Bangalore District Court
Fusion Software Engineering vs Vijay R.Doshi S/O Ramanlal Doshi on 27 February, 2017
IN THE COURT OF THE III ADDL.CITY CIVIL & SESSIONS
JUDGE, BENGALURU CITY (C.C.H.No.25).
Dated: This the 27th day of February 2017
Present: Sri.Ron Vasudev, B.Com. LL.B, (Spl),
III Addl. City Civil & Sessions Judge,
Bengaluru.
O.S.No:6160/2000
Plaintiffs 1. FUSION SOFTWARE ENGINEERING
PRIVATE LIMITED
a Company incorporated under the
provisions of the Companies Act,
1956, having its Regd. Office at
No.104/A, 4th Cross, Electronic City,
Hosur Road, Bangalore-561229,
Represented herein by its Director
A.Narasimhan.
2. Ramesh Santanam S/o K.V.Santanam,
Major, Managing Director, Fusion
Software Engineering Private Limited,
No.104/A, 4th Cross, Electronic City,
Hosur, Bangalore-561 229.
3. A.Narasimhan S/o Anantharangachar,
Major, Director, Fusion Software
Engineering Private Limited,
th
No.104/A, 4 Cross, Electronic City,
Hosur, Bangalore-561 229.
4. B.Venkatesh S/o B.C.Balasubramaniam,
Major, Director, Fusion Software
Engineering Private Limited,
th
No.104/A, 4 Cross, Electronic City,
Hosur, Bangalore-561 229.
(By Sri.SAR, Advocate)
2 O.S.No:6160/2000
V/S
Defendants 1. Vijay R.Doshi S/o Ramanlal Doshi,
Major, C/o M.D.Holdings Private
Limited, G 3, Mangal Adesh, 4th
Road, Santa Cruz (East), Mumbai-
400 005.
2. Maya Doshi W/o Vijay R.Doshi,
Major, C/o M.D. Holdings Private
Limited, G 3, Mangal Adesh, 4th
Road, Santa Cruz (East), Mumbai-
400 005.
3. Ramanlal C.Doshi, Father's name
not known to plaintiffs, Major, C/o
M.D.Holdings Private Limited, G 3,
Mangal Adesh, 4th Road, Santa Cruz
(East), Mumbai-400 005.
(D1 & D2 by Sri.KSM, Advocate)
(D3 by Sri.PGB, Advocate)
Date of Institution : 11.9.2000
Nature of Suit : Suit for declaration and for
consequential relief of
permanent injunction
Date of Commencement of : 16.3.2016
evidence
Date of pronouncement of : 27.2.2017
Judgment
Total Duration : Year/s Month/s Day/s
16 5 16
(Ron Vasudev),
III Addl. City Civil & Sessions Judge,
Bengaluru.
3 O.S.No:6160/2000
JUDGEMENT
This is a suit for declaration and consequential relief of permanent injunction.
2. In gist the contents of the plaint are that; the plaintiff no.1 is a Company incorporated under the provisions of the Companies Act, 1956 having it's registered office at the address shown in the cause title (hereinafter in short referred to as Co) and it is represented by plaintiff no.3. The plaintiffs 2 to 4 are the directors and shareholders of the Co. That Co is a hundred percentage Export Oriented Unit (EOU) carrying on the business in export of systems and applications software, and it deals in system designs, software engineering etc. Further it is engaged in the business of consultancy in the field of computerization and development of software packages outside India. When this Co was incorporated on 4.11.1992 the plaintiff no.2 and defendant no.1 were it's founder directors and each had initially subscribed to 100 shares in the capital of the Co and it had an authorized share capital of Rs.3 crores of Rs.100/- each. The issued share capital was Rs.78,75,000/- divided into 78750 shares. The shareholding pattern of the Co as on 21.3.2000 was as follows:
i) Ramsoft Technologies Pvt. Ltd. 28,900 shares
ii) M.D.Holdings Pvt. Ltd 16,700 shares
iii) Ramesh Santhanam 16,100 shares
iv) Vijay R. Doshi 100 shares
v) A.Narasimhan 7,500 shares 4 O.S.No:6160/2000
vi) B.Venkatesh 7,500 shares
vii) Employees of plaintiff company 2,950 shares Total 78,750 shares
3. That the said Ramsoft Technologies Pvt. Ltd., is owned and controlled by a group of software engineers viz; plaintiffs 2 to 4 whereas M/S M.D. Holdings Pvt. Ltd., is owned and controlled by defendants 1 and 2. The Co has earned a excellent reputation both in local as well as in international markets and it's performance has improved substantially over the years. The plaintiffs 2 to 4 are the shareholders of the Co and they have invested their huge money and are effectively involved in it's development. That the defendant no.1 never contributed in it's development and management as he is the permanment resident of Mumbai and he occasionally used to attend board meetings at Bangalore. During 1998 the defendant no.1 was the Chairman of the Board of Directors of Co and in the month of September 1998 when Co was finalizing certain negotiations with M/s K.B.S. Capital Management Limited, a private placement agency, for it's expansion, then the defendant no.1 revealed to other board of directors that he has entered into a Memorandum of Understanding (MOU) with one Smt.Arti Vora on 20.6.1988 and appraised that he has also undertaken under the said MOU to pay interest at the rate of 15% p.a. on the amounts borrowed from her and he further represented the said MOU has been entered on behalf of Co as well as M/s M.D. Holdings Pvt. Ltd. The defendant no.1 further revealed that he had executed several documents purportedly 5 O.S.No:6160/2000 on behalf of Co in favour of said Smt.Arti Vora and her husband/Pramod Maganlal Vora, though he had no scuh authority or power to do so. The board of directors of Co never authorized the defendant no.1 either to execute or to enter into such transactions on behalf of Co with the said Pramod Maganlal or Smt.Arti Vora. Subsequently on the strength of those documents the said Pramod Maganlal Vora attempted to meddle with the affairs of Co without any authority either of the general body of Co or the board of directors. Infact the said Vora convened a board meeting of Co though he was not it's director and regarding which the two directors of the Co filed O.S.8898/98 for permanent injunction and for other consequential reliefs against the said Pramod Maganlal Vora and three others to restrain them from holding out or claiming to be the directors of Co. In that suit, exparte temporary injunction was granted on 19.11.1998 and later through further interim order dt.3.12.1998 the plaintiffs 3 and 4 were empowered to represent the Co and operate it's bank account. In the mean while on account of his misdeeds the defendant no.1 tendered his resignation on his own on 16.11.1998 as a director of Co and in the board meeting held on the very same day it was accepted. His original resignation letter is produced in the said O.S.8898/98. Thus w.e.f. 16.11.1998 the defendant no.1 ceased to be the director of the Co and regarding which Form No-32 was also filed on 24.11.1998 as per the provisions of the Companies Act, 1956. Immediately thereafter Co informed all it's bankers, clients and others about his 6 O.S.No:6160/2000 resignation and accordingly he too did not attend the subsequent board meetings of Co. The defendants 2 and 3 are neither the shareholders nor the directors of Co and they have no relationship of whatsoever nature with it. That the Co has borrowed money from Karnataka State Industrial Investment and Development Corporation Limited (KSIIDC) so on resignation of the defendant no.1 in order to discharge the said loan and redeem the shares pledged with it, the Co had arranged funds and in connection with the same when directors of Co called the KSIIDC, they were shocked to learn that a notice has been received by it from the advocate by name M.S.Udeshi of Mumbai enclosing an unsigned and undated notice allegedly issued by defendant no.1 purporting to act as a Chairman of Co and convening the meeting of board of directors on 16.9.2000 at 5 p.m. In the meanwhile a notice bearing No;GEN/279/2000 dated 22.8.2000 was received by the plaintiffs' advocate and it was replied on 28.8.2000 thereupon one more letter dt.6.9.2000 was received through fax and it was also replied by plaintiffs advocate on 7.9.2000. Then all of a sudden on 28.8.2000 the defendant no.1 issued notice calling for a meeting of board of directors to be held on 16.9.2000 at Mumbai and the said notice was also sent to KSIIDC and to the plaintiffs advocate. In the said notice the defendant no.1 again holding himself as the Chairman of the Board of Directors of Co and referring to defendants 2 and 3 as other directors of it, mentioned two agendas viz;
7 O.S.No:6160/2000(1) to recall from KSIIDC the guarantee furnished by the 1st defendant and the pledge of his shares to KSIIDC. (2) for consideration of the 'disqualification' of the present directors of the company on account of their alleged fraudulent conduct.
4. After ceasing to be a director of the Co and on tendering his resignation on 16.11.1998, the defendant no.1 had no right, interest or authority in the Co, but he is attempting to meddle with the affairs of the Co and in the attempt to thwart it's smooth progress. The defendant no.1 has no business to issue such illegal notice claiming himself as Chairman and defendants 2 and 3 as directors of Co, which is against the true facts. As a result the KSIIDC refused to release all the shares pledged with it. The plaintiffs seriously apprehend that the defendants are likely to hold out themselves as Chairman and Directors of Co to the third parties, bankers and clients with a calculated intention to injure the reputation of Co. The said acts are likely to affect the functioning of Co. Thus by his illegal acts and deeds the defendant no.1 is working against the interest of Co and he is trying to create confusion amongst the clients and bankers. Even the defendant no.1 sent certain communications to the State Bank of Mysore making false claim and because of which the said bank has sought an explanation from the Co and it has stopped the operation of the account in it's bank. That the Co has engaged large number of software engineers and employees and in the event if it's commitments are no 8 O.S.No:6160/2000 honoured, it's customers and staffs will suffer greatly, including the Co. The cause of action for the suit arose on 16.11.1998 when defendant no.1 tendered his resignation as a director to the board of directors of Co and on 24.11.1998 when Co filed Form No.32 before the Registrar of Companies and it also arose when the advocate for the plaintiffs received notices and replied them. Wherefore the plaintiffs pray for the reliefs of declaration to declare that defendant no.1 is not the director or chairman of the Co; that the defendants 2 and 3 are not the directors of Co; consequently for the relief of permanent injunctions to restrain the defendant no.1 from holding out or claiming or acting or doing any steps as a director or chairman of Co and to further restrain the defendants 2 and 3 from holding out or claiming or acting or doing any steps as directors of Co.
5. The defendants 1 and 2 appeared through their advocate and have filed their common written statement and summary of it is as under;
it is true that the Co is incorporated on 4.11.1992 under the provisions of the Companies Act and it is an EOU having it's registered office at Electronic City, Bangalore and plaintiffs 2 to 4 are other directors and shareholders of the said Co. It is also true that the defendant no.1 was a founder director of the Co and it's authorized capital is Rs.3 crores divided in to Rs.100/- shares each. It is also true that plaintiff no.2 was the managing director and plaintiffs 3 and 4 are the directors, however the shareholding pattern shown in para-5 of the plaint is denied.
9 O.S.No:6160/2000That M/s M.D. Holdings Private Limited, which is established by this defendant no.1 is holding 18000 shares and not 16700 shares as alleged in the plaint. It is true that M/s Ramsoft Technology Private Ltd., is owned and controlled by Group of Engineers viz; plaintiffs 2 to 4 and M/s M.D. Holdings Private Ltd., is exclusively owned and controlled by the defendants 1 and 2. In view of the above in Co the defendant no.1 has substantial shares and when he was the director of said company it earned lot of name and fame in the international market and it's performance was improved over the years. In addition to investing his huge sum in day to day running of affairs of the Co, the defendant no.1 struggled hard to develop it in the international market. It is denied that since the defendant no.1 was permanent resident of Mumbai he was hardly participating in the affairs of the Co by occasionally visiting Bangalore. It is true that this defendant no.1 was the chairman of the Co in 1998, but it is denied that during that year when accounts were being finalized by negotiating with M/s K.B.S. Capital Management Ltd., a private placement agency, this defendant no.1 revealed to other members of the board that he has entered into MOU with Mrs.Arti Vora on 20.6.1998 and further that he has agreed to pay 15% interest p.a. on the amount borrowed that too on behalf of the Co. It is also denied that on the strength of those documents Mr.Pramod Vora attempted to meddle with the affairs and management of the Co and even he tried to convene the general body meeting. It is specifically denied that on account 10 O.S.No:6160/2000 of misdeeds committed by this defendant no.1, he voluntarily tendered his resignation on 16.11.1998 as a director and in the meeting held on the same day it was accepted by the board of directors. The true fact is that the resignation of this defendant no.1 was obtained by force and under pressure and even he was forced to vacate the office of director. Thereafter the Co has done other formalities without the knowledge and consent of this defendant no.1. That Co played fraud on this defendant no.1 in obtaining his resignation and thereby he is ousted from the board meeting subsequent to 16.11.1998. The resignation of defendant no.1 was obtained by adopting cunning and crooked methods by other directors of the Co with an intention to make wrongful gain for themselves and to cause wrongful loss to him. Infact a letter dt.8.12.1998 was issued appointing the defendant no.2 as a director of the Co, but no action was taken thereafter indicating the fraudulent intention of the Co and it's directors. As this defendant no.1 is out of board of that Co the directors viz; plaintiffs 2 to 4, who are having dominion over the affairs of the said Co have started transferring it's business to other enterprises with an intention to cause loss to the Co and thereby to cause loss to this defendant no.1 as he is a major shareholder. The Co, which was struggling for it's survival, achieved first breakthrough by getting a software order from UBS, one of the largest Swiss Bank with 25% advance in 1997 when this defendant no.1 was it's chairman and again in the year 1998-99 Co wanted to go public and KBS Capital Management Private Ltd., was appointed as Merchant 11 O.S.No:6160/2000 Banker. During the tenure of defendant no.1 as a director of the Co, it was able to own 20000 sq. ft development center in 1 acre plot at Electronic City, Bangalore and was able to earn Rs.3.7 crores with net profit of Rs.1.18 crores in the year 1998-
99. However thereafter year by year it's profits have steadily declining because of the mismanagement and willful negligence on the part of the present directors. Further the present directors have manipulated the documents in such a way that reserves and surplus of the Co are diminished and now it has reached a stage with minus Rs.20 lakhs as it's reserves. Even in the golden period of Software Engineers between 1999 to 2007 the Co suffered loss on account of mishandling of it's affairs. It is true that Co has borrowed loan from KSIIDC for it's expansion by pledging the shares of defendant no.1's company viz; M/s M.D. Holdings Pvt. Ltd. When the said 18000 shares of said M/s M.D. Holdings Pvt Ltd., are absolute shares of defendant no.1, the Co cannot misuse those shares. Now in collusion with the said creditor the Co is playing fraud and shares of M/s M.D. Holdings are withheld without any reason. The defendant no.1 is entitled to get back his shares pledged with KSIIDC after due repayment of debts by Co, but intentionally the said loan is not repaid by the plaintiffs. In view of the same the defendant no.1 shall to be reintroduced as a director of the Co so as to set right the things. That during the year 1999-2000, 2001-02, 2002-03, the data entry and program charges were paid to the tune of Rs.16 lakhs, Rs.20 lakhs and Rs.33 lakhs respectively to the company owned by 12 O.S.No:6160/2000 plaintiffs 2 to 4. Apart from that plaintiffs 2 to 4 have received their remuneration at Rs.24 lakhs, Rs.28.80 lakhs and Rs.13.05 lakhs respectively during the said three years though Co was not making substantial profits and it's sales were declining continuously. Having resigned as directors of the Co in the year 2003-04 the plaintiffs 2 to 4 once again became it's directors. The bad debts of the associates/subsidiary companies such as Fusion Technologies, USA, Fusion Software, SA were written off during the year 1999-2000 to 2000-01 to the tune of Rs.76,44,755/- without assigning any reason nor supported by any board resolution. This was done when the plaintiffs 2 to 4 had stepped out as the directors of the Co and in their place Murali Gopalan and Shankar Prasad had taken charge of the Co as directors. The advance amount paid to Rickambach & Partner for a sum of Rs.11,58,420/- in the year 2000-01 was disappeared in the subsequent year and all these malpractices were committed by the plaintiffs 2 to 4 with a sole intention to show that Co has suffered loss with ultimate intention to cause loss to this defendant no.1. The balance sheet of Ramsoft Technologies and Chips during the period 1988-99 to 2007-08 is as under:
No Year Sales Net Share Reserves Programming Directors profits/ capital & Surplus & Data Entry remarks Loss Charges (Ramsoft & Chips) I 1998-99 3.87 Crs 1.18 Crs 63.60L 1.44 Crs Rs.24.15L II 99-2000 2.41 Crs (-)23.48 76.20L 1.24 Cr 1600000 2880000 Lacs III 2000-01 1.60 Crs (-)52.56 L 78.00L 66.52L Nil 1350323 IV 2001-02 77.95L (-)17.30 L 78.00L 40.04L 52.73L 6.63 L V 2002-03 1.11 Crs (-)9.17 L 78.00L 40.04L 52.73L 6.63L 13 O.S.No:6160/2000 VI 2003-04 26.19L (-)17.40L 78.00L 21.32L 3.60L 2.45L 7.50L on site service charges VII 2004-05 Nil 78.00L 1.81L VIII 2005-06 Nil (-)13.68L IX 2006-07 (-)16.73L X 2007-08 (-)20.09L From the above it is evident that the plaintiffs 2 to 4 are mismanaging the affairs of the Co and they have not come to the court with clean hands, wherefore the defendants 1 and 2 pray to dismiss the suit with costs.
6. The defendant no.3 nevertheless appeared through his advocate, he has not taken interest to contest the suit. During the cross-examination of PW1 it was elicited that, the said defendant is no-more, but strangely it was not reported by either party at any point of time. Since cause of action will not survive to the heirs of the deceased defendant no.3,it has no consequences in this case. Added to that as per Order 22 Rule 4 (4) of CPC, since the defendant no.3 has not filed any written statement, there is no obligation on the part of plaintiffs to bring his L.Rs on record.
7. Based on the said pleadings, following issues are framed;
ISSUES
1. Whether plaintiffs prove that on 16.11.1998 defendant no.1 voluntarily tendered his 14 O.S.No:6160/2000 resignation as a Director of the plaintiff no.1 company?
2. Whether defendant no.1 prove that plaintiffs no.2 to 4 are mis-managing the affairs of the company?
3. Whether plaintiffs prove that defendant no.2 and 3 have no manner of right or interest in the affairs of plaintiff No.1 company?
4. Whether plaintiffs prove that defendants are meddling in the affairs of the plaintiff no.1 company illegally.
5. Whether the plaintiffs are entitled for the reliefs of declarations and injunctions as prayed for?
6. What order or decree?
8. In support of their case plaintiffs examined 4th plaintiff as PW1 and in all 36 documents are marked on their behalf. Due to oversight during the cross-examination of DW1 on 8.8.2016 true copy of undated notice is marked as Ex.P34 instead as Ex.P36 and through this order office is directed to correct it's exhibit number on the said exhibit as well as in the evidence of DW1. On the other hand the defendant no.1 examined himself as DW1 and three documents are marked on his behalf. During the cross-examination of DW1, Ex.C1 to C4 are marked. Heard the arguments of Sri.NM, Advocate for 15 O.S.No:6160/2000 plaintiffs, Sri.KSM, and Smt.CSK, Advocates for defendants 1 and 2. Perused their written arguments and the decisions relied by them.
9. My findings on the above issues are as under:
Issue No.1 - In the affirmative Issue No.2 - In the negative Issue No.3 - In the affirmative Issue No.4 - In the affirmative Issue no.5 - In the affirmative Issue No.6 - As per final order, for the following;
REASONS Issue No.1:
10. On reading this issue it is crystal clear that it throws burden on the plaintiffs to prove that the defendant no.1 voluntarily tendered his resignation to the directorship of Co and in the event if they are able to discharge their initial burden with convincing and cogent evidence, then only the onus will shift to the defendants 1 and 2 to prove the contrary i.e., the said resignation is laced with cunning and crocked methods adopted by the plaintiffs 2 to 4 and further that fraud was played on defendant no.1 by Co in obtaining his resignation. This being the well settled proposition of law, in order to give my findings on issue in hand invariably I have to examine whether the plaintiffs have placed enough evidence, oral as well as documentary, in support of their said contention.
16 O.S.No:6160/200011. In that regard reiterating the plaint averments PW1 deposed that the defendant no.1 voluntarily tendered his resignation and no pressure or undue influence was exerted on him and on the date of his resignation only it was accepted by the Board of Directors (hereinafter in short referred to as BOD) and Form No:32 was filed by the Co in due course reporting his resignation to the Registrar of Companies (ROC). In support of that oral evidence plaintiffs have produced his original resignation letter at Ex.P22 and for the sake of convenience it is extracted as below:
16th November, 1998 The Board of Directors, Fusion Software Enginee3ring Pvt. Ltd., 4/1, 22nd Cross, 8th Main, 3rd Block, Jayanagar, Bangalore-560 011.
I hereby resign from the office of Director of the Company, Fusion Software Engineering Pvt. Ltd., with immediate effect.
Thanking you and wish you all the best.
Yours Sincerely,
-Sd-
Vijay R Doshi 502, Ocenous Opp. Juhu Post Office, Juhu, Mumbai-400 049.17 O.S.No:6160/2000
If one reads the said simple two sentences letter one cannot say that it is either ambiguous or difficult to understand. While resigning from his office the defendant no.1 also wished the BOD of Co. It is pertinent to note that by writing the words "with immediate effect" he clarified his intention to step down without any further time and that too unconditionally. Added to this it is signed by him and he admitted his signature in the cross-examination dt.6.8.2016 as a result it was marked as Ex.P22(a). The purpose of extracting the entire resignation letter is to show that it did not put any pre-condition or even by mistake it won't reflect any sign of pressure or threat that might have exerted on him.
12. To appreciate the said document further, one has to refer to the minutes of the BOD held on 16.11.1998 at 3 p.m. in the registered office of Co at Bangalore. The said document is produced at Ex.P27. It shows that the said meeting was attended by plaintiffs no.3 and 4 as well as invitees viz; this defendant no.1, Auditor of the Co and Consulting Company Secretary. In that meeting discussion took place on the copy of the resignation letter sent by the defendant no.1 on 2.11.1998 to the office of director. Prior to that the meeting was noted the absence of plaintiff no.2 and minutes of the previous meeting dt.6.10.1998 were read and signed. Thereafter having long deliberation it was resolved to take legal action against the Jaswanth Mehta and Pramod Vora, who were claiming themselves as directors and chairman of the Co and since the defendant no.1 had sent his resignation letter through fax as 18 O.S.No:6160/2000 evidenced by Ex.P21(a) Board felt that it is invalid and asked him to furnish the original letter. As a result the defendant no.1 tendered the Ex.P22 with date as 16.11.1998 in the meeting itself and it was immediately accepted as requested in it and defendant no.1 was relieved from the office of director. It is interesting that in that meeting itself the defendant no.1 requested to appoint his nominee/defendant no.2 as an additional director of the board, but he was told to give his requisition in writing. It was also clarified that regarding his request to appoint additional director matter would be placed before the board in the next meeting with a request to him not to do any act which would prejudice the interest of Co.
13. The said Ex.P27 was marked by further examining the PW1 and while exhibiting this document the defendants did not take any objection. During his cross-exam DW1 admitted that he attended the said board meeting and in his presence discussion took place. The said admissions can be seen on page no.18 and 19 of his cross-exam. In other words so far as presence of defendant no.1 in that board meeting is concerned there is no dispute. I would explain the importance of this Ex.P27 when I take up the defence of defendant no.1 and 2, but at this stage it is suffice to say that the resignation tendered by defendant no.1 in that meeting in lieu of his original letter of resignation dt.2.11.1998, without any hesitation it can be said that his said letter was received and accepted by the BOD that too in his presence.
19 O.S.No:6160/200014. It may be noted that even before tendering his resignation on 16.11.1998 this defendant no.1 had sent letter dt.12.11.1998, written in his own hand writing, to the plaintiff no.3 as per Ex.P21. In the said letter stating that in accordance with the discussion which he had with him he is sending some copies of the letters appointing Pramod Vora, Jaswanth Mehta and Chetan Metha as directors of the Co and his resignation letter, so that he can ceased to be the director of the Co. Thus the said Ex.P21 contained four annexures and of them the first annexure is copy of the purported resolution passed by Board in the meeting held on 15.10.1998 at 12 noon and in the said meeting the defendant no.1 describing himself as representative of BOD resolved to induct Mr.Pramod Vora as an additional director of the Co. The said minute does not contain where that meeting was held and who else had attended it. The second annexure is the resignation letter of this defendant no.1, which is marked as Ex.P21(a), wherein expressing that due to his personal reason it would be no-longer possible for him to continue as a member of the BOD, the defendant no.1 requested the chaiman/BOD to relieve him of his office of director at an earliest. The third annexure is purported resolution passed in the meeting of BOD allegedly held on 2.11.1998 at 10 a.m., again without disclosing the venue and who had attended that meeting, but on that day it was resolved that Mr.Jaswant Mehta and Chetan Mehta are appointed as additional directors unanimously for their life and interestingly in the said resolution as well as in the resolution 20 O.S.No:6160/2000 dt.15.10.1998 all those additional directors viz; Pramod Vora, Jaswant Mehta and Chetan Mehta were given an option to transfer their appointment at any time to another candidate of their choice under the terms and conditions, which were applied to them. Again in another alleged BOD meeting dt.2.11.1998 as usual without furnishing the details of venue and the persons who attended it the defendant no.1 for and on behalf of BOD resolved that since his resignation letter dt.2.11.1998 was accepted by BOD he ceases to be the director of the Co. No-doubt the defendant no.1 disputed in sending the Ex.P21 as well it's annexures and distanced himself from the said documents, but that will not deter the court in finding out the real truth. I would explain how these documents were emanated from him. Regarding this I can straight away take to Ex.P24. It is the certified copy of the judgement passed in O.S.8898/98. It may be noted that when Co received letter as per Ex.P21, being shocked by the same and realizing that if they keep quite further, things would get worsen, as I referred above in the BOD meeting dt.16.11.98, by passing necessary resolution, Co took decision to take legal action against the so- called additional directors viz; Pramod Vora, Jaswant Mehta and Chetan Mehta and immediately it filed a suit on 19.11.1998 for the relief of declaration and for permanent injunction at O.S.8898/98. In the said suit Co sought declaration to declare that the said three persons as well as Smt.Arthi Vora (wife of defendant no.1) i.e., the defendants of that suit, are not the directors or it's shareholders and sought permanent injunction 21 O.S.No:6160/2000 against them from holding out, claiming, acting or taking any steps as it's directors. As could be seen from the copy of that judgement in that case only Mr.Pramod Magalal Vora (defendant no.1) appeared, filed his written statement, whereas other defendants viz; Smt. Arti Vora, Chetan Mehta and Jaswant Mehta were placed exparte and on the failure of the defendant no.1 to turn up for cross-examination of PW1 of that case, the said court decreed that suit on 28.2.2009. It is not that the defendant no.1 was unaware of the said suit and proceedings of it. The very causing of notice by his advocate Mr.M.S.Udeshi on 28.2.2000 as per Ex.P4, extensively referring to the pleadings of that suit, would show that this defendant no.1 was very much aware of that suit in 2000 itself. In the pleadings of that suit also Co referred to the Ex.P21 and the annexures received with it, but even then as on the date of his cross-examination in this suit the defendant no.1 did not take any action against any of the plaintiffs herein, either civil or criminal, alleging that the documents are concocted or got up one. Instead it is brought out in the cross-examination of DW1 that he attempted to become an additional defendant in that suit and was unsuccessful. It shows that the Ex.P21 is not a cocked up document by plaintiffs nor the annexures sent along with it. I would demonstrate this when I take up the cross- examination of DW1 further.
15. Having made this discussion now I would come back to Ex.P27. While discussing on that document I referred to one of the minutes of that meeting i.e., in accepting the minutes of 22 O.S.No:6160/2000 the previous meeting dt.6.10.1998. It indicates that in between 6.10.1998 and 16.11.1998 no other board meeting of Co was held. If at all such meeting was held during that intervening period, the defendants 1 and 2 ought to have cross-examined the PW1, but obviously no such suggestion was made during his cross-examination. So it goes without saying that the so- called resolutions of BOD meetings dt.15.10.1998 and 2.11.1998 are nothing but bogus documents. Perhaps it was the main cause why defendant no.1 distanced himself from Ex.P21 and it's annexures. If at all he had no role in scribing the Ex.P21 or sending the enclosures along with it, he should have retorted on 16.11.1998 itself when BOD made reference to his resignation dt.2.11.1998, sent by fax. The silence on the part of defendant no.1 in that Board meeting is enough to indicate that it is he who was the master mind behind sending such copy of resignation on 2.11.1998 and as it was not accepted by the board on 16.11.1998, he tendered his resignation as per Ex.P22.
16. The fact that the Co sent Form No:32 as per Ex.P26 and obtained the acknowledgement from the ROC on 24.11.1998 would show that in accordance with the resignation tendered by him and having accepted it, the Co also followed other legal formalities. While exhibiting this Ex.P26 the defendant no.1 took objection stating that the alleged acknowledgement of ROC pasted on it is not a genuine, so the whole document is unacceptable one. It is interesting that though the defendant no.1 was wise enough to object that 23 O.S.No:6160/2000 document on that ground, he intelligently kept quite when annual reports of the Co were marked as Ex.P2, which also contains a similar such acknowledgement pasted on it. Such inconsistent behavior of a litigant cannot be accepted. He cannot blow hot and cold depending upon the circumstances he likes. Wherefore the objections raised by the defendants with reference to Ex.P26 is rejected and I hold that it is perfectly valid and court can rely upon the same. Even assuming for a moment that the said document is concocted one, the defendant no.1 did not take the corresponding objection to the minutes book produced at Ex.P23, because subsequent to 24.11.1998 several meetings were held, enough number of resolutions were passed by the Co in the absence of defendant no.1 or his men. The purpose of referring to the Ex.P23 is that he cannot attack a document in isolation without touching other documents. When an objection is raised with reference to a document the same has to be carried throughout, whenever that document influences the other documents.
17. In the cross-examination of PW1 an unsuccessful attempt was made by the defendants 1 and 2 by suggesting that the defendant no.1 did not resign so far and still he continues to be the director of Co, which is quite contrary to the written statement claim. He was also cross-examined by questioning whether the consent of KSIIDC was obtained before accepting the resignation of defendant no.1 or on accepting his resignation was it communicated to the said creditor as it was mandatory in terms of the agreement entered 24 O.S.No:6160/2000 with it, but throughout his cross-examination no suggestion was made stating that by playing fraud or adopting cunning and crocked method the resignation of defendant no.1 was obtained. Of-course a suggestion was made that Co had agreed to issue preference shares and it also lured the defendant no.1 by offering directorship to his wife (defendant no.2). Apart from that by referring to the Articles of Association of the Co produced at Ex.P1 it was also suggested that as defendant no.1 was a permanent director of the Co, he could not have been removed from his office. I am reserving my observations on these points for the time being, but at this juncture the oral and documentary evidence placed by the plaintiffs is sufficient to show that defendant no.1 voluntarily tendered his resignation and he was no under any threat or duress. If this primary finding is arrived now I have to advert to the evidence placed by the defendant no.1 to find out whether is he able to demonstrate that Ex.P22 is an outcome of misrepresentation or fraud by discharging his onus.
18. It is very easy to allege fraud, misrepresentation, coercion or undue influence etc., but whenever such an allegation is made it is duty of the party who makes such allegation to plead them properly by placing all the elements which constitute such fraud or misrepresentation or undue influence etc. That is the basic requirement of pleading U/O 6 Rule 4 of CPC. In the instant case I find that defendant no.1 is not sure how he has to present his case. At one stage he submitted that Co played fraud on him and it obtained his 25 O.S.No:6160/2000 resignation and in another breath he submitted that he was forced to resign by adopting cunning and crocked methods. Pleadings to this effect can be seen in para-8 of his written statement. Thus it is seen that he attacks the Co viz; the juristic person, attributing that it also played fraud, which is quite unbelievable. One can understand commission of fraud by an individual, but not by juristic person. Moreover the said pleading is not enough to bring in the elements of fraud. If I turn to the cunning and crocked method said to have been adopted by other directors again I find that there is a total inadequacy of elements of such methods which would have tempted the defendant no.1 to tender his resignation.
19. It is not that the defendant no.1 is an illiterate and uneducated to be susceptible for such fraud or duress. As elicited in the beginning of his cross-exam he is a Charted Accountant by profession and he replied that he can read and write the English comfortably. He admitted his signature on Ex.P22, but when his attention was drawn to Ex.P21 he choose to answer evasively by stating that now he do not remember whether he himself wrote that document and signed it. It is material to note that he did not disown the said hand writings and signature in clear terms. Wherefore once again I refer to Ex.P21 which is in his hand writing and contains his signature. If the defendant no.1 was quite sure that it was not written by him and he did not sing it, he should have bluntly refused by denying the handwritings and signature. What it shows is that 26 O.S.No:6160/2000 he is not a man of truth and he can change his stance as per his whims and fancies.
20. As I said earlier on page no.15 of his cross-exam he categorically stated that he is familiar in reading and writing English language and before he sign that Ex.P22 he read and understood it's contents. Then giving some what different explanation he replied that he was under pressure so he resigned. If really such pressure was exerted by the directors of the BOD on 16.11.1998, it should have been reflected in Ex.P27. Atleast the defendant no.1 ought not to have kept quite till August 2000 to issue notice through his advocate Mr.Udeshi. On page no.16 of his cross-exam when his attention drawn to many of his voluntary explanations and was questioned that they are not pleaded in the written statement, he shrewdly replied that he does not know how they slipped out from his attention in disclosing them in their written statement. It was elicited that he had incurred financial commitments and because of that he was under mental pressure that too when right and bonus shares were not issued by the Co.
21. If one reads their written statement and the evidence of DW1 lot of variance in the pleading and proof can be seen. For the first time making lot of improvements in his evidence, i.e., without the support of corresponding pleading, in his examination chief DW1 stated that 12000 Co shares held by M/s M.S. Holdings Private Limited were transferred to M/s 27 O.S.No:6160/2000 Ramsoft Technologies Private Limited controlled by plaintiffs 2 to 4, subject to condition that bonus shares in the form of right and preferential shares will be issued soon and regarding this letter was written to him by M/s Ramsoft Technologies Private Limited on 20.2.1998 and it was signed by plaintiff no.2. He produced the same and got it marked as Ex.D2. Thus basing on that letter cum so-called agreement, he went on depose that since the said letter/agreement was not adhered to by the plaintiffs 2 to 4, he was under tremendous pressure and the plaintiffs had assured that they would issue right/preference shares in the event if he resigns so with a pre-condition to induct his wife (defendant no.2) as an additional director in the Co Board, he tendered his resignation as per Ex.P22. In order to show that such assurances were made to him he got marked Ex.D2 and D3. Of them the Ex.D2 is dt.20.2.1998 and Ex.D3 is dt.8.12.1998. Basing on these Ex.D2 and D3 lot of arguments were canvassed by defendants 1 and 2 and they went on cross- examining PW1 so as to create a platform for defendant no.1 to show that he did not resign on his own. Here I would like to say one thing that regarding these aspects there is no proper pleading. Even ignoring this aspect if the said documents are gone through the fallacy of defence stands get exposed. Admittedly Ex.D2, which is in the letter head of M/s Ramsoft Technologies Private Limited, does not indicate that it was so written by plaintiff no.2 as a director or managing director of plaintiff Co. Moreover as admitted by DW1 during his cross- exam there was no board meeting of the Co taking such 28 O.S.No:6160/2000 decision to issue right/preference shares nor he made correspondence with Co when they were not issued. In such an event it is difficult to imagine that based on the letter written by plaintiff no.2 as a representative of another Co i.e., M/s Ramsoft Technologies Private Limited, only on the reason that plaintiff no.2 is also director of plaintiff Co, the defendant no.1 believed it. Secondly by referring to Ex.P22 and it's contents I have already demonstrated that it is a very brief letter of resignation containing no pre-condition either in respect of issuing of right/preference shares or inducting the defendant no.2 as an additional director. I again say that in his cross- exam DW1 squarely admitted that he was very much present in the board meeting dt.16.11.1998 and he was aware of the minutes of that meeting. When that is the case his contention that under pressure or on account of cunning and crocked methods adopted by plaintiffs he tendered his resignation. The fact that Ex.D3 is dt.8.12.1998, which is subsequent to the board meeting dt.16.11.1998, would show that there is no substance in his said version. Even otherwise as per Article-39 of the Articles of Association (AOA) Co produced at Ex.P1 it is the BOD of Co which is empowered to appoint any person as an addition to board. The DW1 admittedly being a promoter and founder director of Co as well as signatory to the MOA & AOA, was not expected to act upon such letter written by plaintiff no.2 alone that too after tendering his resignation on 16.11.1998. Therefore his whole story that because of the 29 O.S.No:6160/2000 assurances of plaintiff no.2 to make defendant no.2 as a director he tendered his resignation cannot be accepted.
22. In their written statement defendants 1 and 2 canvassed that as per the AOA of the Co the defendant no.1 being founder director and as per Article-37(c) being a permanent director, he could not have been removed from his directorship. I have read the relevant clause of Ex.P1. The plain meaning of the said clause no-doubt indicates that this defendant no.1 is a permanent director along with plaintiff no.2, it does not mean that he could not have stepped down on his own. Here there is no case of removing him from the directorship rather it is the case of tendering resignation. As per the provisions of the Companies Act, the director being the agent of the Co, he can step down whenever he so desires. It was also argued that when AOA of Co left un-amended, it cannot be said that the defendant no.1 is denuded of his directorship. I again say that this is also a misnomer, just because relevant portion in the AOA was not amended on the resignation of the director, court cannot overlook the Form No:32 which automatically reshuffled the office bearers of the Co. Moreso as can be seen from page no.7 of Ex.P1 it being dt.14.10.1992 and not having been updated after tendering resignation by defendant no.1, on the strength of that old document defendant no.1 cannot claim to continue himself as a director.
30 O.S.No:6160/200023. As elicited in the cross-examination of DW1 after 16.11.1998 he did not attend board meetings of Co nor he was invited to attend the Annual General Meeting (AGM). Even he replied that he did not question the Co for not inviting him to AGM. It is least to say that when he is a Charted Accountant he is expected to know the conducting of AGM every year and implications if a shareholder is left out from inviting to attend such meeting. His silence till issuing of notice through his advocate as per Ex.P4 and filing of his written statement in the suit would indicate that all these contentions taken by him are afterthought.
24. It was argued by defendant no.1 that as per the terms and conditions of loan extended by KSIIDC, which is produced at Ex.P18, in the event of reconstitution of the BOD of Co it's prior consent was essential. No-doubt as per Clause- B17 which is marked as Ex.P18(e) there is a stipulation that Co shall get the prior approval of the Corporation (KSIIDC) regarding the remuneration and perks payable as well as the terms and conditions of appointment of whole time directors of the Co and also as per Clause-B18 the Co was expected to broad base it's board to the satisfaction of the Corporation and further that as per Clasue-C9 the Co shall obtain prior approval of the Corporation to the terms and conditions of appointment/reappointment of key personnel of the Co., resignation of defendant no.1 neither is an appointment nor reappointment so as to seek approval of the said KSIIDC. The voluntary resignation of the defendant no.1 shall not be 31 O.S.No:6160/2000 included to mean that it amounted to reconstitution of the Board. Admittedly there is no clause in that terms and conditions of loan that in the event of resignation of the director it shall have to be informed to KSIIDC. It is strange that when the question of his resignation comes defendant no.1 takes shelter of terms and conditions of Ex.P18 but when the question of appointing his wife as an additional director he wisely ignores the same and most unfortunately he totally overlooks the said thing and proceeded to issue notice as per ExP34 containing so many agenda including disqualification of plaintiffs 2 to 4. It only shows that the defendant no.1 has mastered in twisting the things to suit his convenience.
25. As held in the decision of our Hon'ble High Court reported in 2003 SCC Online Kar 651 = ILR 2004 KAR 1081 in the case of Mother Care (India) Limited (In Liquidation), Represented by the Official Liquidator, Bangalore Vs Prof. Ramaswamy P.Aiyar, resignation means the spontaneous relinquishment of one's own right and in relation to an office, it connotes the act of giving up or relinquishing the office. In order to constitute a complete and operative resignation there must be the intention to give up or relinquish the office and the concomitant act of its relinquishment. The act of relinquishment may take different forms or assume a unilateral or bilateral character depending on the nature of the office and the conditions governing it. If the act of relinquishment is of unilateral character, it comes in to effect when such act indicating the intention to relinquish the office is communicated 32 O.S.No:6160/2000 to the competent authority. It is further held in that case that the authority to whom the act of relinquishment is communicated is not required to take any action and the relinquishment takes effect from the date of such commun- ication where the resignation is intended to operate in presenti. A resignation may also be prospective to be operative from a future date and in that event it would take effect from the date indicated therein and not from the date of communication. In cases where the act of relinquishment is of a bilateral character, the communication of the intention to relinquish by itself would not be sufficient to result in relinquishment of the office and some action is required to be taken on such communication of the intention to relinquish i.e. acceptance of the said request to relinquish the office and in such case the relinquishment does not become effective or operative till such action is taken.
26. If one reads the said observation vis-a-vis MOA and AOA ie, the Ex.P1 of Co admittedly there is no article which prescribes the mode of relinquishment by a director. In such an event, it is suffice that if a director leaves a letter of his resignation to come into effect immediately, there is no pre- condition that it shall have to be acted upon by BOD of Co.
27. In another decision reported at 1976 SCC Online Mad 197 in the case of S.S.Lakshmana Pillai Vs Registrar of Companies and another, referring to various books of learned Authors the Hon'ble High Court held that when there is no 33 O.S.No:6160/2000 provision in the Companies Act for vacancy by resignation and as to when the resignation by a director takes effect, one has to go by the precedents and practice on that subject. Then referring to Halsbury's Laws of England, 4th Edition, Volumn-7, Page 316, Para-536 relating to the caption "Resignation" Hon'ble Court noted that, "Where by the articles a director has power to resign at any time, his resignation takes effect independently of acceptance by the other directors or the company. Where the articles of association of a company provide that the office of a director is to be vacated ipso facto if by notice in writing to the company a director resigns office, an oral resignation if accepted by the company is valid."
Then referring to Palmer's Company Precedents, 17th Edition, Part-1, Page no.565 it was observed that, even in the absence of any express power to resign, it is submitted that, unless the articles are specifically framed, a director may by notice to the company resign his directorship. Directors are merely agents of the company and an agent may determine his agency.
In Ramaiya's Guide to the Companies Act, 7th Edition, at page.481 it is observed that, "there is no provision in the Act relating to the resignation of his office by a director, as in the case of a managing agent (section 342). If there is any provision in the articles giving the right to a director to resign at any time, the resignation will take effect without any need for it's acceptance 34 O.S.No:6160/2000 by the board or the Co in general meeting. Where a director is elected or has been contracted to act for a fixed period, his resignation, before the expiration of the period, may make him liable for damages for breach of his contract, unless the articles permit such resignation, or unless there is good cause."
Further referring to Buckley on the Companies Act, 13th Edition, Page No.882 it is observed that, "a director can, subject to the articles, resign his office, and cannot withdraw his resignation without the company's consent."
Thereafter referring to AIR 1960 Madras 482 and AIR 1967 Patna 433, Hon'ble Court came to the conclusion that a director, who has submitted his resignation will be deemed to have resigned from the date of his resignation without prejudice, of-course to his liabilities and obligations which had occurred up to that date of his resignation and which he cannot evade by severing his connection with the company. The acceptance of resignation is unnecessary for the resignation to take effect once it is tendered in writing.
28. On going through the said lucid observations of Hon'ble High Court of Madras and again having gone through the AOA/Ex.P1 of Co I have no second opinion that once resignation was tendered by defendant no.1 and when it was accepted in his presence by BOD, it is too much for him to submit that there was no voluntary resignation or that BOD could not have accepted his resignation as he had offered his personal guarantee to the KSIIDC and the corporate guarantee 35 O.S.No:6160/2000 of M/s M.D. Holdings Pvt. Ltd. There is no co-relation between offering himself as surety or his Co to the KSIIDC and relinquishment of his office. In view of this elaborate discussion holding that there is no substance in any of the contention of defendants 1 and 2, I conclude that the resignation tendered by defendant no.1 was truly on his volition and no pressure or threat was exerted on him. Nor any cunning or crocked methods were adopted in obtaining his resignation. Accordingly I answer this issue in the affirmative.
Issue No.3 and 4:
29. Since these two issues can be conveniently discussed at a time and they need to be attended before the issue no.2 is taken up for discussion, I have taken them simultaneously.
30. As I have already said during the pendency of the suit the defendant no.3 died, but his death was not reported by his advocate who represented him. Only during the cross- examination of PW1 on 18.4.2016 it was brought on record that the said defendant no.3 is dead. Notwithstanding the said death of that person court has to examine whether the said defendant and the defendant no.2 had/have any manner of right or interest in the affairs of the Co and whether these defendants were/are middling in it's affairs? In this regard plaintiffs have placed enough documentary evidence to show how these defendants, especially the defendant no.1 after 36 O.S.No:6160/2000 tendering his resignation, is disturbing the smooth functioning of their Co.
31. To start with I can again refer to Ex.P4, notice issued by defendant no.1's advocate M.S.Udeshi on 22.8.2000. In that notice referring to the suit filed by these plaintiffs at O.S.8898/98 against Pramod Vora and others, wherein the present defendant no.2 was also defendant no.2 in para-5(b) through his advocate defendant no.1 asserted that still he continues to be the director and chairman of the Co and many false allegations have been leveled against him in that suit and resignation tendered by him was obtained under duress. Then strangely it is alleged that the said suit is an outcome of collusive understanding between the plaintiffs and the said Vora's syndicate. The defendant No.1 also threatened to take action against these plaintiffs for alleged mismanagment of the Co. During his cross-exam the defendant no.1 admitted the signature on Ex.P4 which is marked as Ex.P4(a). In addition to this the interim order passed by 2nd Addl. City Civil Court on 3.12.1998 produced at Ex.P11 would also indicate that the said Vora and others had brought the functioning of the Co to a stand still and it was set right by filing the said suit against them.
32. It is pertinent to note that nowhere in their written statement filed in this suit the defendants 1 and 2 alleged that these plaintiffs 2 to 4 are colluding with the said Vora's syndicate. Nor such suggestion was put during the cross-
37 O.S.No:6160/2000examination of PW1 in this case. On the other hand the letter written by KSIIDC on 4.9.2000 produced at Ex.P12 with it's copy at Ex.P16 and copy of letter of advocate M.S.Udeshi dt.28.8.2000 which is marked as Ex.P12(a) with it's one more copy at Ex.P16(a) and copy of the notice marked as Ex.P36 (which is wrongly numbered as Ex.P34 during the cross- examination of DW1) show that infact it is the defendants 1 and 2 they colluded with Vora and others and not the plaintiffs 2 to 4, that is why in the undated Ex.P36 giving the details of agenda stated that, BOD meeting of Co is called on 16.9.2000 at 5 p.m and alleging that plaintiffs 2 to 4 have practiced fraud on the court by filing suit at O.S.8898/98, so they have to be proceeded against under civil as well as criminal law; that the corporate guarantee of M/s M.D. Consultants (instead of mentioning as M/s M.D. Holdings) and personal guarantee of himself is to be recalled and also to discuss on the disqualification of plaintiffs 2 to 4, he conveyed that BOD would be held at "G3, Mangal Adesh, 4th Road, Santa Cruz (East), Mumbai-400 005 where the registered office of the Companies Corporate guarantors M/s M.D. Holdings Pvt. Ltd., is situating." It may be noted that when this defendant no.1 had already disassociated himself with Co by tendering the resignation, absolutely he had no manner of business in calling such meeting that too against the AOA. As per the AOA, the Co could have held meetings only in it's registered office or at the city where it's registered office is situating. It means either at the registered office of the Co or in Bangalore City such BOD 38 O.S.No:6160/2000 meeting could have been arranged, but by calling such meeting at his corporate office to consider the disqualification of plaintiffs 2 to 4 the defendant no.1 exceeded his authority as by that time he was only a shareholder to the extent of 100 shares and director of M/s M.D. Holdings, which has invested in the Co. Such investment or holdings of shares did not authorize him to call such meeting. The writing of letters by Co to the Chief Manager, State Bank of Mysore, or Registrar of Companies along with the copies of the resolutions passed and produced at Ex.P13 to P15 would also show that the defendant no.1 and his acompliace made the Co to suffer.
33. It is not the case of the defendant no.2 that she is directly holding any share in the Co, at the most as a director of M/s M.D. Holdings, which is one of the considerable share holder of Co, she had no authority in the affairs of the Co. The same thing is applicable to defendant no.3, but by sending letter like Ex.P21 with it's enclosures, regarding which I have already discussed earlier, under pressure of Vora, from whom the defendant no.1 had borrowed, this defendant no.1 concocted resolutions and tried to bring them into the fold of Co as directors necessitating the plaintiffs 2 to 4 to file O.S.8898/98. In the BOD meeting dt.16.11.1998 (Ex.P27) when request of the defendant no.1 to induct his wife(defendant no.2) as an additional director of Co was not considered and he was asked to give his requisition in writing, the defendant no.2 had also no manner of right or interest in the management of Co. In the BOD meeting 16.12.1998 39 O.S.No:6160/2000 produced at Ex.P23(b) Co resolved to reject the requisition of defendant no.1 to induct his wife as an additional director assigning the reason that he has detrimentally acted against the Co in many ways and misused his powers as director. Thus once the requisition of defendant no.1 was totally rejected by the Co neither the defendant no.1 nor the defendant no.2 much less the defendant no.3 had any manner of interest in the functioning of Co., but at the instigation of defendant no.1 other two defendants started meddling in it's affairs. Wherefore I answer both these issues in the affirmative.
Issue No.2:
34. Once this court records it's findings on issue no.1 in the affirmative according to me the defendant no.1 being a mere shareholder of-course having offered his personal guarantee to the KSIIDC and corporate guarantee of his M/s M.D. Holdings Pvt. Ltd., could not have pocked his nose stating that the affairs of the Co are mismanaged by plaintiffs 2 to 4.
35. At the outset the plaintiffs submitted that this issue ought not to have been framed by the court and the jurisdiction of the civil court is ousted in respect of the alleged mismanagement or oppression in the affairs of a Co. In this regard they drew my attention to Sec.397 and 398 of the Companies Act, 1956 as it stood on the day of filing of the suit and Sec.9 of CPC. On going through the said submission and the relevant provisions, I too find that there is substance in the arguments canvassed by them. It may be noted that in the 40 O.S.No:6160/2000 Chapter-VI of Companies Act, which deals with the prevention of oppression and mismanagement in the management of business of a Co Sec.397 and 398 of the Act gives insight to the intention of the legislatures to keep those matters outside the purview of civil courts. Under the said chapter with sub caption A. Powers of Tribunal, a tribunal is created under the said statute and it is stated that any member of a Co who is not satisfied with the affairs of a Co or who complains in it's mismanagement, can approach the tribunal constituted under the said Act. Therefore as contemplated U/Sec.9 of CPC the jurisdiction of civil courts is expressly barred. Consequently when cognizance of the civil courts is barred either by express terms or by implied wordings, such court shall not entertain the said matters. In that context one cannot disagree with the contention of plaintiffs that this issue falls outside the purview of this court. At the same time since objections was not taken in framing this issue at the earliest and both parties went on adducing evidence on the same, as a passing observation I will go through the so-called allegations of defendants 1 and 2 viz; the contesting defendants attributing misfeasance in conducting of the business of the Co one after the other.
36. As per the allegations of said defendants when this defendant no.1 was chairman and director of the Co it was making considerable profits, but on his alleged resignation the sales of the Co have drastically come down consequently the profits. In order to highlight this the said defendants have referred to the account statements for the financial years 1998- 41 O.S.No:6160/2000 99 to 2006-07, which are marked at Ex.P28, P19, P20, P30 to P35 respectively. No-doubt if one compares the annual sales of the plaintiffs right from 1998-99 over the years, it's sales have come down considerably and profit has also come down year by year and consequently Co, which was making profit at one time, started showing negative income i.e. loss from the year 1999-2000 onwards. Merely because a Co looses it's market share and also incurs loss it does not mean that it is reflection of oppression or mismanagement by the persons at the helm of it's affairs. For the said developments one has to take into account several factors. As pointed out by the plaintiffs' one of the reason is embroiling of the Co in the litigation by filing O.S.8898/98 against Pramod Vora and others, who wanted to stake their claim as directors through this very defendant no.1. When such events take place and a Co entangles itself in the litigation, eventually to protect it's existence, naturally the investors will not have any interest in such company nor the senior employees will have inclination to work there. At the same time the persons who heads administration of such Co will be afraid of their investments and consequences of prolonged litigation and the result, leading to lack of interest in it's development.
37. The fact that Co was forced to rush to the court and obtain an interim order in O.S.8898/98 as per Ex.P11 to keep it's oppressions at smooth level and also efforts of Pramod Vora and others to freeze the accounts of the Co would indicate that instead of it's expansion Co was engaged in maintaining it's 42 O.S.No:6160/2000 existence. The defendant no.1 being the root cause for all these vexatious litigations by pitting the Vora syndicate, strangely takes a turn around and alleges that Co did not progress well once he was compelled to tender his resignation. Such plea cannot be entertained from any angle.
38. Nextly it was urged by the contesting defendants that in the financial year 2000-01 the plaintiffs 2 to 4 resigned as directors and in their place Murali Gopalan and Shankar Prasad were appointed as additional directors and while doing so prior approval of KSIIDC was not obtained as it was mandatory in terms of Ex.P18 and the said additional directors were inducted in the Co with a sole intention to write off the doubtful investments and advances to the tune of Rs.76 lakhs, but at the same time a paltry sum of Rs.11.25 lakhs owed by their M/s M.D. Holdings was not written off nor any provision was made for it. It is also alleged by them that the plaintiffs 2 to 4 came back on the board of Co as directors in 2003-04 when everything was set right by their predecessors viz; Murali Gopalan and Shankar Prasad. In this context the contesting defendants referred to Ex.P20 and Ex.P18. I have gone through the said allegations also. No-doubt as contended by the said defendants plaintiffs 2 to 4 simultaneously stepped down from the Co as directors and two new persons were brought in to the Co fold as directors, one cannot see such developments with suspicious eyes. It is also true that account statement of 2000-01 shows that provision was made to waive the advances and outstanding amount that was due from M/s Fusion 43 O.S.No:6160/2000 Software, SA-Switzerland and other subsidiaries, as elicited in the cross-examination of DW1 on page no.30 it was a business decision taken by the Co. I again say that this DW1 is a Charted Accountant by profession and he is expected to know the reasons behind such business decisions. Courts cannot sit in appeal against such decisions and view them with negative approach. Regarding the continuation of liability of M/s M.D. Holdings belonging to the contesting defendants the addendum to the director's report produced at Ex.P34 shows that then directors were of the opinion that Rs.13.26 lakhs due from defendant no.1 could be recovered in due course, so no provision was required to be made in their opinion. Thus it is seen that only on the ground that his liability was not waived or no provision was made towards his liability by the Co the defendant no.1 murmurs against the plaintiffs and allege that it is a mis-management.
39. Apart from that regarding inducting of two new directors and they stepping down later and returning of plaintiffs 2 to 4 to the board and reference to the terms of Ex.P18, answer can be found in the cross-examination of DW1. As admitted by him on page no.24 at para-9, by September 2000 Co had already cleared the loan borrowed from KSIIDC by borrowing loan from EXIM Bank. He also admitted that later loan borrowed from the said EXIM bank was also repaid by the Co. When that is the case, it means when loan borrowed from KSIIDC was repaid by September 2000, there was no need to 44 O.S.No:6160/2000 consult or obtain it's prior approval before the board was reconstituted.
40. Then it was contended that to obtain loan from the said EXIM bank corporate guarantee of M/s M.D. Holdings owned by defendants 1 and 2 and personal guarantee of defendant no.1 was offered by the plaintiffs 2 to 4 and it is nothing but fraud played on M/s M.D. Holdings and defendant no.1. In order to substantiate this arguments Ex.P20, P30 to P33 were referred by contesting defendants. However on going through the said documents and the endorsements made in them I am fully convinced that it is the contesting defendants who are under wrong notion that it is the personal guarantee of defendant no.1 that was offered as a security for releasing of loan from EXIM bank. The endorsement that personal guarantee of the directors was offered for releasing of loan does not mean that the personal guarantee of defendant no.1. As discussed and concluded earlier by that time this defendant no.1 was no-longer director of the Co so there was no question of offering him as surety for releasing of loan. In his cross- exam DW1 admitted that he did not execute any document in his individual capacity towards said loan. With regard to the offering of M/s M.D. Holdings Ltd., as a guarantor, the said Co being a juristic person, if there was any irregularity in offering it as a security, it is open to the said juristic person to question the same before competent forum. Therefore here also I do not find any such serious lapse on the part of plaintiffs 2 to 4.
45 O.S.No:6160/200041. It was argued that in the board meeting dt.16.12.1998 plaintiffs 2 to 4 got issued additional shares in total violation of Sec.81(1)(a) of Companies Act. It was canvassed that whenever additional shares have to be issued they shall have to be issued in pro-rata basis. In this regard Ex.P23 was referred by contesting defendants. The defendants contended that the plaintiffs resorted to it in order to reduce the percentage of share holdings of defendant no.1 in the Co. No-doubt on going through Ex.P3 one can find that additional shares were issued by the board but issuing of such share per se does not amount to mismanagement or oppression. While deciding such things court has to work within the four walls of law. It may be noted that as per Sec.81(3)(a) nothing contained in that Sec.81(1) applies to a Private Co. Therefore the defendants cannot take shelter U/Sec.81(1) and allege that it was grossly violated by plaintiffs, when admittedly Co is a Private Limited Co.
42. It was further argued that Co leased it's premises to M/s Ramsoft Technologies, owned and controlled by plaintiffs 2 to 4 without collecting any rent from it. In order to show the existence of building the photograph produced at Ex.D1 was relied. No-doubt the plaintiff Co owns a huge premises and there is an admission by PW1 that portion of the said building is utilized by their M/s Ramsoft Technologies, on that basis it cannot be assumed or presumed that no rent amount is paid by latter to the former. In this regard I would refer to Ex.P35(a), their rental income is shown without giving the breakup.
46 O.S.No:6160/2000Instead of obtaining a breakup of that rental income and ascertaining whether the said rental income to the Co also includes the rent from M/s Ramsoft Technologies, the defendants alleged that the said lessee is enjoying the Co property without paying rent.
43. It was further argued that huge sums were paid to M/s Ramsoft Technologies and M/s Chips, a partnership firm, belonging to plaintiffs 2 to 4 towards data entry charges when the Co itself is a software Co engaged in the very same business and it was done with an intention to reduce the profits further. It was further contended that such payments were made to the M/s Ramsoft Technologies and M/s Chips (owned by these plaintiffs) is in violation of Sec.300 of Companies Act. It is true that in the cross-examination PW1 admitted the said payments to M/s Ramsoft Technologies and M/s Chips. On that reason alone it cannot be imagined that even after having their interest in that Company and firm plaintiffs 2 to 4 allowed to enrich their entities. While arriving any conclusion on certain allegations court has to take into account all other things. Nevertheless the Co is a software Co when the volume of transaction increases, one cannot find fault in taking the assistance of other companies. Moreover while passing resolutions by the board, the plaintiffs 2 to 4 disclose their interest. Even otherwise Sec.300 of Companies Act is not applicable to a Private Company as contained in Sec.300(2)(a) of the Act. So here also I do not find any substance in the allegation of defendants.
47 O.S.No:6160/200044. The contesting defendants also argued that no efforts were made by plaintiffs 2 to 4 to get release the shares that were offered as a security to KSIIDC by M/s M.D. Holdings and it was intentionally done to cause loss and harassment to the defendants 1 and 2. In this context I straight away refer to Ex.C1 to C4, they are none other than interlocutory applications and objections filed in this case by plaintiffs, KSIIDC and the defendants. It may be noted that seeking direction to the said KSIIDC to produce the share certificates in the court the plaintiff filed I.A. and it is at Ex.C1 and an impleading application was filed by KSIIDC to implead it as an additional defendant by filing I.A. produced at Ex.C3. Strangely both these applications were objected by defendants 1 and 2 by filing their detailed objections. Thus efforts made by the plaintiffs during the pendency of the suit to get release the shares secured with KSIIDC and effort of the KSIIDC to resolve that issue were watered away by contesting defendants themselves, wherefore now they cannot finger at plaintiffs and allege that they have suffered in their hands.
45. It was further argued that when the Co was loosing it's base in the sales and was incurring losses the plaintiffs 2 to 4 enhanced their remunerations totally overlooking the interest of the Co. Of-course records show that resolutions were passed by the board to increase the remunerations of the directors, though Co was reeling under pressure, such enhancement of remuneration cannot be called as 48 O.S.No:6160/2000 mismanagement unless an adverse remark by the auditor is shown.
46. So viewed from any angle I do not find any substance in the contentions of defendants that affairs of Co were mis-managed by plaintiffs 2 to 4. Accordingly I answer this issue in the negative.
Issue No.5:
47. Before I conclude my discussion and express my opinion as to what reliefs the plaintiffs are entitled for, I like to attend other grounds raised by the contesting defendants.
48. It was urged by them that PW1 is not authorized to depose on behalf of the Co as no resolution was passed by it nor he is a P.A. Holder of the board. In this regard plaintiffs drew my attention to the decision of our Hon'ble High Court reported at ILR 2000 KAR 2713 in the case of U.Suresh Mallya Vs Okazaki Sekizai Co. Ltd. In that case Hon'ble Court held that no formal resolution is required authorizing a director to depose on behalf of the Co. Since as per the provisions of the Companies Act, a director is an agent of the Co, it would be incorrect to expect further GPA or formal resolution to authorize him to represent his Co.
49. In another decision reported at 2014 SCC Online Mumbai 1050 in the case of Alcon Electronics Pvt. Ltd., Vs Celem S.A., Hon'ble Court held that there is no specific bar under any of the provision of the Companies Act for filing suit 49 O.S.No:6160/2000 by a director without a resolution. Therefore the said contention is also unacceptable. In view of this threadbare analysis I wind up my discussion holding that the plaintiffs are very much entitled for the reliefs as prayed for. Accordingly I answer this issue also in the affirmative.
Issue No.6:
50. In the result, I proceed to make the following:
ORDER Suit is decreed with costs.
It is declared that the defendant no.1 is not a Director or Chairman of the plaintiff-Company and defendant no.2 is also not it's Director.
Since defendant no.3 is died during the pendency of the suit, prayer against him no- longer survives.
Consequently the defendants 1 and 2 are permanently restrained from holding out or claiming or acting as a Director or Chairman of plaintiff-Company.
Draw decree accordingly.
(Dictated to the Judgement Writer, transcription computerized, then corrected and pronounced by me in open court this the 27th day of February 2017).
(Ron Vasudev), III Addl. City Civil & Sessions Judge, Bengaluru.50 O.S.No:6160/2000
ANNEXURE List of witnesses examined for the plaintiffs side:
PW1 B.Venkatesh List of documents exhibited for the plaintiffs side:
Ex.P1 Memorandum of Articles Ex.P2 Copy of Annual Returns Ex.P3 Confidential disclosure agreement Ex.P4 Legal notice Ex.P5 Reply notice Ex.P6 Legal notice dt.6.9.00 Ex.P7 Reply notice Ex.P8 Fax receipt Ex.P9 Certified copy of the I.A.I in O.S.8898/98 Ex.P10 Certified copy of the order sheet in O.S.8898/98
Ex.P10(a) Typed copy of interim order on I.A.I Ex.P11 Certified copy of the order dt.3.12.98 Ex.P12 Letter of KSIIDC Ex.P12(a) Letter of SBM Ex.P13 & 14 Acknowledgements Ex.P15 Letter to Registrar of Companies Ex.P16 Letter to KSIIDC Ex.P17 Letter Ex.P17(a) Fax Ex.P18 Letter from KSIIDC dt.18.10.94 Ex.P19 Audit report Ex.P20 Audit report Ex.P21 Letter to D1 dt.12.11.98 Ex.P22 Resignation letter dt.16.11.98 Ex.P23 True copies of Board Meeting Ex.P24 Certified copy of the judgement in O.S.8898/98 Ex.P25 Certified copy of the decree in O.S.8898/98 Ex.P26 Form No.32 Ex.P27 Notarized copy of board meeting Ex.P28 Audit report Ex.P29 Balance sheet, Audit report, Directors report Ex.P30 to 35 Audit reports Ex.P36 Notice 51 O.S.No:6160/2000 List of witness examined for the defendants side:
DW1 Vijay R. Doshi List of documents exhibited for the defendants side:
Ex.D1 Photograph Ex.D2 Letter dt.20.2.98 Ex.D3 Letter dt.8.12.98
List of documents exhibited for the court side:
Ex.C1 I.A.No.9
Ex.C2 Objection to I.A.No.9
Ex.C3 I.A.No.10
Ex.C4 Objection to I.A.No.10
(Ron Vasudev),
III Addl. City Civil & Sessions Judge,
Bengaluru.