Company Law Board
Smt. Nita Raj Mirani vs Raj Auto Diagnostic Centre Pvt. Ltd. And ... on 21 May, 2007
Equivalent citations: [2008]141COMPCAS369(CLB), (2008)2COMPLJ175(CLB)
ORDER
Vimla Yadav, Member
1. Company Petition No. 63 of 2005 has been filed by Smt. Nita Raj Mirani widow of late Raj Mirani under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as 'the Act') alleging acts of oppression and mismanagement in the affairs of the respondent company. The petitioner along with her husband Raj Mirani were holding 50% shares in the company. The respondent No. 1 namely Raj Auto Diagnostic Centre Pvt. Ltd. is a Private Limited Company which was incorporated in the year 1995 with a paid up share capital of Rs. 42000 of 4200 shares of Rs. 10/- each. The business of the company as per the object clause was to undertake labour jobs of any kind on vehicles, Wheel alignment, Wheel Balancing Weights, Engine Scanning etc. They are also to be authorised dealers of Automobiles, Motor Cars, Vans, Lorries, Machinery to control pollution (PUC), Cycles, Motor cycles, Scooter and any other vehicles. The parties are related to each other. The respondent No. 2 is nephew of the petitioner's deceased husband. The respondent No. 2 betrayed the faith reposed in him by petitioner's husband, which ultimately led to petitioner's husband committing suicide on 26.6.2005.
2. Shri M. Naseem, Counsel for the petitioner argued that the company was primarily set up to establish respondent No. 2, however, with evil design, respondent No. 2 siphoned off the huge amount forcing complete breakdown of the petitioner's husband resulting into suicide. It was pointed out that the company presently is not doing any business and the only asset available with the company is the industrial plot situated at Agra Road, Mulund, Mumbai admeasuring 225.89 sq.mtrs. The said plot was purchased in the year 1999 after taking loan from the Maharashtra State Financial Corporation (MSFC). It was pointed out that though the petitioner is holding 50% shareholding in the Company along with respondent No. 2, in the reply, the respondents have stated that shareholding of the petitioner is less than 50% since out of 5000 shares of the company 3000 shares are allotted to respondent No. 2 group. The respondents have not furnished any details regarding their alleged majority shareholding(3000 shares out of 5000 shares). On the contrary, the records of the company clearly show that both the groups were holding equal shareholding. The audit report for the year ending 31.3.2003 (pg.29 at pg.38 of the company petition refers) clearly shows that the issued, subscribed and paid up share capital of the company was only 4200 equity shares of Rs. 10/- each as on year ending 31.3.2003. It was further pointed out that in the said balance sheet (at pg.38 of the company petition), the share application money of petitioner's husband, Raj Mirani is shown as Rs. 35,27,967/- (Rupees Thirty Five Lacs Twenty Seven Thousand Nine hundred Sixty Seven Only) whereas that of Nilesh B. Katira is shown as 32,26,455/- (Rupees Thirty Two Lacs Twenty Six Thousand Four Hundred Fifty Five only). It was argued that the contribution of the petitioner was higher than that of the respondent No. 2. The attempt on behalf of the respondent No. 2 to thus claim increase in his shareholding in majority is oppressive, harsh and burdensome.
3. The counsel for the petitioner further argued that the respondent No. 2 repeatedly told petitioner's husband that the company would require further finance for revival of the company. During the period Oct.2002 to may, 2003, the petitioner's husband issued cheques for Rs. 30,18,400/- in favour of respondent No. 2. The petitioner's husband also withdrew amount of Rs. 33,20,000/- in cash and handed over the same to respondent No. 2 in blind faith so that he would pay off M.S.F.C. dues in time and thus revive the company. My attention was drawn to the Bank Statement annexed at pgs. 110 to 114 of the C.P. which clearly showed various self entries as well as entries showing the payments made to respondent No. 2. An aggregate of the payments made by cheques in favour of respondent No. 2 during he period Oct, 2002 to May, 2003 was about Rs. 33,20,000/- (Rupees Thirty Three Lacs Twenty Thousand only). Interestingly, it was pointed out, in its reply, the respondents admits at pg. 191 of having received the amounts, however, very vaguely and has stated that this was on account of other dealings including personal borrowings. The said contention is devoid of any merit in as much as the respondents have neither given any details nor annexed any documents evidencing such alleged separate dealings. The respondent No. 2 in the year 1995 was only 18/19 years old and thus could not have any independent source of income. It was petitioner's husband who with a view to settle him in business started the respondent No. 1 company. Instead of paying off M.S.F.C. dues and reviving the company, the respodnents have misappropriated the amount causing grave and irreparable loss to the petitioner and the company.
4. The counsel for the petitioner further argued that in its reply at pg. 177, the respondents have contended that in the year 1998-99, the mother of respondent No. 2 brought capital worth Rs. 10 lacs towards her share of contribution and was accordingly allotted 1000 shares of Rs. 10/- each. The said averment, it was argued, is vague, bald and has not been substantiated by any documentary evidence. It is well settled that in Private Limited Companies, fresh shares are to be allotted in accordance with its articles following the provisions prescribed under the Companies Act. In the present case, the petitioner has not received any notice whatsoever of any board meeting or of EGM having been convened for the purpose of said purported allotment. On the contrary, balance sheet for the year 2003 shows share application money having been received only from petitioner's husband and respondent No. 2.
5. It was further argued by the counsel for the petitioner that at the time of inception of the respondent No. 1 company, the petitioner's husband and respondent No. 2 were Directors of the company. In fact, as contended by respondent No. 2 he was appointed as the Managing Director w.e.f. 15.10.2004. Despite respondent No. 2 being the Managing Director, he has not convened any statutory meeting as required in law. Even after the demise of petitioner's husband, no meeting whatsoever has been convened or called for as required under the law. It was pointed out that in view of the defaults committed by the Respondent No. 1 Company in repayment of loan, United Western Bank has filed recovery proceedings (pg. 17 par (v) of C.P refers.) for recovery of sum of Rs. 26.84 lacs and the petitioner has been sued as guarantor in the said proceedings. Relief has also been sought against the petitioner in view of her being the guarantor to the company.
6. Furthermore, it was pointed out by the counsel for the petitioner that presently the Company is not carrying out any activity. At page 18 of the petition, the petitioner has averred that respondents have illegally taken away all the machineries and have sold the same. In reply to the said averments, the respondents wrongly stated that machineries are removed by the petitioner. Be that as it may, one thing is certain that presently there are no machines available with the company to canyon any business and is thus a closed company. It was contended that the respondents in reply have alleged that petitioner's husband diverted the funds of the company. The said contention, it was argued, is only a counter allegation without any substance. On the contrary, (at page 246 of the reply) in the complaint written to the Police Station dated. 6.8.2005, respondent No. 2 has admitted that the company was running smoothly till 2002, however, the company's practical difficulties stated on account of prevailing market conditions and the business suffered some set backs. The said police complaint nowhere alleged misappropriation of funds of the company by the petitioner. In any event, no specific details have been stated by the respondent No. 2.
7. The petitioner expressed desire that when shareholders cannot do business together, one group must go out at a fair valuation. Reliance was placed on the following decisions:
Debi Jhora Tea Co. v. Barendra Krishna Bhowmick and Ors. 1980(Vol. 50) Company Cases 771(DB); Caparo India Ltd. (UK) and Machino Plastics Ltd. v. Caparo Maruti Ltd. and Ors. 2006 (Vol. 128) DLT 425 (HC): (2006) 3 Comp LJ 252 (DEL); Needle Industries (I) Ltd. and Ors v. Needle Industries Newey (I) Holding Ltd. and Ors. ; Cosmosteels Pvt. Ltd. v. Jairam Das Gupta and Ors. ; Hathimal Pincha v. Kattela Tea Co.(P) Ltd.(CP 17/1996, order dated 19.2.1997)
8. Shri Vijay Kumar, Counsel for the respondents argued that in view of the resolution dated 15.10.2004 passed between the deceased - husband of the petitioner and the respondent No. 2, no case of oppression under Section 397 and also no case of mis-management under Section 398 of the Companies Act, 1956can be clamped on the respondent as it was the deceased husband of the petitioner, who was controlling the business affairs of the company in the capacity of Chairman-cum-Managing Director. The petitioner (the wife of the deceased) has suppressed this material fact of passing the Resolution from this Company Law Board. There is even no whisper of it and which shows that the petitioner has not come to the Company Law Board with clean hands. There is no case of oppression or mismanagement by the respondents. However, alleged cases of oppression or mismanagement pertains to the period before passing the resolution. It was pointed out that the petitioner is taking undue advantage of alleged suicide committed by her husband. My attention was drawn to the extract of the said resolution (at page No. 211 of the Company petition as under:
The Board for Directors of Raj Auto Diagnostic Center Pvt. Ltd. passed the following resolution at their registered office Raj House, Opp. Kaka Petrol Pump, L.B.S. Marg, Bhandup (W), Mumbai -400 078 on 15.10.2004.
Resolved that the Chairman and Managing Director of the company go on an indefinite leave due to ill health.
Further resolved that the Shri Nilesh B. Katira take charge of the company as Managing Director of the company and will be held responsible for the decisions taken for the running of the company.
Henceforth Further resolved that Mr. Nilesh B. Katira, Managing Director of the company will be solely responsible for creating any financial liability and will be responsible for clearing if any in future and Mr. Raj C Mirani will be Non-Executive Director due to his ill health which is deteriorating for the last 6 months and will be resigning from the company's Board after the commitments with banks and financial institutions are fulfilled by the company where he has stood personal guarantee.
Further resolved that any civil or criminal liability, which may arise from time to time will be faced by Mr. Nilesh B. Katira in capacity of Managing Director of the company From the above resolution, it was argued, it is clear that the health of the deceased husband of the petitioner was deteriorating and the petitioner in order to obtain the sympathy of this Company Law Board has made a case that her deceased husband on 26.6.2005 committed the alleged suicide due to the cases of oppressions or mismanagement at the hands of the respondent No. 2. The same is factually incorrect.
The respondent No. 1 and 2 submit that there was no act of oppression/mismanagement which have been suffered by the petition.
A. No case of reducing the shareholding of the petitioner.
The authorized capital of M/s Raj Auto Diagnostic Center Pvt. Ltd. Is Rs. 50,00,000/-. The paid off capital of company is Rs. 42,000/-. The dividend among the subscriber are as follows:
Mr. Raj C. Mirani Rs. 12,000/- Mrs. Nita Raj Mirani Rs. 10,000/- Mr. Nilesh B. Katira Rs. 10,000/- Miss Ushma B. Katira Rs. 10,000/-
(The same is clear from perusal of page 36 of the company petition. Thus, the share capital of the company was Rs. 42,000/- having Equity shares of Rs. 10/- each.
The company has received share application money of Rs. 67,54,422/- as under:
Mr. Raj C. Mirani Rs. 35,27,967/-
Mr. Nilesh B. Katira Rs. 32,26,455/-
________________
Rs. 67,54,422/-
(The same is also clear from perusal of page 36 of the Company Petition). It shows sources of funds by way of share capital and share application. It also shows secured loans of Rs. 1,13,83,916.18 on 31.3.2002 and it was reduced to Rs. 1,03,56,540.09 on 31.3.2003. It also shows unsecured loans of Rs. 27,76,650 was not done due to non availability of records. It is clear from the certificate issued by M/s Atul Palan and Company. Further, it was argued that as stated at page 79 of the company petition that the company was formed on 7.12.1995 and number of equity shares were issued as 1000 to the deceased husband of the petitioner, 1000 to respondent No. 2 and 1000 to the sister of Respondent No. 2. It is true that during the course of the argument it was conceded by the counsel for the respondent that shareholding of parties is equal. There is no dispute to it and therefore question of reducing the shareholding of the petitioner does not arise.
9. Further, the counsel for the respondents argued that the respondent No. 2 never told the petitioner's husband that the company would require further finance for revival of the company. At the cost of repetition it was reiterated that it was the deceased husband of the petitioner who was in control of the company as Chairman and Managing Director till 15.10.2004. The petitioner talks about issues of cheques for Rs. 30,18,400/- in favour of the respondent No. 2 for the period October, 2002 to May 2003. These alleged cheques were issued by the deceased husband of the petitioner for the loan which was obtained from the respondent No. 2. It has nothing to do with the company and moreover no complaint or protest and even reference was made at the time of passing of resolution dated 15.10.2004. It is also the false case of the petitioner that her deceased husband also withdrew amount of Rs. 33,20,000/- in cash and handed over the same to the respondent No2. in blind faith so that he would pay of Maharashtra State Financial Corporation (M.S.F.C.) dues in time and thus revived the company. It is inconceivable that the said amount of Rs. 33,20,000/- can be given to the Respondent No. 2 by withdrawing amount in cash. It is only a bold statement. There is no iota of evidence that the said amount was paid to the respondent No. 2. It is no doubt true that the bank statement annexed at pages 110 to 114 of the company petition shows self entries of the said amount but by no stretch of imagination it can be said that the said amount was paid to the respondent No. 2. From perusal of page 111 and page 112 that the repayment of loan amount of Maharashtra State Finance Corporation was made on 10.1.2003 by issuing a cheque of Rs. 3,00,300, Rs. 1,80,180/- and on 4.2.2003 by issuing a cheque of Rs. 3,60,000. On 24.3.2003 a cheque of rs.50,075/- was also paid to M.S.F.C. In view of this, when the said corporation was paid the payment by cheque, as to how the deceased husband of the petitioner could have paid by issuing the cheque in self for payment to the said M.S.F.C. Therefore, the petitioner has been unsuccessful in demonstrating the case of oppression and mismanagement by diversion of loan amount at the hands of respondent No. 2.
10. Further, regarding allotment of 1000 shares to the mother, it was argued that in their reply at page 177 the respondents have contended that in the year 1998-1999 the mother of the respondent No. 2 brought capital worth Rs. 10,00,000/- towards her share of contribution and was accordingly allotted 1000 shares of Rs. 10/- each. So far bringing of capital worth Rs. l0,00,000/-is concerned, the same is clear from perusal of page 39 of the company petition which shows that the mother of the respondent No2. gave loan of Rs. 10,00,000/- as unsecured loan. During the course of argument it was stated that the respondent No. 2 could not procure the material to show that the mother of the respondent No. 2 was allotted 1000 shares of Rs. 10/- each as all the documents were in possession and custody of the petitioner due to an ex-parte order passed by this Company Law Board on 23.8.2005. However, the said contention of allotting 1000 shares was withdrawn. Therefore, the petitioner cannot take benefit of alleged allotment of 1000 shares to the mother of the respondent No. 2. Regarding the petitioner's contention of calling of AGM or Board Meeting it was argued that if the respondent No. 2 being the Director of the Company has not called A.G.M. or Board meeting during the period of 15.10.2004 to 26.6.2005 (the date of alleged suicide), it cannot be termed a case of oppression under Section 397 or a case of mismanagement under Section 398 of the Companies Act. Further, regarding the recovery proceedings initiated by the United Western Bank, referring to page 166 of the Company Petition it was pointed out that it is clear that there are no dues towards United Western Bank as the same has been paid. The company is not carrying out any activity due to the ex-parte order obtained by the petitioner on 25.8.2005. The petitioner even before approaching this Company Law Board illegally taken away all the machinery and have sold the same. The petitioner has removed all the machinery. At present everything has been removed by the petitioner and it is for this reason the company is closed. Furthermore, it was pointed out that the deceased husband of the petitioner diverted the funds of the company. In para 6(e) at page 5 of the company petition it is admitted by the petitioner that the deceased husband was also the owner of a Proprietary Concern viz Selective Traders, to which the respondent No. 1 company owes an amount of around Rs. 2,50,000/-. It is only a bald statement that the respondent No. 1 company owes an amount of Rs. 2,50,000/-. No material has been filed in support to this allegation. As against this it is submitted that it is the Selective Traders which owes Rs. 7,37,758.91 to Respondent No. 1 company i.e. Raj Auto. It was argued that the said fact is evident from page 39 of (Schedule 7 which shows investments) of the company petition. Thus, it is clear that it is the deceased husband of the petitioner who diverted the funds of the company in his own various companies formed by him.
11.I have considered the pleadings and the documents filed therewith as well as the arguments of the parties. On consideration of the facts and circumstances of the case I find that the respondents have not been able to meet the allegations against them. They have made mere bald denials instead of replying to the specific allegations with proper evidence and pleadings. It is a case of a closely held company wherein the Uncle who tried to settle his nephew in business was led to commit suicide as the affairs of the company went beyond his control due to his blind faith reposed in his nephew which made him land in & vicious circle of repayment of loans to MSFC and other financial institutions. However, it cannot be denied that the Uncle did not proceed against his nephew during his life time to do damage control. The admitted position in this case is that the parties have equal shareholding. Smt. Nita Raj Mirani, the widow of late Raj Mirani is in no position to run her late husband's business. Her counsel has expressed her desire to go out of the company on receipt of the following amount with reasonable interest:
i. Share application money (balance sheet as Rs. 35,27,967 00
at 31.3.2003 at page 38. of C.P.)
ii. Loan advanced by petitioner to respondent Rs. 15,00,000.00
No. 1 company (balance sheet as at 31.3.2003
at page 35 of C.P.)
iii. Paid by cheques to respondent No. 2 (bank Rs. 30,18,400 00
Entries at pgs. 110-114 of C.P.)
iv. Petitioner withdrew the amount in cash by Rs. 33,20 000.00
Self withdrawals and paid the same to
Respondent No. 2 (bank entries at
pgs. 110-114 of C.P.) _________________
Total Rs. 1,13,66.367.00
12. In my view, this is a fair proposal which the respondents are directed to accept with interest payable at a reasonable rate of interest of 10% from the date of investment till the date of payment. The amount shall become payable to the petitioner within a month of receipt of this order. If this proposal is not acceptable to the respondents in that case they are directed to be present in the CLB Court Room along with the petitioners on 23rd August, 2007 at 10.30 a.m. Since both the groups know the worth of the company, I consider it appropriate to direct that both groups should bid for the shares and the group which bids the higher price for the shares, should purchase the shares of the other group at that price.
13. With the above directions, I dispose of this petition, keeping seisin over the matter till the finalization of the bidding, if required No order as to cost.