Andhra HC (Pre-Telangana)
M. Mohan Babu vs Heritage Foods India Ltd. (No. 1) on 27 April, 2001
Equivalent citations: [2002]108COMPCAS771(AP)
JUDGMENT T. Ch. Surya Rao, J.
1. The petitioner seeks winding up of the first respondent-company under Sections 433(f) and 439(1)(c) of the Companies Act, 1956 ('the Act').
2. The case of the petitioner, in brief, may be set forth thus :
Heritage Foods India Ltd., the first respondent-company was registered on 5-6-1992, with its head office at Hyderabad. The authorised capital of the company at the time of its incorporation was Rs. 1 crore, which was divided into 10 lakh equity shares. The paid up capital was Rs. 80,57,000 as on 31-8-1992. The petitioner invested an amount of Rs. 23,70,000 whereas the second respondent invested an amount of Rs. 2,01,500, which, by the next seven months was shot up to Rs. 76,15,000. Similarly the shares of the third and fourth respondents, the wife and son of the second respondent respectively, were also increased in geometrical progression to Rs. 1,12,31,000 and Rs. 3,15,000 respectively whereas the amount invested by the petitioner remained at Rs. 23,70,000 only. The share certificates were allotted to him only on 16-11-1994.
3. The petitioner was promised by the second respondent to involve him in the improvement of the business of the company and he was made one of the first directors of the company. The hope of the petitioner soon thereafter was shattered and he found the second respondent indulging in fraudulent activities and misuses. The second respondent started fattening his individual coffers, but not that of the company or its shareholders. The second respondent acted as the managing director of the company till 12-12-1994 on which date he was sworn in as a minister in the cabinet headed by the late N.T. Rama Rao. He, therefore, resigned the post of managing director and in his place the third respondent, his wife, was appointed as executive director, which was not mentioned in the memorandum and the articles of association of the company. Her remuneration was fixed at Rs. 20,000 per month and later was accelerated to Rs. 40,000 per month. Besides that she was being paid an amount at 1 per cent on the net profits every year. She was also provided with other perks to the tune of Rs. 2,40,000 per annum without the sanction of the governing body. The expenditure thus spent on the third respondent is improper, as the post of executive director was not borne out by the memorandum and articles of association. Thus huge amounts of the company have been misused and spent on the third respondent, who has no experience of running a company. The post of managing director, after the second respondent resigned, has been kept vacant.
4. The fifth respondent, who was working as Registrar of Andhra Pradesh Open University was made as a whole time-director of the company, despite the prohibition from indulging in such business activities. He has been entrusted with full-scale business of the company by the second respondent himself contrary to the rules and procedure, more particularly under Sections 258 and 260 of the Act. Huge amounts have been paid to the fifth respondent without any authority.
5. In the beginning the petitioner and the second respondent were having cordial relations. The petitioner in his personal life is a very successful film star and producer. He has also taken keen interest in politics. Because of the increasing popularity of the petitioner, though in the field of cinema and politics, the second respondent became envious and started sidelining him in the affairs of the company and hatched a plan to ease him out of the company. In the year 1994, the second respondent requested the petitioner to sign on some blank papers on the pretext that there had been some difficulty with the banks and as the petitioner himself engaged in politics and cinema, he could use those fetters properly whenever the situation demanded. Out of faith in the second respondent the petitioner handed over three or four signed blank papers. The petitioner does not know how the said papers have been used.
6. Initially notices of the meetings of the board of directors used to be served on the petitioner but later that was discontinued and he was totally kept in the dark about the affairs of the company. To his surprise, recently he could find in the annual reports supplied to him at his request that he resigned as a director. He did not receive any communication from the company accepting his resignation.
7. The share certificates shall have to be issued as and when shares are accepted by the company. But the share certificates were issued to him after a much later date, thus freezing his share capital maiming the amount, contrary to Section 113 of the Act. The petitioner strongly believes that the share capital of the petitioner and other-shareholders was misutilized by the second respondent for his personal aggrandizement. The lien period for the share certificates is three years, but the share certificates show the lien period as five years, issued by the second respondent styling himself as chairman by usurping the powers. As the share certificates were issued in the year 1994 and as the lien period extended up to 2000 AD, the individual shareholders are incapacitated to use their shares in any way they choose.
8. In the annual reports the amounts were not properly accounted for in the years 1995-96 and 1996-97. An amount of Rs. 2 crores was shown as unsecured loan without furnishing necessary details of it and was not shown in the year 1997-98 without disclosing the fact as to when it was repaid. During that period there was no necessity to secure a loan as the company was running on profits, except to overburden the same. It was also not shown about any plans for the expansion of the company.
9. The share application money of the individual shareholders as on 31-3-1993 was shown at Rs. 1,87,71,500, whereas the share amount by 18-11-1992, was shown as Rs. 1 crore only. This discrepancy was not explained in any of the annual reports.
10. Infrastructure of the company has not properly been explained. The buildings of the several factories owned by the company where the production is being carried have also not been shown in the records. Without showing any details for the expenditure of the buildings, some lump sum payments have been shown towards the expenditure for the buildings. Thus the shareholders have been completely kept in the dark.
11. The second respondent got a resolution dated 29-9-1998 passed at the sixth annual general meeting authorising the company to buy back the shares of the company contrary to Section 77A of the Act. The interest earned by the company has also not properly been explained. An amount of Rs. 69 lakhs was shown as interest for the year 1994-95 and by 1997-98 it was shown as Rs. 2,30,000 while showing the reserves and surplus at Rs. 5,26,00,000. Thus the company has been indulging in nefarious activities.
12. The petitioner requested the executive director of the company under his letter dated 22-5-1999, to furnish the memorandum and articles of association, prospectus, copies of application form for allotment of shares, copies of minutes of the four board meetings dated 13-9-1993, 19-10-1993, 31 -1 -1994 and 30-4-1994 and the detailed list of allotment of shares made through private circulation and to the promoters quota, but the company supplied only memorandum and prospectus while refusing to supply other particulars. As the company violated the Act and the SEBI rules, it wanted to conceal the information sought by the petitioner.
13. The second respondent is the present Chief Minister of the State and with his political influence he is enriching himself in the name of the first respondent-company. In the prospectus released on 19-10-1994, the second respondent declared that he is not associated with any other industrial business and that there is no other company promoted by him and that there are no pending litigations against him on economic offences, but the sixth respondent, which is having as large shares, is owned by the family of the second respondent. Thus the declaration made by the second respondent is contrary to Section 73 of the Act.
14. The statutory meetings of the company have not been held within the stipulated time violating Section 155 of the Act. The board meetings have also not been held as provided under Section 166 of the Act. The second respondent is solely acting, making all others dummies and making the company as his sole proprietary concern. Thus the second respondent has been indulging in illegal and fraudulent activities to enrich himself in the name of the company to the detriment of the interest of the promoters. Under the circumstances it is just and equitable to wind up the company.
15. When a notice before admission was ordered, the respondents appeared and resisted the petition by filing counters. The first respondent filed a counter and the second, third and fifth respondents filed separate counters. The case of the first respondent in brief is as follows :
The petitioner holds only 2.19 per cent paid up share capital and he is one among the 15,144 shareholders by 30-9-1999. The first respondent-company is one among the leaders in the private sector dairy companies in South India and it has been granted VISO-9002 and Q-9002 certificates for having established a quality management system for processing and packing of liquid milk which is in compliance with international quality system standards. The turnover of the company, its net profits and its employees and remuneration have been detailed year wise, inter alia, in the counter. The milk and milk products produced in the dairy of the company are catering to the needs of approximately 2 lakh persons spread over the States of Andhra Pradesh, Karnataka, Tamil Nadu, Orissa, Kerala, Madhya Pradesh, West Bengal and Pondicherry. It has been providing employment to women, small farmers by extending loans and by providing feed medicines and making temporary payments for the milk procured by them. Thus, it would be against the interest of the workers, employees, and farmers, to wind up the company.
16. The share application that was received by the company as on 31-8-1992, at Rs. 80,69,418 and the petitioner holds 2.19 per cent of the paid up share capital of the company.
17. The sixth respondent is a partnership firm registered under the Partnership Act with respondent Nos. 3 to 5 as partners. It is not a benami concern.
18. By 31-8-1992, the second respondent invested an amount of Rs. 2,01,500 and by 31-3-1992, it was Rs. 2,12,500. As on 31-3-1994, it was Rs. 25,09,000 and by 16-11-1994, it was Rs. 65,20,000. Subsequent to the allotment of shares on 16-11-1994, the second respondent purchased shares in the open market and that is the reason why as on date the second respondent holds 7,61,800 shares for an amount of Rs. 76.18 lakhs. Similarly, the third respondent held shares worth Rs. 8.26 lakhs and the fourth respondent held shares worth Rs. 3,15,000 as they purchased shares in the open market subsequent to the allotment of the shares. The amount invested by the petitioner has been used for the business of the company. The petitioner was allotted shares of Rs. 23,70,000 along with respondent Nos. 2 to 4 and others on 16-11-1994. It was not contrary to Sections 69, 71 and 72 of the Act. As per the SEBI guidelines allotment of shares was made prior to the date of its public issue and the allotment letters and the share certificates were issued to the allottees immediately after the allotment of share within two months from the date of closure of subscription list. The date of public issue was 17-11-1994, and the date of closure of subscription list was 28-11-1994 and the two-month period as per the rules expired by 28-2-1995. Thus the allotment of shares was much prior to that dale and the petitioner who has not chosen to challenge the allotment within two months from the date of allotment, i.e., before the end of March, 1995, cannot, after a lapse of more than four and half years, contend non-compliance with Section 71 of the Act. After the resignation as managing director of the company by the second respondent, he disassociated himself with the business activities of the company and has not even attended any annual general meeting held on various dates.
19. When the shares were allotted on 16-11-1994 under the promoters quota, within less than a month thereafter the second respondent submitted his resignation on 10-12-1994, which was accepted by the board on 11-12-1994, and thereafter he disassociated himself with the business activities of the company. The first respondent-company has been making profits each year from the date of inception. It has been complying with all the required statutory provisions and the rules made thereunder.
20. The third respondent was appointed as executive director and whole time director of the company on 11-12-1994, in accordance with articles 96 and 140(a) of the articles of association and Section 269(1) of the Act. The fifth respondent was also appointed as whole-time director as Article 140(a) provides for the same. The appointment of the third respondent has been approved by the shareholders of the company in the annual general meeting. The appointment letter in Form No. 25C was filed with the Registrar of Companies on 17-3-1995. During the period of the third respondent as executive director, the company achieved tremendous increase in its turnover and increase in profits. The fifth respondent has been functioning as a whole time director of the company with the prior permission and consent of the University. The remuneration paid to the fifth respondent is in accordance with Sections 269, 309 and 354 read with Schedule XIII to the Act and the same has been approved by the company in its annual general meeting.
21. The petitioner voluntarily resigned as director of the company on 30-4-1994, informing the directors that due to pre-occupation with his work he would be relieved of the responsibilities of the director of the company with immediate effect. Consequent upon his resignation Form No. 32 was filed with the Registrar of Companies along with a letter dated 23-5-1994, on 27-5-1994. It has been duly entered in the register, which is kept open for inspection by any member of the company in accordance with Section 303 of the Act. The company went in for public issue on 65 lakh equity shares of Rs. 10 each and in regard thereto issued a prospectus on 10-10-1994. It is clear from the said prospectus that the petitioner resigned on 30-4-1994, as mentioned therein. If any of the directors absents himself for three consecutive meetings of the board of directors or from all meetings of the board for a continuous period of three months, whichever is longer, without the leave of the board, he ceases to be a director. It is preposterous to claim that the petitioner could not verify about the board meetings, which are being regularly held. Notices of the annual meetings have been sent to each and every shareholder of the company accompanied by the annual report showing the names of the directors of the company. Notice calling for the annual general meeting and the details of the prospectus would be published in the newspapers at least seven days prior to the meeting. The company issued such advertisements regularly for all the annual general meetings held by it. In the annual general meeting, dividends recommended by the board of directors would be declared by passing a necessary resolution. Accordingly, dividends would be paid to the shareholders and in fact was paid to all the shareholders including the petitioner for the years 1994-95, 1995-96, 1996-97 and 1997-98 and he has been receiving them regularly. By his letter dated 11-11-1998, the petitioner authorised one V. Sudhakar Reddy to receive the dividend warrants. Thus the petitioner cannot express any ignorance of the annual general meeting or the meetings of the board of directors.
By his letter dated 3-10-1998, the petitioner informed the third respondent that since the bankers insisted that he resign, he had resigned and that during his tenure as the director he had provided guarantees to various institutions and other friendly organisations in the interest and development of the company, informing, inter alia, that ever since his resignation he had been waiting for communication regarding his release from the guarantees and already three years passed from then.
22. The petitioner deliberately suppressed the relevant facts for extraneous reasons and the present petition for winding up of the company is trying to create adverse publicity in the papers against the second respondent to gain political mileage in the assembly elections held in the month of September, 1999. It is nothing therefore, but an abuse of the process of the court. The petitioner has an alternative remedy in view of the various allegations made by him in the petition to be adjudicated either by the company law board or by filing a civil suit or by having the matter resolved by the general body of the shareholders, therefore, the petition is not maintainable for winding up of the company and it is not just nor equitable to wind up the company, which is being run on profitable basis, which is detrimental to the various shareholders and employees of the company.
23. The respondent Nos. 2, 3, 5 and 6 who filed separate counters while denying the various averments levelled against them in the petition had taken up the same stand.
24. The petitioner filed rejoinder to the counter filed by the respondents. It is his stand that the letter dated 30-4-1994, addressed to the board of directors shown in his name is a forged one and he has not addressed any such letter to the company. As differences arose in between him and the second respondent, he stopped attending any of the annual general body meetings and stopped taking any interest in the affairs of the company. At the time of hearing for admission, both sides relied upon certain documents and they have been marked by consent as exhibits A-1 to A-27 and B-1 to B-25.
25. The first respondent-company is obviously a company having a share capital, inasmuch as the authorised capital of the company at the time of its incorporation was Rs. 1 crore, which was divided into 10 lakh equity shares. While the petitioner claims that he is the prime promoter of the company with a large investment of 30 per cent of shares, the first respondent claims that the petitioner holds only 2.19 per cent of the paid up share capital of the company and he is one among the 15,144 shareholders as on 30-9-1999. It is not known how the petitioner is able to assert that he has 30 per cent of the shares and that is for the petitioner prima facie to substantiate the same. In the rejoinder filed to the counter of the first respondent in para 6 it has been explained that at the inception of the company, the petitioner having 30 per cent of the shares and together with his associates he was holding 42.5 per cent of the shares and the first respondent has been trying to show only 2.19 per cent of the paid up share capital on 30-9-1999. What is material is the date on which the petition has come to be filed. Therefore, there is no gainsaying that the petitioner held 2.19 per cent of the shares on the date of filing of the company petition, which is the crucial date.
26. In the petition, inter alia, the petitioner seeks to highlight certain features, which in his view are sufficient enough to invoke the equity jurisdiction of the company court. The first and foremost is that the sixth respondent-company is a benami of the second respondent and it is not known whether it has been registered or not registered. It has been sought to be explained in para 8 of the counter of the first respondent that the sixth respondent is a firm consisting of the respondent Nos. 3 to 5 herein as partners thereof. Whether it is a registered one or an unregistered one is of no consequence in so far as the present petition is concerned. The sixth respondent-company is showing its independent entity. Although the respondent Nos. 3 to 5 herein are the partners thereof, that itself is not sufficient of arrive at a conclusion legitimately that it is a benami firm. Any way, as discussed supra it is of no consequence for the present purposes and inasmuch as the sixth respondent has been the shareholder from the inception.
27. It is the grievance of the petitioner that the investment of the respondent Nos. 2, 3 and 4 was developed in geometric progression within seven months from the dates of their investment, whereas the petitioner's investment remained at Rs. 23,70,000 from the beginning. It is his further grievance that when he invested money on 31-8-1992, the share certificates were not issued to him till 16-11-1994 and the amount invested by the petitioner was made use of by the respondents. In answer to the same, it has been sought to be explained that respondent Nos. 2, 3 and 4 purchased the shares in open market. They denied the allegation of utilising the investment made by the petitioner for their personal use and asserted that it had been spent only for the business purposes of the company. Except stating in the rejoinder that the source for purchase of huge shares in open market has not been revealed the fact that respondent Nos. 2, 3 and 4 purchased the shares in the open market remains uncontroverted. The petitioner asserts that he strongly believes that the second respondent has utilised his money for purchasing his shares. This assertion is far from reality on account of the fact that when it is the specific case that the shares of respondent Nos. 2, 3 and 4 have been increased in geometric progression, the amounts invested by the petitioner initially was only Rs. 23,70,000, the same could not have been the source for the respondents for purchasing the shares in the open market involving an amount, which is manifold more than that. That apart, it is a mere assertion and there is no other basis to show prima facie that the said assertion appears to be probable.
28. The other grievance of the petitioner is that when he invested the amount on 31-8-1992, the share certificates were not allotted to him till 16-11-1994, which resulted in loss to him. It is now the case of the respondents that the share certificates were allotted to the petitioner along with the respondent Nos. 2 to 4 and others on 16-11 -1994. Therefore, it is not a case of isolation of the petitioner qua the other respondents to his detriment, Furthermore, it has now been sought to be explained with reference to the SEBI guidelines that the allotment shall be made prior to the date of public issue and in this case the company went on for public issue on 17-11-1994, and the allotment of the shares was made on 16-11-1994, a day prior thereto. As per the said guidelines allotment letters or share certificates must be issued to the allottees immediately after allotment of the shares, but not later than two months from the date of closure of subscription list. The date of closure of subscription list was 28-11-1994, and, therefore, obviously the allotment was made within that date. Except stating that the guidelines issued by the SEBI have no relevance for allotment of the shares to the promoters, in the rejoinder the petitioner is not able to show how this allotment of the shares has been purposefully delayed and whether it is not in accordance with the rules. Any person, who is aggrieved by such allotment, can challenge the allotment within two months from the date of allotment. The petitioner having not done so nearly five years thereafter seeks to contend that it is an illegal act. Prime facie, such stand cannot be countenanced. Even otherwise when it is shown that the respondents followed the SEBI guidelines and made allotments equally to all the shareholders on one and the same date, there appears to be no valid reason for the petitioner alone to ventilate his grievance at a later point of time and not at the appropriate time, at the time when he seeks to file this company petition.
Yet another ground sought to be highlighted is that after the resignation of the second respondent as managing director on 10-12-1994, the third respondent, wife of the second respondent, was appointed as executive director of the company and the fifth respondent was appointed as whole-time director of the company, when the fifth respondent was working as Registrar of the Open University contrary to his service conditions and when such a post has not been found in the memorandum and articles of association of the company. On the other hand, the case of the respondents is that Articles 96 and 140(a) of the articles of association provide for the appointment of additional director, executive director and whole-time director. Section 269(1) provides that every company having paid up share capital of such sum as may be prescribed, shall have a managing or whole-time director or manager. If any such appointment has been made in contravention of the requirements of Schedule XIII, the Central Government may refer to the Company Law Board for decision. The petitioner has not availed of any such statutory remedy. In the wake of the clear legal position, the grievance of the petitioner cannot be sustained. The fifth respondent in his counter, inter alia, explained that with the permission obtained from the University he has been functioning as a whole-time director of the first respondent-company. He was sanctioned lien initially for a period of two years, which was extended for a further period of two years on being appointed as a whole-time director of the company and the moment he was appointed as whole-time director of the company, he stopped drawing salary or remuneration from the University and that finally be resigned that job though it is subsequent to the filing of the company petition. Therefore, no infraction of any rule or provision can be seen in this case. That apart, the appointment of the fifth respondent is not detrimental to the interests of the first respondent-company or the shareholders thereof. The petitioner is not able to show that the appointment of the fifth respondent has indeed resulted in any loss. This grievance of the petitioner, therefore, cannot be considered as a ground at all, much less a ground that can validly constitute a ground to invoke the equitable jurisdiction of the court for winding up of the company.
29. The other grievance of the petitioner is the remuneration fixed initially at Rs. 20,000 was increased to Rs. 40,000 per month to the third respondent besides paying the commission of 1 per cent on the net profits of the year and providing other perks. The remuneration paid to the third respondent and the fifth respondent has been approved by the shareholders of the first respondent-company in the annual general meeting. It is not the case of the petitioner that they are being paid in excess contrary to any rules or contrary to any resolutions of the annual general meeting of the company. Schedule XIII of the Act has been amended by the Central Government introducing the provisions governing managerial appointment and remuneration amongst others. The limits of the salary were raised from Rs. 1.8 lakhs and Rs. 1.35 lakhs to Rs. 6 lakhs and Rs. 4.5 lakhs per annum. The ceiling on the commission on the net profits was withdrawn. There is a legal provision, which enables the persons who are in managerial position to draw remuneration and other perks. It is now the case of the petitioner that the third and fifth respondents have been drawing remuneration at such rates, which are in excess of the limits prescribed under Schedule XIII of the Act which he is not able to substantiate. When the annual general meeting of the company approves the same, there can be no legitimate grievance for the petitioner in that regard.
30. As regards the lock-in period section 'L' of the guidelines issued by the SEBI provides for the same. Clause (a) thereof provides that equity capital to be subscribed by the promoters; directors should not be less than 25 per cent of the total issue of the equity capital. Clause (3) thereof provides that the promoters' contribution shall not be diluted for lock-in period of five years from the date of commencement of production or the date of allotment whichever is later and the promoters must bring in their full subscription to the issues in advance before public issue. This provision clearly envisages the prescribed lock-in period. Therefore, the action on the part of the first respondent is not in violation of any of the provisions of the Act or rules made thereunder or the guidelines issued by the SEBI.
31. The next grievance of the petitioner seems to be that there were no meetings of the board of directors and there was no opportunity given to the petitioner to attend the meetings and to participate in the deliberations and he was totally kept in the dark. This grievance has relevance and nexus with the other grievance that he never tendered resignation and therefore, this will be discussed a little later along with oilier grievance at the appropriate stage.
Yet, another grievance of the petitioner is that an unsecured loan to the extent of an amount of Rs. 2 crores was shown in the annual reports of the company for the year 1996-97 without furnishing any details as to why such huge loan was obtained and for what purpose. Furthermore when at that time the company was running on profits and when it was shown that there had been reserves and surplus amounts of the company, this amount according to the petitioner was not shown in the year 1997-98. This, according to the petitioner, appears to be a shady deal meant to convert the black money of the second respondent to white. Learned counsel appearing for the first respondent contends that even when the company is running in profits and there have been huge reserves in the company, when the question of investment comes there is no prohibition for the company to borrow amount and invest the same in accordance with the business practice. There appears to be some force in the contention of the learned counsel. It has now been sought to be explained by the respondents that the company requires an amount of Rs. 2 crores for the commission of Gokul plant at Kasipenta in Tirupali, it requested Oil Country Tubular Ltd. for an intercorporate deposit of Rs. 2 crores, which the said company by demand draft dated 1-2-1996, gave the amount. It is stated that the said amount was repaid with interest at 17.5 per cent per annum in instalments by March, 1998, and, therefore, there is nothing extraordinary in borrowing the said sum of Rs. 2 crores which was rightly reflected in the balance-sheet dated 31-3-1998. The petitioner is seeking to make much ado about nothing. Such a borrowing is not detrimental to the interest of the company nor is it the case of the petitioner that it resulted in any adverse effect to the company. Confessedly, the company has been progressing in making profits and is able to keep huge reserves. In the wake of these admissions, when such borrowing is not resulted in any loss either to the company or to the individual shareholders, even if it is stated that it was shady deal, without there being any details whatsoever it cannot in my considered view, be highlighted as a ground for winding up of the company on the just and equitable ground.
32. It is the grievance of the petitioner that the interest earned by the company was shown as Rs. 69 lakhs for the year 1994-95 and by 1997-98 it was shown as Rs. 2,30,000 by showing reserves and surplus as Rs. 5,26,00,000, therefore, the company is indulging in nefarious activities. In answer thereto, it is the case of the respondents that although a resolution was passed at the sixth annual general meeting on 29-9-1998 by enabling the company to buy back the shares, that resolution has not been given effect to, therefore, there is no legitimate basis for any grievance. It has, now been sought to be explained by the respondents that by 1994-95 inasmuch as the company received the public issue funds, which had been deposited with various banks, the company could earn huge amounts towards interest that year. When those amounts have been reinvested for project expansion, the deposits have gone down, therefore, by 1997-98 the company could not get that much of interest amount. Any way, this is the subject-matter of annual reports. The company is obliged to submit annual reports to the Registrar of Companies and furnish copies thereof to all its shareholders. There has been no complaint whatsoever from any of the shareholders, as it appears to be, till the petitioner files the present company petition. Even assuming for a moment that such act on the part of the company is questionable, it constitutes mismanagement and the same could be questioned under Section 398 of the Act. Certainly it cannot be a ground to seek winding up of the company on the just and equitable ground.
The other ground which the petitioner highlights is that when he requested through his letter exhibit A-15, dated 22-5-1999, the executive director of the company to furnish memorandum and articles of association, prospectus, copies of application form for allotment of shares, copies of minutes of the board meeting dated 13-9-1993, 19-10-1993, 31-1-1994 and 24-4-1994 and the detailed list of allotment of shares, he was supplied with only memorandum and prospectus and was refused to supply other particulars and, therefore, the case of the petitioner is that the company wants to conceal the information as it has grossly violated the provisions of the Act and the SEBI rules. Confessedly, the petitioner is not evincing any interest in the matters of the first respondent-company and has not been attending to any annual general body meetings. The reason assigned therefor was the alleged hostile attitude of the second respondent towards him and the consequential acrimony between them inter se. It is the case of the respondents that the petitioner was furnished with those documents as per his entitlement and since as a shareholder of the company he was not entitled to other documents sought for, the same were not supplied to him. By any stretch of imagination, it can be said that non-supply of the documents sought for would constitute legitimate ground for seeking the relief of winding up of the company. Certain grievances can be redressed in other alternative forums than approaching the company court seeking winding up of the company which shall be the last resort.
33. The next irregularity sought to be highlighted is that the second respondent declared in the prospectus exhibit A-16 dated 19-10-1994 (sic 10-10-1994) that he had not associated with any other industry or business activity or there has been any other company promoted by him. He further declared that there had been no pending litigations against him on economic offences, but the sixth respondent firm is owned by the family of the second respondent, therefore, the declaration made by the second respondent is contrary to the fact situation and in contravention of Section 63 of the Act. As explained by the respondenls, inter alia, in the counter, the second respondent is not the partner of the sixth respondent firm. The respondent Nos. 3 to 5 are only the partners thereof. Strictly speaking therefore, it cannot be said that the second respondent associated himself with the said business activity of the sixth respondent firm. Therefore, this ground is not legitimately available to the petitioner.
34. Now turning back to the allegation that statutory meetings of the company are not being held within the stipulated times, the meetings of the board of directors arc also not being held as provided under Section 166, the second respondent is solely acting making all others dummies and benamis and has converted the first respondent-company as his own proprietary concern and the second respondent is indulging in illegal and fraudulent activities so as to enrich himself in the name of the first respondent-company, which are all against the interests of the shareholders and promoters of the company, confessedly, the petitioner, as aforesaid discussed, has not been evincing any interest in the company and he has not been attending any annual general meetings, therefore, he has no moral authority to allege that the statutory meetings, of the company are not being held as per the stipulated times. The allegation that the second respondent is indulging in illegal and fraudulent activities is a wild allegation. No specific details have been furnished therefor, not to speak of the proof at least on a prima facie footing to show that he has been doing so. It may be mentioned here that there is no gainsaying that the petitioner has been receiving dividends through his nominee or agent. The annual prospectus of the company as per the provisions of the Act shall have to be submitted to the Registrar of Companies and it has also to be published in a largest circulated newspaper. There is no gainsaying that the first respondent-company has been doing so. None among the shareholders so far as complained against the company prior to this petition about not holding the meetings either of the board of directors or the annual general meetings of the company as per the stipulated times, it cannot therefore, be said legitimately that the second respondent has been indulging in illegal and fraudulent activities, detrimental to the interests of the company and jeopardising the interest of the individual shareholders.
35. Apropos the main grievance of the petitioner that the second respondent had taken from him some signed blank papers, to show prima facie the petitioner has given such blank papers containing his signatures, there is no iota of evidence coming forth. In a way it suggests that the resignation letter must have been fabricated on white paper containing the signature of the petitioner. Contrary to the same in the rejoinder filed by him to the counter filed by the first respondent, it is his case that the signature on the alleged resignation letter dated 30-4-1994, is a rank forgery. Thus there has been a shift in the stance taken by the petitioner from the counter to the rejoinder. Either way, the initial burden is upon him to show a prima facie case, while seeking admission of the company petition for winding up of the company. Except the ipse dixit of the petitioner there has been no iota of evidence at least to probabilize the same. On the other hand it is the case of the respondents that the petitioner has voluntarily tendered his resignation. So as to buttress the same, the respondents arc relying upon exhibit B-1 letter dated 30-4-1994. It has been mentioned, inter alia, in this letter that due to pre-occupation with his work, the petitioner would like to be relieved from the responsibility of directorship of Heritage Foods (India) Ltd. with immediate effect and he requested to take necessary action in that matter. This letter has been addressed to the board of directors. It may be mentioned here that exhibit B-l has been drafted on a plain white paper. The petitioner denies this letter exhibit B-l. Exhibit B-2 is the extract of the resolution passed by the board of directors on the same day on which exhibit B-1 came to be addressed. As can be seen from exhibit B-2, the board of directors resolved to accept the resignation of the petitioner as well as the resignation of one Sri N. Balakrishna, who is no other than the brother-in-law of the second respondent and the brother of the third respondent. It is thus obvious that it is not an isolated case of accepting the resignation of the petitioner. It may also be mentioned here that there has been no dispute whatsoever as regards resignation of the brother-in-law of the second respondent. Exhibit B-3 is Form No. 32 addressed to the Registrar of Companies informing, inter alia, the resignations of the petitioner as well as the said N. Balakrishna. These three documents show that the resignation of the petitioner has been accepted in due course and has been duly informed to the Registrar of Companies. The case of the petitioner is that he has not been informed about the acceptance of the resignation letter and in fact there has been no agenda as such of the meeting of the board of directors to discuss the resignation letter of the petitioner. As discussed by me supra, it is not an isolated case of accepting the resignation of the petitioner alone. When it is the case of accepting the resignation letters of two of the directors and when there has been no gainsaying by the other, the case of the petitioner that there has been no agenda and that he has not been informed, appears to be improbable. On the other hand, these documents probabilize the fact that the resignation has been accepted duly.
36. This then takes me to consider the genuineness or otherwise of exhibit B-1 letter. As aforcdiscussed, the stand taken by the petitioner # waexhibit B-1 is divergent. Of course, it cannot be expected from him to prove at this stage that it is a fabricated or a forged document. What is required is only a prima facie case. The respondents on the other hand seek to probabilize the theory of such a resignation by placing reliance upon two letters, namely, exhibit B-5 letter dated 3-10-1998, and exhibit B-9 letter dated 22-5-1999. Exhibit B-5 is on the letterhead of the petitioner himself and it is an admitted fact. In this letter, inter alia, it has been averred that the petitioner has been the promoter and director of the company since the inception of the company, and that the second respondent requested him to resign for some time as director with an assurance that again he would be taken as director since the bankers are insisting to do like that; and that he resigned. It has been further averred that during his tenures as director he had provided some guarantees to various institutions and other trade organisations and that ever since his resignation as director, he has been waiting for communication from the company regarding his release from the guarantees and finally he requested to take immediate steps to relieve him. It has been eminently mentioned in this letter that the petitioner has resigned from the directorship. Of course, the date of resignation has not been mentioned. The contention of the petitioner as this stage is that, while it has been mentioned in exhibit B-1 letter that on account of preoccupation with work, he would like to be relieved from the responsibility; in exhibit B-5 it is mentioned that at the request of the second respondent he tendered resignation, and there appears to be some inconsistency in the two letters. The said contention merits no consideration inasmuch as exhibit B-5 is an undisputed document and it is not expected of to mention the reason contained in exhibit B-5 in exhibit B-l letter. This will not improbabilise the theory of exhibit B-l in my considered view, The fact remains that the petitioner did tender his resignation.
37. Coming to exhibit B-9 letter, which is also not disputed, it is on the letterhead of the petitioner addressed to the executive director of the first respondent-company. It has been mentioned therein that he has been the promoter and the director of the company till 1994 since inception. In this letter, he requested the executive director to furnish some documents enumerated therein. It is thus manifest that the petitioner has been the promoter and the director of the company till 1994. Exhibit B-9 letter, if read in conjunction with exhibit B-5 letter, shows that the resignation of the petitioner from the directorship has been tendered some time in the year 1994. These two documents lend assurance to the case of the respondents. Apart from these two positive letters--exhibits B-5 and B-9, in exhibit B-19, the second annual report of the company, and exhibit B-20--the prospectus of the company the name of the petitioner as director has been deleted as having been resigned. Similarly in exhibits B-21 and B-25 annual reports the name of the petitioner does not find a place. The petitioner has been supplied with the annual reports of the company continuously. Admittedly, he is being paid the dividends, as a shareholder of the company. In view of this overwhelming evidence, the petitioner cannot now plead any ignorance of his resignation and acceptance of the same. When the resignation was tendered in the year 1994, for the first time under the present company petition, nearly after five years, the petitioner seeks to ventilate his grievance that he has not resigned from the directorship and he continues to be the director. The period interregnum is certainly not a small period. Form No. 32 furnished to the Registrar of Companies; prospectus; annual reports of the company; and the fact that the petitioner is being paid the dividends as a shareholder of the first respondent-company arc sufficient enough to legitimately impute the necessary knowledge to the petitioner apart from the two positive letters in exhibits B-5 and B-9. The annual prospectus will be supplied to the shareholders. A public notice would also be given by publishing the same in the largest circulated newspaper. There is no gainsaying that the first respondent-company has been doing so. The prospectus of the company would manifestly show the fact that the petitioner ceased to be a director. These documents upon which reliance has been placed by the respondents not only buttress the stand of the respondent that the petitioner voluntarily tendered resignation from the directorship, any militate against the theory of the petitioner that he never resigned from the directorship.
38. Even otherwise, confessedly the petitioner has not been attending the meetings of the board of directors and the annual general meetings. If any director absents himself, consecutively for three months, to the board of directors meeting, under law he ceases to be a director. Thus the statute provides inherent disqualification on account of the default committed by a director in attending the meetings in which he is required to attend. From 1994 till 1999 for a period of nearly five years, a number of meetings of the board of directors and a number of annual general meetings have been held as explained by the respondents, inter alia, in their counter. There has been no explanation whatsoever on the part of the petitioner as to why he kept quiet for such a long period of nearly five years without pointing out any illegality or irregularity against the company. Only for the first time he is now seeking to ventilate his grievance through this company petition. This innate circumstance casts an impregnable mist of doubt on the veracity of the statement of the petitioner that he never resigned from the directorship of the company and that the alleged resignation letter dated 30-4-1994, is a forged document. On the other hand this circumstance would probabilize the theory propounded by the respondents that the petitioner voluntarily resigned from his directorship. Apparently the petitioner is no more a director on the date of the filing of the present company petition regardless of the fact that he resigned from the directorship on 30-4-1994, as alleged by the respondents or resigned subsequently on the own showing of the petitioner. There is no point, therefore, in saying that he continues to be a director. At any rate, it can be said without any hesitation that the petitioner has failed to show a prima facie case. It may be mentioned here that we are not at the stage when we are concerned with the proof of it. What is required to be seen is only a prima facie case. The above factual matrix and the circumstances, which arc manifesting from out of the record, in my considered view, prima facie go against the case of the petitioner. On the fact situation, the petitioner cannot invoke the equitable jurisdiction of this court seeking the relief of winding up of the company on the ground of just and equity. :
39. Turning to the legal position, the learned counsel for the petitioner seeks to place reliance upon a judgment of the Apex Court in Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla [1976] 46 Comp. Cas. 91. In para 35 the Apex Court held as follows :
"...It is now well established that, the sixth clause, namely, 'just and equitable' is not to be read as being ejusdem generis with the preceding five clauses. While the five earlier clauses prescribe definite conditions to be fulfilled for the one or the other to be attracted in a given case, the just and equitable clause leaves the entire matter to the wide and wise judicial discretion of the court. The only limitations arc the force and content of the words themselves, 'just and equitable'...." (p. 105)
40. Much reliance is sought to be placed in para 30 of the judgment wherein the Apex Court referred to Ebmhimi v. Westbourne Galleries Ltd. [1973] AC 360 (HL). While referring to that case, the contention of the learned counsel has been extracted as follows :
"Keeping the ratio of Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360 (HL) case in the forefront of his argument Mr. Sen submits that in the present case also there was a definite understanding and agreement between the two family groups for equal status and equal participation in management and, therefore, exclusion of the respondents from the directorship is burial of mutual trust and denial of that relationship on which alone the company was formed and hence there is a prima facie case for admitting the petition." (p. 104) This is only the contention of the learned counsel, but not the observation made by the court. Para 34 is the relevant para, which may be profitabJy extracted hereunder thus :
"...A prima facie case has to be made out before the court can take any action in the matter. Even admission of a petition which will lead to advertisement of the winding up proceedings is likely to cause immense injury to the company if ultimately the application has to be dismissed. The interest of the applicant alone is not of predominant consideration. The interests of the shareholders of the company as a whole apart from those of other interests have to be kept in mind at the time of consideration as to whether the application should be admitted on the allegations mentioned in the petition." (p. 105)
41. In para 37 the Apex Court observed that the provisions of Sections 397 and 398 of the Act indicate that relief under Section 433(f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the company.
42. The Apex Court reviewed the earlier case-law in Yenidje Tobacco Company Limited, In re [1916] 2 Ch. D. 426 (CA); Ebrahimi's case (supra) and the Privy Council decision in Loch v. John Black wood Limited [1924] AC 783 (PC) the learned senior counsel for the petitioner relying on those three judgments seek to contend that ultimately it all depends upon lack of confidence and want of probity in the conduct of the company's affairs. It is the contention of the learned senior counsel further that since the petitioner lost every confidence in the respondent No. 2 it is just and equitable to grant the relief of winding up of the company. Countering the said contention the learned counsel for the respondents contends that the interest of the workers of the company shal! have to be taken into consideration. The learned counsel seeks to place reliance upon the judgment of the Apex Court in National Textile Workers' Union v. P.R. Ramakrishnan [1983] 53 Comp, Cas. 184. That was a case where a Constitution Bench of the Apex Court held that the workers of the company have a locus to appear in a company petition filed under Section 433(f) and they have a right to be heard. The Apex Court further held that they might even prefer an appeal against the order of the company judge either for winding up of the company or dismissal of the company petition. The learned senior counsel for the petitioner seeks to contend that the workers have a right to be heard, but not at the stage of admission, but after the stage of admission. I am afraid that I cannot accede to the said contention. The Apex Court was so categorical that the workers have a locus to appear and be heard both on winding up petition and an order for advertisement made, as also after the admission and advertisement of the winding up petition until an order is made for winding up of the company. Lengthy arguments have been addressed by the learned counsel for the respondents while seeking to place reliance upon plurality of authorities. It is not desirable to burden this judgment by quoting all the judgments cited across the Bar nor is it expedient to refer them all. Suffice to refer the latest pronouncement of the Apex Court in Hanttman Prasad Bagri v. Bagress Cereals (P.) Ltd. [2001] 105 Comp. Cas. 493,33 SCL 73.. Although that was a case where the petition sought to be filed was under Sections 397 and 398, that petition was dismissed on the ground that the finding as regards just and equity ground for winding up of the company has not been allowed by the courts below. Discussing the various irregularities pointed out, which are as many as six, the Apex Court in para 11 observed as follows :
"...Petitioner No. 1 pleaded that the respondents could not have treated him as having ceased to be a director in terms of Section 283(1)(g) of the Act. Form No. 32 had been filed by the company with the Registrar of Companies on 15-1-1988, showing that petitioner No. 1 had ceased to be a director with effect from 21-12-1987, and since then it is maintained throughout that petitioner No. 1 ceased to be in the office of the director of the company. The Division Bench noticed that the position that petitioner No. 1 ceased to be a director is seriously disputed and the Division Bench ultimately concluded that the termination of directorship would not entitle such person to ask for winding up on just and equitable grounds inasmuch as there is an appropriate remedy by way of company suit which can give him full relief if such action had been taken by the company on inadequate ground. The Division Bench found that if a director even if illegally terminated cannot bring his grievance as to termination to winding up the company for that single and isolated act, even if it was doing good business and even if the director could obtain each and every adequate relief in a suit in a court." (p. 497)
43. Even for invoking the jurisdiction under Sections 397 and 398 the condition precedent is the fact to justify making of winding up order on the ground that it was just and equitable that the company should be wound up and that the winding up unfairly prejudice the applicants. The winding up proceedings as aforediscussed shall be the last resort. Except the ground that the resignation letter dated 30-4-1994, said to have been given by the petitioner is a fabricated document and his signature is forged thereon, on other grounds enumerated in the petition which have been discussed by me supra, in my considered view, cannot justify the winding up of the company which admittedly is running on sound lines, now in view of the latest judgment of the Apex Court that isolated act is not sufficient to seek the relief of winding up of a company on the ground of just and equity.
44. It has been the contention of the respondents that the petitioner has alternative remedies under Sections 397 and 398 or a suit before a District Court notified by the Central Government and the case of the petitioner is not a case squarely covered under Clause (f) of Section 433. The other acts alleged in the petition, some of them might constitute the ground of mismanagement, particularly the allegation of misusing the position by the second respondent and indulging in fraudulent activities detrimental to the interests of the company and the interest of the individual shareholders. They cannot be the grounds to seek the relief of winding up of the company. There remains the ground of removing the petitioner from directorship by pressing into service a fabricated or forged letter. Even assuming for a moment that the petitioner is able to showprima facie that he has not resigned that isolated circumstance is not sufficient to warrant the winding up relief on the just and equitable grounds as held by the Apex Court in Hannman Prasad Bagri's case (supra).
45. Some of the grounds mentioned, inter alia, in the petition assuming for a moment that prima facie they are made out, at best they constitute only a ground of mismanagement. The petitioner can seek an appropriate remedy either under Section 398 or for investigation into the affairs of the company by the Registrar of Companies or other alternative remedies as are available under the Act. If such alternative remedies are available to the petitioner, under Sub-section (2) of Section 443 of the Act the company court may refuse to make an order for winding up when the petition is presented on the ground that it is just and equitable to wind up the company.
46. For the foregoing reasons, I am of the considered view that it is neither just nor equitable to wind up the company, which is running in profits and against the interests of the workers of the company. Therefore, there is no prima facie case to admit the company petition. Consequently, the petition is dismissed. Under the circumstances, there shall be no order as to costs.