2007 and the subsequent Share transfer Agreement dated 08.04.201 Oonly authoritative documents so as to resolve the issue in question. So the petitioner has filed the present petition by seeking to set aside the transfer of 8% shares of the petitioners, i.e. transfer of 25,550 equity shares of the 1st petitioner made in favour of 2nd respondent,and transfer of 37058 shares of the 2nd petitioner made in favour of 7threspondent apart from other reliefs as stated supra. (15) It is alleged that the 2nd respondent had successfully diverted the business of the 1st respondent Company to the 5th6t 6th Respondent Companies and committed breach of fiduciary duties. The 2nd respondent had siphoned off huge funds. (16) The conduct of reducing the petitioner from position of holder of equal number of shares to a minority by promising to buy him out and silencing him from blowing the whistle. Therefore the grounds are sufficient to order winding up of the Company but it would unfairly prejudice interest of petitioner, other shareholders and the Company in general, and thus it just and proper that this Tribunal may be pleased to pass appropriate orders, so as to put an end the affairs complained of and to regulate the affairs of the Company.;