Karnataka High Court
Vijayan Rajes And Anr vs Msp Plantations Pvt Ltd And Ors on 12 August, 2009
Bench: D.V.Shylendra Kumar, Aravind Kumar
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5!? ':3; HIGH COURT or KAnNAm%mfA[%V%%%%%Ly
AT BANGALORE f *
Dated this the 129* day of August, _"--.2;fi0€?:f..
PRESEN'I':=._ « " M 4
mm HOWBLE MR JUSTICE' 1; v sfiymxnmi '
THE Horvnm MR;.IU81f!€a ;§;RE;¥IND'K"£§M£A4R
Between:
21 MR.V1J;&YA§\LR:";J£lS _
S/O MR. .VM.«i$.1?, RA;:Es,'~.] ._
CA: n1£::RY ' PEA }{I:;ES'1';%T'E_. '
CAVUVERY"?EAK'P.(J..,
YERCAUD .--~ 6s.'§;.,5G:3_.
22. MRS. i*.§AIL*HUE§4A'I'E{k...VLWQAJES
W / 0 MR: ,V'Ix;;I.!§Y£'._N RAJES,
GAUVERY PEAK 'ES'I'ATE,
~C?1AUVEI€'Y PEESK P,_Q, ,
« "~¥ER.cAUz3;---63@ 602. APPELLANTS
V' A _ T. ' '=._ - [By Sri A Muraii, Adv.)
Anc'lm;"._ « V
V V' '1. "'Ms1»?--__'i:'w.:§§i'FA'r:¢:>r~:s PRIVATE LEMETEED
NC1,i,'gEDWARD ROAD,
A BANGALORE -- 550 052,
' 'E-2_EI=>. BY YPS IMNAGING DIRECTOR
= .._1'»_§;s.P. RAJES.
MR. M.S.P. RAJES,
S/O M.S. PERIASAMY NADAR,
FLA'? N0. 4-AF,
4TH FLOOR, I*~f.V,S, APARTMENTS,
"I.vt'w:s9"&1¢'l'5\EE WWO.' xammzvmfiwmwwm wmwn wwusaw was" mMNmM,§M.m.M Mméfl figmum
3
and eppreeeions eomylained against the manageaeent
and majority shareholders of Ni/S MSP
Limited, Bangalore, as the petitien came
in terms of the impugned order';
being aggieved by the dis:a1issa1 of A " " V
2. It is urged in the
Company Law Beard '4i§ifi(1;',éeensideratjon the
relevant 3.spectfg4;;:;';g{ placed by
the Company Law
Board; é'Wer1<h§whfle oppositien to the
co3J1pani§%v~.pe:jtiei:;i' ef the respondents in the
petitien, has erroneously dismissed "'~t_he V¥:he--heard has faiieci in its funetien in V'netvte};i1ig»_i12te.§iceeunt and examining the various acts of and oppression which had been , cV.<';mmit%:eeIA':. by the majority shareholders of the feepefi{ient~eempan}' ané against which the appellant . compiained of; that even witheui; a proper intimatien 'l"""VC'WiU mwwuum wn wwmuxnmmuwflmflfi &"'§%%?i"'E Enfififiufimfl EJW" 8
7. In Se far as the management of the cempeny is concerned, it is averred that the initiai eompany were the second and the third K the first appellant, who had ..vf'ro11I1 acquiring a masters degee ixitematienal m;azfg;1genie§it.V was appointed as managing ef" on 11~--2--i987; that the eepeinied as chairman of the rfei4ei~:'..:j:e§§pendent, who was a in the year 198?'; that {he further reselution of the , whiie the second res1ooz1deIi1;.,MeeS' P re~--appointed as chairman ané direeier £;af fzhe company from that date, the was asked to Continue as executive director eff' It is further averred that the second V VV _respo i1ée1_it re'Sig'1ed from his post as managing director , , U i,",',"'gsq§th.effee§ mm e :2. 199 1. §// ,...,..W W mmmmm mm Wmm W mmmmm WW zxwwm" W gammmm WW WW 10 respondent being called upon to explain his conduct, particuiariy in misusing the funds of the comfiaigiywt making iflvestnlerzt of the com§.=ar1y' in hc__)tE1c:r'_ companias at his sole discretion 2§:1d>:£ictif;g in ':1;Vaf§f1u;f;§ prejudicial 1:9 tbs i1"lt("3I'('3St of Q' decisions regarding diversidfi» _ 1;hé~._ of the compafiy, totaily mmatéfafly tViA1e Vboa:rd of management into conf1d§::1(:'c._ A
10. It is fh:e_.appeiiants that the conduct 0n'"fl1e' the respoxzdents was only to from the membership of the c0:11pafi::y;MM only a prelude for further .andaéppressive activifies on the part of the 'r¢sp«c§_:'idén;1§s:.'2 3, constituting majextity shareholders of that the further meeting dated 9-«@1996 the isgzfwiy constituted board of management of the as per its earlier raesoitfiiiors dated 20»12~1995 proof of this male: fide mtention, as in terms cf the $/ .W...-. W .mm....Wm WWW «Mme W memmmm mm-»~<; meme?" £;wmwm"mm mew flew": 12
the preference shares which they had also held ix";--.»t.¥1e compaxzy eariier, are all part of the same not only to oust the a.ppe1§a:1ts--petitione_ré.- K V' company but also to take full co::§fi{)I:'of..Vt§1e ua_t :« the cost of the appeiiaxzts-pe§i_fioners"'and aJ.1l1 these constitute not only acts of of the affairs of the compai"{Y;~~.. t0 1'}1e great dieadvantage of the to afiect their rights as also constitute acts of oppfesS.if:;1 and on such premiseijtzad _e§;}:rQaehed..:V{fie ffbjmpany Law' Board seeking for the fo11ew ing " conversion of 290 4% V' _ Cumulative--«"preference shssmes of Rs A ._},.{}30/» each fully paid up held by the "-v,_Vpei'ii;éG{zers in the corrwatny into 200 ' afRs 1, 000/» each credited _ .c§s:fi1lly paid up.
(ii) ibeeiare as nail and void all resoluticm.$ passed at the purported Extra«-Ordinary Generai meeting of the company convened by the respondent N9 2 and held on 20-12»! 995.15
iaw, more so as sought for in the mmpany petition prayed for dismissal of the petition. the '- V
13. The appdlants--petitioners, .fac$;, hsiéi"
rejoinder statmnt. It was sought 7-1' rejoinder that the company itséif to manage it as 3. family estatw and export of ooffeé, a family tradition and t11e'1)r:é1:'f1§1 brand vaiue and the #16: name of the father of "the M S Periyasalny Nadar that has a famiiy business and i1'1voiv<3;;_r1_vt::"1tVV:V' 'V-.thi1;d'~~ iV'esmndent, both durérg the "y and briefly its managemerit was €3:£:j11?j5 reasons of the second respmdent a51dA far 1113 :o;;m convenience; that the company mimer ;,g_cm;1a bégiut in the hands of third parties nor 1:112 first can be ousted fiom the company; that tm frst VA ané second resporldem; aiane should have equal y Wm"Mv'M'm awn»-Vwat-r. w'WwWw '-we mwmmewmemmmm DEEWWW fimmmemregfi edgy" ggpgyggmgflggfigmgg mgwfu bggwmi 16 rights in the company was the understanding anrz?---.t12e basis for which purpose the company itseif V. brought; iflto eielsience etc.
14. The parties had attached to amxexures leading to the deireiepmeiits as T'vieé§%e;<§...fi*om = ' their angle. The eeamjseed the matter in the backg§e'u£2«'I_.1ci"* , jpleadixzgs and materials and for the parties,
15. Tirie :'i,aw: 'Beard was of the opinion that the preliii1ir 1e:ry'V.'.raised on behalf of the _ respezggdeets V_:tVjef1al5s'.e; that the appe11ants~petitioHers V. Stgzndi to maintain the petition, having been remdfiexd' membership :3? the eompany and being V eat "§;'ha1¥ei1oi2:iers of the company on the date of ' ' "p1}eea--:1}taVtion ef the company petitien; that even in the ef redemption ef preference shares as per the " ~:fes"01utien of the board of management of the company e/ Mwawwvmae wow': 59'Il'Vtefl'o.)¢Vkl4"vtsm:K"aL:H»us"va\. wwwwqwuu '0¢tt4"!¢WMw4a-'cam 17 dated 9-3-1996, there being no violation of the provisions of the Act, the petitioners in any View of the matter were not entitled to maintaixl the petition being not m¢n:;i3oxfsTof the company in any capacity on the date of * of the company petition; that the o of ' majority shareholders of the compé.oy::'éj§t' .' meeting cannot be made ._II1¢':l.fjit':I__' i'o1f '§;1€r::§1'i{iat:ion " V before the Company a under Sections 397 and 398' of the board resolution in any Way shown ti") be petitioners; that even the contentiofi {fiat redemption of preference sharegsg per' ti;<:_V_Vi'é'§so}v§.1tion dated 9-3-1996 is not valid V. Iaxgrf, é*ji;:5§ 'o=_)mpar:y would have been left with oniy one sfiai*ét:o1ici§§f_-v_v.»Vaz£§i""tf{1erefore the company could not have V -V¥3eei1".'{:{>rxt:i'1.f1i;1i$d in law, was not tenable factually, as in 'A V' V _of the very resolution of even date, the board of
-.oT«'m;a;i'a§gA:eme11t had decided to aiiot 255 equity shares of the 'noéfilpany in favour of the second and the third »-.am-mswrmm-«aw-m wnszveszewwu wvwwmw "hc<i'}i' xmimmwwmtmwmm §'"KM-Wl¥"¥«' Mwwflfi 23 management of the company was only a followup gictioiz of 20-12-1995 resoiution of the extraordinaxgz. body meeting, which had an the sinister motivje..::ofiQtiVsting«-- A the appellants-»pet;itioners from company; that all these developmeiitsiibeing eoxiferi *' up the mismanagement of second respondent, hat} questioned the wiséont jefespondent in divertixig the invesunent in Sanco an act of mismang=ige:iieiit._-V of the second respondent; that that the acts of inisriiegieigement and oppression were V writ atglarge oi: Vfscev'of such activities and therefore by the iegal principles laid down in the _to:;a¥§ove, the company petition should have V it been iiéiilowied;
1?. . iiijgis also pointed out by Sri Muraii, learned counsel . appeliants---petitioners that the significance of the §/ wwwwwwmveu >«w.x1":a::mw'm<££"WBlN"n&¥dr"'9. aénumutvwa mmWJ'M*W.& 25 provisions and the requirements of law; that it involved more to the mariner in which the majority and the persons in maaagement of the company have made use of power and managerial position a14;d "as resulted in either oppression sldafeholders or mismanagement of "c:om;)ei'1jVy?VV; that in the instant case, jgtiuch attracted and while the V' have granted the relief the instant case, both being attracted, the Company have allowed the petition for _ V the relief' eotight fgrin the petition and therefore submits sfirxeuld be allowed, impugied ercier of the set asicie and the company petition
-Vailowletii .iI'::te'I*fiis of the prayer. on behalf of the respondents, submission Vivek Holla, learned counsel is that the preliminary aw Mwmma WK W.a"4ANawz'wM°"mm'Mw srmmwuam wwwvvmmm we 29
2. HANUMEAN PRASAD BAG-RI vs menses CEREALS PVT LTD [(2001) sec 420} P as INDIAN MOTOR co amummozg t e LTD {am 1962 ca. 127]
4. sHA1\m PRASAD JAIN', TUBES urn [am 196se4sc}e1T3{5j«_TT =
23. In reply, Sri A "the " L' appellants-petitioners hag sou.gt1t..to ratio of the case in -[supra], relied on by Sri Vivek:.Hoila_, tbif' the respondents and by titetrery judgment, submits that the queStio:1'V.o1'-file" examining the oppressive condue-t" toe eheieholders or the affairs of the coztletlcteci in a manner prejudicial to in that case and was entireiy on the V VV _mle the shitting of the registered ofliee of the K 'te another plaoe and bring it back to the earlier '.fl_'té'j31'£:.ee,"iazhi}e in fact dié not amount to any demonstrable loss to the company and even cannot be we usmr'ummmIew"'&U6d?"'l$\:V'& Mraww mwwxm UV" flflflwflfiflfifl Wig" 30
characterized as an act of mismanagement and thezéefore no case of oppression had been made out on the other observation made in the judgxnefitis fjnoj: K V' issue in this appeal. Learned couff1'ee'l' 'wot1_1d-I the series of acts leading to ;(>e1I1ove3.A oz? 21 member" of company and such acts defiofie -- io the complaining members. would certainly' constitute an therefore submits that of the Supreme Court in the BARGI [supra] does r1ot:._: appijf 'iisv cmecsent
24. It is aViS@Vfl1eV'su134'§iis.eion of Sri Murali that on facts, " 'me have demonstrated that there '§nismar1agement of the company by of the company in the form of 'in other companies but aiso acts of and at any rate the company having not taken ' defence that the appellants-petitioners had not V . _ .. .,.-.. ..,,. ..m.mm..mm amewm uuwnii we mmwmfim WGW came? {W %&.RWfiWfi.KA mm»; cam; 32 provide for conversion of equity shares into preference shares and if it is to be the ease of reduetio;1.__'eVfV':
capital, it is only through the process of _ V' the Act and at any rate the cenverféiefi' {if the year 1992 being only forf, and not for aitering the flxe mefiIifi'bers, §1sVVVsan1e members continued to but called as preference rights.
It is submitted in fact and in reality ::--:ane§:§t19 1eref0re the so--cai1ed redemptijeze/ed1e' shares in the year 1996 Wes enly adopted by the second respondent te cm the appellantspetitioners frem . h V of company.
26.7 would also submit that the dismissai of 'the civii~~sj§;it is of no consequence, for the reason that the not dismissed on its merit, but on teehraicaiities V. as the pla1'nt:ifi'_had not pursued the matter further.
QM'hW'4fi-(VG wvwwwww «uwwmm we ammuwewuww-mwm :z='eumm"'u wwwmz WW Swfikflwfiémflfl. R"'iWw£'i ewmses 33
27. We have perused the order impugned, lookeijd-.._:ir3._to the records and bestowed our a£te1":tio;r3f§é'." . submissions made at the Bar "' upon by the learned counsei for
28. The main gievance of is that their grievance of the petition before the Section 399 of the 'oppression and misma11age::f.ie:1t}44_"i§i 397 and 393 of the Act I1ave 1"::'<--) f atfieotfion at the hands of the Compar1y Laira_ Company Law Board has throwjjl out the p(f:_Vti1i310I1 :}I1 irreievant consideration and by "authorities which are not applicabie to the factsec'orT%o;é'pre$:¢;;t case.
'Q9. Th'f§ €Z11}€S'i§i{)I1S that arise for examination in this V. ~w»wv~'wm~ wsa nmr'1u1a arr"vAU\'MI"'a asnnvuama wwwwmfi we v:\'a'~f$'"*1'.\\'¥:.?."é2A°"'*Efifl""%K£%J3"'V& EHHWMI3 WWW"! VI!' $NJ"'\i\i£W.Wll.l"\I\.l"I llI\?l'! \.r\J!ll\I be di_Smié%<1, 34
1. As to whether the appellants-petitioners.---.,_ had at right to complain. under Section 399 oftheAct? '
2. As to whether the appeilants-petitfienere: "u have made out Cl ease of either oppr*e$;f3;'O'n. '- _ or mismanagement or bo'th?"" « «_
3. Whether, in the facts cf"
the case and o'n_"'---the 'applicafioI:_'v«--vof governing authoritieag dism1'ss_di~ bf petition filed by theV_.appei2r;nts-petifioners isjustgfied? V . .
30. In so far asthe qyyeétipafefi' n1ej:§fg.fi3abflity of the petition is coneeffigeei; the raised is that on the of 61' the petition, the appe1}az1§;s--pef:iii:i:ne$;s'%not members of the company in ques'£ioi:.,_ ihejz 'viiaiie 3 to maintain the petition V and therefore jietifion is not tenable and it has to
31. ' Cempany Law Board did dismiss the «epetitiorig .i1_i1~iS Bet precisely on the gonna that the petition Eras not tenable, but oniy after examining the K lfigxestions relating to the validity of the redemption 35 process and as a consequence the petitioners being no more members thereafter 31.6. on and afier 9«3«1996,T:they ceased to be members and therefore a petition under Section 399 of the Act was held . at the instance of the petitiorzers. V t V' V' V
32. The reasoning given by tee pen}? s.
does not appeal to us. if the persons presenting it for presenting a petition the Act, no further questien was to be dismissed at " the Company Law Board has viewed the Section 399 of the Act in »i;,1_1e cefzvereetvpwayflg"W¥1i.ch is not a proper 'understanding of Section 399. But, on authority, it has that for the purpose of examining as to V%tt"«.,..44_'w:hether petitioning members qualify for maj:r;tain1'ng under Section 399 of the Act, the question to be K into is as 1:0 whether the petitioners constitute the e/ w:r'vHt¥uW"'Vi« ncw :9: -acnwwnvwrrmnae 37 the very relief sought to be extended to a complainixig minority shareholder] s envisaged under SeCti0I}.$__;'3§fi V' 398 of the Act.
33. The Company Law Board premise that appe11ants~petitio:ifi§'S not x V L' out a case that the company family concern to invoke the and to examine the aetiizities er such basis about the 'the affairs of the company. ---- Law Board has totaliy and situations which necessitate provisions governing the " Act ijeizz-gwartificiaiiy made applicable to test '-..management of the company. The colaipaiéy a company, not a partnership f"1r1:a. the nature of the scrutiny ciepenés upon the _'_«ji_T}t"A:&.'.fIiI'",.i1'(5'II of the parties, mariner in which the the T has been managed/conciucted ali along and in ....-....a...,».-...mm.~m asmma wwwni we mmmmmiflnm mus.-aw LUUEN UK" Kflfiwiifififlfi WK;-"EIH C035? 38 which Ciireotion the company is moving. In the present situation, the manner in which the shmeholdixjg 3 company has been regulated, partictilarly iS_3zx1e' K shares in favour of second responciezot-'father 9:136; appeIlant--son and the addit.iona1V4"sl':ia1;es eecond appellantwife of first eeieeeéage, while the issue of 10 'favour of third respondent has same is only an indicator to be run as a family To this extent, __'¢113IL'?*V<V3VVlV'1#'.«}.11ts-puet:itioI';eI's merits aCceptaI1ce_ 4' .
'vim-«ewhich almost the entire equity the company was converted into in the year 1992, except for the five had been transferred to 3. limited company, the second respondent: has substantial interest K control, from out of the holdings of the second as/ 43 purpose of causirig prejudice to the mirxority eha.reIt1o1de1's.
38. From} the sequence of events about appellants had complained in their _ Company Law Board, it is obvious; "' development leading to the ousteeof the membership of the eoInparV1.}:f"wVasV;c$?iter;. V L' particularly the first Jae" of the company, objected to the second resyondent, the the company, was actifig in a fiagirmer, was taking decisions independer1Vti3:_Vd%evet1-eéithotiit bringing the matters to the '.1}otice' the «of management, particulariy in intfeeunent of Rs 18.00 lakh in a private eoxepéfiy M/S Saneo Trans Ltd by raising ioan etfor such viumreetment on the Security of the fixed deposit of eohj1pa11y with M / S Tamiliiadu Niercantiie Cooperative ' " Credit Bank; that the invesment was in a company where 32/' 47 shares were only as a result of conversion of earlier eanity shareholding of the appeliants and the respondents'V2":"ané V 3 and so converted for some strategic reasons M company's business management 1 Vnon; violation of provisions of Section therefore the act being held act or not as a not for the reason that a mere of Section 8} of issue, but the manner in tinder Section 8 1 for issue ofaeapitaiis _' _ 4}. The coinplaint. fiiéeeisely that even if the issue of " nequitjy' "fas..?._o13:r of zespondents 2 anti 3 was in the requirement of Section 8 1, even then it act of oppression for the reason. that the 'series ofaets leading to redemption of preference shares to Section 80 of the Act and issue of capital
--._"V':attr%ibutab}e to Smtion 81 of the Act, have all been used was 'NWO nwwaxawmarflmm WWW wwvxi we enewewwm Wfifiw eeew' CW KfiW'%§fl"?.M{A Nifiiei CW"? 48 only for the purpose of ousting the appellants fiméptile membership of the company. Such acts of havirlg its origin to the eompiaint of levelled by the first appeliaméi -I respondent, {he complaint of»e0ppression is not one w;1:ch% is required to be examined in' but in combination of' Section 398 arid the series of in its entirety.
42. the requirements for applicatien Act is that the complaint of 0ppressioI1«._VcanV only.'-examined in a situation where ""~f":$fe1'i tf1e'c--em'pany is required to be wound up, not been examined as an issue Law Board, but in the instant case, sot "sf V oppression was Ming one of totaliy the complaining members, in so far as the K --eoomfiplainirzg persons are concerned, it is as good as u us. as many: a u ..... ..... ..... .--_ mrwwwwamm '|Ar;l*'m wmmammammm wwwmfi MK" mfiemivfifimfifl MEWM LQUUKE" U? ¥§flaRNfi{W3gKfl. Hifififi fiflijgi 52 per share, fully paid up, in terms of the relief No '("1)' as eiaimed before the Company Law Board.
46. in the result, this appea} is ma1»1ewe<}'"ae:f_i%1d§cate:§.u '* above, the order of the Company 'i3'.i1_:A this appeal, is set aside presented before the CempanyVV':A'Law_V Bear-d.v_is_;§a}3owed, leaving the parties to _ Sd/1 'Judge Sd/-3 Judge