GORDON WOODROFFE AND COMPANY LIMITED U K Vs. GORDON WOODROFFE LIMITED

JUDGEMENT

(1.) GORDON Woodroffe Limited (U. K.) (petitioner) holding 24.9 per cent. shares in GORDON Woodroffe Limited, Chennai (GWL), have filed this petition under Section 398(1)(b) of the Companies Act, 1956, alleging that material changes have taken place in the shareholding and control of GWL, on account of which it is likely that the affairs of GWL will be conducted in a manner which is likely to be prejudicial to the interests of the company/public interest and seeking grant of suitable reliefs as prayed for in the petition.

(2.) To appreciate the issues involved, it is necessary to narrate certain admitted facts in the case. The petitioner-company held majority shares in the Indian company, which was reduced to 40 per cent. in view of the Foreign Exchange Regulation Act, some time in 1973. M. R. Chabbria (MRC), a non-resident Indian, acquired the controlling interest in the petitioner-company, some time in 1985. He also acquired about 39 per cent. shares in Shaw Wallace and Company Limited (SWC) and became the largest single shareholder in SWC. By virtue of these large shareholdings, he became the chairman of both SWC and GWL. SWC, while controlling various subsidiaries also controlled the boards of Shoes Specialities Private Limited (SSPL) and Tracstar Investment Private Limited (Tracstar) through its own nominees on the boards of these companies. Three companies under the control of MRC held among themselves 6.89 per cent. shares in GWL. GWL, having become sick in 1987, was referred to the Board for Industrial and Financial Reconstruction. In the Board for Industrial and Financial Reconstruction proceedings in 1988, MRC was treated as a promoter of GWL and IRBI which was appointed as the operating agency, gave a proposal by which SWC, the company controlled by MRC, was to be closely associated with the revival of GWL. In pursuance of the Board for Industrial and Financial Reconstruction's suggestion, the board of SWC decided to invest a sum of Rs. 250 lakhs in the equity of GWL. However, for various reasons, instead of investing the entire amount by way of equity, on a suggestion made by GWL, the Board for Industrial and Financial Reconstruction sanctioned a scheme by which SWC was to invest Rs. 140 lakhs as equity, representing 24.90 per cent. in the expanded equity of GWL. SWC was also to make a loan of Rs. 50 lakhs. However, this proposal did not go through. From 1987 to 1991, SWC had funded GWL to the tune of more than Rs. 300 lakhs by way of loans, etc.

(3.) K. R. Chabbria (KRC) is the younger brother of MRC. He became the managing director of SWC when MRC became the chairman. Due to certain family disputes between the two, KRC was removed from the post of managing director. KRC started claiming control of both SSPL and Tracstar. A few proceedings were initiated before us and his control of both SSPL and Tracstar has been confirmed by us. In the meanwhile, Trident, a company under the control of KRC, acquired from the market, further 6.1 per cent. shares in GWL. Thus, presently, KRC controls about 44 per cent. shares in GWL compared to MRC controlling 24.9 per cent. Tracstar/KRC have also submitted certain proposals before the Board for Industrial and Financial Reconstruction for reviving GWL. GWL continues to be under the management of MRC/SWC, even though the KRC group holds larger percentage of shares.