ANAND KUMAR SAIGAL Vs. MANU PROPERTIES P LTD

JUDGEMENT

(1.) BANERJI, Chairman - The petitioner claiming himself to be a 50 per cent shareholder of Manu Properties (P.) Ltd. (respondent company) has filed this petition under section 397/398 of the Companies Act, 1956 ('the Act') alleging various acts of oppression, mismanagement and fraud by the respondents 2, 3, 5 and 6 in respect of the affairs of the respondent company, and praying for appropriate reliefs.

(2.) Briefly stated the petitioners case is that the first respondent company was incorporated as a private limited company on 18-7-1982, the main object to purchase, construct, acquire and invest in real estate and for other property related business. The promoters and the subscribers to the memorandum and articles of association of the company were the Petitioner and 4th Respondent both of whom were related to each other by marriage. The authorised share capital of the company was Rs. 5 lakhs while the issued and the subscribed capital was Rs. 200 only made up of two equity shares of Rs. 100 each allotted one each to the petitioner and the 4th respondent and therefore, each represented 50 per cent of the total paid up share capital of the company. Though the company was incorporated as a private limited company but it was in the nature of a partnership business with a clear understanding that both the shareholders will have equal share in the rights, liabilities and profits of the business. The petitioner and the 4th respondents were appointed as directors of the company and the petitioner was granted a general power of attorney by the company as he was the working director and conducting the entire business of the company. The accounts of the company were under the charge of 4th respondent. In May 1986 the first respondent acquired about 25 acres of land in village Bhondsi. The finance for its development was provided as loan to the company by the petitioner and the 4th respondent. After segregating the land of the company from the other land extensive eucalyptus plantation was got done for business purposes and by 1993 the said trees had matured and it was decided to sell the same and to reinvest the sale proceeds. Consequently the trees were sold in two lots during the period 1993-94 and 1994-95 for a total value of Rs. 13 lakhs. As during this time the share market appeared to promise a very good return, the 4th respondent introduced respondents 2 and 3 who were share brokers known to the said respondent for the purpose of investing the funds of the company so as to get the best return. With this end in view and on the request of the respondents 2 and 3 they were appointed as additional directors on the board of directors of the first respondent company and as the main business of the company was to be the business of investment in securities when the land and the trees were sold it was agreed that the registered office of the company be shifted to the premises of the respondents 2 and 3 so as to enable them to maintain the books of the company to reflect the securities transactions. Between March and July 1995 approx. 13.4 acres of agricultural land of the company was sold for a total consideration of Rs. 25.30 lakhs and an amount of Rs. 13 lakhs as already noted above was obtained by the selling of eucalyptus tree. Out of the said amount a sum of approximately Rs. 6 lakhs was withdrawn by the 4th respondent as he was in urgent need of the same and the balance amount with the company was entrusted to Respondents 2 and 3 for investment on behalf of the company. However, despite various requests made by the petitioner the respondent Nos. 2, 3 and 4 did not make available the accounts of the investment and the profits. Suddenly on 12-9-1996 the petitioner was informed over the phone by the 4th respondent that the premises of the respondents 2 and 3 were about to be raided by the revenue authorities and it was necessary that all the books and records of the company be immediately completed and updated failing which there was a danger that the revenue department may treat the investments made by the company as investment on behalf of the brokers. On this misrepresentation at the behest of respondents 2, 3 and 4, the petitioner signed certain previous readymade formal minutes of the board and some notices of the board meetings and also signed copies of notices pertaining to the board meetings purported to have been held between the period 7-5-1996 to 4-9-1996 and the proposed meetings to be held on 17-9-1996. The petitioner was not happy with the state of affairs and wanted to get out of the company and was told by the respondent Nos. 2 and 3 that there could be no objection to the petitioner withdrawing his share and if he could find a purchaser for the balance land lying with the company he could expect at least Rs. 30 lakhs in settlement of his half share in the company. Acting on the said advise the petitioner sold 8.2 acres out of the balance 12.5 acres of land remaining with the company, at a price of Rs. 16.20 lakhs. However, the sale proceeds could not be deposited by the petitioner as he was surprised to find that the companies account had been closed under the authority of respondent No. 5. The petitioner immediately wrote to the respondent Nos. 2 to 4 expressing his surprise regarding the closure of the account and asking where the sale proceeds could be deposited. Since there was no response from the respondents 2, 3 and 4, the petitioner called a meeting of the board of directors for 16-5-1997. However, the respondents did not appear on the said date for the meeting. On or above 22-5-1997 the petitioner received a letter from the respondent No. 6 intimating that the petitioner had no right to sell the land as he was no longer a director having ceased to be a director of the company with effect from 19-9-1996 and the company has already filed a suit in the court of Civil judge Jr. Div. Gurgaon challenging the sale of land made by the petitioner. From the documents filed along with the suits and on an inspection of record of the office of registrar of companies the petitioner came to know that Form No. 32 has been filed by the company indicating resignation of the 4th Respondent with effect from 1-7-1996 and further the petitioner has ceased to be as director with effect from 19-9-1996 under section 283(l){g) for failing to attend six consecutive meetings. It also appeared that the Board of Directors of the company had issued further shares to themselves and their nominees in May and September 1996 so as to reduce the petitioner and the 4th respondent to minority and to enable the respondent Nos. 2, 3, 5 and 6 to take over the company.

(3.) A reply to the petition was filed on behalf of the 1st respondent denying the allegations made in the petition. It was inter alia stated in the reply that the petition has been filed on vague and incorrect averments and no case of oppression and mismanagement has been made out. It was further stated that the petitioner has not come with clean hands and has concealed material particulars. The case of the respondents as set out in the reply is that though the respondent company may have been incorporated as a quasi partnership but after the respondents 2 and 3 had joined the company as directors and later after they were allotted shares, the question of the company being run on partnership principles does not arise. It has been alleged that the respondent company though incorporated in the year 1982 was running at a loss and when the financial position of the respondent company was bad and no assets i.e., agricultural land worth mentioning was held by the company, the petitioner and the 4th respondent approached respondents 2 and 3 to bait them out from their problems and to help them with their expertise including financial support and contacts. On the persuasion of the petitioner and the 4th respondent, the respondents 2 and 3 agreed to become directors of the respondent company on the understanding that; (1) the control of the company shall be given to them (2) the registered office shall be shifted to the premises of the said respondents (3) the agricultural land transferred to Esquire Agro Farms which was the partnership business of the petitioner and the respondent No. 4 shall be taken back by the respondent company at the market price and the consideration would be passed on to the 4th respondent and the petitioner (4) The respondents 2 and 3 shall be allotted shares to get the control of the respondent company (5) respondents 2 and 3 will be the controlling shareholders of the company and the 4th respondent and the petitioner will not have any say in the management. It was also agreed that the respondent company continue the business of the sale and purchase of agricultural land and the investment in share business shall be an incidental part of the main business. On this understanding the respondent Nos. 2 and 3 were appointed as directors of the respondent company on 1-3-1993 when the total liability of the company was about Rs. 12.7 lakhs in all including the accumulated losses of Rs. 4,21,981. It was also understood at that point of time that even though the 4th respondent and the petitioner were to remain directors of the respondent company, they would not take any active role in the management and the conduct of its affairs. In other words the case of the respondents was that it was a case of a negotiated take over of the company by the respondents 2 and 3.