Company Law Board
Mr. Rohinten Mazda And Anr. vs Hypoids (India) Pvt. Ltd. on 15 March, 2004
Equivalent citations: (2004)3COMPLJ449(CLB), [2004]52SCL425(CLB)
ORDER
S. Balasubramanian, Chairman
1. The petitioners collectively holding 150 equity shares of Rs. 100/-each of the total issued capital of 750 equity shares of Rs. 100/- each have filed this petition under Section 235 of the Companies Act, 1956 (the Act) seeking for investigation into the affairs, of M/S Hypoids India Private Limited (the company).
2. The company was incorporated in 1973. The main business of the company was dealership/agents for Gleason Work, USA. The Agency was terminated in 1995/1996 and thereafter the company has not generated any new business and the income of the company consists of only interest on bank deposits and commission on residual contracts. The main complaints of the petitioners are that the respondent directors, by inflating the expenses of the company are siphoning of funds of the company and also they have been disposing of the valuable assets at throw away prices without any transparency giving rise to a strong presumption that there had been underhand dealings. Further, according to the petitioners, a sum of over Rs. 47 lacs had been written back out of creditors as income during the year ended 31st March, 2002 so as to show higher income and for siphoning of the funds. On these allegations, the petitioners have sought for investigation into the affairs of the company.
3. In their reply to the petition, the respondents have alleged that this petition has been filed only to blackmail the respondents with a view to pressurize them to purchase the shares of the petitioners at an exorbitant rate. It is a fact that the company is not doing any business after the agency with M/S Gleason Works was terminated. After the death of the founder of the company, Mr. Seaife, the company did not have any technical personnel and therefore no new business could be started. All the expenses shown in the annual accounts were for only to continue the uncompleted contracts under the normal course of business and no money has been siphoned of as alleged by the petitioners. As far as sale of assets of the company is concerned, it is submitted that the company had two premises in Bombay - one having 500 sq. ft. super built area and another 810 sq. ft. Since the company had no business, the Board of Directors decided to dispose of these two premises through brokers which is the normal practice in Bombay. One premise was sold for Rs. 10.25 lacs and another for Rs. 15 lacs and the consideration has been brought in the books of accounts of the company. There was no underhand dealing as far as the sale of these properties is concerned, as alleged by the petitioners. As far as writing back a sum of over Rs. 47 lacs is concerned, a sum of about Rs. 71.45 lacs was payable by the company to M/S Gleason Works and the company was to receive a sum of about Rs. 24 lacs from M/S Gleason. Since M/S Gleason had not reconciled its books of accounts, the company decided to set off the aforesaid entire sum of sundry debtors being bad debts against the part of the aforesaid sundry creditors thereby reducing the sundry creditors to the extent of the Rs. 47 lacs. Since the claim had become time barred, this amount was written of in the year 2002 after receiving legal advice. With this amount so written off, the company could declare an interim dividend of Rs. 120 lacs during the year 2001-2002 out of which the petitioners received Rs. 24.6 lacs as interim dividend. Therefore, there is no justification in the prayer of the petitioners seeking for an investigation into the affairs of the company.
4. In the hearing held on 25.2.2004, Shri Pawar, Chartered Accountant appearing for the petitioners submitted that this petition has been filed bonafide and in the interest of the shareholders to unearth the siphoning of funds of the company by the respondents. Even though the company has no business from 1996 onwards, it has been showing substantial expenditure year after year lading to a strong presumption that funds of the company are being siphoned off. The premises at Bombay are located in prime area and the company could have got much better prices. The company could have called for offers by advertisement or could have auctioned the premises so that there could have been transparency. Therefore, in selling the premises there should have been some underhand dealings which could be detected only by an investigation.
5. Shri Rajeev Goyal, Advocate appearing for the respondents submitted: The petitioners became shareholders of the company by inheritance of the shares held by their father and they never took any interest in the affairs of the company. They have never attended any of the general body meetings of the company. They desired to have their shares purchased by the respondents at an exorbitant price and that in mind they executed powers of attorney in favour of Shri R.D. Pawar. From the letter of Shri Pawar at Annexure R-1, it is evident that the petitioners did not wish to continue as shareholders and they had desired to sell their shares. When a meeting took place between Shri Pawar and respondents, it was suggested to him that the petitioners could move a resolution for voluntary winding up of the company in case they did not wish to continue as members. This is the provocation for filing this petition. None of the allegations made in the petition would warrant an investigation into the affairs of the company. All the annual accounts have been approved by the shareholders wherein the expenses incurred by the company have been clearly shown and audited. All theses expenses were incurred to keep the company going and the question of either siphoning or diversion of funds does not arise. As far as the premises are concerned, since the company has no viable business, it was decided to dispose of the properties at the prevailing market rate through brokers. The petitioners have not substantiated with any offers or details to allege that these premises could have got better prices. As far as writing back the credit balance is concerned, the petitioners also got benefit by way of interim dividend. No investigation can be ordered without particulars and on mere suspicion or surmises. Therefore this petition should be dismissed as done by the CLB in Punjab Agro Industries Corporation v. Superior Genetics (2002 1 CLJ 187).
6. I have considered the pleadings and arguments of the counsel. I quite agree with the submission of the learned counsel for the respondents that not only this petition is a motivated one but also is devoid of any merit. The averments in the rejoinder would indicate that the motive behind the petition is not with a view to get an order of investigation but to pressurize the respondents. In page 2 of the rejoinder, the petitioners have averred "The purpose for which this application is made is to get the rightful return on the investment made by the applicants - inherited by them". Further, other than voicing their suspicion that by showing high expenditure the respondents have siphoned of funds, the petitioners have not questioned either the quantum or the justification of any of the expenditure shown in the books of accounts. As for as sale of the premises is concerned, as rightly pointed by the learned counsel for the respondents, the petitioners have not substantiated their allegation with any concrete material that the premises could have got better prices even to presume that there could have been some underhand dealings. In regard to write off of the credit balance, the petitioners have not shown as to how the company or the shareholders have been in any way affected and as a matter of fact, that action has resulted in declaration of substantial dividends.
7. An order of investigation cannot be made on mere suspicions or surmises without proper material to enable this Bench to form an opinion that the affairs of the company require to be investigated. From the contents of the petition, it is not possible to form such an opinion for want of particulars and accordingly the petition is dismissed.