Company Law Board
Anupamarani Satpal Sharma vs Anand Steel Works Private Limited And ... on 16 June, 2006
Equivalent citations: [2006]134COMPCAS285(CLB), [2006]71SCL223(CLB)
ORDER
C.D. Paik, Member
1. This petition is filed under Section 397, 398, 402 and 403 of the Companies Act by Smt. Anupamarani Satpal Sharma, the petitioner herein, praying for appointment of an Administrator or Special Officer to take possession and charge of assets and properties of the 1st Respondent Company i.e. M/s. Anand Steel Works Private Limited (hereinafter referred as the Company) and to appoint an independent firm of Chartered Accountants to investigate into the accounts and affairs of the Company and to submit the reports thereon annually to the shareholders on such terms and conditions as this Board deems fit alongwith other prayers.
2. The petitioner's case as set out in the petition is as under:
The petitioner is residing at Sharjah (U.A.E) and is the wife of Late Satpal Sharma. The Respondents 2, 3 and 5 are the sons of the petitioner. The Respondent No. 5 who is residing at Sharjah (U.A.E) is supporting the petitioner. The petitioner is holding 26,787 shares in the Company. The shareholding pattern of the Company is as follows:
a) Petitioner 26,787 shares
b) Respondent No.2 19,255 shares
c) Respondent No.3 4,458 shares
d) Sunil & Sanjeev Trusts 2,000 shares
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Total 52,500 shares
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The late husband of the petitioner became the director of the Company in the year 1967. The Respondent No. 2 being the eldest son became the Executive Director in the year 1981 and became the Chairman in 1987 on resignation tendered by his father. The Respondents No. 3 & 4 became the directors of the Company in 1986. The Respondents No 2 to 5 are the present directors of the Company. The petitioner states that the Respondent No. 3 has filed a suit in the High Court at Mumbai against the petitioner, Respondents No. 2 & 5 and the daughters of the petitioner for administration of the estate of the petitioner's husband on the ground that the deceased did not execute any Will. The petitioner states that her deceased husband executed the Will and the said Will has been probated. In the said suit the respondent No. 3 alleged that the petitioner and the Respondent No. 5 took charge of the family properties including the shares of the deceased. The petitioner and the Respondent No. 5 visited India and started making enquiries about the working of the Company. The Respondent No. 5 took inspection of records of the Company in the office of the ROC. The petitioner got the information from the Respondent No. 5 and from other connected persons of the Company and learnt that there is a mismanagement in the Company. The petitioner visited India in 2001 and discussed with Respondent No. 2 in respect of the affairs of the working of the Company. The petitioner was not satisfied with the evasive answers given by Respondent No. 2. After returning to Dubai the petitioner asked Respondent No. 5 to find out in detail what is happening in the Company. The Respondent No. 5 informed the petitioner that he has taken inspection of the Registrar of Companies' records and found that the Annual Returns and Balance sheets have not been filed with the Registrar of Companies, for the years 1999-2000, 2000-2001 and 2001-2002. The petitioner further learnt that the Respondent No. 5 has filed petition under Section 633 of the Companies Act in Gujarat High Court seeking relief from prosecution by Registrar of Companies. The petitioner has also learnt that the Sales Tax Authorities has issued notice to the Company on 5th Jan., 1998 claiming an amount of Rs. 84,135/- for the Assessment Year 1993-94. The petitioner states that during the search taken and on an enquiry made it is learnt that the Company had purchased certain goods from one Mahendra Steel Traders, Gujarat to whom the Company had issued cheques towards the purchase of the goods. The said cheques issued by the Company were dishonoured and proceedings under Sec.138 of the Negotiable Instruments Act as well as under Sections 406 and 420 of the IPC have been filed against the Company and Respondent No. 2. The said proceedings are still pending. The petitioner also learnt that some proceedings are pending against the Company in the Customs, Excise and Gold-control Appellate Tribunal (CEGAT). The petitioner learnt that Government of India, Ministry of Commerce has issued show-cause notice on 22nd January, 2001 against the Company, since the Company appears to have failed to furnish the documentary evidence in compliance of Exports obligation during that period. The petitioner states that notices referred to above which are from the Sales Tax Authorities, Customs Department, Enforcement Department of DGFT and Excise Department clearly shows that the working of the Company is not properly done by the Respondent No. 2 and is a clear act of mismanagement. The petitioner has also learnt that the Gujarat Electricity Board has started proceedings against the Company on the ground of theft of electrical energy, The Gujarat Electricity Board Appellate Committee has given its findings against the Company. The Company has filed Special Civil Application bearing No. 2398 of 2001 in the Gujarat High Court for quashing and setting aside the said findings passed by the Appellate Committee. The Gujarat High Court by an order dated 5.11.2001 has given liberty to the Company to approach the Appellate Committee for reconsideration of the case on the question of theft of electric energy and the quantum of bill raised. The alleged demand of Rs. 21.35 lacs by the Electricity Board against the Company is pending for reconsideration before the Appellate Committee. The petitioner also learnt that the Commissioner of Central Excise, Ahmedabad, has observed that the Company acquired the goods without payment of duty and therefore imposed the penalty of Rs. 41,67,633/- and personal penalty of Rs. 10 lacs on Respondent No. 2. The Company has gone in appeal against the said order of the Commissioner of Central Excise. The petitioner states that the Company has not paid the municipal tax, property tax, water tax etc. in respect of the premises belonging to the Company. The petitioner submits that the Respondent No. 2 is destroying the substratum of the Company by his oppressive conduct. Though the case is fit for winding up of the Company, the petitioner is not inclined for passing of winding up order against the Company as it is not in the interest of the petitioner and Respondent No. 5. The petitioner was, therefore, advised not to adopt proceedings under Section 433(f) for winding up the Company on just and equitable ground but was advised to adopt the proceedings under Section 397 and 398 of the Companies Act. The petitioner states that she is residing normally in Sharja (U.A.E.)The petitioner has not been served or has not received any notice for calling the A.G.M. and the petitioner has also not received any annual accounts of the said Company duly audited by the Auditors. The petitioner trusted the Respondent No. 2 and did not complain in writing that she had not been given any notice of A.G.M. The petitioner also learnt that no board meetings of the Company are taking place and in spite of the same some minutes were shown which were either fabricated or created with a view to show that the Company was running properly and was complying with the statutory requirements. The petitioner, therefore, submitted that the appropriate orders under Sections 397/398 read with Sections 402 and 403 of the Companies Act, be passed in terms of the prayers of the petition.
3. The Respondents No. 1 & 2 filed the joint reply and the Respondent No. 3 filed a separate reply. In the reply the Respondents stated that there is no oppression or mismanagement of the Company's affairs as alleged by the petitioner. The petitioner has never raised any objection with regard to the conduct of the affairs of the Company prior to filing of this petition. The petitioner has filed the present petition with ulterior motive. The Respondents further stated that though the question of limitation is not involved in filing the present petition but the principle of delay and acquiescence should be applied to the facts of this case. The Respondents stated that the petitioner has deprived and is still depriving the Company from its legal and legitimate rights of receiving royalty amount from M/s. Shattaf Anand Steel Rolling Mills Private Limited at Sharjah (UAE). The petitioner has received the royalty amount and not passed on to the Company being legally entitled thereto. The Respondent Company has served legal notice to the petitioner and Respondent No.5 demanding payment of the said royalty. But the petitioner has not cared to reply to the said legal notice. The allegations of mismanagement against the answering Respondents are general in nature and have not been supported by evidence. The allegations in the petition pertain to the period of the life time of Late S.P. Sharma (Late husband of the petitioner). The Respondent No. 2 has already taken timely action to challenge various demands. The petitioner alongwith supporting Respondent No. 5 have not approached this Board with clean hands. The petitioner has got extra affection for Respondent No. 5 as her son. Even though the Respondent No. 5 is on the Board of Directors of the Company, he has never taken any interest in the affairs of the Company. The Respondents stated that the Company was and is still one of the best rolling mills in the country and still maintains a reasonable goodwill in India and abroad. In the petition filed in the Gujarat High Court under Section 633 of the Companies Act, by the Respondent No.5 he has not made any allegation of mismanagement of the Company. The Company's liability of Central Bank of India which was to the tune of more than Rs. 80 lacs was settled for about 35 lacs. This certainly is not the mismanagement. The Company has been exporting its products to U.A.E. The Company has installed the manufacturing unit at Sharjah and managing its day to day affairs since the said unit is running quite well. The allegations of mismanagement of the Company by the petitioner are baseless. The petitioner has not made out case under Section 397/398 of the Companies Act and hence the petition be dismissed with cost. The Respondent No. 4 has not filed any reply to the petition.
4. Mr. Arun H. Mehta, Advocate appearing for the petitioner reiterated the facts stated in the petition and rejoinder and submitted that the Respondent No. 2 became the Chairman of the Company since 1987. The Respondent No. 2 has failed to file the Balance sheets and Annual Returns of the Company for three years and ultimately the said Balance sheets and Annual Returns were filed with the Registrar of Companies in 2002. The non filing of Balance sheets and Annual Returns by the Company with the ROC within time is a violation under the Companies Act, 1956 and the ROC is entitled to file prosecution against the Company and its directors. The Jt. Director (General) of Foreign Trade, Ministry of Commerce, Mumbai issued show cause notice to the Company as to why the physical penalty should not be imposed on the Company and its directors under Section 11 of Foreign Trade (Development & Regulations) Act, 1992. The Appellate Committee of Gujarat Electricity Board has given findings against the Company in respect of theft of electricity by the Company in the year 2000. However, on the application of the Company the Gujarat High Court by an order dated 5.11.01 directed the Company to approach the Appellate Committee for reconsideration of the case on the question of theft of electric energy and the quantum of bill raised. The Advocate for the petitioner further submitted that the show cause notice was issued by the Commissioner of Central Excise, Ahmedabad on 2nd March, 2000 against the Company as to why the duty amount of Rs. 13,21,483/-, Rs. 4,46,378/- and Rs. 23,40,811/- and penalty should not be imposed on the Company. The advocate further submitted that the husband of the petitioner expired in 1999 and the Respondent No. 2 being the Mg. Director of the Company mismanaged the affairs of the Company and accordingly the petitioner prays for orders in terms of the prayers of the petition. In support of his arguments the advocate for the petitioner cited the judgment of CLB reported in (1997) 3 Co. Law Journal 331 CLB in the matter of K. Narain Das v. Bristal Grill (P) Ltd. and Ors.
5. Mr. Ajay Kumar, Practicing Company Secretary, appearing for the Respondents No. 1 to 3 reiterated the facts stated in reply and submitted that the rejoinder filed by the petitioner is not affirmed before the Notary Public and the said rejoinder should not be taken on record in view of the specific provision made under Regulation 23 of CLB Regulations 1991. Mr. Kumar submitted that the Respondent No.2 has filed a suit in December, 2001 in Mumbai High Court, claiming the 1/6th share in the assets of deceased Mr. Satpal Sharma (Petitioner's husband). To counter the said suit the petitioner filed the present petition in 2002. The Respondent No. 5 who is supporting the petitioner, had filed a petition under Section 633 in Gujarat High Court apprehending prosecution by the ROC, Ahmedabad for non filing of Annual Return and Balance sheets for the three years. The ROC in his affidavit has specifically stated that the Company has filed the Balance sheets and Annual Returns in October, 2002 and the ROC has not contemplated any prosecution against the Company and its Directors for non filing of balance sheet and Annual Returns. The petitioner has alleged that she has not received any notice for the AGM and a copy of the Annual Accounts. As per the records of the Company the address of the petitioner has been furnished as if she is residing in India. The Company sent notice for the AGM as per the address in India. Moreover, the petitioner has never complained against the Company for non holding of the AGM and the petitioner has also not demanded any copy of the Annual accounts of the Company from the Company. The petitioner is not a director of the Company and as such she is not entitled for copy of the Board Resolution. It is a fact that the Gujarat State Electricity Board, Ministry of Commerce, Enforcement division and the Commissioner of Excise & Customs, have claimed alleged dues from the Company. The Company preferred appeals against the said orders of statutory authorities. These demands are routine demands made by the statutory authorities and the Company has every right to challenge the said demands. This cannot be the ground for filing ' petition under Sections 397/398. The allegation regarding the dishonour of cheques issued by the Company and filing of prosecution under Section 138 of the Negotiable Instruments Act read with Section 420 of IPC, the matter has been settled between the parties and no proceedings survive against the Company. The petitioner being the majority shareholder is entitled to call for Extra Ordinary General Meeting to discuss the affairs of the Company. The petitioner with majority shareholding is also empowered to appoint her nominee as directors of the Company. The petitioner as a shareholder of the Company is entitled to inspect the Annual Returns and Balance sheets of the Company and she is also entitled for copies of the Annual Returns and Balance sheets of the Company. However, the petitioner has never requested for the same. The petitioner has alternative remedy than the extreme action under Section 397/398 of the Companies Act. The Company is holding regular board meetings, AGMs and filing statutory returns with the ROC. The petitioner has failed to establish that there is a mismanagement in the affairs of the Company. The Company has not removed the Respondent No. 5 who is supporting the petitioner, from the Board of Directors though he is not regular in attending the board meetings. The Respondent No. 5 is not taking any interest for the progress of the company. Since the Company is functioning smoothly there is no need to appoint any Administrator/Special Officer to oversee the affairs of the Company and there is also no need to appoint any auditor to investigate the affairs of the Company. The petition under Section 397/398 is not maintainable against the Company for the routine cases filed against the Company by some statutory authorities. Moreover, the demands raised by statutory authorities are under challenge before the appellate authorities. In support of his arguments Mr. Ajay Kumar cited the following judgments:
1) (1976) Tax LR 1682 Calcutta High Court
2) (1997) Vol. 88 Company Cases 274 Madras High Court
3) (1972) ILR 1 CAL 286 Calcutta High Court The Respondents prayed that the petition be dismissed.
6. It is an admitted fact that the petitioner is holding majority shares in the company. The dispute is within family members only. The Respondent No. 5 - one of the sons of the petitioner who is the director of the Company supports the petitioner whereas other two sons i.e. Respondent No. 2 & 3 are opposing the petition. The Respondent No. 5 is not holding any share in the company though he is the director of the Company. The advocate for the petitioner argued that there are violations of the provisions of the Companies Act committed by Respondent No. 2 & 3 and there are mismanagement in the affairs of the Company since the Company failed to pay the dues of State Electricity Board and other tax demands made by the statutory authorities. In support of the argument the advocate cited the judgment referred above reported in (1997) 3 Company Law Journal 321 CLB New Delhi. In the said judgment the CLB was to examine as to whether the payments made by the Company was authorized by the Board since the petitioner who is also the director of the company did not approve such payment. The CLB rightly held in the said case that transfer of Rs. 10 lacs by the Company to a hotel without the knowledge of the petitioner is beyond the scope of the agreement between 4 directors including the petitioner. The CLB directed the Board to take action to recover the amount from the hotel. However, other payments made by the Company were held to be legal. The CLB accordingly held that there were no financial mismanagement. In, the said judgment the CLB further held that the petitioner being one of the brothers out of 4 brothers and all 4 brothers were directors before the dispute, the petitioner cannot be considered that he has vacated his office by operation of law. In the present case there is no allegation of removal of any director of the Company. There is also no allegation that the Company has paid the amount to any party without proper authority. As such I am of the view that the above judgment cited by the petitioner's advocate is not applicable to the present case. Mr. Ajay Kumar, Practicing Company Secretary, appearing for the Company argued that there was inordinate delay in filing the present petition and no relief under Section 397 should be given to the petitioner. In support of his argument he cited the judgment reported in (1976) Tax LR 1682 Calcutta High Court. In the case of the above referred judgment the petition was filed after three years of knowledge and the High Court held that there was inordinate delay. In the present case the petitioner came to know in 2001 and filed the present petition in 2002. This short delay cannot be considered as an inordinate delay. The above judgment cited by Mr. Kumar is not applicable. Mr. Kumar cited the judgment reported in (1997) 88 Company Cases 274 Madras High Court to establish that non payment of dividend by the Company and the loss incurred by the Company cannot be the ground for an order under Section 397 of the Companies Act. Both the conditions in Clause (a) or Clause (b) of Sub-section (2) of Section 397 must exist before the Court can entertain application under Section 397. The above judgment is applicable to the present case to the extent that unless there is just and equitable ground to pass winding up order, the petition is not maintainable. Though the petitioner has pleaded that there is just and equitable ground under Section 433(f) of the Companies act for winding up of the company, the petitioner has failed to establish to that effect, Mr. Kumar cited another judgment of Calcutta High Court reported in (1972) ILR 1 CAL n286 to show that even if the Company has violated the Foreign Exchange Regulations Act and penalty has been imposed, this may not be sufficient ground for mismanagement. In the present petition the petitioner has alleged that the company and the Respondent No. 2 & 3 have violated the provisions of the Companies Act by not filing Annual Returns and Balance sheets for three years. The Registrar of companies has stated in his affidavit that the company has filed all the Annual Reiurns and Balance sheets in 2002 and he is not contemplating to file prosecution against the company and its directors. Assuming that the company has not filed the statutory returns with the Registrar of Companies, this cannot be the ground for action under Section 397/398 of the Companies Act on the petition filed by the petitioners. No doubt there are certain demands made by the statutory authorities against the Company and the Company has challenged those demands before the competent authorities and as such these facts cannot be ground for action under Section 397/398 of the Companies Act. In the above referred judgment the Calcutta High Court has further held that if any alternative remedy is available the petitioner cannot get relief under Section 397/398. In the present case, the petitioner is holding majority shares in the company and she can call for extraordinary general meeting of the Company on requisition to remove and appoint directors of the Company. If the Company fails to hold AGM in terms of Section 166 of the Companies Act, the petitioner can apply to CLB under Section 167 of the said Act to convene the AGM. The petitioner also can apply to CLB under Section 186 of the Companies Act to hold the general meeting of the Company. Though the alternative remedies are available to the petitioner she has not availed the same but filed the petition under Section 397/398. In view of the above referred judgment of the Calcutta High Court, I am of the opinion that the petition has no merit. Mr. Kumar further argued that the rejoinder filed by the petitioner to the reply filed by the Respondent No. 1 to 3 may not be taken into consideration since the rejoinder was not affirmed before the Notary/Oath Commissioner as provided under Regulation 23 of the CLB Regulations, 1991. The advocate for the petitioner submitted that the rejoinder was signed at Sharjah (U.A.E.) by the petitioner and her signature was attested by the Indian High Commission at Sharjah and it should be treated as proper affirmation. The petition filed by the petitioner has been affirmed before Notary in India but the rejoinder was signed at Sharjah but not affirmed by affidavit at Sharjah though the signature is attested by the Indian High Commission. Since the rejoinder was not affirmed by affidavit either at Sharjah or in India, the same cannot be accepted and relied upon as proper rejoinder in view of the specific provision under Regulation 23 of the CLB Regulations. In view of the facts and legal position discussed above, I am of the view that there is no merit in the petition and the petition is dismissed and no order to cost.