Company Law Board
Sanjeev Joy, Yeshwant Joy (Minor), ... vs Pereira & Roche Private Limited, ... on 23 May, 2002
Equivalent citations: [2002]110COMPCAS717(CLB)
JUDGMENT
K.K. Balu, Member
1. The petitioners constituting more than one-tenth of the total members of M/s Pereira & Roche Private Limited ("the Company") as well as holding more than 10 per cent of the issued shares have filed this petition under Section 397/398 of the Companies Act, 1956 ("the Act") alleging acts of oppression and mismanagement in the affairs of the Company.
2. The main acts of oppression and mismanagement relate to non-holding of the board meetings, annual general meetings and non-adoption of accounts of the Company inclusive of the Madras branch transactions for several years, non-transmission of the shares in favour of the petitioners, exclusion of the petitioners 3 & 4 from the affairs of the Company, diversion of the business of the Company to the detriment of the members and mismanagement of the funds of the Company.
3. Ms. Chitra Narayan, Advocate appearing for the petitioners, while initiating her arguments has submitted that the Company was incorporated in July, 1954 with the main object to do business in India of Steamer Agents and obtained the agency of the Shipping Corporation of India. The authorized share capital of the Company is Rs.2 lakhs divided into 200 ordinary shares of Rs.1,000/- each. The issued, subscribed and paid-up share capital is Rs. 75,000/- divided into 75 equity shares. The petitioners 3 & 4 being directors are the wife and husband and the petitioners 1 & 2 are their children. The petitioners together are holding 35 shares. The second respondent is the husband of the third respondent and uncle of the third petitioner holding 20 shares. The fourth respondent is the sister of third petitioner holding 10 shares in the Company. The fifth respondent is the internal auditor of the Company. The sixth and seventh respondents are managing the affairs of the Madras Office of the Company. The second respondent has been the Managing Director since April, 1992. The third respondent is also director since April, 1992. According to the petitioners, the second respondent has been grossly mismanaging the affairs of the Company since 1992. No board meetings have been convened and annual general meetings have not been held since 1992. The Company has not adopted the annual accounts inclusive of its Madras Office within the statutory period. The second respondent failed to transmit ten shares bequeathed in favour of the third petitioner and fourth respondent by their mother and also failed to transmit 25 shares bequeathed in favour of the petitioners 1 & 2 by their grand father on the ground that 35 additional shares must be allotted in his favour, forcing the petitioners 1 & 2 to file a petition under Section 111 in CP No. 11/2000 against the Company to transmit 25 shares, stated ante, in their favour which was allowed by the CLB, subject to the outcome of the probate revocation proceedings in CP 1/2001 pending before the Civil Court at Tuticorin. The second respondent being the Uncle has always been having dominance over the third petitioner. The second respondent in connivance with the fifth and sixth respondents have been mismanaging the Company and diverting its business through a partnership firm ostensibly created in Madras since the year 1994. The respondents never divulged the nature of the transactions of the Madras brunch. The accounts pertaining to Madras branch have never been included in the accounts of the Company. The Company has passed the accounts for the past six years availing the Company Law Settlement Scheme without inclusion of the branch transactions in spite of the opposition by the petitioners 3 & 4. It transpired that the Madras branch was maintaining a second bank account with Bank of Baroda, viz. Current A/c. No. 54277. However, no details were made available in respect of this account. The petitioners estimate that a sum of Rs.22 lakhs is available in the aforesaid account. The respondents have been drawing enormously arid spending lavishly at the expenses of the Company. Ms. Chitra Narayan pointed out that the respondents 2, 5 & 6 have influenced the third petitioner in signing the partnership agreement in the year 1994 in an attempt to convert the operations of the Madras branch into a separate partnership firm. According to her, the partnership transaction is a surreptitious, transaction with an attempt to regularize the accounts of the Madras branch. According to her, the partnership deed has been back dated by five years and all the business held and adopted by the Madras branch office have been effectively transferred to the firm. The turn over and profits of the Company have been in fact further transferred to the partnership firm. Consequently, the profits and turn over of the Company all these years had been unilaterally given to the firm, thereby the Company has suffered losses and the respondents are liable to account for the diversion of business and make good the losses caused to the Company on account of these transactions. At present, the Madras office has been closed down and the sixth respondent has taken away all the assets and records of the partnership with him. The sixth respondent has also taken away certain clients of the Company, thereby the Company has been put to losses. In the circumstances, the petitioners have sought for the reliefs made in the petition.
4. Shri V. Venkadasalam, Counsel appearing for the 1st, 2nd, 4th and 5th respondents, while denying the allegations of oppression and mismanagement in the affairs of the Company, pointed out that the petitioners 3 & 4 being the whole-time directors are equally responsible for the management and day-to-day affairs of the Company. The third petitioner is solely in-charge of the accounts of the Company. The petitioners 3 & 4 are responsible for statutory compliance. The second respondent is in-charge of the field operations of the Company and decisions are taken in consultation of the third petitioner. Shri Venkadasalam pointed out that board meetings were regularly held in accordance with the Act. Even otherwise the petitioners 3 & 4 being the directors are always at liberty to convene board meetings. The respondents 5 & 6 have no dominant role in the affairs of the Company. The fifth respondent is an internal auditor of the Company and his role is only auditing the accounts. The sixth respondent is neither a shareholder nor a director of the Company. The fifth respondent has already resigned from the post of internal auditor of the Company. In the circumstances, these respondents have no opportunity to intervene in the affairs of the Company and indulge in the acts of oppression and mismanagement'. According to Shri Venkadasalam, the petitioners 3 & 4 had visited the office of partnership a number of times and collected all the details relating to the firm. They have also taken all the books of accounts and they are at present under the custody of the third petitioner. The accounts of the firm cannot be included in the company's accounts. The Company has no branch office. He further pointed out that the third petitioner left the board meeting held on 4.10.2000 abruptly and the accounts were passed by the remaining majority of the directors. According to Mr. Venkadasalam, the third petitioner was not co-operating with the second respondent in finalizing the accounts of the company. With great difficulty the accounts were finalized in March, 2000 and the entire accounts were filed with the Registrar of Companies, pursuant to the Company Law Settlement Scheme. Once the accounts have been approved and the AGMs are held and the accounts are filed with the Registrar of Companies, the petitioners have no right to challenge the same, especially when the majority of the directors and shareholders have approved the accounts. He further pointed out that the business of the partnership is different from the business of the Company and hence the petitioner cannot seek to club the partnership with the Company. Moreover the partnership deed provides for arbitration in case of any dispute among the partners. The sixth respondent has already invoked the arbitration clause in which case, the petitioners cannot make any claim in regard to the partnership before the CLB. Shri Venkadasalam while concluding his submissions expressed the willingness of the second respondent to buy the shares of the petitioners for a sum of Rs. 10,00,000/-, taking into account the value of the assets of the Company, receivables due to the Company and the outstanding liability payable by the Company. In the alternative, if the petitioners are willing to buy the shares of the second respondent, the petitioners will have to pay Rs. 10,00,000/- in which case, the second respondent will not be liable on account of any claim which may be made by the Shipping Corporation of India against the Company.
5. Shri K. Murari, Advocate appearing for the respondents 6 & 7 submitted that they are neither shareholders nor directors in the Company. These respondents need not be a party to the proceedings and no relief can be claimed against them under Section 397/398. These respondents never interfered with the affairs of the Company. He pointed out that the partnership commenced in the year 1994 was being carried on by the sixth respondent as Managing Partner. He denied the huge expenses said to have been incurred on account of gifts and telephone by these respondents. The operations at Madras are of the partnership and not of the Madras branch of the Company. The accounts of the partnership cannot be included in the account of the Company and hence the Company never adopted the accounts of the partnership along with the Company. Moreover, the accounts, of the partnership were under the control of the Company and all the major payments are made by the firm with the consent and knowledge of the partners. The petitioners were aware of the transactions of the partnership and drew monies from the partnership firm and utilized the services rendered, by the firm. The entire books of accounts are lying with the third petitioner. She has not finalized the accounts on account of which the partners could not settle their dues. He further pointed out that the partnership firm was closed with effect from 31.3.99 on account of the differences among the partners. The partnership deed envisages settlement of the disputes among the partners by Way of arbitration. The sixth respondent has already invoked the arbitration clause and hence the allegations relating to affairs of the firm cannot be entertained before the CLB. He further pointed out that the current account No. 54277 of the Bank of Baroda is the account of the partnership which has been maintained in the name of the first respondent in view of the fact that the Customs CHA License was in the name of the Company. The monthly statement relating to this account were used to be sent to the first respondent. The third petitioner who was monitoring the partnership received the bank statement and aware of the affairs of the partnership. In the circumstances, he urged for dismissal of the petition.
6. We have considered the pleadings and arguments of counsel for the petitioners as well as respondent. The main dispute relates to the clearing and forwarding business carried on at Madras, which according to the petitioners, form part of the business of the Company, but as per version of the respondents, relate to the business of a partnership firm formed by the Company and the respondents 6 & 7. It is observed from the available records that, the Company has been carrying on the business of clearing and forwarding agents holding the requisite license at Tuticorin for the past several years. While so, the Company, the respondents 6 & 7 had entered into a deed of partnership dated 1.4.1994 to carry on the business of clearing and forwarding in the name and style of M/s Pereira & Roche and Co. The capital of the firm was to be contributed by the Company and respondents 6 & 7 in the following manner:-
The Company - Rs.50,000/- Respondent No.6 - Rs. 1,00,000/- Respondent No.7 - Rs.1,00,000/- ,
Clause 7 of the Partnership Deed shows that the Company shall extend its CHA license to Madras Customs House for the business of clearing and forwarding Operation of the partnership firm. Contracts and tenders should be participated in the name of the Company on behalf of the partnership firm and should be executed in the name of the Company by raising bills, vouchers etc. receiving payments by cheques, drafts, cash statements and TDS certificate in the name of the Company and opening of bank account and operating the same in the name of the Company, All the transactions should be in the name of the Company "on account" in the clearing and forwarding business at Madras of the partnership firm. The profit and loss arising there from on this account should go to the partnership firm. The profit or loss should be shared among the partners at ratio of 33-1/3% each. The sixth respondent would be managing partner, who was authorized to sign all documents and contracts on behalf of the firm on account of M/s Pereira & Roche Private Limited. It is specifically stipulated by Clause 12 of the Partnership Deed that bank accounts should be opened in the name of the Company on behalf of the firm and should be operated by one of the partners. Clause 13(a) of the Partnership Deed provides that the turn over and profit and loss arising in the transactions at Madras shall belong to the partnership firm. It is specifically stipulated that the Company is authorized to use its license to carry on the clearing and forwarding business at Madras for and behalf of the partnership firm and empowered to apply for tenders, contracts and also sign the tender applications and enter into necessary agreements on behalf of the partnership. The partnership deed has been signed by the third petitioner and second respondent on behalf of the Company. Even though, Counsel for the third petitioner meekly submitted that the said deed of partnership dated 1.4.1994 came to be executed at a later point of time, the letter dated 5.4.1999 written by the third petitioner to the second respondent, page 246 of the petition shows that the parties have been running the Madras partnership for the last four years. The correspondence exchanged between the respondents 3, 6 & 7 produced by the respondents at page nos. 1 to 12 (Index of Documents) establish the fact of carrying on the clearing and forwarding business by the partnership in the name of the Company at Madras. The letter of December, 2000 sent by the second respondent (Page 12 of Index of documents produced by the respondents) to one of the constituents of the Company show that with effect from April, 1999, the Company is not carrying out any clearing and forwarding work in Chennai. It further shows that the sixth, respondent is continuing the business independently in Chennai. Admittedly, the partnership business has, been closed down from 1st April, 1999. When the third petitioner herself has signed the partnership deed on behalf of the Company, she is estopped from questioning the factum of the Madras business being carried on by the partnership. If so, in a company petition, the affairs of an independent firm cannot be looked into to find out whether there is mismanagement in that firm. Further, Clause 14 of the partnership deed provides that in the event of any partner not agreeing to any decision of the majority of the partnership in respect of any dispute, the same shall be referred to the arbitrators and whose decision shall be final binding on all the partners. It is also on record that the sixth respondent has already invoked this arbitration clause. The second account i.e. Current Account No.54277 of the Bank of Baroda is the account maintained by the partnership, which is in the knowledge of the third petitioner, as borne by the letter dated 5.4.99 (Page 246 of the petition), the relevant portion of which runs as follows;
...... "Why did Mr. Samsudeen allow this second Bank account to be opened in the name of M/s Pereira & Roche? "
The plea of non-holding of the board meetings, annual general meetings and non-adoption of accounts of the Company must fail in view of the fact that the Company has adopted the accounts for the years commencing from 1995 till 2000 in various annual general meetings, attended but opposed by the petitioners and that the copies of the accounts have been submitted before the Registrar of Companies. In regard to the plea of non-transmissions of 25 shares in the name of the petitioners 1 & 2, this Bench has already by its order dated, 10.12.2001 ordered the Company in CP No. 11/111/2000 and CP No. 1/2001 to transfer 25 shares in favour of the petitioners 1 & 2 subject to the outcome of the probate revocation proceedings pending before the Civil Court at Tuticorin initiated by the third respondent. In so far as the non- transmission of 10 shares in favour of Petitioner No. 3 and Respondent No. 4, it is observed that Mrs. Mercy Roche, since deceased, had bequeathed 10 shares of the Company in their favour, being daughters and the Company had refused to transmit the said shares in their favour on the ground that they should produce probate of the Will. Admittedly, the shares are held by the family members of Roche. There has been no counter claim for these shares since the demise of Mercy Roche. It is also observed that the Company had on earlier occasion effected transmission of the shares of the deceased mother of the Managing Director without the formality of probate. In the circumstances, the Company will transmit 10 shares of Mercy Roche in favour of the petitioner No.3 and respondent No. 3 in terms of the Will executed by the former. In regard to the other reliefs claimed in the petition, it is observed that the Company is not now carrying on any business. The petitioners have not established any act of mismanagement in the affairs of the Company. In the circumstances, admittedly, the parties are not getting on well in pursuing the objects of the Company. In the circumstances, it is desirable that the petitioners go out of the Company by selling their holdings to the respondents. In this connection, the second respondent has already made an offer in writing that he is willing to buy shares of the petitioners for a total sum of Rs. 10 lakhs taking into account the value of the assets of the Company, receivables due to the Company and outstanding liability payable by the Company. In the alternative, if the petitioners are willing to buy the shares of the second respondent, the petitioners will have to pay Rs.10 lakhs in which case the second respondent should be discharged from all the liabilities of the Company. Therefore, the petitioners are at liberty to choose either of the two options. In case they wish to sell their shares to the second respondent for a total Consideration of Rs.10 lakhs, the same will be binding on the respondents. In case, the petitioners chose this option, they should exercise their option in writing within a month from the date of this order by sending a notice to the Company and the second respondent should arrange to purchase these shares within three months thereafter. As and when the consideration is paid, the petitioners should execute blank transfer forms and hand them over to the second respondent with the original share certificates. In case, they choose the 2nd option, they should pay Rs. 10 lakhs to the 2nd respondent within 3 months of exercising the option and release him of all liabilities of the Company.
7. With the above directions, we dispose of this petition, however, without any order as to cost.