Company Law Board
Shri M.S. Kumanan And Shri M.S. ... vs S.S.M. Processing Mills Limited, Shri ... on 30 October, 2003
Equivalent citations: [2004]55SCL494(CLB)
ORDER
K.K. Balu, Member
1. Shri Arvind P. Datar, learned Senior Counsel, while moving the petition on 08.09.2003 sought for the interim reliefs claimed in the petition, which was opposed by Shri B. Ravi Raja, Counsel representing the respondents. Therefore, the respondents were afforded an opportunity to file their objections with regard to the interim reliefs sought in the petition.
2. Shri Arvind P. Datar, learned senior Counsel, while briefly tracing the history of the Company has submitted that the Company was incorporated in the year 1996 converting a partnership firm under the name and style of "S.S.M. Financing Centre" started in the year 1968 with family members of S.S.M. Purushothaman, as partners carrying on the business in the processing of textiles. The authorised capital of the Company is Rs. 4 cores divided into Rs. 4 lakhs equity shares of Rs. 10/- each. The issued, subscribed, paid-up capital of the Company as on 31.03.2002 is Rs. 2,36,81,000/- divided into 23,68,100 equity shares of Rs. 10/- each fully paid-up. The entire shareholding is held by the petitioners' group and the respondents' group. Thus, the Company is a closely held family company. The petitioners are brothers. The petitioners and the second respondent are cousin brothers. The understanding between the petitioners' group and the respondents' group is that they would hold equal shareholding in the Company and accordingly the shares have been allotted in their favour. Shri Datar, learned senior Counsel referred to the annual return of the Company filed with Registrar of Companies, Coimbatore for the years 1997 and 1998 to show that 5,81,900 shares are held in the name of Smt. Vijayalakshmi, belonging to the petitioners' group and that 11,83,100 shares are in the name of the third respondent. However, the annual return made up to 28.09.2000 shows 5,31,900 shares against Smt. Vijayalakshmi and 12,33,100 equity shares against the third respondent. This, according to the learned senior Counsel is a clear manipulation of records which has been indulged in by the respondents with ulterior object of gaining majority control of the Company. The difference of 50,000 equity shares belonging to Smt. Vijayalakshmi have been shifted to the third respondent without any express authority of the former. The shares cannot be transferred from Smt. Vijayalakshmi to the third respondent by merely making entries in the annual returns. With the shifting of 50,000 shares from Smt. Vijayalakshmi in favour of the third respondent, the equal shareholding maintained between the petitioners' group as well as respondents' group has been adversely affected, prejudicing the interests of the petitioners and therefore, the learned senior Counsel sought for an order of interim injunction restraining the exercise of voting rights in respect of 50,000 equity shares shifted from Smt. Vijayalakshmi to the third respondent, pending disposal of the petition. As the second and third respondents are in the helm of affairs of the Company and exercising exclusive control over the affairs of he Company, the petitioners apprehend manipulation and fabrication of the accounts of the Company by the respondents. The learned Senior Counsel, therefore, prayed for appointment of a commissioner to authenticate the statutory records and books of account of the Company for the years between 2001 and 2003 maintained by the Company, ensuring the interest of the petitioners.
3. Shri V. Ramakrishnan, Advocate appearing of the respondents has submitted that the petitioners have not made out any prima facie case for the grant of any interim reliefs. The learned Counsel pointed out that the Memorandum of Association of the Company sets out the number of shares subscribed by various members of the Company. Accordingly, the third respondent has subscribed to 12,33,1000 equity shares. Smt. Vijayalakshmi has subscribed to 5,31,900 equity shares. At no point of time the Company has allotted any further shares in favour of any of the members of the Company. According to the learned Counsel, due to a clerical typing mistake, the shareholding of he third respondent as well as Smt. Vijayalakshmi is shown as 11,83,100 and 5,51,900 shares respectively in the annual returns filed with Registrar of Companies in the year 1997 and 1998. The annual return for these two years were filed on the very same day, viz., on 19.01.1999. the annual return for the subsequent years indicate the correct shareholdings of these shareholders. The petitioners cannot take undue advantage of the clerical typing mistakes crept in the annual returns for the years 1997 and 1998, which were rectified in the subsequent annual returns.
According to the learned Counsel, the disputes between the petitioners and the second respondent in relation to the affairs of the Company are the subject matter of the Arbitration Agreement dated 06.10.2001. After taking into consideration the statements of claims and the rejoinders and oral submissions made by the parties and after giving them a full and complete opportunity of being heard, the arbitrators have passed an award dated 28.02.2002. The properties set out in Annexure 'A' of the award comprising of inter-alia the factory land, building and machinery belonging to the Company were allotted in favour of the second respondent and his branch of family. The said award has become final and binding on all the parties to the award. The petitioners have not taken any proceedings under the provisions of the Arbitration and Conciliation Act, 1996 ("the Act, 1996") to challenge the award, but filed a civil suit before the Subordinate Judge at Coimbatore for declaration that the award dated 28.02.2002 is null and void. However, the said suit has not been entertained for want of jurisdiction. Thus, at present, there is a legally valid and operative award binding on both the petitioners and the respondents. The learned Counsel further pointed out that the petitioners vacated their office as directors of the Company since the entire Company was allotted to the respondents by virtue of the arbitration award. Similarly, the petitioners are no longer shareholders of the Company. According to the respondents, the petitioners are seeking interim relief in relation to the statutory records and books of account of the Company in order to gather evidence to use the same against the respondents in other litigations. Moreover, the reasons adduced by the petitioners for appointment of a commissioner to authenticate the statutory records and books of account are quite vague and no sufficient ground has ben made out by them for the grant of any such relief. Shri Ramakrishnan, learned Counsel has pointed out that the balance of convenience is not in favour of granting any interim relief as claimed by the petitioners. The petitioners would neither be prejudiced on account of denial of any such relief. Shri Ramakrishnan further pointed out that the petitioners have wantonly suppressed the annexures forming part of the award. The petitioners have, therefore, approached the CLB with unclear hands. The remedies claimed by the petitioners being discretionary in nature, the CLB is not bound to grant any relief considering conduct and behaviour of the petitioners.
4. Shri R. Venkatavaradan, learned Counsel appearing for the petitioners in his reply has submitted that the award passed by the arbitrators is null and void against which the petitioners have taken appropriate steps by preferring an appeal against the order dated 07.10.2003 passed by the Sub-ordinate Judge, Coimbatore. Therefore, the award in question should be ignored by the CLB. Without executing the award, the petitioners can neither deemed to have vacated their office as directors of the Company nor ceased to be its shareholders. The exclusion of the petitioners from the management of the Company would amount to an act of oppression. The learned Counsel therefore sought for the interim reliefs sought in the petition.
5. I have considered the elaborate arguments of the learned Counsel. The first limited issue before me is in regard to the shareholding of the third respondent and Smt. Vijayalakshmi. The Memorandum of Association of the Company shows that the third respondent had subscribed to 12,13,100 equity shares and that Smt. Vijayalakshmi subscribed to suit initiated by the petitioners before the Sub-ordinate suit initiated by the petitioners before the Sub-ordinate Judge Court at Coimbatore for declaration that the award dated 28.02.2002 is null and void, which has been rejected for want of jurisdiction of the court cannot in any way advance the cause of the petitioners for authentication of the statutory records of the Company, in the absence of stay of operation of the award by a Competent Court.
A careful consideration of the relevant facts and records before me, I am of the opinion that the petitioners have not made out any prima facie case for grant of any interim relief, and therefore, not inclined to come to the rescue of the petitioners. The claim and counter claim of the parties in regard to enforceability of the award as well as its non-execution and other contentions issues will be considered on merits when the pleadings are completed. Towards this end, the respondents will file their counter to the company petition by 30.11.2003 and rejoinder to the filed by 15.12.2003. The petition will be heard on 24.12.2003 at 10.30 a.m.