Company Law Board
Shri. P. Govindarajan vs Tiruppur Transports Private Limited ... on 5 April, 2004
Equivalent citations: [2004]55SCL453(CLB)
ORDER
K.K. Balu, Member
1. This is an application filed by the fourth petitioner under Rule 44 of the Company Law Board Regulations, 1991 against M/s. Tiruppur Transports Private Limited ("the Company") and others seeking directions of this Bench to implead M/s. Tiruppur Karur Transports Private Limited ("TKTPL") and 16 others as parties to the present proceedings. TKTPL and 16 others are referred to as the proposed parties. The applicant along with the other petitioners have filed the company petition under Section 397, 398 & 402 of the Companies Act, 1956 ("the Act") alleging certain acts of oppression and mis-management in the affairs of the Company and seeking against the respondents in the company petition the following reliefs:
to declare that the alleged co-option of the third and fourth respondents as directors of the Company in the Board Meeting said to have been held on 29.09.2000 is non est and non binding on the Company and declare that any action taken pursuant to the said alleged meeting should be illegal and in contravention of the provisions of the Companies Act, 1956;
to declare that the issue of shares of the Company to the third and fourth respondents on 19.03.2001 is void and not binding on the Company;
to direct the Company to rectify its register of members deleting the names of the third and fourth respondents as members of the Company;
to declare that the removal of the third and fourth petitioners from the directorships of the Company is void, illegal and not binding on the Company;
to declare that the third and fourth petitioners continue to be directors of the Company; and to remove the second respondent from the Board of Directors of the Company and consequentially from the post of Managing Director of the Company.
2. According to Shri K.S. Vamsidhar, Advocate appearing for the applicant, TKTPL being a subsidiary of the first respondent-Company, was incorporated on 28.5.1947, with main objects of carrying on the business of common carriers. TKTPL is not carrying on any business but owns valuable immovable property, in Tiruppur, Tamil Nadu. The applicant came to know from the counter statement filed by the respondents in the company petition that TKTPL is no longer a subsidiary company of the first respondent-Company with effect from 20.12.2002, compelling the applicant to cause a detailed search in the records of TKTPL with Registrar of Companies, Coimbatore and found out the following among other irregularities in the affairs of TKTPL:-
In March 2001, the respondents 2-4 created records as if the un-issued share capital of TKTPL was issued to the first respondent-Company.
The third and fourth respondents were appointed on 29.9.2000 as Directors of TKTPL, but filed form 32 only in March, 2001.
No Board Meeting was held for approving un-issued capital and / or the appointment of the respondents 3&4 as Directors. No notice was either sent to the petitioners.
The Articles of Association of TKTPL was said to be amended at the Annual General-Meeting held on 26.9.2001. However, no such meeting was held and no notice was sent to the petitioners for any such meetings.
Though the Balance Sheet of TKTPL reveals borrowing of funds from its directors and relatives no amount was borrowed by TKTPL. No such money came into the account of TKTPL.
TKTPL is reported to have borrowed Rs. 12 lakhs from the 20th respondent. There was no need for TKTPL to borrow funds from any one.
The respondents 3&4 were said to be appointed as Directors of TKTPL on 20/11/2001, which is absolutely false.
The authorised capital of TKTPL was reportedly increased to Rs. 2 lakhs by a special resolution of the company at the Extra-ordinary General Meeting held on 15.11.2001. The authorized capital of TKTPL was never increased at any point of time.
It is reported that the petitioners 3&4 ceased to be Directors of TKTPL with effect from 7/5/2002. However, these petitioners never resigned as Directors of TKTPL.
During pendency of the company petition, the respondents 2,3&4 in collusion with the proposed parties had allotted in November and December 2002 shares of TKTPL in favour of the respondents 3 & 4, 6-9 and further in favour of the respondents 10-19 who are related to each other, thereby the holding of the first respondent-Company in TKTPL has been reduced to 46.6%, while the respondents 2,3,4 and the proposed parties have become the majority shareholders of TKTPL.
The respondents 2-4 and the proposed parties are attempting to create records as if they have borrowed money from various sources, thereby increasing the liability of TKTPL and encumbering the properties of TKTPL.
The respondents 2-4 and the proposed parties are constructing a show room for the two wheelers manufactured by one of the proposed parties in the property belonging to TKTPL, thereby changing the character of .the property.
According to Shri Vamsidhar, learned counsel though these acts of oppression are in the affairs of TKTPL, a subsidiary of the first respondent-Company, yet the Company Law Board is empowered to grant appropriate relief in the present company petition, with a view to bringing to an end the matters complained of in the affairs of TKTPL, in support of which he relied on the decision of the High Court of Madras in Shankar Sundaram v. Amalgamations Ltd -(2002)4 Comp LJ 367.
3. According to Shri A.K. Mylsamy, learned counsel appearing for the respondents 1 -4 submitted that the proposed parties are neither necessary nor proper parties to the present proceedings. TKTPL ceased to be subsidiary of the first respondent-Company as early as from 19/12/2002. The applicants if aggrieved on account of the alleged acts of oppression and mis-management in the affairs of TKTPL must agitate the same under Section 397/398 in a separate proceeding. The affairs of TKTPL cannot be challenged by the applicant in the present company petition which is relating to the grievances in regard to the first respondent-Company. Shri Mylsamy, learned counsel pointed out that the respondents 2-4 have entered into a partnership in the name and style of TKT Motors which has been appointed by the Hero Honda Motors Ltd being the respondent No.21 as their dealer at Tiruppur. In this connection TKT Motors has taken the premises belonging to TKTPL on sub-lease from Shri K. Balakrishnan for a period of 5 years and constructing a showroom for the said purpose, in terms of the lease deed. The object of the applicant is to ensure that TKT Motors is not appointed as the dealers of respondent no.21. In these circumstances, Shri Mylsamy learned counsel sought for dismissal of the application.
4. I have considered the arguments of learned counsel. The question that arises for my consideration is whether TKTPL and other proposed parties are necessary parties to the company petition. Before going into the claim and counter claim of either parties, it shall be borne in mind that the-petitioners in the company petition aggrieved by the alleged acts of oppression and mismanagement in the affairs of the first respondent-Company have moved the CLB for appropriate reliefs as set out supra. The applicant through this application is questioning the affairs of TKTPL, the then subsidiary of the first respondent-Company in the present Company Petition. The alleged acts of oppression and mismanagement in the affiars of TKTPL relate to interalia, the appointment of the third and fourth respondents and the removal of the third and fourth petitioners as Directors of TKTPL, increase in the authorised share capital, allotment of shares of TKTPL in favour of the respondents 3 & 4 and the proposed parties 6-19; fictitious borrowings in the name of TKTPL; non-convening of Board Meetings or Annual General Meeting; non sending of notices to the third and fourth petitioners for such meetings, changing the character of the property of TKPL by putting up super structure etc. A careful perusal of the application reveals that every one of the grievances of the applicant is in relation to TKTPL with independent cause of action. If the applicant is aggrieved on account of these acts of the respondents in the affairs of TKTPL, must necessarily agitate the same in a separate proceedings. No relief can either be granted for these grievances of the applicant in regard to the affairs of TKTPL, in the present proceedings, irrespective of whether TKTPL is or not a subsidiary of the first respondent-Company. The object and scope of the application must be to see whether the presence of the proposed parties is necessary, without whom there could be no effective arid final adjudication of the issues involved in the company petition, in support of which beneficial reference is invited to Khaja Abdul Khader v. Mahabub Saheb - AIR 1979 AP 152. In the present case, I find that the reliefs sought in the company petition, can be granted even in the absence of the proposed parties, provided the alleged acts of oppression are established by the petitioners. Therefore, TKTPL and the proposed parties are not necessary and proper parties to the company petition. Whether the affairs of the holding company would include the affairs of the subsidary company under sections 397 and 398 would depend upon the facts of each case as held in Shankar Sundaram v. Amalgamations Ltd (supra). TKTPL is admittedly not carrying on any business. The issue as to whether the affairs of a holding company would include the affairs of a subsidary could arise only when the Board of the holding Company control the affairs of the subsidary. In the present case, there is an independent Board in the subsidary and the first respondent - Company, managed by the independent Board neither interfered in the affairs of TKTPL nor was a party to any of the decisions of the Board of Directors of TKTPL sought to be impugned in the application. The grievances and reliefs in regard to the affairs of TKTPL are independent of the affairs of the first respondent - Company. Under these circumstances, the affairs of the first respondent -Company cannot be held to include the affairs of TKTPL. Accordingly, the affairs of TKTPL cannot be agitated claiming any relief in the present company petition with a view to bringing an end the matters complained of in the affairs of TKTPL. For these reasons the application is liable to be dismissed. Ordered accordingly.