Madras High Court
G. Govindaraj vs Venture Graphics (P.) Ltd. on 19 January, 2007
Author: Chitra Venkataraman
Bench: Chitra Venkataraman
JUDGMENT Chitra Venkataraman, J.
1. This appeal filed under Section 10F of the Companies Act, 1956 raises the following questions of law:
(1) Whether the Company Law Board was right in concluding that the signature of the balance sheet for the year ended 31-3-2001 was that of the first appellant?
(2) Whether the Company Law Board was entitled to arrive at any such finding without securing expert opinion in this regard?
(3) Whether the Company Law Board on this basis was entitled to ignore the several documents produced by the appellants to show the diversion of funds by the respondents 2 to 4?
(4) Whether the Company Law Board erred in not restoring the first appellant to his status as Director in the company especially in view of the fact that it had been established that his removal as such was wrongful?
(5) Whether the Company Law Board erred in not setting aside the appointment of respondents 3 to 4 as Directors since the same not only altered the structure of the Board but was intended to exclude the appellants from representation in the Board?
(6) Whether the Company Law Board erred in failing to note that the respondents were guilty of various acts of oppression and mismanagement?
(7) Whether the mere fact of appellants having minority shareholding in the company would justify their not being granted appropriate relief?
(8) Whether in the circumstances of the case the Company Law Board was justified in directing the appellants to sell their shares to the respondents?
2. The petitioners before the Company Law Board are the appellants herein. The appellants filed a petition under Sections 397, 398, 402 and 403 of the Companies Act for relief alleging acts of oppression and mismanagement committed by the second respondent A. Arumugam. The petitioners herein are the members of the first respondent-company by name Venture Graphics Private Limited, Chennai, holding 7,500 equity shares of Rs. 10 each aggregating to Rs. 75,000. There are totally 12 shareholders. It is stated that the appellants have more than one tenth of the total number of members and in terms of the provisions of Section 399 of the Companies Act, they are competent to file the petition.
3. The case of the appellants is that the first petitioner/first appellant before the Company Law Board by name Govindaraj was appointed as a Director in the year 1990 in the first respondent company and he was a Chairman ever since then. Apart from him, there were two Directors who were operating bank accounts. Since 1-8-1990 under the Board's resolution, the second respondent as a Chief Executive Officer was permitted to operate the accounts. In the year 1995, the second respondent was inducted as an Additional Director in the first respondent-company. Considering the attitude of the second respondent, the two Directors originally appointed resigned in the year 1998. The first petitioner's allegation is that the second respondent had been showing indifferent attitude and had not co-operated with the first petitioner. No Annual General Meetings were convened ever since 1998. No dividend was also given to the shareholders in spite of profit earned by the company. The petitioners alleged that the income and profits were diverted to the second respondent's personal gain. It is also stated that the company had dealings with the three foreign companies viz, Whitter Publications INC, Allen Press INC and Ensoys Markets INC for doing job work in type-setting, data conversion, E-publishing. A sum of $ 1,87,030.5 had come into the company on the job work done. The second respondent used these funds to form two new companies, viz., Venture Infosys and Venture Acqua. The appellants contended that the wife of the second respondent, the third respondent herein, was allowed to sign the company's papers and given salary and bonus as a Director, although she, in reality, was not a Director. The appellants contended that the second respondent had diverted the funds of the company by abusing his position as a Director. Apart from this, the second respondent had taken personal loans which the company had been directed to pay. The specific allegation of the appellants herein is that apart from diverting business to his concern, the second respondent forged signatures and misused and abused his position for his personal gain. He also attempted to divert the employees who were trained at the company's expenses. Considering these factors, the first appellant called upon the second respondent to convene a General Body Meeting in its letter dated 2-2-2002 and called upon him to be transparent in the company's transactions. There was no reply. A notice dated 8-3-2002 was sent purporting to convene an extraordinary General Body Meeting on 5-4-2002 for the purpose of appointing two persons as Directors, viz., the third respondent, Shobana and the fourth respondent, P. Kumaravel for a period of 5 years from the end of the meeting. It is stated that the third and fourth respondents are the wife and the brother-in-law of the second respondent. The first petitioner sent a reply on 18-3-2002 stating that convening of the Annual General Meeting was illegal and there was no Board meeting convened for taking a decision to hold an extraordinary General Meeting. A reply was sent on 28-3-2002 by the second respondent defending holding of extraordinary General Meeting. It is stated that in spite of the objection taken, the meeting was held as proposed. The first petitioner attended and recorded his objections to the procedure followed including the election of third and fourth respondents as Additional Directors. The first appellant further states that on 14-5-2002 he received a letter from the second respondent stating that the first petitioner had ceased to be a Director from November 2001 onwards. The appellants state that there was no basis to hold that the first petitioner 'ceased to be a Director'. He further stated that if the contention of the second respondent was taken as correct, then the first respondent-company would have only one Director from November 2001, contrary to Article 35 of the Articles of Association, which required minimum of two Directors. The petitioner contended that he was paid remuneration as a Director till February 2002, as such, the removal claim was wholly unsustainable. He stated that a perusal of the records is clearly proved that the contention of the second respondent as to the first petitioner ceasing to be Director was totally incorrect. The first petitioner wrote a letter to the Chief Manager, Indian Bank, Panagal Park Branch Chennai on 8-5-2002 informing about removal of office furnitures and other equipments. In reply to the second respondent's letter dated 14-5-2002, he reaffirmed his stand that he continued to be a Director and sought for the payment of his remuneration from February 2002. By letter dated 30-5-2002, the first petitioner called upon the second respondent for the issuance of certified copies of minutes of the extraordinary General Meeting held on 5-4-2002. It is also seen that the second petitioner sent a complaint on 31 -5-2002 about the threat made by the second respondent's friends to the life of the first petitioner. It is stated that a notice dated 11-3-2002 was issued calling upon the second respondent to provide him with access to all the books and records of the company and also to give notices of all Board and General Body Meeting. The petitioners alleged that no reply was received and instead he closed the company and removed the articles from the company. The petitioners contended that the conduct of the second respondent is clearly an indication as to the various acts and oppression and mismanagement, practised the minority shareholders of the first respondent excluded from the management. In these circumstances, an application was filed before the Company Law Board praying that the first petitioner be directed to continue to be a Director of the company, that the third and fourth respondents were not validly elected as Directors of the Company, discharge the second respondent in terms of Section 406 of the Companies Act read with Schedule XI by directing the carrying out of an investigation in relation to the affairs of the first respondent-company.
4. The first and second respondents filed their counter to the allegations. The second respondent admitted that the first petitioner was a Director of the company as per the meeting held on 13-11 -1989. He was appointed for a period of four years during the meeting held on 28-12-1991. Again in the meeting held on 29-9-1995 for a period of three years and thereafter again on 17-8-1998 for a period of further three years. The first petitioner was holding the position as a whole time Director till November 2001. All the statutory compliances including finalisation of the balance sheet and profit and loss accounts for the year ending 31 -3-2001 were carried out by the first petitioner only. The respondents denied the allegations that there was no meeting held for the past three years. He stated that AGM was held on 15-9-1999, 14-11-2000, and 27-11-2001 and all these meetings were chaired by that first petitioner. The last of the meeting was held on 27-11-2001 to approve the balance sheet and profit and loss accounts of the company for the financial year 2000-01 and to fix up the date for the next Annual General Meeting. It is also stated that the first petitioner had full access to the records of the company until he retired as a whole-time Director and the financial statements of the company for the year 2000-01 were signed by the first petitioner. In the circumstances, there was no substance in the first petitioner's contention that he had no access to the accounts. As regards the allegations on the appointment of the third respondent as a Director, the respondent stated that she was instrumental for starting M/s. Venture Graphics (P.) Limited. It is further stated that the third respondent was reappointed as Director of the company at the Annual General Meeting held on 14-11-2000. This was chaired by the second petitioner herself. It is stated that she has also signed in the papers in her capacity as full time Director.
5. As to the holding of the meeting, he submitted that the first petitioner was made whole-time Director. The first petitioner continued in his office till January 2002. He was duly informed of his position after the Annual General Meeting was held on 27-11-2001. He did not seek reappointment as a Director. However, in spite of ceasing to be a Director, he was offered remuneration as a special consideration for three months. When the company stopped to pay remuneration from February 2002, he wrote a letter calling upon a General Body Meeting. The respondents defended that the third respondent and the family members are the major shareholders. The EGM was called on as per the decision taken in the Board meeting held on 8-3-2002. Notice was sent to all shareholders including the second petitioner's last known address. They denied the allegations that from November 2001 onwards by the relinquishment of the first appellant, the company would be left with only one Director contrary to the articles. The respondents submitted that the third respondent was holding the position as a Director of the company with effect from 15-10-2000 onwards. Consequently, there was no question of company staying without the minimum requirement of two Directors.
6. On the question of diversion of funds, the respondent stated that Venture Aqua Tech was in operation since 1993-94, much earlier to the second respondent's active participation in the affairs of the company. Venture Infosys was a proprietary concern involved in software development and services and registered with software Technology Parks of India. Both the companies had nothing to do with the first respondent-company.
7. He denied the allegation as regards the siphoning off the funds of the company by the second respondent as totally misleading. The drawals referred to by the petitioners related to the amount repaid to the financiers in June 2001 which was borrowed with interest at 5 per cent monthly equal instalments. They were all credited to the company's accounts and repayment done through the account. The copy of the statement of account was also enclosed to the counter affidavit.
8. He further stated that the allegations as regards two entries really related to the financial year 2000-01, the books of account for this financial year had already been finalized and approved by the Board of Directors in the meeting chaired by the first petitioner.
9. As to the allegations of the transfer of staff to Venture Infosys, the respondents submitted that due to World Trade Centre disaster in New York, the company faced difficulties to survive the impact. This was discussed in the Board meeting held on 27-10-2001 and the first petitioner was very much aware of that. In view of the lack of business, during March 2002, the said Venture Infosys requested the staff to resign from the company voluntarily. This was also informed to the Provident Fund office and by issuing certificate to that extent by May 2002, the entire operations were closed.
10. The respondents submitted that there were no merits in the allegations made in the petition and that filing of Form 32 reflecting the retirement of the first petitioner from the Board of Directors was delayed only by oversight and had been rectified.
11. They denied the allegations that there were threatening calls from the second respondent's side. In short, they denied all the allegations including the shifting of the registered office and the same was informed to all the shareholders, bankers, etc.
12. The petitioners had filed rejoinder reconfirming the stand that the induction of the third and fourth respondents were mala fide. The allegation that the term of the first petitioner had already expired was also not correct. He stated that there was no Board meeting held on 27-10-2001 for approving the balance sheet and profit and loss account of the financial year 2000-01. They also stated that cheque signing authority was forcibly taken away from the first petitioner by the second respondent as early as 1991.
13. As to the allegations that the third respondent had signed annual accounts as a Director, the petitioner submitted that the second respondent is only a shareholder and hence she could never have chaired the Annual General Meeting.
14. As to the repayment of loan, he stated that there was no corresponding entry for the receipt of the money for loan repayment. The petitioners denied the allegations that there was Board meeting conducted for passing resolution for conducting EGM on 8-3-2002, that the first petitioner continued to be a Director in the Board. Consequently, he prayed for an order as sought for in the petition.
15. During the pendency of the proceedings before the Company Law Board, a Commissioner was appointed to report, on the statutory records. The Bench Officer attached to the Company Law Board filed his report stating that entries as regards minutes of the Board meeting, were there for the meeting held from 13-11 -1989 to 27-6-2002, in all totalling 54 Board meetings. For the meetings held in November 1996, December 1998, March 1999, May 1999, November 1999, May 2000, January 2000 and December 2000, February 2001, June 2001, and August 2001, the date of the meeting had not been indicated. None of the minutes was signed by the Chairman. Minutes were recorded in Bill notebook. As regards the minutes of the General Meetings, it is stated that none of the minutes was signed by the Chairman. He has filed a report pertaining to the cash book, bank book and paid cash book maintained as well as General Ledger. An affidavit was also filed by the first petitioner stating that the second respondent has passed annual account for the year ending 31-3-2001. He stated that on perusal of its original dated 31-3-2001, his signature was found to have been forged and fabricated. He also alleged that the second respondent had scanned the signature from the available document and reproduced as if they were signed by the first petitioner. He reiterated the stand that there was no Board Meeting held on 21 -10-2001 on which date the said annual accounts were placed before the Board.
16. After hearing the parties, the Company Law Board passed an order on 30-9-2004.
17. The respondents took a preliminary objection that there were no pleadings to the effect that the facts justified making up a winding up order on just and equitable grounds. The respondents contended that such winding up of the company would be unfairly prejudicial to the petitioners, as stipulated in Section 397(2)(b) of the Companies Act. The Company Law Board referred to the decision of the Supreme Court in the case of Hanuman Prasad Bagri v. Bagress Cereals (P.) Ltd. [2001] 105 Comp. Cas. 493 : 33 SCL 78 to sustain the plea under Section 397(2)(b) of the Act and held that the petitioners have made out a case for winding up of the company on just and equitable grounds. The Company Law Board rejected the argument of the respondent as to the maintainability of the company petition and that it is nowhere a mandatory requirement that the petitioners had to plead the facts to justify making up a winding up order on just and equitable grounds. The Company Law Board overruled the initial preliminary objection as regards the maintainability of the petition.
18. On the question whether the petitioner had satisfied the requirement of Section 397, the Company Law Board referred to the decision of Kalinga Tubes Ltd. v. Shanti Prasad Jain [1965] 35 Comp. Cas. 135 and held that though the first petitioner was appointed as a Director since 1990, there was nothing in the articles to suggest that the company must be in the joint management of both groups, viz., minority and majority groups. The Company Law Board also held that the company was not a family company. Taking note of the facts therein as to the shareholding pattern, the Company Law Board held that the petitioners were not entitled to the remedy under Section 397 of the Companies Act on equitable grounds on account of exclusion of the first petitioner from the affairs and management of the company.
19. As regards appointment of the third and fourth respondents as Directors, the Company Law Board noted that in the minutes of the meeting on 15-10-2001, Form 32 dated 15-11-2001 had been filed before the Registrar of Companies showing the appointment of the third respondent as a Director for a period of two years until the conclusion of the 12 th AGM. The extraordinary general meeting was held at the request of certain shareholders on 5-4-2002. The respondents 3 and 4 were appointed as Directors for a period of 5 years as per the wishes of the majority shareholders.
20. As to the contention based on Section 193 non-compliance, the Company Law Board stated that the respondents had produced the book on the original minutes of the meeting. None of the pages was initialled or signed nor signed by the Chairman of the Board meeting. Consequently, the requirements of Section 193 were not complied with to draw the presumption under Section 195 of the Act. The Company Law Board recorded that there was no record other than the disputed minutes to show that the extraordinary general meeting was held on 5-4-2002. There was also no record to show that the Board meeting was conducted on 8-3 -2002. For the purpose of convening the extraordinary general meeting on 5-4-2002, except the contention as regards the meeting, there was absolutely no evidence. In view of the inconsistencies in these records, the Company Law Board held that the resolutions appointing the third and fourth respondents as Directors were found to be in contravention of the provisions of the Act. At the same breadth, the Company law Board held that the mere illegality or invalidity by themselves could not support the petition under Section 397 of the Companies Act unless they are oppressive to any shareholder or prejudicial to the interest of the company.
21. Referring to the decision of the Supreme Court on oppression, in the case of Needle Industries (India) v. Needle Industries Newey (India) Holdings Ltd. [1981] 51 Comp. Cas. 743, Needle Industries (India) Ltd's case (supra) the Company Law Board held that it was the prerogative of the shareholders to choose their Directors and that democratic exercise of right could not be termed as an act of oppression.
22. On the question of the balance sheet signed by the first petitioner, the Company Law Board noted that the first petitioner was not a signatory to the balance sheet for the years ended 31 -3-2000 and 31 -3-2002. Though the first petitioner was a party to the balance sheet for the years ended 31-3-1999 and 31-3-2001, the allegation of the petitioners was as to the balance sheet of the year 2000-01. On going through the documents and signature of the first petitioner herein, with naked eye as well as with magnifying lens, the Company Law Board held that there was prima facie evidence to show that the balance sheet of the year 31 -3-2001 contained the signature of the first petitioner and not a scanned signature.
23. On the question of misappropriation, the Company Law Board noted that the foreign, inward remittances were reflected on the books of account that VATPL was incorporated as admitted by the appellants also in May 1994. As such there was no misappropriation or utilisation of the foreign remittances. The Company Law Board also held that there was no material to show the misappropriation by the second respondent. The payment made to the third respondent was justified as bonus payment. As regards the allegations on diversion to VIPL, the Company Law Board noted that no particulars was given by the petitioners to substantiate the contention. The Company Law Board noted that there were huge cash withdrawals for the period between 22-7-2000 and 23-7-2002. The transactions for the period up to 5-2-2001 related to the financial year 2000-01. The first petitioner was a signatory to the balance sheet for the period 31-3-2001. As such the same could not be questioned.
24. As regards the period beyond 31 -3-2001, the withdrawals related to the financial years 2001-02 and 2002-03 to which the first petitioner was not a party. The Company Law Board noted that the petitioners had not furnished details regarding diversion to the other concerns by the second respondent. So too, the diversion of fund process. In the circumstances, the Company Law Board appointed Mr. S. Vankataraman of M/s. V. Sankar Aiyar & Co., Chartered Accountants, to scrutinize all receipts and payments on account of the company for the period between 1 -4-2001 and 31-3 -2003 and found out whether the money had been misappropriated by the second respondent, if so, the same should be reimbursed with interest at 10 per cent by the second respondent in favour of the company within 15 days from the date of receipt of the report.
25. The Company Law Board also noted that in view of the irreconcilable differences, minority shareholders shall sell their shares in favour of the respondents at a value to be determined by the said Chartered Accountant as on 31-3-2003. The Company Law Board also directed the parties to make their submission before the valuer. The valuation done shall be binding on both the parties. Within a period of 30 days from the date of receipt of the valuation report, on receipt of the original share certificates together with the blank transfer forms from the petitioners, the respondents shall pay the consideration for the shares at value to be determined by the valuer after deducting the sum of Rs. 40,000 already paid by them in accordance with the order dated 9-5-2003 which shall be transferred to the credit of the respondent herein. With the above directions the petitions were disposed of. Aggrieved of the order passed by the Company Law Board, the petitioners are on appeal before this Court.
26. Mr. R. Murari, learned Counsel appearing for the appellants submitted that the petitioners are the minority shareholders. He submitted that having seen that there were ho records to show extraordinary meeting held on 5-4-2002, the Company Law Board failed in ignoring the fact that induction of third and fourth respondents was unsustainable. He also questioned the view of the Company Law Board on its finding on the forgery of the signature in the balance sheet. He submitted that having found that accounts were mismanaged, the respondents should not be permitted to take advantage of their mismanagement and wrong deeds. He submitted that when there was no evidence as regards the removal of the first appellant, the Company Law Board ought to have answered the question in favour of the petitioner. He also drew my attention to Articles 38 and 39 of the Articles of Association. According to Article 38, the Directors of the company are not subject to retirement by rotation. According to Article 39, a Director, desirous of resigning his office, shall submit his resignation in writing. The resignation will be effective from the date on which it is received by the Company at its registered office. In the above circumstances, he submitted that the Director does nor retire by sheer act of rotation and as such, there is no retirement at all.
27. On the question of holding the Annual General Meeting, he submitted that there was no notice. Although salary was paid for three months, even thereafter, the first appellant had cheque signing power for six months. In these circumstances, he submitted that the first appellant continued to be a Director. He also questioned the finding of the Company Law Board that violation of law as prescribed under Section 193 of the Companies Act is not oppression. He placed reliance on Sections 193, 194 and 195 of the Companies Act to impress on the fact that presumption as to the validity of the meeting is raised under Section 192 of the Companies Act that when there is no compliance of Section 193 of the Companies Act, there could not be a presumption as to the validity of the meeting. He pointed out the fact that the meeting held on 14-10-2000 and 14-11-2001 carried no signature. Even, in the meeting on 5-4-2002, there was no reference as to the third respondent working as a Director. In the face of the admitted facts that the records were not signed, the appointment itself could not supported either on fact or on law. Consequently, there is no validity as regards the appointment of the third and fourth respondents. He also stated that in the face of the cash withdrawals, the Company Law Board ought to have upheld the contention on the plea of mismanagement. Countering the plea of Mr. V. Ramakrishnan, learned Counsel for the respondents, on the preliminary objection as regards the maintainability of the petition under Section 397 of the Companies Act, he pointed to the finding of the order of the Company Law Board as to the question of maintainability and submitted that in the absence of any appeal by the respondents and the order becoming final, there could not be any challenge as to the maintainability of the appeal.
28. On the question of merits under Sections 397(1) and 397 of the Companies Act, he submitted that the appellants had satisfied all the requirements. As far as Section 397(1) of the Act is concerned, it refers only to pleadings as regards the affairs conducted in oppressing manner. Section 397(1)(a) of the Act forms part of Section 397(1) which leads to an inference as per Section 397(2)(b). He submitted that for the purpose of invoking Section 397(2) itself enough facts are stated to enable the Company Law Board to draw inference as required under law. He defended that there was no necessity to make a specific prayer for an order under Section 397 since facts projected are to that end. He also questioned the claim of the respondents as regards the maintainability of appeal since the questions raised by the appellants arise out of the order. He stated that even going by the terms of the Articles of Association, the appellant continued to be a Director in the Board until the next meeting was held. In the absence of any document to substantiate the contention that there was validly constituted Annual General Meeting, the question of treating the first appellant as to have gone out of the Board does not arise.
29. Mr. V. Ramakrishnan, learned Counsel appearing for the respondents submitted that the procedural irregularities or contravention of law per se do not lead to an inference of oppression. He placed reliance on the decisions in Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp. Cas. 548 (SC), Needle Industries (India) Ltd.'s case (supra), "Bagree Cereals (P.) Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp. Cas. 465 (Cal.) in support of his plea that mere procedural irregularities automatically do not lead to the presumption against the respondents. He defended his right to argue on the maintainability of the appeal on the basis of Order 41 Rule 20 read with Section 141 CPC. He questioned the correctness of the claim of the appellants as regards the finding of the Company Law Board on signature. He stated that there was no material to hold the findings of the Company Law Board as perverse. In this connection, he placed reliance on the decision in Kaliammal v. Karuppan 2001 MLJ 22. He stated that admittedly, the respondents are in majority and the act of majority perse does not become an oppressive act. The allegations that the records were not signed or countersigned, as a plea of defence, in any event, would not be available to the appellants. The fact is that the first appellant was the Director right from the day one as seen from the report of the Court Officer. It showed that even the earlier meetings were not stated to contain the signature. As such, it cannot be contended that the absence of the signature stood as a proof favouring the appellant's stand. He referred to the minutes of the 5th Annual General Meeting held on 29-9-1995, which was found at page 30. Again at pages 32, and 55 which were all chaired by the first appellant herein to show that the appointment of the Govindaraj an itself was for a period of three years until the conclusion of 8th Annual General Body Meeting and even thereaftarwards in the succeeding meeting extending the term of the first petitioner. Therefore, having enjoyed his position there, it is not now open to the said Govindaraj an to come before this Court to say that non-signing of these documents would be fatal to the appointment of the respondents 3 and 4. He defended that the minutes of the meeting dated 27-11-2001 clearly showed that the first appellant presided over the meeting and they passed the balance sheet of the year 31-3-2001. He also placed reliance on the Annual General Meeting held and stated that the meeting was attended to by the first appellant herein and the Annual General Meeting itself was held as per the requisition of the members on 5-4-2002. He stated that the first appellant had not made out a case for disturbing the finding of the Company Law Board. There was no denial as regards the passing of resolutions in various meetings which the first appellant has presided over. The fact that these meetings were not in a statutory form, which ought to have been otherwise, does not negative the factual position as regards appointment of either the first appellant right from the beginning in the year 1990 and his continuance thereafter until the term ended. In the circumstances, the contention itself is not maintainable.
30. To the balance sheet passed, he submitted that signatures of the first petitioner could not be denied nor had let in any proof to substantiate his contention. In the circumstances, he prayed for rejection of the appeal. He also referred to the cheque signing power enjoyed by the appellant till February 2001 and the letter informing about his ceasing to be a Director. In the face of these, he defended appointment of respondents 3 and 4. The learned Counsel admitted that they have not filed cross-objection as against the preliminary objection overruled by the Company Law Board. However, he maintained his plea to his entitlement under Order 41 Rule 30.
31. A perusal of the documents filed herein show that under Article 35, there shall be three minimum Directors. Article 38 states that the Directors are not subject to retirement by rotation. Article 41 states the Board of Directors will have power to appoint Additional Directors, subject to the maximum mentioned above who shall hold office until the next Annual General Meeting, but however such Additional Directors shall be eligible for reappointment at the Annual General Meeting. It is an accepted proposition and there is no way to deny the same too, that law requires that the minutes of the meeting need to be signed by the Chairman. The presumption arises under Section 192 of the Companies Act as regards the conduct of the meetings as in accordance with law. As far as this case is concerned, the first appellant was appointed as an Additional Director as early as 1989. In the minutes of the meeting held on 13-11-1989, the resignation of the third respondent is recorded and appointment of the Govindarajan, the appellant herein along with yet another person appointed as Additional Director of the company is also recorded. The resignation of the third respondent Shobana was duly informed in Form 32. The photocopy of the minutes of the meeting carries no signature from the Chairman. The photocopy of the meeting dated 28-11-1991 reappointing the first appellant as a whole-time Director for a period of four years is also seen. The meeting was chaired by Govindarajan, the first appellant. Here too there is no signature. The copy of the minutes of the 5th Annual General Meeting dated 29-9-1995 evidences reappointment of first appellant for three years until conclusion of the 8th Annual General Meeting. The meeting itself was conducted under the chairmanship of Govindarajan. Admittedly, it does not contain any signature. The next of the meeting was conducted on 17-7-1998 wherein the first appellant was reappointed for three years until the conclusion of the 11th Annual General Meeting and the paper book contains the identical features. The paper book also contains accounts for the year 31 -3-2001. Audited balance sheet along with signature of the second respondent as a Director is also seen in the paper book. A notice as regards 11th Annual General Meeting was given on 27-10-2001. It may be noted that as per the minutes of the meeting dated 17-8-1998, the term of the first appellant was fixed for three years until the conclusion of 11th Annual General Meeting of the company. A notice dated 27-10-2001 was sent for convening the Annual General Meeting on 27-11-2001. The said meeting was conducted on 27-11-2001. This was presided over by the said Govindarajan. The meeting witnesses the passing of the audited balance sheet for the financial year 31-3-2001.
32. If the proceedings of the meetings chaired by the first appellant and reappointed as a Director as witnessed in the unsigned records, till the next meeting be accepted as factually correct and sustainable, it stands to reason that unless and until the first appellant is reappointed as had been done before, his term automatically comes to an end with the convening of the 11 th Annual General Meeting. And going by the earlier recording of the proceedings, it is not strange to note that the proceedings of the 11 th Annual General Meeting are recorded in the same fashion as before. An extraordinary General Meeting was called for in a letter dated 1 -3 -2002 consequent on the expiry of the term of office of Govindarajan on 27-11-2001 for the purpose of appointing two additional Directors for restructuring the Board and for effective management of the business affairs. Similar notice was also issued calling for extraordinary General Meeting as evidenced from the letter dated 1-3-2002 from the third respondent and from one Muthammal also. The meeting was held on 5-4-2002. It is also seen that the Chartered Accountant was also invited to attend the meeting. It records the objections from Lokanayaki, the second appellant that she had not received notice about the Annual General Meeting. The first appellant who attended the meeting asked for the minutes of the previous Annual General Meeting to be read since the minutes of the Annual General Meeting were not read. The meeting evidenced appointment of the third respondent as a Director, apart from the fourth respondent for a period of five years. It recorded the dissent voice of the first appellant. After noting the objection, the meeting was passed through. In the face of the overwhelming majority attending and voting on the appointments, the contention of the appellants placing reliance on Section 193 of the Companies Act for a presumption as well as on the effect of the earlier meeting passing the accounts needs to be considered.
33. Section 193 of the Companies Act requires that every company shall cause minutes of all the proceedings of every general meeting and of all proceedings of every meeting of its Board of Directors or of every Committee of the Board entered entries thereof in the books kept for that purpose with their pages consecutively numbered. It also requires each page of every such book shall be initialled or signed and the last page of the record of the proceedings of each meeting in such books shall be dated and signed by the Chairman of the said meeting or the chairman of the next succeeding meeting. The section also imposes penal action where there is default in complying with the provisions of the Act. Section 194 of the Act states that minutes of the meeting kept in accordance with the provisions of Section 193 of the Companies Act shall be evidence of the proceedings recorded therein. Section 195 relates to the presumption to be drawn where the minutes are duly drawn and signed. The minutes hence are prima facie evidence on the conduct of the meeting and resolution passed therein. The resolution properly recorded is filed with the Registrar. Hence, the burden of proof as regards the challenge to the meeting is on those who are alleging the contents to be not true. It may also be noted that even under Section 193 of the Companies Act, as regards the signature to be affixed it takes note of a situation where records of the meeting is signed by Chairman of the said meeting or the Chairman of the next succeeding meeting.
34. A perusal of the document, filed herein show that except for the meeting held on 5-4-2002, which is an Annual General Meeting, all the earlier meetings chaired by the first appellant recorded carries no signature from the first appellant. The first appellant had chaired the meetings until 2002. Unfortunately, none of these meetings chaired by him are signed by the first appellant. In the face of these facts, if the principle of law as provided in Sections 193 to 195 is to be invoked, the presumption itself fails even as regards the genuineness of these earlier meetings and the documents therefor. It must be noted that the first appellant did not deny the convening of the meeting on 27-11-2001 when the accounts were passed. The said meeting was presided over by the first appellant herein. The said minutes were not signed by the appellant herein. Yet, going by the consistencies of the practice adopted, whatever be the legality, the fact is that the first appellant was a party to these proceedings and admittedly, he had been acting as a Director passing the accounts up to March 2001. In the light of incontrovertible evidence, having regard to the conduct of the first appellant herein, it is difficult to accept the contention solely by the reliance on provisions of Sections 193 to 195 of the Companies Act. It must be noted that a person who had violated the law earlier cannot take advantage of his own conduct. The meeting which evidences the appointment of third and fourth respondents as Directors under the extraordinary general meeting, was convened at the request of the majority of the shareholders. If democratic governance in a corporate entity is to have some relevance, one cannot easily throw away the wishes of the majority calling for an extraordinary general body meeting. In the circumstances, the contention of the first appellant as regards the reliability on the documents as to the conduct of the meetings has to fail, he having not proved in any other manner about the convening of the extraordinary general body meeting.
35. The learned Counsel for the appellant pointed out to the contradiction in the reasoning of the Company Law Board as regards the validity of the meeting dated 27-11 -2001 as well as to the reference to the minutes book, not being initialled or signed and, hence, the presumption could not be drawn. The finding of the Company Law Board needs to be understood in the context of the conduct of the person who chaired the meeting. As already stated, having passed through these meetings, it is not now open to the first appellant herein to question the very records or the meetings. If the contention of the first respondent merits any acceptance, the very appointment of the first appellant and passing of the accounts in all meetings conducted earlier under the chairmanship is open to criticism. In these circumstances, I reject the prayer on the question of the validity of the minutes of the Annual General Meeting held on 27-11-2001. It must be noted that the respondents did not dispute on the legal proposition governing Sections 193 to 195 of the Companies Act, at the same time, even in the absence of presumption raised, it would be the responsibility of the appellants to show that there was no meeting held on 27-11-2001. There are no materials to suggest that he did not participate in these meetings. There are no circumstances, even to enable an inference to support the case of the appellants herein that the meetings were never held to discuss any meeting. Except for the attack on these meetings, based on the minutes book not maintained in accordance with law, there being no circumstance, I do not find any justification to accept the submissions of the appellants. Even assuming that the presumption does not arise under this clause as required under Section 195 of the Companies Act, it is open to the Court to look at the records as secondary evidence to reject the plea of the appellants herein.
36. On the question of the signature in the balance sheet, the learned Counsel submitted that the same were forged and hence not reliable. The Company Law Board stated that it compared the signature of the first appellant with naked eye as well as through magnifying lens. Company Law Board recorded that:
I find clearly from the original balance sheet for the year ended 31 -3-2001, the impact on reverse of the signed portion, of the impression of the signatures on account of the exertion exercised while putting the signatures. Whereas, no such impression is found and could not also be found on reverse of the scanned signature in the scanned notice dated 11-8-1999. With the aid of the magnifying lens made available by learned Counsel for the respondents while I could see quite a lot of pixels, comprising of white and black dots around the scanned signature portion, contained in the scanned noted dated 11-8-1999, as rightly pointed by Shri Ramakrishna, learned Counsel, there are no such pixels around the disputed signatures contained in the original balance sheet for the year ended 31-3-2001.1 am, therefore, of the opinion that there is prime facie evidence to show that the balance sheet for the year ended 31-3-2001 contains the signatures of the first petitioner and not his scanned signatures.
37. In the light of these findings of fact, which could not be dislodged as perverse or unreasonable, I do not find any reason to dislodge the same.
38. The respondents are justified in placing reliance on the fact that the meeting of Board of Directors was chaired by the first appellant on 27-10-2001 to approve the balance sheet and profit and loss account for the financial year 2000-01 and fixed up the date for the next Annual General Meeting. In the face of this fact, apart from the finding recorded therein, I do not have any hesitation in confirming this finding.
39. The learned Counsel appearing for the respondent submitted that the appellants had not let in any evidence nor pleading available as regards the alleged oppression and mismanagement so as to draw an inference under Sections 397 and 398 of the Companies Act. Touching on the scope of Section 397 of the Act, the learned Counsel submitted that unless and until the requirement of the section is satisfied, the appellants are not entitled to any relief and rightly so, the Company Law Board had rejected the plea.
40. A perusal of the provisions of sub-section 2 of Section 397 shows that the petitioners must project the facts that the affairs of the company are conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members. Based on this facts only, the relief has to be worked out as per Sub-section (2)(b) of Section 397 of the Companies Act. Interpreting the Section 397 in the decision in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351, the Apex Court held that:
... The circumstances must be such as to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy....(p. 366)
41. Quoting the decision in In re H.R. Harmer Ltd. [1959] 29 Comp. Cas. 305, the Apex Court of Appeal further held that:
... There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of this proprietary rights as a shareholder....
42. As to the scope of Section 397 of the Companies Act, referring to the decision in Needle Industries (India) Ltd.'s case (supra) the Apex Court held that every action in contravention of law may not perse be oppressive for the purpose of Section 397 of the Companies Act. But a series of illegal acts, in the context lead justifiably to the conclusion that they are a part of the same transaction of which the object is to cause or commit the oppression of persons against whom those acts are directed. The Apex Court further held that what is considered objectionable is the use of such powers merely for an extraneous purpose like the maintenance or acquisition of control over the affairs of the company. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough...." The Apex Court further cautioned that the Court should not interfere with the exercise by the majority of its constitutional rights or embark upon an enquiry into the respective merits of the views held or policies favoured by the majority and the minority. In short, this is the ultimate threat which needs to run through when applying the provision of Sections 397 and 398 of the Companies Act.
43. Referring to series of decisions of the English Court in a case in V.M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp. Cas. 20 this Court held that:
... (1) that the oppression complained of must affect a person in his capacity or character as a member of the company; harsh or unfair treatment in any other capacity, e.g., as a director or a creditor is outside the purview of the section; (2) there must be continuous acts constituting oppression up to the date of the petition; (3) the events have to be considered not in isolation but as a part of a continuous story; (4) it must be shown as a preliminary to the application of Section 397 that there is just and equitable ground for winding up the company; (5) the conduct complained of can be said to be "oppression" only when it could be said that it is burdensome, harsh and wrongful; oppression involves at least an element of lack of probity and fair dealing to a member in matters of his proprietary right as a shareholder.
44. Mr. Ramakrishnan, learned Counsel for the respondents referred to a decision in Hanuman Prasad Bagri's case {supra). In the background of these decisions, the claims of the rival parties are considered.
45. As already stated, Mr. Ramakrishnan, learned Counsel for the respondents raised a preliminary objection as to the maintainability of the petition under Section 397 of the Companies Act. Mr. Murari, learned Counsel for the appellants however stated that unless and until the respondents have challenged that portion of the order, on the findings and specific appeal or cross appeal preferred, it is not open to the respondents to challenge the same on the question of maintainability. Consequently, reliance placed on Order 41 Rule 2 will not be available to the benefit of the respondents herein. The learned Counsel appearing for the appellants submitted that the scope of Section 397(2) of the Act arises when once the Company Law Board reaches a conclusion as regards the facts stated as per Section 397(1) of the Act. Hence, while Sub-section (2)(a) of Section 397 of the Act forms part of Section 397, the latter portion of Section 397(2)(b) draws an inference to base the relief sought for in terms of Section 402 of the Companies Act. When the facts are pleaded leading to an inference of the nature to pass an order in terms of Section 402 the absence of a specific prayer, does not defeat the relief.
46. I agree with the submission made by the learned Counsel for the appellants herein that the facts stated are not wanting in details but sufficient enough to draw inference as required under Section 397(2)(a) of the Act. Sub-section (2)(b) is only a relief which has to be moulded in terms of the findings drawn. As such, so long as the narration in the petition point out the facts that lead to an irresistible conclusion, the claim of the petitioners would certainly be considered for a relief. Consequently, I do not find any merits in the submission of the respondents that the petition has to be rejected for want of proper pleading.
47. As regards the prayer with reference to signature demanding forensic examination, the learned Counsel for the appellants placed reliance on decision in Manikandan v. Mohan [2000] 1 MLJ 70 and submitted that in the context of the allegations and the denial by the appellants herein that the signature is not that of the appellants herein, the Company Law Board ought to have rendered this decision not by mere comparing the signature and should not have played a role of expert. I do not find any reason to accept this plea since the facts herein does not support the case of the appellants. There is no denial of the fact that the first appellant was at the helm of affairs at the time when the balance sheet in question was passed. He did not deny the fact that in all the earlier extraordinary meetings, he chaired to pass the accounts. There are no materials to substantiate the contention that the accounts were not passed. In view of the admission in acting as a chairman of the meeting and there was no denial that there was no meeting in fact in all these occasions to pass accounts, there is nothing wrong in comparing the signature. In the decision relied on by the counsel for the appellants, this Court held that by comparing the signature the Court is not playing the role of expert. But it is only assessing the evidence which has already been adduced about the probabilities and improbabilities of the case. The situation herein is no different. As already stated above, considering the context of the various facts, I do not find any justification to accept the plea of the appellants herein, that the Company Law Board erred in drawing inference that signature is that of the appellants herein.
48. Referring to the decision in Micromeritics Engineers (P.) Ltd. v. S. Munusamy 2002 (3) CTC 661, the learned Counsel for the appellants submitted that minutes of the meetings are prima facie evidence for presumption under Section 193 read with Section 195 of the Companies Act. As already noted that even though the first appellant was voted as a Managing Director, none of the meetings were signed by those who attended the meetings. The view of the Company Law Board also substantiate this. The learned Counsel does not deny the fact that the first appellant was acting as a Managing Director and was elected in successive times. He admitted the passing of accounts earlier when he acted as Chairman and the meetings for which were not signed. If one goes strictly in terms of Section 193 read with Section 195 of the Companies Act, the presumption would not be in favour of the appellant, yet going by the conduct of the appellant herein, the mere fact that the entries were not signed does not otherwise defeat the factum of the meeting held and he had acted as Managing Director in successive election there for to say that the presumption under Section 195 of the Companies Act is not available to the respondents and it only amounts to denial as regards his continuity therein.
49. There are no circumstance to rebut whatever had happened, acted, upon in the meetings, but not signed only to be read to the advantage of the appellants herein. The failure in the matter of maintenance of records cannot now been taken advantage in favour of the appellant herein at this distance of time. A perusal of the decision in Micromeritics Engg. (P.) Ltd. 's case (supra) shows that the person complaining oppression must establish that he was constrained to submit himself to a conduct which lacks probity and fair play and such conduct prejudices person complaining in exercise of his legal and proprietary rights as a shareholder. Even on the facts of the case, the first appellant had not established that his rights as a shareholder are in any way prejudiced. The mere fact that second respondent's family members constitute the majority does not result in an act of oppression.
50. I do not find any justification to hold that the allotment of shares or making the third respondent as a Managing Director in his place per se results in the act of oppression. The Articles of Association does not contemplate anything against any change of Managing Directors.
51. The learned Counsel for the respondent referring to the issue of presumption under Section 195 of the Companies Act, he drew my attention to the cheque signing power enjoyed up to February 2001. He also referred to the fact that the first appellant had admitted the appointment made earlier, for which there is no signature found in the minutes of the meeting. Hence, by his own conduct, the first appellant is now disabled from raising a plea based on Section 195 of the Companies Act. The learned Counsel for the respondents submitted that in the context of the decision of the Supreme Court in Shanti Prasad Jain's case (supra), as well as Needle Industries (India) Ltd. 's case (supra), the findings could not be disturbed considering the democratic manner in which the respondents 3 and 4 herein were appointed. Except for his removal, he has not pointed out any act of oppression. The learned Counsel for the respondents pointed out that the termination of the first appellant could not be a ground for the relief of winding up which is an equitable relief. In this connection he referred to a decision in Maharashtra Power Dev. Corporation Ltd. v. Dabhol Power Co.[2003] 5 CLJ 1 which was affirmed by the decision in Maharashtra Power Dev. Corporation Ltd. v. Dabhol Power Co. [2004] 3 CLJ 58. He made a specific reference to a discussion made at page 84. I agree with the contention of the learned Counsel for the respondents that winding up being an equitable relief, the mere removal as such, does not result in a case of oppression or mismanagement.
52. The learned Counsel for the respondents placed reliance on Ruby General Hospital v. Dr. K.K. Dutta 70 CLA 186 and Sangramsinh P. Gaekwad v. Shantidevi P. Gaekwad , confirming the decision of case in Maharashtra Power Dev. Corporation Ltd.'s case (supra) support of his contention that illegal or irregular action is not an oppressive one to invoke the provisions under Section 397 of the Companies Act. The learned Counsel placed emphasize on the decision of the Supreme Court to state that the petition under Section 397 of the Companies Act is maintainable even if the oppression was of a short duration and of a singular conduct if its effects persisted indefinitely. However, considering the nature of the equitable relief which has to follow up a finding given under Sections 397 and 398 of the Companies Act, the finding must lead to an one and only relief that is equitable on the face, viz., the winding up.
53. Without going into any of these decisions in detail, the fact herein remains that the Company Law Board, as a matter of fact, has given its finding that in spite of the fact that none of the pages of the minutes book were initialled, the conduct of the parties are good enough to say that the appointment of the first appellant comes to an end and not renewed in a voluntarily constituted meeting. In the light of the finding of the Company Law Board on the above said fact with which I concur, I do not find any justification in sustaining the plea of the appellants.
54. On the question of appointment of the Chartered Accountant to audit the accounts between 22-7-2000 and 23-7-2002, the Company Law Board found that the first appellant was a signatory of the balance sheet for the financial year ending 31-3-2000. As regards the cash withdrawals in respect of 2001-02, 2002-03, the Company Law Board viewed that the respondents have not satisfactorily explained the same. Hence, it requires an investigation. In the interest of justice, such course is warranted to get at the truth. In considering the same, an opportunity is afforded to the parties herein to place all their objections to the Chartered Accountant. In the nature of the allegations made, for smooth functioning of the company, as an equitable relief, the Company Law Board has arrived at a situation that the minority shall sell the shares in favour of the respondents on the value to be arrived at by the Chartered Accountant. The appellants herein can sell the shares to the respondents on payment of consideration.
55. In the light of the law laid down by the Supreme Court governing the scheme of Sections 397 and 398 of the Companies Act, I do not find any justification in reversing the order of the Company Law Board. Consequently, the appeal fails and the same is dismissed. No order as to costs.