RAMAIYA ELECTRONICS LTD Vs. GUJARAT TRANS RECEIVERS LTD

JUDGEMENT

(1.) THE petitioner-company holding 49 per cent shares in Gujarat Trans Receivers Ltd. ('the company") has filed this petition under Section 397/398 of the Companies Act, 1956 ('the Act') alleging acts of oppression and mismanagement in the affairs of the company. This petition is being prosecuted by Shri D.K. Ramaiya, a director of the petitioner-company.

(2.) Shri D.K. Ramaiya, a director of the petitioner-company argued as follows: He being a Communication Engineer and an NRI entered into an MOU with GIIC (2nd respondent) on 9-9-1980 (Exhibit A-4) to incorporate the company for manufacture of trans receivers. This MOU styled as shareholders' agreement provided for GIIC subscribing to 51 per cent shares and Shri Ramaiya, the balance 49 per cent shares. It is also provided that the number of directors of the company would be up to 5 out of which GIIC would appoint two directors including the Chairman and Shri Ramaiya will have one representative as a director. The MD was to be appointed by joint recommendation of Shri Ramaiya and GIIC. The person so appointed shall be a recommendee of Shri Ramaiya. According to him, the company was incorporated in March 1981. By another shareholders' agreement dated 22-7-1985 it was agreed between GIIC and Shri Ramaiya that his entitlement of 49 per cent shares shall be allotted to the petitioner-company. Thus, for all practical purposes, it is Shri D.K. Rarnaiya who effectively controls the 49 per cent shares. Shri D.K. Ramaiya himself was appointed as the managing director with effect from 23-4-1981. Till 1994, with active co-operation between GIIC and the petitioner, the company progressed well. However, differences between the two cropped up in the appointment of the 7th respondent as a director and subsequently as the joint managing director. In 1994, when a large order for wireless sets was received from Gujarat Police, the 4th and 7th respondents desired that for procurement of parts and components to meet the order, they should undertake visits of Hong Kong and Singapore which was objected to by Shri O.K. Ramaiya on the ground that instead of undertaking those visits, quotations be obtained. Accordingly, Shri Ramaiya obtained quotations from one Sunteck, Hong Kong which were placed before the then chairman of the company. However, the 4th and 2nd respondents procured lower quotations by altering the specifications which would not meet the requirements of Gujarat Police. Having obtained the lower quotations on changed specifications, the 4th to 7th respondents and the Chairman attributed motive in obtaining higher quotations by Shri Ramaiya and pressurized him to resign from the post of managing director or else threatened to get the Gujarat Police order cancelled. With a view to protect the interests of the company, as a loss of that order would be detrimental to the interest of the company, Shri Ramaiya decided to proceed on leave for one year and, accordingly, he submitted a letter dated 6-9-1994. In the same letter, he had also mentioned that the 7th respondent would be the acting managing director without knowing that the 7th respondent was also a party in obtaining the lower quotations which fact came to light only later. Ultimately, the company purchased equipments from Motorola for supply to the Gujarat Police instead of manufacturing in the company itself as originally envisaged. By doing so, the company paid a much higher price than what would have been if the equipments had been manufactured by the company itself by procuring the parts and components as per the quotations obtained by Shri Ramaiya. Thus, instead of getting a profit of over 20 per cent on the equipments, the company ultimately got a profit of less than 5 per cent. Further, even though, the supply was effected through a local dealer of Motorola, yet, the then Chairman and the respondents 4 and 7 undertook visits to Hong Kong and Singapore unnecessarily and at the cost of the company. Even though, the 7th respondent is a director of the petitioner-company and was supposed to look after the interest of the petitioner, yet, he joined hands with the other respondents and incurred heavy expenditure on various trips abroad costing over Rs. 3.35 lakhs between May and October 1995.

(3.) HE further alleged that the company has not been maintaining statutory records and that it is not holding general body meetings and not filing regular returns. In spite of repeated requests by Shri O.K. Ramaiya, the petitioner-company is completely kept in dark about the affairs of the company. Further, even though as per the orders of this Bench on 24-4-1996 directing the company to hold a Board meeting before 25-5-1996, the company held a Board meeting on 16-5-1996, but the nominee directors of the petitioner were not allowed to participate in that meeting. Likewise, notwithstanding the orders of this Bench on 29-10-1996 that the company should select and appoint a new managing director, the same has not been done so far. For non-payment of statutory dues by the company, notices have been received by Shri D.K. Ramaiya in his capacity as a director. The mismanagement in the affairs of the company is due to the inexperience of the 7th respondent, a temporary nominee of the petitioner-company, with whom the nominees of the 2nd respondent have joined hands. The 2nd respondent, has now, in terms of Section 29 of the State Finance Corporation Act has taken over the company and has started disposing of the assets. At the same time, it has also proceeded against the petitioner-company and its directors for recovery of loans given to the company. Thus, the company which was doing well has been closed due to the exclusion of the representative of the petitioner-company, namely, Shri D.K. Ramaiya who could have made the company prosperous in view of his being a technical expert. Having failed in the manufacturing activities, the company started doing trading activity which has also failed miserably. A reading of the various allegations relating to purchase of parts and components would indicate that the profitability of the company has come down drastically and in view of the inferior quality, the company could not book fresh orders and even the orders that it had were cancelled. HE also pointed out that the company had recognized only the 7th respondent as the representative of the petitioner-company even though it is Shri DX. Ramaiya who was originally the promoter of this company representing the petitioner-company. Just to get rid of Shri D.K. Ramaiya, the company had made false allegations against him and forced him to go on leave. HE also went through the various allegations made in the petition regarding the financial irregularities and submitted that due to mismanagement the company has reached the stage of being closed. Summing up his arguments, he prayed that in view of the company having become non-functional, the 2nd respondent should be directed to purchase the shares held by the petitioner-company and also make good all the payments made by the petitioner and his associates for the benefit of the company.