S RATTAIAH Vs. SRI KRISHNA NAGACHAND COLD STORAGE (P.) LTD.

JUDGEMENT

(1.) THIS is a petition filed under sections 111, 397 and 398 read with sections 402, 403 and 408 of the Companies Act, 1956 ('the Act') and pertaining to Sri Krishna Nagachand Cold Storage (P.) Ltd. This company was incorporated on 21st February, 1994 with its registered office at Hyderabad. First petitioner and his father Shri Nageswara Rao were the first directors of the company. Petitioners collectively hold 45 per cent of the paid -up share capital of the company. The first petitioner and respondent 2 are brothers. The petitioners allege that their names have been removed as shareholders as per the annual return for the year 2001. Petitioners are challenging the impugned transfer by stating that they have not signed any transfer deed in favour of the respondents. The second respondent is claiming himself to be the managing director of the company with effect from 29th February, 2000 and the third respondent is claiming to be a director from that date onwards. The first petitioner has transferred land towards construction of cold storage of the company for a consideration of Rs. 38,000 and this amount was kept with the company having transferred the same from the bank account. The company had constructed a cold storage in the property by availing a loan of Rs. 30 lakh from Andhra Bank during the year 1994 and the amount was repaid by 31st March, 2002. In 2000 -01, the company was closed following a dispute regarding ownership of the business. On 4th February, 2002, arbitration was formed but without any success. During the year 2000, the respondents fabricated documents in order to show that R2 and R3 are directors of the company from 29th February, 2000 and Form 32 was filed on 10th May, 2000 as if the first petitioner has retired as director as well as managing director. From the years 1994 to 2002, the first petitioner was attending to the day -to -day activities of the company as managing director and signing various documents before various authorities like Income -tax Department, Gram Panchayat, Inspector of Factories, Commercial Tax Department, etc. On coming to know of the fraudulent acts by the respondents, the first petitioner sent several communications to various banks. Without the knowledge of the petitioners, respondents pledged the assets (land and building with machinery) of the company with Tamil Nadu Mercantile Bank Ltd. Despite notices and reminders by the first petitioner, the bank has further extended loan facilities to the tune of Rs. 1.50 crore in the name of personal business of directors and some unidentifiable farmers. The police have registered a case for cheating on the basis of a complaint filed by the bank manager. The first petitioner has also been made a party in the complaint. So, the petitioner approached the High Court of Tamil Nadu and Andhra Pradesh and a civil suit was filed before the junior civil judge, Tanuku, Andhra Pradesh seeking to declare him as managing director of the company and consequential injunction. In the suit, an advocate commissioner was appointed to inspect the factory and take stock of the records of the company. The electricity connection stands in the name of the 1st petitioner. Subsequently, first petitioner filed another civil suit on 8th July, 2004 seeking -to set aside the resolution dated 26th April, 2004 and also to set aside the sale of the property. The first petitioner came to know that the cold storage was put to sale on 15th May, 2004 and objections to the sale were called for through a paper advertisement. First petitioner sent a lawyer notice on 17th May, 2004, informing that the property shall not be dealt with since civil suit is pending in respect of it. Despite this, the property was sold on 4th June, 2004 and a resolution was passed authorising R2 to release the original title deeds of the property on deposit of Rs. 30 lakh by the seller with the bank. There is undervaluation in the sale since the property is worth more than Rs. 70 lakh at the relevant time. After the fraudulent sale of the land, second respondent entered into a lease agreement with the purchasers for an amount of Rs. 30,000 per annum. The first petitioner has been removed as managing director without the knowledge of the petitioners who are the majority shareholders. The intention was to sell the company's land and pocket the sale proceeds for the discharge of the personal loans of the second respondent to an extent of Rs. 73 lakh. The conduct of the second respondent is not in the interest of the company or its share holders. The petitioners pressed for the following final relief :

(2.) (i) Whether the shares held by the petitioners have been fraudulently transferred in the name of respondents 2 and 3 and if so whether the shares held by the petitioners are liable to restored under section 111 of the Act ?