Company Law Board
Dr. Vinod K. Jain vs Bsi India Private Limited, Shri Suncan ... on 10 August, 2005
Equivalent citations: [2008]85SCL212(CLB)
ORDER
S. Balasubramanian, Chairman
1. The petitioner holding 5% equity shares in BSI India Private Ltd. (the company) has filed this petition under Sections 397/398 of the Companies Act, 1956(the Act) alleging oppression and mismanagement in the affairs of the company The main business of the company is ISO certification. The company is a subsidiary of IOL Investment B.V which holds 94.99% shares in the company. According to the petitioner, he was associated with the company since its incorporation in 1999 and was appointed as the managing director effective from 3.9.1999. to 2.9.2004. He was elected as a regular director in the AGM held on 2nd November, 2002. He was again appointed for a period of 5 years effective from 3.9.2004 to 2.9.2009 in the Board Meeting held on 16.8.2004. Since the petitioner is an expert in the field of Management Systems Assessment and Training, in his capacity as the managing director, he has been able to achieve tremendous growth in the business of the company as is evident from the fact that in the calendar year. 2004. the company had a turnover of Rs. 8.2 crores with a profit of about Rs. 2 crores. Because of the business potential of the company, the foreign shareholder/directors decided to take control of the company and accordingly, the 2nd respondent even offered the petitioner a package of Rs. 50 lacs for quitting from directorship. Since the petitioner was not willing to quit the company, the 2nd respondent threatened the petitioner that if he did not resign, he would be removed from his directorship/managing directorship. Apprehending his illegal removal, the petitioner filed a civil suit No. 68 of 2005 on 16.3.2005 seeking for permanent injunction against foreign directors from removing the petitioner. The foreign directors also threatened the other Indian director, Shri Anil Agarwal that it he did not cooperate with the foreign directors, they would remove him also from the Board. Shri Agarwal also has filed a civil suit No. 71 of 2005 seeking permanent injunction. After inordinate delay, the 1st and 2nd respondents filed their written statements before the civil court with which they had enclosed fabricated minutes of the Board Meeting purportedly held on 2nd March, 2005 at London where in resolutions had been passed to remove the petitioner as the managing director and also a copy of letter of removal allegedly sent to the petitioner. Neither the Board Meeting was actually held at London nor the petitioner had received the said letter of termination. In the suit filed by Shri Agarwal, the respondents filed their written statement enclosing therewith a copy of the letter terminating the services of Shri Agarwal. The removal of Shri Agarwal is against the provisions of the Companies Act. No notice for the Board Meetings in which the alleged decisions to remove the Indian directors was received by these Indian directors. All these minutes and the termination letters have been fabricated. Having removed the petitioner as the managing director, the respondents had also decided to hold an EOGM on 30.5.2005 to remove the petitioner and Shri Agarwal as directors. Due to the mismanagement on the part of the respondents, many of the employees have started leaving the company affecting the growth of the company. Thus, the respondents are guilty of oppression and mismanagement in the affairs of the company and accordingly the termination of the services of the petitioner as the managing director and Shri Agarwal should be declared as illegal and they should be reinstated and that the 2nd, 3rd and 4th respondents should be punished for being guilty of oppression and mismanagement.
2. When this petition was mentioned on 20.5.2005, the petitioner sought for staying the ensuing EGM on 30.5.2005 which I declined to do on the ground that the petitioner had already filed a civil suit on the same issue of removal as the managing director and removal as a director. The respondents were directed to file their replies to the petition by 15.6.2005 and rejoinder was to be filed on 25.6.2005 and the matter was posted for hearing on 25.7.2005. On 25.7.2005, the counsel appearing for the respondents submitted that since the petition is not maintainable, the respondents did not propose to file any reply to the petition and would argue on maintainability. Accordingly, the matter-was adjourned to 3.8.2005. On this day, the petitioner who was present in person, alleged that the EOGM held on 30.5.2005 cannot be held to be a valid meeting as the same was conducted on the basis of forged and fabricated authorization letters for appointment ,of proxies by the foreign shareholder. In view of this, he desired to file an application challenging the proceedings of the EOGM. However, Shri Sarkar appearing for the respondents objected to the same on the ground that the maintainability of the petition should be decided first. Accordingly, the matter was heard on 4.8.2005.
3. Shri Sarkar appearing for the respondents submitted that the substantive and the only allegation in the petition relates to the removal of the petitioner as the managing director and as a director. On this grievance, the petitioner has already filed a civil suit prior in time and the same is pending. Further, when the petitioner was appointed as the managing director and he was allotted 5% shares in the nature of employee stock option. Therefore, it is not a case of joint management or that of a quasi partnership. The right to hold the shares arose out of his employment and in terms of the appointment letter dated 19.7.1999, the company has the right to purchase the shares of the petitioner at par value on termination of his services. It is a settled law that complaints relating to employment or directorial complaints cannot be entertained in a petition under Sections 397/398 of the Act. Even though, the petitioner has alleged mismanagement, no particulars have been furnished and the alleged mismanagement relates only to removal of the petitioner. In addition to the civil suit, the petitioner has also lodged various criminal complaints against the respondents and the motive for filing the present petition is only to harass the foreign shareholder/directors. Since the ingredients of Sections 397/398 of the Act have not been satisfied, this petition should be dismissed as not maintainable.
4. However, Shri Sarkar submitted that with a view to buy peace, the foreign shareholders are willing to purchase the shares held by the petitioner either on a valuation to be made on the basis of the balance sheet as on 31.3.2004 when the company was under the management control of the petitioner or for a consolidated consideration of 60000 Pounds which according to the petitioner was offered to him earlier, provided the petitioner withdraws the civil suit and all other criminal complaints.
5. Shri Sahijpal, Advocate for the petitioner submitted. Since the respondents have elected not to file any reply, it should be presumed that they have admitted the allegations made in the petition and as such the reliefs sought should be granted. The petitioner can continue as a director as long he can lawfully. His removal is not in accordance with the provisions of the Companies Act. The EOGM was not legally held since the proxy holders had not been authorized by the shareholders and the shareholder's signatures had been forged. Even convening the EOGM is not in accordance with law. In terms of the employment letter dated 19.7.1999, the termination could be only "for cause". No cause has been shown. When the respondents have indulged in forgery and have fabricated documents, it is the duty of this Board to safeguard the interests of the company and the shareholders by granting the reliefs sought for. As far as the offer of Shri Sarkar to purchase the shares on the petitioner is concerned, the counsel submitted that the petitioner is not willing to withdraw either the civil suit or the criminal complaints and that if he accepts the offer, the same would be limited only to the present petition.
6. I have considered the matter carefully. The substantive allegation in the petition relates to the removal of the petitioner as the MD and all the illegalities alleged in the petition also revolve around the same matter, On this issue the petitioner has already filed a civil suit prior in time and the same is pending. The petitioner cannot prosecute a parallel proceeding on the same issue before this Bench. Further, Shri Sarkar is right in contending that neither employment grievances nor directorial complaints can be entertained in a petition under Sections 397/398 of the Act. However, this Board has always taken a view that in closely held family companies or companies in the nature of quasi partnership, if the circumstances so warrant, even employment/directorial complaints of a shareholders can be entertained. In the present case, as is evident from the employment letter dated 19th July, 1999, the petitioner was allotted 5% shares only because of his employment. In other words, he was not appointed as the MD by virtue of his being a shareholder. Therefore, neither the principle of partnership nor the principle of closely held company could be applied in the present case. A perusal of the allegations in the petition indicates that all allegations in the petition relate to his removal as managing director and as a director and also that of Shri Agarwal. There is no other allegation of either mismanagement or oppression of any other nature. Therefore, 1 am convinced that this petition under Sections 397/398 cannot be maintained and as such deserves to be dismissed. Accordingly I dismiss this petition.
7. However, since Shri Sarkar has offered to purchase me shares of the petitioner either on a valuation to be made by an independent valuer on the basis of balance sheet as on 31st March, 2004 or on a lump sum consideration of 60000 Pounds subject to the condition that the petitioner withdrew the civil suit and other criminal complaints, 1 give liberty to the petitioner to chose either of these options, if he so elects, subject to the condition that he withdraws the civil suit and other criminal complaints. In case, he elects either of the options, he should inform the respondents on or before 25th August. 2005 failing which the liberty granted will lapse. If the petitioner chooses any of the options. the same will be binding on the respondents.
8. Before parting with this order, I would like to mention that on 4.8.2005, that is at the conclusion of the hearing, the petitioner filed an amended pention incorporating therein some additional allegations more particularly with reference to the EOGM. Since the learned counsel for the petitioner had already argued on the same, the amended petition has become infructous.