Rajeswara Rao Vittanala, Member - (1.) The Company Petition (Which is hereinafter referred to as Company Petition) bearing C.P. No. 87/2007 was filed by Mr. D. Tejkumar & 49 others, before the then CLB under Sections 397 and 398 of the Companies Act, 1956. On constitution of the NCLT Bench at Hyderabad, the case is transferred to this Bench in July, 2016. Accordingly, the case was taken on records of this Bench, and thus posted it for final hearing on various dates viz. 20.07.2016, 22.07.2016, 03.08.2016, 19.08.2016, 16.09.2016, 19.10.2016, 21.11.2016, 22.11.2016, 07.12.2016, 21.12.2016, 06.01.2017, 10.01.2017, 24.01.2017, 06.02.2017, 17.02.2017, 23.02.2017, 07.03.2017, 09.03.2017 & 13.03.2017. The case was heard on several dates and used to be adjourned on one pretext or the other at the request of parties. They have insisted the Tribunal to decide Company Applications, which are pending in this case, before deciding the main case. Accordingly, we have appointed an Advocate Commissioner vide order dated 19.10.2016 passed in C.A. No. 1/2016 in C.P. No. 87/2007 to take inventory of fixed assets of M/s. Priyaranjani Fibers Limited (R1 Company). After hearing both the parties, orders were reserved on 9th March, 2017.
(2.) Since several developments takes place after filing the present Company Petition, the Petitioners have filed C.A. No. 43/2009 by seeking to add some more prayers to the existing prayers already sought in the main Company petition. The CLB allowed said Company application on 09.08.2012. It would be appropriate to extract all main prayers in Company petition, after amendment. Existing main Prayers in Company petition. a. To declare the Appointment of the 3rd Respondent as the Managing Directors/Director, and 4th & 5th Respondents as Directors of the Company as illegal, and the actions and omissions on their part does not bind the company or the Shareholders, in any manner. b. To declare as void ab initio, illegal, not binding on the company, the purported agreement dated 09.10.2003 entered into between the 2nd & 3rd Respondents and further declare the same as not binding on the Company or the Petitioners/shareholders of the company. c. To surcharge the 3rd Respondent and his Associates i.e. 4th & 5th Respondents on the basis of an in terms of Report of the Investigating Agency appointed by the Hon'ble Company Law Board and further award damages of Rs. 2 Crores per annum for a period of 4 years, for causing material loss/damage and for suppressing the rights of the shareholders and for illegally misrepresenting the company and for using the plant and machinery illegally. d. To declare that the Board consisting of 2nd Respondent and his associates i.e. Mr. M. Visweswara Rao and G.V. Ramana as a legally constituted Board and further declare as legal, the appointment/functioning of the 2nd Respondent and his associates as Executive Vice Chairman and Directors. Added main prayers after amendment: e. To declare the holding of Board Meeting and passing of resolution dated 30.04.2004 and 02.06.2004 by the 3rd, 4th & 5th Respondents is false, illegal and not correct as same is an afterthought and not binding on the company. f. To declare the Extra Ordinary General Meeting held on 31.05.2004 by the 3rd, 4th and 5th Respondents as false, illegal not correct and the same is an afterthought and not binding on the company. g. To declare as illegal, false, not according to law, the issue of 1,13,00,000 equity shares of Rs. 10/- each to the so called friends and relatives of 3rd, 4th and 5th Respondents which is not binding on the company. h. To declare as illegal, the removal of existing Auditors M/s. Satyam & Veerabhadra, Hyderabad and appointment of M/s. Srinivasan & Co., represented by Mr. K. Ranganathan as false and not binding on the Company. i. To direct the prosecution against the 3rd, 4th & 5th Respondents for committing the acts of perjury and forgery.
(3.) The brief contentions/averments/assertions/allegations made in the Company petition, which are relevant to the present issue are as follows:- (a) Priyaranjani Fibers Limited (hereinafter referred to as "the Company") was incorporated on 14th February, 1991 as a public limited Company with its Registration No. 01-12336 of 1990-91. The Registered Office of the Company is situated at Rayapole Village, Ibrahimpatnam, R.R. District, Telangana. The authorized share capital of the Company is Rs. 23,00,00,000/- divided into 2,30,00,000 equity shares of Rs. 10/- each and its paid up share capital is Rs. 11,70,00,000/- divided into 1,70,00,000 equity shares of Rs. 10/- each. The object of the Company is to carry on business of spinning and weaving mills and of spinners, weavers, bleachers, dyers of cotton, silk, wool, rayan, Dotusal and Synthetic fibers and fibrous substances of all kinds. (b) All Petitioners are shareholders of the Company, and all of them have duly executed their Power of Attorney (POA) to the first petitioner to file this petition on their behalf also. (c) The Company is 100% export oriented and an entire premise of the factory is bonded with the Custom and Central Excise Department, Government of India. The Company has availed several loans and commenced its commercial production. However, the Company could not make any profits due to the recession in the international market about the price of cotton yarn. In spite of that, the Company continued its production, and other activities till December, 1999. (d) The Company has also taken Shri V. Raman, who is a textile expert as a Managing Director. However, he could not manage the affairs of the Company in a proper manner and thus the 2nd Respondent was made Executive Vice Chairman on 14.09.1997 to have a proper check on management of said Raman. However, the said Raman has mischievously removed the 2nd Respondent, and it resulted in legal tussle for some time and ultimately the Company could succeed against Raman. Due to the International recession on the product of Company, it was forced to close its operations. The financial position of the 2nd Respondent and his family also become very precarious. The total net worth of the Company got eroded. So the 2nd Respondent had filed Form-A (reference) in the BIFR under Section 15(1) of SICA 1985, and the same has been registered and numbered as Case No. 366/2001 on 17.09.2002. IDBI was appointed as operating agency (OA) under Section 16(2) of the Act by the BIFR. (e) Even though the Company has no activity whatsoever, the Petitioners herein and other shareholders were informed of all the developments in the Company. During EGM held on 26.12.2006, the Shareholders came to know that 2nd Respondent has entered into an agreement dated 09.10.2003 with 3rd Respondent, by which the 2nd Respondent had agreed to transfer shares of all to Respondent No. 3 for a meager amount of Rs. 1 crore. (f) The shares of the chief promoters, and some of the present petitioners totally constituting about 51% of the shares of the Company are pledged with the IDBI and these shares cannot be sold and transfer to anybody without permission of IDBI. It is also further known that one Mr. K. Ranganathan, a Chartered Accountant, and a close associate of 3rd Respondent had allured the 2nd Respondent to enter into an Agreement dated 09.10.2003 by taking advantage of precarious financial position of the Company and that of second respondent. Accordingly, the second respondent has accompanied said Mr. K. Ranganathan to participate in BIFR proceedings held on 17.09.2002, i.e. before execution of the said agreement dated 09.10.2003. (g) By believing words of K. Ranganathan, the second respondent has entered into agreement dated 09.10.2003 and also got second respondent signed some blank letters in a mischievous manner. On the basis of such letters and agreement, Respondent No. 3 to 5 got appointed as Additional Directors of the Company and the 3rd Respondent was further appointed as Managing Director of the Company for a period of five years w.e.f. 03.09.2003. Infact, there was no meeting of the Company held, and no notice whatsoever was given to existing shareholders to such appointments. And all these documents are alleged to have been fabricated by the 3rd Respondent. (h) The 3rd Respondent, basing on the said agreement and alleged resolutions, has entered into the factory of Company and made small payments to various authorities, and started production of the Unit. And it was also understood that the Company was running continuously for a period of about four years, and made huge profits without bothering about overheads and maintaining accounts. The 3rd Respondent has paid at least Rs. 3 lakhs per month for four years towards electricity bill to AP Transco Limited. So it is alleged that third Respondent, without investing any substantial amount into the Company has earned substantial amount and usurped it. (i) It is further stated that BIFR did not recognize 3rd Respondent and thus directed the 2nd Respondent to attend further hearing personally, as it is only second respondent, who has initiated proceedings before BIFR. The 3rd Respondent, without fulfilling his obligations as per agreement dated 09.10.2003, has further removed costly assets like generators out of the premises of the factory in stealthy manner. (j) In view of the above circumstances, the shareholders of the Company reprimanded the 2nd Respondent for his illegal actions in entering into the said agreement dated 09.10.2003, and further directed him to immediately remove Respondent Nos. 3 to 5 from the Board Directors of Company and further restored the 2nd Respondent as Executive Vice Chairman and other Board Members, who are on Board before execution of said illegal agreement dated 09.10.2003. The second Respondent was directed to take possession of the factory immediately from the Respondent No. 3 to 5. (k) The 3rd Respondent, who is a politician with a lot of political power, support and influence in the State, did not care about the request of 2nd Respondent, and further threatened him with dire consequences if he interferes with Company affairs. As they could not succeed to contain 3rd Respondent from continuing his illegal activities, the Petitioners herein along with other shareholders consisting of 10% of the total holding of the Company has requested the Board of Company to call for EGM on 03.09.2004 under Section 169 of the Companies Act, 1956 to pass resolutions removing Respondent Nos. 3 to 5 from the Board of Directors and to order further recovery of cost at the rate of Rs. 5,25,000/- per month for the entire period of usage of the factory, land and machinery from the 3rd Respondent and his associates and also proposed to recover sale proceeds of the fixed assets and further to restore back to the new Board. (l) Accordingly a notice dated 03.08.2007 was given under Section 169 of the Companies Act, 1956 calling for EOGM of the members of the Company to be held on 03.09.2007 by inter-alia proposing to remove Respondent No. 3 to 5, apart from other actions. A notice was also sent to the 3rd Respondent and others by RPAD. (m) On receipt of the said notice dated 03.08.2007, the Company along with Respondent No. 3 to 5, has filed a civil suit bearing O.S. No. 469/07 before the 3rd Additional Chief Judge, City Civil Court, Hyderabad by inter-alia seeking a judgment and decree in their favour against the Defendant Mr. D. Srinivasa Rao (Respondent No. 2 herein) by declaring that the notice dated 03.08.2007 was illegal, null and void and non-est in law and to further declare that second respondent was not entitled to act as Executive Vice-chairman as he was no more a Director and also sought a perpetual injunction restraining him or his agents, representatives, nominees etc. from holding any meeting of the shareholders of the 1st Plaintiff Company. Accordingly, Respondents No. 3 to 5 were able to obtain an ex-parte interim injunction dated 28.08.2007 in I.A. No. 3166/2007 in O.S. No. 469/2007, by restraining the respondent, his agents etc. from conducting the proposed EGM on 03.09.2007. Subsequently, these interim orders were vacated on 06.11.2007. Aggrieved by the Order dated 6.11.2007, the Company and Respondent No. 3 to 5 have filed CMA MP No. 2391/2007 in MA.CMA No. 1015/2007 before the Hon'ble High Court of Andhra Pradesh by inter-alia seeking to grant interim injunction restraining the respondent (second respondent herein) and his agents etc., from conducting EGM of 1st petitioner Company pursuant to alleged notices dated 03.08.2007 and 07.12.2007 by suspending order dated 06.11.2007 passed in IA No. 3166/2007. However, the Hon'ble High Court refused to interfere in the matter vide an order dated 31.12.2007. (n) In the above circumstances, in order to protect the interest of shareholders and the general interest of the Company, the present Company Petition was filed. It is alleged that conduct and actions of the Respondent No. 3 and his associates are totally in violation of the provisions of SICA, 1995 and the Companies Act, 1956. They have also alleged that the appointments of Respondent No. 3 to 5 are not at all approved by the shareholders of the Company nor any general meeting(s) of the Company was ever held for this purpose. (o) It is further contended that the actions of Respondents No. 3 and his associates are totally in violation of shareholders rights, and it comes under the purview of Section 397/398 of the Companies Act, 1956. They are conducting the affairs of the Company in a manner prejudicial to its members and an oppressive manner so as to take appropriate action under these provisions. (p) In view of the vacation of the interim orders for conducting Extra-Ordinary General Meeting (EGM) as per original notice dated 03.08.2007 which adjourned to 7.12.2007, was finally conducted it on 02.01.2008, in which the Respondent Nos. 2 to 5 were removed from the office of the Directors of the Company with effect from the conclusion of this meeting. It is also noted in the proceedings that no written explanation(s) were received from any of the respondent No. 2 to 5 and they were also not present during the meeting even though they have challenged the same in courts. It has also authorized Board of Directors to take suitable steps including legal action for recovery of lease rental of not less than Rs. 5,25,000/- per month from the Respondents No. 3 and his associates for usage of premises of the factory with all lands and buildings, plant and machinery, furniture and fixtures w.e.f. 06.02.2008 to till date. (q) The CLB has also passed a detailed interim order on 16.07.2008, in the present CP by restraining the Respondents No. 3 to 5 from functioning as Managing Director/Director of the Company and further prohibited from selling any of fixed assets of the Company till disposal of Company Petition. The said order was questioned before Hon'ble High Court of Andhra Pradesh, by filing Company Appeal Nos. 14 and 16 of 2008 under Section 10F of Companies Act, 1956. After hearing those appeals, the Hon'ble High court by an order dated 28th January, 2009 dismissed those appeals by upholding the said order of the CLB. Subsequently, amendment petition has been filed by petitioner amending the prayer and pleadings. (r) It is further alleged that the Respondent No. 3 to 5 alleged to have conducted EGM dated 01.05.2004 for a purported issuance of 12 crores of equity shares to friends and relatives of Respondents No. 3 in order to make the petitioners stake below 10% with a mala fide intention to disqualify them from invoking Section 397/398 of the Companies Act, 1956. The resolutions dated 31.04.2004 and 31.05.2004 are also cooked up and fabricated and those resolutions were filed by way of Forms No. 23 and 2 with ROC. In fact there was no money received from the alleged allottees by the Company for the so called allotment of 1,13,00,000 equity shares of Rs. 10/- each. Likewise, the Board resolution dated 02.06.2004 was also cooked up resolution, which authorized Respondents N.3 to sign the share certificates for alleged new allotments In fact, enhancement and allotments of shares cannot be taken without permission of BIFR. Admittedly, there was not such permission taken even to initiate such course of action. (s) It is further alleged that the statutory Auditors of the Company have been removed and M/s. D. Srinivas and Co., Chartered Accountants represented by Mr. K. Ranganathan was appointed illegally. (t) In the above circumstances, the Petitioners asked for the relief as sought for in the Company Petition.;