SATISH CHANDRA JHA Vs. ORICHEM DRUGS & PHARMACEUTICALS (P.) LTD.

JUDGEMENT

(1.) IN this Company Petition No. 38 of 2007 in the case of Orichem Drugs & Pharmaceuticals (P.) Ltd. and others alleging oppression and mismanagement under section 397/398 of the Companies Act, 1956 ('the Act') the petitioner's case is that the late Shri Jaswantlal Jha, the father of petitioner No. 1 and the deceased R -2 started his business of trading of various drugs during the year 1929 under the name and style of "Bombay agencies" which continued for three years, during the year 1932 -33 Shri Jaswantlal Jha also started manufacturing activities under the name and style of "Oriental Chemical Works" at Indore (MP). Owing to increasing work responsibilities, Late Shri Jaswantlal Jha, introduced his two elder sons, i.e., Shri Prabhash Chandra Jha, the R -2 and Shri Chandra Shankar Jha as partners into the business and, thus, his sole proprietary business was converted into a partnership with three partners, i.e., (1) Shri Jaswantlal Jha, (2) Shri Chandra Shankar Jha and (3) Shri Prabhash Chandra Jha. On 22nd August, 1957, Shri Jaswantlal Jha expired and very next day on 23rd August, 1957, the partnership was reconstituted and Shri Satish Chandra Jha (the present petitioner No. 1) and his younger brother Shri Sharad Chandra Jha, were inducted as partners having equal rights into the business. Therefore, on 23rd August, 1957, all four sons of late Shri Jaswantlal Jha became the partners in "Oriental Chemical Works" having equal rights and liabilities and the partnership continued till 3rd July, 1979. On 20th June, 1979, Shri Chandra Shankar Jha expired and the partnership firm was reconstituted and it being a family business, Smt. Manbai Jha (R -5) the widow of Late Shri Chandra Shankar Jha was inducted as partner in his place having equal rights and liabilities. On 4th July, 1979, the partnership deed was executed wherein it was once again reiterated that all the four partners, i.e., (1) Prabhash Chandra Jha, (2) Shri Satish Chandra Jha, (3) Shri Sharad Chandra Jha and (4) Smt. Manbai Jha W/o Late Shri Chandra Shankar Jha shall have equal rights in the family business under the name and style of "Oriental Chemical Works". On 2nd May, 1986, all the four partners of "Oriental Chemical Works" promoted a company under the name and style of "Orichem Drugs & Pharmaceuticals (P.) Ltd." and introduced the R -1 -company as a partner with effect from 23rd June, 1986. On 2nd November, 1986, the partners of "Oriental Chemical Works" entered into an agreement wherein the whole of the business of the partnership firm including the entire assets and liabilities of the family business as on 2nd November, 1986, were taken over by the newly incorporated company, i.e., Orichem Drugs & Pharmaceuticals (P.) Ltd. All the four partners of the firm became the first directors of the R -1 -company. On 23rd October, 2000, the second generation of the four families, including the R -3 and 4, were offered the post of 'executive' in the company, vide letter dated 23rd October, 2000. However, the R -3 and 4 did not accept the invitation. The petitioner No. 2 along with the R -7 accepted the offer and they were inducted in the company as 'executive' and subsequently they were offered directorship in the company, vide letter dated 14th September, 2002. Admittedly, the R -3 and R -4 voluntarily remained outside the company and never tried to work for the family company. By the end of the financial year 2002 shareholding in the company of all four families was 25 per cent each. However, during March 2003 Smt. Manbai Jha, the R -5, the widow of Shri Chandra Shankar Jha, who does not have any issue, transferred 10 per cent of her shareholding to the petitioner No. 2 and his wife and 10 per cent shares to the R -7 for consideration and retained balance 5 per cent shares in her name, thereby increasing the shareholding of the petitioners' family and that of R -7 to 35 per cent each which is also undisputed.

(2.) THE petitioners' case is that R -3 and R -4 are not even the shareholders of the company. R -3 and R -4 are having parallel business in competition with the company manufacturing similar products which are manufactured by the R -1 -company under a registered trade mark. My attention was drawn to the list of the products manufactured by the R -1 -company for which the R -1 -company and R -5 had issued a caution notice to the public against the deceitfully similar products manufactured by the R -3 and R -4. The R -2 to R -4 even issued deepawali greetings card with the names of the similar products. Misleading letter dated 13th August, 2002 was addressed by the R -3 to the shopkeepers showing the products of the company as that of his own products. It was argued that the presence of the R -3 and R -4 in the R -1 -company is highly prejudicial to the interest of the company and its shareholders and liable to be declared as nullity.

(3.) FURTHER , the petitioners have alleged that on 7th November, 2006, the respondent No. 3 convened a Board meeting at the factory site to which the petitioners attended wherein the objections raised by the petitioners were ignored by the respondents who were determined to adopt all possible means to arbitrarily suppress the petitioners and taking advantage of their presence, manipulated the minutes of the Board meeting dated 7th November, 2006 to suit to their ill wills. It was pointed out that the unsigned minutes of the meeting of the Board of directors of the company dated 7th November, 2006 are not in conformity with the provisions of section 193 of the Act, the minutes are a bundle of manipulated facts and have been designed to suppress the legal rights of the petitioners, and, therefore, the presumption under section 194 of the Act cannot be drawn for the said minutes, in favour of the respondents. As per the agenda No. 157 as Annexure P -19 of the petition, there was no item for consideration of retirement of directors by rotation. It was admitted by the petitioners that they had innocently attended the Board meeting dated 7th November, 2006 and the adjourned AGM dated 6th December, 2006, since during that time there was no occasion for the petitioners to doubt the ill motives of the respondents, which came in lime light only after 6th December, 2006. It was pointed out that the adjourned AGM was intentionally convened by the respondents at the factory site of the company which is next to the residence of the R -3 and R -4 and around 20 km. away from Indore city and not at the registered office of the company as required under section 166 of the Act. By convening adjourned AGM at a place other than the registered office of the company and at the place under absolute control of the respondents, it was intended to use their force for passing the ill designed agenda in which they succeeded. However, convening of the adjourned AGM at a place outside the city in which the registered office of the company is situated is in gross violation of provisions of section 166 of the Act and, therefore, on this ground alone the adjourned AGM is illegal and all transactions thereat are void ab initio. It was pointed out that the 20th adjourned AGM was convened by the R -3 and R -4 who ceased to be the directors on 30th September for want of AGM, and therefore, the 20th adjourned AGM as convened by them is void ab initio. The minutes of the 20th adjourned AGM as produced by the respondents, not being in conformity with the provisions of section 193 of the Act, no presumption under section 194 of the Act, can be drown, in favour of the respondents.