Andhra HC (Pre-Telangana)
Nalam Satya Prasada Rao And Ors. vs Vinipamula Lakshmi Narasihma Sastry ... on 4 April, 1990
Equivalent citations: [1991]70COMPCAS303(AP)
JUDGMENT I. Panduranga Rao, J.
1. This petition is filed by three sharholders of Farmers Pest Control Pvt. Ltd. (hereinafter referred to as " the sixth respondent or the company") which is a private limited company incorporated on June 4, 1973, in the State of Andhra Pradesh. The petition is filed under sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as "the Act"), for the reliefs of removing the first respondent from the managing directroship of the company, for reconstituting the board of directors of the company, for the reliefs of removing th efirst respondent from the managing directorship of the company, for reconstituting the board of directors of the company, for appointing the fifth respondent from the managing director of the company, investgating into the affairs of the company and falsification of its books, punishing the first respondent herin if found guilty under sections 539 to 542 read with section 406 of the Act, directing him to compensate the company under section 543 read with section 406 of the Act and directing respondents Nos. 1 to 4 to pay the costs of the petition.
2. The authorised capital of the company is Rs. 5 lakhs comprising Rs.3 lakhs of equity share capital divided into 3,000 equity shares of Rs. 100 each and Rs. 2 lakhs of preferential share capital. All the 3,000 equity shares were issued and subscribed. Petitioners Nos. 1 to 3 were holding 75,300 and 375 equity shares respectively. The first respondent who was the managing director was holding 390 shares, wheras his first son (the second respondent), were holding 390 shares, whereas his second son (fourth respondent) were holding 300,260 and 250 shares respectively. Thus, in all, respondents Nos. 1 to 4 were holding 1,200 shares. There were in all 12 shareholders. The first petitioner, the third petitioner (who was not married) and the fifth respondent are brohters. The wives of the first petitioner and the fifth respondent are also sharholders. The mothers of the second petitioner and the fifth respondent are sisters.
3. Originally, this company was held by the first respondent, his brothers, V. Radhakrishna Murthy and V. V. R. Sharma, and one L. V. Ranga Rao, who were all directors. THe first respondent become the sole managing director with effect from september 2, 1980. it is stated that the fifth respondent was made director on December 20, 1980, and on January 15, 1981, he was allotted 75 shares. Petitioners Nos. 1, 3 and 4 others were allotted shares on June 19, 1981. On January 12, 1983, petitioners Nos. 1, 2 and thesecond respondent were appointed as directors. By January 12, 1983, there were five directors, viz., petitioners Nos. 1,2, respondents Nos. 1,2 and the fifth respondent of whom the first respondent was the managing director.
4. The contention of the petitioners is that the second petitioner issued a notce dated September 28, 1983, to all the other four directors convening a meeting on October 5, 1983, and sending a notice by registered post and certificate of posting. THe first respondent gave a telegram questioning the holding of the meeting. ON october 10, 1983, exhibit A-33 notice was issued on behalf of the first respondent stating that the meeting held on October 5, 1983, and the resolution appointing the fifth respondent got filed through his brother-in-law on october 31, 1983, O.S. No. 433 of 1983 on the file of the Sub- Court, Guntur, on March 12, 1984, against respondents Nos. 1 to 4 and the State Bank of India, Arundelpet, Guntur, for declaration of title and mandatory injunction. The petitioners filed W. P. No. 14372 of 1984 on October 12, 1984, which was allowed on March 12, 1984, against respondents Nos. 1 to 4 and the State Bank of India, Arundelpet, Guntur, for declaration of title and mandatory injunction. The petitioners files W. P. No. 14372 of 1984 on october 12, 1984, which was allowed on March 1, 1985. The petitioners alleged that the first respondent got issued a public notice in Indian Express, dated October 21, 1983, not to reconise the fifth respondent as the managing director ; that on August 9, 1983, the fifth respondent found the minutes books of the meetings of the board and of the general body of the company at the office of Sri. Raghuram Murthy, chartered accountant; that the saide minutes books establish the gross negligence of the first respondent in the maintenance of the vital records of the company ; that the said minutes books establish the vital records of the company ; that the alleged extraordinary general body meeting on May 19, 1981, was a fabrication ; that the blank pages 16 to 19 were made use of for that purpose ; that there was no general body meeting of the company after January 12, 1983 ; that on October 5, 1983, petitioners Nos. 1,2 and the fifth respondent took over the factory and godown of the company and took inventory of all the material in the premises ; that on Auguest 7, 1983, the fifth respondent borrowed Rs. 1.80 lakhs from Sri Venkateswara Commercial Corporation, Sri N. Ramalingam and others ; that on October 7, 1983, the electricity charges were paid and eletricity supply was got restored ; that various customers. The petitioners alleged that they suspect that respondents Nos. 1 to 4 have secreted and syphoned off vast funds of the company by creating bogus debts and purporting to repay the same, flasified the accounts and books of the company and that thereby the affairs of the company were being mismanaged by respondents Nos. 1 to 4 and in particular the first respondent by bringin the business of the company to a standstill wantonly and without any regred to the interests of the company. They alleged that the affairs of the company have been conducted by respondents Nos. 1 to 4 in a manner oppressive to the petitioners. On the above allegations, they prayed for the reliefs stated earlier.
5. Respondents Nos. 1 to 4 while denying the various allegations made in the petition pleaded that the company petition is not maintainable ; that this petition is one in the series of attempts of the fifth respondent and the petitioners to get at the management of the company ; that the petition is liable to be dismissed on the ground that all the creditors are not made parties ; that proper and necessary parties ; that proper and necessary parties are not impleaded ; that the allegation that the frist respondent has not been allowing the company to function and its business since the middle of 1983 is not correct ;that on the other hand the fifth respondent with the help of this brothers (petitioners Nos. 1 and 3 ) and his wife's sister's son (the second petitioner)is cereating all obstacles to respondents Nos. 1 to 4 to run the business on the correct lines and that at any rate, the averments in the petition do not discolse any gounds of oppression meted our to the petitioners. Respondents Nos. 1 to 4 further alleged that petitiners Nos.1,2 and the fifth respondent cannot pass a resloution on September 27, 1983, appointion the fifth respondent as the managing director of the company and there is no such resloution recorded in the minutes book of the company; that theresolution dated Septmber 27, 1983, is invalid and that the meeting dated October 5, 1983, is also not valid and binding as there was no notice to respondent Nos. 1 to 4. It is futher urged that ever since the fifth resopondent became the director of the company, he began to create obstales and the business could not be run; that the averments that no annual general body meeting of the company was held by the fifth respondent is not correct and that the petitioners Nos. 1,2 and the dfifth respondent can not pass a resolution on September 27, 1983, appointing the fifth respondent as the managing director of the company.
6. While denying the averment that on October 5, 1983, petitioners Nos. 1,2 and the fifth respondent took over the factory and godwon of the company, respondent Nos. 1 to 4 pleaded that the inventoru must have been got up by them. The respondents also denied the allegation of secreting and syphoning off the funds of the company and falsification of accounts and books and stated that the books were seized by the Commissioner appointed in O. S. No. 433 of 1983 from the fifth respondent. Finally, it is pleaded that the petitioners and the fifith resondent cannot take advantage of their own acts to grab the management of the company and to deprive respondents Nos. 1 to 4 their rights and hence company petition is liable to be dismissed.
7. Respondents Nos. 5 and 6 fileda counter-affidavit supporting the petitioners. They pleaded that the sixth respondent-company is facing bank-rupcy by reason of the obstructive tactics adopted by respndents Nos. 1 to 4 ; that all the efforts of the fifth respondent to restart the business of the company were thwarted by respondents Nos. 1 to 4 and that the fifth respondent is in no way responsible for the present position of the company. Respondent Nos. 5 and 6, therefore, submitted that unless this court interferes and passes appropriat orders to set right the mismanagement by respondents Nos. 1 to 4, the sixth respondent company will suffer irreparably.
8. The petitioners filed a reply affidavit denying the allegations of resoondents Nos. 1 to 4 in their counter- affidavit, refuting the objection as to the maintainability of the company petition, reiterating their allegations with regared to the tampering with the minutes book of the meeting of the board and the general body and pleading that by merely amending article 48 of the articles of the association of the sizxth respondent compnay, the third and fourth respondents cannot be made permanent directors.
9. On the above pleadings, the following issues have been framed :
"1. Whether respondents Nos. 1 to 4 are managing the affairs of the company oppressively against the other shareholders of the company excouding them from the managemednt of the company and to the detriment of the company and the general body of its shareholders?
2. Whether the resolutions dated May 19, 1981, of the gerneral body of the company are fabricated and inserted in the minutes book of the general body and in any event whether the resolutions dated May 19, 1981, of the general body amending the articles of association of the company are valid?
3. Whether the minutes book of the meetings of the general body and of the board of directors of the company were being regularly and properly maintained?
4. Whether respondents Nos. 3 and 4 are directors of the company at any time and whether petitioner No.2 and respondent No. 2 are not validly apponted as directors of the company and are entitled to continue as its directors?
5. Whether respondent No.1 abused his powers as managing director and his cheque powers and either misapproprated or otherwise secreted the funds of the company and falsified its account books?
6. Whether respondent No.1 mismanaged the affairs and business of the company and did not conduct annual general meeting and board meeting for several years and did not get finalised the balance-sheets, profits and loss accounts and annual reports of the company for serveral years and failed to comply with the statutory requirements regarding them?
7. Whether there are disputes between the groups of shardholders and directors, one led by repsondent No.1 and the other led by respondent No.5 disrupting the business of the company and leading it to an impasse to its detriment?
8. Whether the company petition is maintainable on any other grounds raised in the counter of the respondents?"
10. Before taking up the issues, I shall deal with one objection regarding the admissibility of evidence of the first respondent who is examined as RW-2 in the case. His chief examination was recorded and he was cross-examined by learned counsel for the fifth respondent. Subsequently, he was cross-examined in part by learned counsel for the petitioners. At that stage, it was represented that the witness had had a hear-attack and was admitted in the hospital. Later on, the he passed away. Learned counsel for the petitioners relying upon the observations of a Division Bench of the Madras High Court in Maharaja of Kolhapur V. Sundaram Ayyar, AIR 1925 Mad 497 at 537 argued that the evidence of a witness who died before the cross-examination could be completed cannot be rejected as inadmissible. In that case, an importnat witness for defendants Nos.4 to 11 was ill when she was examined - in - chief and her examination was adjourned after a few sentences of cross-examination were recorded. She died before the cross-examination could be resumed. Their Lordship while holding that the evidence cannot be rejected as inadmissible, however, held that such evidence untested by cross-examination can have little value. Thus, according to their Lordships, the evidence is admissible but the weight to be attached to sych evidence should depend upon the circumstances of each case and probative value may be very small and may even be disregarded. Kumaraswami Sastri J., did not attach any weight ot the evidenceof the witness. Another Disision Bench of the Madras High Court held in Rosi alias Hegi v. Yadala Pillamma {1910} 20 MLJ 400 ; 5 IC 512 ; that the evidence taken in part of the deposition of a witness who died before the cross-examination was closed, ought not ordinarily to be acted upon. Learned counsel for the petitioner submitted that during the cross-examination of RW-2, he was confronted with his handwriting in exhibits A-50 and A-51. and since he has admitted his handwriting in those letters, the admission contined in his evidence is admissible under section 33 of the Indian Evidence Act. But as rightly submitted by learned counsel for respondents Nos.1 to 4, during the cross-examination of the first respondent, he was not allowed to offer his explanation for the contents in exhibits A-50 and A-51 letters. When the witness tried to offer some explanation, he was prevented by learned counsel for the petitioners on the ground that it is open to him to offer his explanation, if any, in the re-examination but not in the cross-examination. The witnesscould not survive till the cross-examination was completed and was re-examined by his counsel. Thereby, he was deprived of the opportunits of offering his explanation under what circumstances he has written exhibits A50 and A51 letters, while submitting the application to the Director of Agriculture for renewal of the manufacturing licence on April 3, 1983. Under these circumstances, it cannot be said that the evidence of the witness is concluded and as such his evidence cannot be relied upon, since it loses probative value.
11. Issue No. 8 : Learned counsel for respondents Nos. 1 to 4 raised a preliminary objection as to the maintainability of the company petition in view of the death of the first respondent during the pecdecny of the company petition. Relying upon the decision of the Allahabad High Court in J. K. Investment Trust Ltd.V Muir Mills CO. Ltd. {1962} 32 Comp Cas 893, learned counsel for the respondent arguted that in proceedings instituted under sections 397 and 398 of the Act for prevention of oppression and mismanagement, it is not permissible to implead the heirs and legal representaives of a deceased director and continue the proceedings against him. In this case, respondents Nos.2 to 4 who are the widow and sons of the deceased first respondent were already on record in the company petition.No material is placed on record to show that the unmarried daugher of the first respondant is entitled to any number of shares. At any rate, the relief prayed for under sections 397 and 398 of the Act is against the company as such and there can be no variation in the number of shares Even assuming that the unmarried dargher of the first respondent is entitled to any shares, the estate of the deceased first respondent is amply represented by respondents Nos.2 to 4 who are already on record and hence I hold that the interests of the first respondent are amply safegrarded. As such, the decision of the Allahabad High Court in J. K. Investment Trust Ltd. v Muir Mills Co Ltd. (1963) 32 Comp Cas 893, has no application because, the alleged acts of oppression and mismanagement are directed not merely against the first respondent but against respondents Nos.2 to 4 also. Inasumuch as respondents Nos.2 to 4 were already on record in the company petition, I hold that there can be no objection to continuing the proceedings against them. I, therefore, hold that this objection cannot be sustained.
12. Another objection raised by learned counsel for respondents Nos.1 to 4 is that since petitioners Nos.1,2 and the fifth resopndent have already filed O. S. No. 71 of 1984, on the file of the Principal Subordinate Judge, Guntur, for the relief of resttsining respondents Nos.1 to 4 from interfering with the running of the business of the company, they have availed of the alternate remedy and, consequently, the company petition filed by them is not maintainable. In support of that contention, he relied upon the decision of the Keral High Court in Marikar (Motors) V M. I. Ravikumar [1982] 52 Comp Cas 362. In that case, the court, observing that the right of a minority of members to move the company court is only to provide a convenient remedy for the minority shareholders under certain conditions. held that in the absence of words in sections 397, 398 and 408 of the Act, expressly or clearly barring the jurisdiction of the civiol court, the suits will be within the jurisdiction of the civil courts. Learned counsel for respondents Nos.1 to 4 argued that having availed of the alternate remedy of invoking the jurisdiction of the civil court, for the self- same relief, it is not open to the petitioners to file this company petition. It is seen from exhibit A-14, which is the certified copy of the writternstatement filed by respondent No. 1 and others in O. S. No. 71 of 1984, they pleaded that the conflict is between the corporate rights and not individual rights and hence the civil court has no jurisdiction to entertain the suit. Having challenged the jurisdiction of the civil court on the ground that the plaintiffs in the suit are agitating the claims of the company and hence, the suit is liable to be dismissed, it is not open respondents Nos.1d to 4 to contend in this case that the company petition is not maintainable and it is for the petitioners to seek their remedy in the civil court. Respondents Nos.1 to 4 are not entitled to blow hot and cold. Having objected to the jurisdiction of the civil court in their writtn statement in O. S. No. 71 of 1984 on the file of the Princiap Sub- Court, Gintur, they cannot come forward with a plea in the company pwtition that the company court has no jurisdiction. I, therefore, overrule this objection also. I accordingly, find on this issue that the compnay petition is maintained and that the preliminary objectins raised by learned counsel for respondents No.1 tp 4 to the maintainability of the company petition cannot be sustained.
13. In view of the demise of the first respondent during the pendecy of the company petition, some of the reliefs prayed dfor in the company petition which are directed personally against the first respondent cannot be granted.Therefore, the reliefs of (1) removing the first respondent from the managing directorship of the company, (2) punishing the first respondent under sections 539 to 542 read with section 406 of the Act and (3) directing the first respondent to compensate the comapny under section 406 of the Act have become infructous. Hence, it is not necessaery to give any findings on issues Nos.5 and 6.
14. Issue No. 1 : The allegations of the petitioners and respondents Nos. 5 and 6 are that the first respondent as the managing director of the sixth respondent company from September 2, 1980m ti September 27, 1983, was preventing them from looking into the accounts and other affairs of the company ; that since the accounts were not finalised, the fifth respondent has demanded that the first respondent convene a general body meeting ; that the first respondent did not convene any meeting and that respondent Nos. 1 to 4 alone managed the affairs of the company oppressively against the other sharehoders of the company excuding them from the management and to the detriment of the company. o appreciate the truth or otherwise of those contentions, the evidence of RW-1, the fifth respondent,is very important. Admittedly, Sri Venkatesware Commerical Corporantion floated by him in the year 1975m was having business relationship with the sixth respondent company from the year 1979. The fifth respondent was appointed as a director of the sixth respondent company in an extraordinary general body meeting conducted in December, 1980. In Janiary, 1981, he was issued 75 shares of the face value of Rs. 100 each. In the month of June, 1981, the family members of the fifth respondent purchased 1,435 shares of the sixth respondent company. During the course of cross- examination, it is elicited from him that from 1981 onwards he (the fifth respondent) has carried on the marketing operations and cololected monies due to the company ; that he placed anorder deted November; 10, 1982, to International Combustion (India) Ltd., for certain material; that he was written a number of letters placing orders for material; that he was also collected money from several customers; that he had addressed a letter dated November 13, 1982, to Joysona Ssles (India ) Pvt. Ltd,. for supply of polythene covers and that he corresponded on behalf of the sixth respondent company from the office of Sri Venkateswara Commerical Corporation located at Yamarthivari Street. When he deposed that he did not write any letter to anybody giving the address of the wixth respondent company as Farmers Pest Control Pvt., 24-11-130, Yamarthivari Street, Guntur - 522003, he was confronted with the office copies of some letters and then he admitted that the letter dated February 19, 1983, addresed by International Combustion (India ) Pvt. Ltd., Nagpur, to Far,ers Street, Gintur. He is unable to say whether the said order was in response to the letter written by him. He tried to explain that before he joined the company, the first respondent failed to retire one railway receo[t relating to the goods sent be International Combustion (India) Ltd., and, therefore, they stopped supplying goods to the first respondent and thatafter making enquires about him (RW-1) in yhr Guntur market, they started supplying the goods only when RW-1 placed the orders. When he tried to depose that he did not get the letter -heads printed giving his office address as the office address of the sixth respondent company, he was shown some letter-heads. Then admitted that such letter-heads were got printed by the first respondent. He was shown the price list and he admitted that the address of Sri Venkateswara Commercial Corporation is given as that of the sixth respondent company. He tried to explain that the first respondent got the ssame printed in his name. He admitted that on the letter-head on which he has addressed the letter dated November 10, 1982, to International Combustion (India) Ltd., his office telephone number as well as the extension telephone number were given. He admitted having sent a demand draft for Rs.2,000 to Brahmeswara Mining Co., Veludurti, on behalf of the company. He however, tried to explain that the draft was taken by the first respondent and given to him and that he was requested to write the said letter. On further cross- examination, he was forced to admit that even on the letter-haad on which the said letter was written, his office phone number as well as his residential phone number were there. While admitting that voluminous correspondence has been carried on by him on behalf of the company, he tried to explain that he did so at the instance of the first respondant. He admitted having collected various amounts due to the sixth respondent company but tried to contend that the first respondent instructed him to collect those amounts. He further tried to depose that he sent the monies by way of demand drafts to several concerns as the parties concerned with covering letters. He further tried to depose that the letter-heads used dfor that purpose were got printed by the first respondent and that he acted as per the instructions of the first respondent because he implicity believed in the business experience of the first respondent.
15. During the course of the cross-examination, it was suggested to him (RW-1) that petitioners Nos.1 to 3 have also participated in managing the affairs of the sixth respondent company. While denying that suggestion, RW-1 deposed that petitoners Nos.1 to 3 were only looking after small jobs entrusted to them by elders, and that they used to carry out the instructions given by him and the first respondent. Thereupon, he was confronted with two letters dated August 4, 1982, and August 9, 1982, and he was forced to admit that those letters were addressed by the first petitoiner to Sri Venkateswara Commerical Corporation requesting them to pay the lorry price, and that those letters were addressed on the letter-heads of the sixth respondent comapny. He admitted that there might have been several such letters addressed by the first petitioner. He was conforonted with the office copy of the letter dated August 6, 1982, and he admitted that it was addressed by the second petitioner on behalf of the sixth respondent company to M. M. Poly Bag Industries and that along with that letter he sent a demand draft for Rs.9,147.80 to the said company, but tried to explain that all such letters were addressed at the instance of the first respondent. When he was shown the letter dated July 15, 1982, RW-1 admitted that the said letter was addressed by the third petitioner on behalf of the sixth resspondent company to Sri Venkateswara Commeriacl Corporation requestion the said corporation to pay lorry charges of Rs. 722 which carried the material to the factory from Brahmeswara Mining Co. While admitting that the third petitioner also might have addressed some more letters, RW-1 tried to explain that all those letters were addressed at the instance of the first responden. RW-1 admitted that the sixth respondent company is an assessee under the Andhra Pradesh General Sales Tax Act, and that every month, From-II returns were filed on behalf of the company and that the returns dated December 29, 1982, January 29, 1983, and April 26, 1983, were signed by him. The return dated March 28, 1983, was signed by the second petitioner. On September 17, 1982, the second petitioner addressed a letter to the Commerical Tax Officer, No. III, Guntur enclosing therewith a demand draft for Rs. 2,469 towards tax.
16. While admitting that vouchers for payments were prepared and issued either by him (RW-1) or by Satyanarayana (the second petitioner) during 1982-83, RW-1 tried to explain that they have issued those vouchers at the request of the first respondent. He also admitted that they have issued delivery clallans for the stocks which they have delivered from the factory. He further admitted having issued the relevant invoices. Having admitted so, he tried to explain that the delivery challans were prepared by them and the invoices were issued by them on the instructions of the first respondent . Having admitted collection of monies due to the company from some parties, RW-1 tried to depose that whenever he collected monies, he issued receipts and that he collected monies at the office of Sri Venkateswara Commercial Corporation in Yamarthivari Street. Having said so, he tried to depose that he used to entrust the money so collected to the first respondent. But, admittedly, such entrustment is not evidenced by any receipts issued by the first respondent. The above admissions elicited from RW-1 in the cross-examination clearly show that petitioners Nos. 1to 3 as well as the fifth respondent (RW-1_ were taking an active part in the business activities of the sixth respondent company. In order to get over the several admissions made by RW-1, he tried to explain that he did everything at the request of the first respondent; that the first respondent got the letter-heads printed and that the monies collected by him on behalf of the company were entrusted by him to the first respondent. This explanation which was sought to be offered by the fifth respondent in his cross-examination whenever he was confronted with a documentary evidence (contained in exhibits B-29 to B-(sic))which is against his contention that he acted at the request of the first respondent, is clearly an afterthought invented to get over his admissions because there is not even a whisper about that fact in the counter-affidavit filed by respondents Nos. 5 and 6 in the company petition. In that counter-affidavit sworn to by the fifth respondent, he has completely supported the case of the petitioners and ultimately contended that the sixth respondent company is facing bankruptcy by reason of the obstructive tactics adopted by respondents Nos. 1 to 4. He did not make any whisper anywhere in the counter-affidavit that he acted on behalf of the company under the instructions of the first respondent or that having entered into some monetary transactions on behalf of the company at the instance of the first respondent, he has entrusted the monies collected by him to the first rspondent. Even the petitioners did not plead in their petition that they have indulged in some of the business activities of the sixth respondent company at the instance of the first respondent. I, therefore, hold that no value can be attached to the explanation sought to be offered by RW-1 in his evidence in this regard. If that explanation is disbelieved, it is evident that petitioners Nos. 1 to 3 and the fifth respondent have also been managing the affairs of the company. It cannot, therefore, be said that respondents Nos. 1 to 4 alone were managing the affairs of the company prior to the filing of the company petition.
17. In the light of the above admissions elicited during the cross- examination of RW-1, I find on this issue that there is no material to hold that respondents Nos. 1 to 4 were managing the affairs of the company oppressively against the other shareholders of the company excluding them from the management of the company and to the detriment of the company and the general body of its shareholders.
18. Issue No.2 : The main attack of the petitioners and the fifth respondent against respondents Nos. 1 to 4 is that they have manipulated pages 16 to 19 of exhibit A-48 minutes book. In support of that contention, they mainly placed reliance upon the evidence of PWs- 1, 4 and RW-1, PW-1 deposed that in the original minutes book of the meetings of the general body of the sixth respondent company, pages 16 to 19 were blank and that the original minutes book was taken from the office of S. Raghuram Murthy, chartered accountant at Guntur, on August 9, 1983, - by the fifth respondent, RW-1, the fifthe respondent, diposed that no meeting was conducted on May 19, 1981, of the sixth respondent company; that he was not informed of the said meeting wither before or after the said date; that he approached the Registrar of Companies to obtain certified copies of the memorandum and articles of association and the directors of the sixth respondent company; that the Registrar of Companies has issued certified copies of the articles of association on October 21, 1983; that according to the certified copies of the memorandum and articles of association, as on October 21, 1983, there were no amendments as alleged by the first respondent; that having obtained the registers from the office of S. Raghuram Murthy, auditor, he got the minutes book of the sixth respondent company not arised as per exhibit A-46 and that pages 16 to 19 were found blank. This evidence is sought to be corroborated by the evidence of PW-4, whowho deposed that on August 9, 1983, the fifth respondent brought the original of exhibit A-46 and that after comparing the exrox copies with the original, he put the stamp and his initials; that he put a line across in pages 16, 17, 18 and 19 and noted those pages as "blank" because in the original of exhibit A-46, those pages were completely blank and that in other pages he has put a line across wherever he found any partial blank after comparing with the original of exhibit A-46. Relying upon these three pieces of oral evidence, learned counsel for the petitioners vehemently argued that pages 16 to 19 in exhibit A-48 minutes book were subsequently manipulated to suit the convenience of respondents Nos. 1 to 4. Learned counsel for the petitioners further argued that had the petitioners been aware of the so-called amendments brought out in the articles of association, they would not have joined the company at all as shareholders.
19. To contradict the evidence of PWs-1, 4 and RW-1, respondents Nos. 1 to 4 have examined RW-3 who is an advocate practising inthe High Court of Andhra Pradesh and a notary public. He deposed that the signatures on exhibit B-2 (xerox copy of the minutes book of Farmers Pest Control Ltd.) are his ; that he has signed on all the 23 pages; that the originals were shown to him by the party and that afterverifying the same, he has afffixed his signatures certifying the photostat copies to be the true copies of the originals as recorded in the minutes book. He further deposed that he has attested the above documents on June 12, 1983. According to RW-3, under the Notaries ACt and the rules framed thereunder, affixing notarial stamps is necessary and that it is also necessary to give the serial numbers to the documents which are attested; that he did not find any blank papers in the book relating to exhibit B-2 and that he has affixed the notarial stamps and put the seal on them. During the cross-examination, he stated that Sri Jogayya Sarma, advocate, introduced the party to him on the same day. According to RW-3, pages 16 to 19 of exhibit A-48 minutes book were written when he has notarised the exrox copies on June 12, 1983, whereas according to PW-4 , he found the pages blank when he has notarised exhibits A-46 and A-47 on August 9, 1983. If pages 16 to 19 were found blank by PW04 on August 9, 1983, when he has notarised exhibit A-48 minutes book, he would have put a line across the blank pages in the original minutes book and initialled them.
20. The petitioners and the fifth respondent admit the extraordinary general body meeting of the company held on January 12, 1983. The second petitioner and the fifth respondent signed the minutes.When RW- 1 has admittedly attended the extraordinary general body meeting convened on January 12, 1983, and he has also signed in the minutes at page 21 of exhibit A-48, it is not believable that he would have kept quiet if pages 16 to 19 were kept blank. No motive can be attributed to respondents Nos. 1 to 4 in general or the first respondent in particular to keep such blank pages on January 12, 1983, because PW-1 himself admitted in the cross-examination that on January 12, 1983, there were no disputes between their group and the first respondent.The fifth respondent could not explain why he has signed at page 21 of the exhibit A-48, when pages 16 to 19 were left blank. The fifth respondent did not even put a line across those blank pages when he is said to have found the blank pages on August 9, 1983. The absence of any protest raised by the second petitioner and the fifth respondent when they affixed their signatures to exhibit B-1 resolution or the fifth respondent not marking any lines across the blank pages of exhibit A-48 is indicative of the fact that there were no blank pages. That is confirmed by the evidence of RW-3 who has affixed the stamps and notarised the xerox copies of the resolutions. Petitioners Nos. 1 and 2 may be new to the business field but the fifth respondent is a very experienced businessman. So, it is unbelievable that he would have signed at page 21 of exhibit A-48 minutes book (exhibit A-52) without observing whether the earlier pages were left blank. RW-3, who is an advocate practising in the High Court and also a notary public, has testified to the fact that after comparing with the original, he has attested exhibit B-2,. Exhibit B-2 shows that pages 16, 17, 18 and 19 were filled up even by June 12, 1983, on which date RW-3 has notarised the documents. There is absolutely no motive for RW-3 to depose falsely that he has attested exhibis B-2 and B-3 on June 12, 1983. His evidence is further corroborated by the fact that both on exhibits B-2 and B-3 he has affixed stamps, attested all the pages and gave the serial numbers as 1,316 and 1,315, respectively. If the evidence of RW-3 that he found writing on pages 16 to 19 on June 12, 1983, is true, then the statement of PW-4 that he found pages 16 to 19 blank on August 1, 1983, cannot be correct. It is elicited from the evidence of PWs- 1 , 5 and RW-1 that PW-4 has taken keen interest in the affairs of the petitioners and the fifth respondentis not only notariseing exhibit A- 48 minutes book as per exhibit A-46, but also accompanying the petitioners and the fifth respondent to the factory premises to figure as a mediator when RW-5 and others took possession of the factory premises by unscrewing the Godrej lock and the inventory was taken. The fact of PW-4 accompanying the petitioners and the fifth respondent to Pericheria from Guntur to figure as a mediator discloses his interestedness in the petitioners and the fifth respondent.
21. As between the evidence of PW-4 and RW-3, the evidence of RW-3, who has absolutely no motive to depose falsely should be a accepted. If so, the theory of the petitioners and the fifth respondent that pages 16 to 19 of exhibit A-48 minutes book were filled up subsequent to January 12, 1983, cannot be believed. The contention of respondents Nos. 1 to 4 that the notice of the meeting dated May 19, 1981, was given to the shareholders is supported by exhibit B-13 receipt evidenceing certificate of posting.
22. Another attach maede against exhibit B-1 resolution is that the word and figure "& 39" have been inserted subsequently. Respondents Nos. 1 to 4 on the other hand contend that those word and figure "&39" were written at that time itself when exhibit B-1 was written. From a reading of the recitals in page 17, it cannot be said with certainty that the word and figure "&39" were inserted subsequently and a reading of the entire resolution shows that those word and figure might have been written at the same time.
23. Another objection sought to be raised against the validity of the resolution dated May 19, 1981, is that RW-1, the fifth respondent, did not affix his signature to the resolution dated May 19, 1981, and that had he really attended the meeting dated May 19, 1981, he would certainly have signed the resolution. That contentio loses its force because even in the extra-ordinary general body meeting dated January 12, 1983, which is attended by the petitioners and the fifth respondent, only the second petitioner and the first and fifth respondents have signed the minutes of the meeting thogh seven members are said to have been present on that day. It is by that resolutuion that the first petitioner and the second respondent were appointed as directors. The fifth respondent himself has proposed to take the second respondent as director. But curiously,neither the first petitioner nor the second respondent who were appointed as directors of sixth respondent compnay on Jnuary 12, 1983, have signed the minutes. Therefore, from the absence of the signature of the fifth respondent in exhibit B-1, minutes of the meeting dated May 19, 1981, it cannot be concluded that the said minutes were fabricated subsequently. From the above discussion, I find on this issue that the resolution dated May 19, 1981, of the general body meeting of the company is not fabricated and inserted in the minutes book of the general body and that the resolutions dated May 19, 1981, of the general body amending the articles of association of the company are valid.
24. Issue No.3: The contention of the petitioners in support of their allegation that the minutes book of the meetings of the general bodyd and of the board of directors of the company were not being regularly and properly maintained is that subsequent to the meeting dated January 12, 1983, no other meeting has taken place. But pages 22 and 23 of exhibit A-48 contain minutes of the general body neeting hald on February 15, 1983. According to the petitioners and the fifth respondent, that resolution is also manipulated subsequently to support the contention of respondents Nos. 1 to 4 that the second petitioner and the second respondent were removed as directors of the sixth respondent company with effect from Janaury 12, 1983. But this contention of the petitioners is belied by the documentary evidence filed by respondents Nos. 1 to 4. Exhibit B-15 is a copy of the compalint in S.T.C. No.414 of 1984 in the Court of the Special Judge for Economic Offences, Hyderabad, filed by the Registrar of Companies under section 220 of the Act against petitioners Nos. 1 and 2 and respondents Nos. 1 to 4 in which accused Nos. 2 to 7 including the second petitioner and the second respondent were described as directors of the company. The second respondent was arrayed as A-3, whereas the second petitioner was arrayed as A-7.
25. PW-1, who was working as lower division clerk in the complainant's office was examined in support of the prosecution. The certified copy of his deposition is marked as exhibit B-12. It is elicited from him in the cross-examination that in Form No.32 it is mentioned that A-3 and A-7 (the second respondent and the second petitioner) were appointed as directors with effect from January 12, 1983, and removed at the meeting held on February 15,1983, with effect from January 12, 1983; that A-3 was removed as director with retrospective effect according to the file and that A-6 and A-7 were not responsible for not holding the annual general body meeting since they were removed as directors by then. PW-1 admitted that the motice was given to A6 and A-7 by mistake. Learned counsel for the petitioners argued that no value can be attached to the evidence of PW-1 in S.T.C. No.414 of 1984. That contention cannot be accepted because, petitioners Nos. 1 and 2 herein and respondents Nos. 1 to 4 , figured as accused in S.T.C. No. 414 and the answers elicited from the prosecution witness by counsel for the accused cannot be ignored. The above evidence of PW-1 in S.T.C. No.414 of 1984 clearly proves that a meeting was held on February 15, 1983, and that A-3 and A-7, the second respondent and the second petitioner, were removed as directors with effect from January 12, 1983. That evidence amply supports the contention of respondents Nos. 1 to 4, that the meeting was held on February 15, 1983, and in that meeting the second petitioner and the second respondent were removed as directors. As I had already held while discussing issue No.2, the meeting held on May 19, 1981, is correct and that the resolutions passed therein are also valid; so I find on this issue that the minutes book of the meetings of the general body and of the board of directors of the company were being regularly and properly maintained.
26. Issue No. 4 : RW-1 deposed that on September 27, 1983, himself, the first petitioner and the second petitioner met and resolved to appoint him (RW-1) as the managing director with all powers and for alteration of chewue powers and that the said resolution is pursuant to the articles of association of the sixth respondent company. He further deposed that on the next day the second petitioner in the capacity of director has issued a notice convening the board meeting of the sixth respondent company on October 5, 1983, and that along with the said notice, a copy of the resolution dated September 27, 1983, was also sent to the directors by separate registered post. It is stated that on the advice of the second petitioner, RW-1 also spoke with the first respondent on the telephone and informed him about the board meeting scheduled on October 5, 1983, and that on October 4, 1983, he received a telegram from the first respondent stating that the proposed board meeting on October 5, 1983, is null and void. The stand taken by respondents Nos. 1 to 4 , that the board meeting dated October 5, 1983, is null and void is perfectly correct because the second petitioner who has been removed as director of the company with effect from January 12, 1983, in the eighth general body meeting of the company held on February 15, 1983, cannot have any authority to participate in the alleged meeting on September 27, 1983, and the to appoint the fifth respondent as the managing director. So also, the second petitioner in his capacity as director has no authority to issue a notice convening the board meeting of the sixth respondent company on October 5, 1983. The issuance of such notice is denied by respondents Nos. 1 to 4. Even otherwise, the second petitioner who has ceased to be the director of the sixth respondent companycannot call for the meeting of the board of directors to be held on October 5, 1983. Consequently, it follows that the meeting of the board of directors said to have been convened on October 5, 1983, even if true, cannot be a valid meeting. Moreover, there is no material on record to show that respondents Nos. 1 to 4 had notice of the proposed meeting on October 5, 1983, prior to the holding of the meeting . Learned counselfor the petitioners relied upon exhibit A-32 telegram to contend that respondents Nos. 1 to 4 had notice of the meeting . But xhibit A-32 telegram does not spell out that the first respondent received notice of the proposed meeting by that date. On the other hand, it reads that the fifth respondent uttered about the convening of the board meeting on October 5, 1983. Exhibit A-33, which is the office copy of the registered notice issued on behalf of respondents Nos. 1 to 4, shows that they have received the notice of the meeting dated September 28, 1983, and a copy of the resolution passed on September 27, 1983, only on October 7, 1983.
27. Exhibit B-1, resolution dated May 19, 1981, which is held by me to be a true and valid resolution, lays down that respondents Nos. 1, 3 and 4 shall be the permanent directors and that they shall hold office till they resign of their own accord. I, accordingly, find on this issue that respondents Nos. 3 and 4 are directors of the company and that petitioner No.2 and respondent No.2 having been removed as directors by resolution dated February 15, 1983, passed in the eighth general body meeting of the sixth respondent company are not entitled to continue as directors of the company.
28. Issue No. 7: The evidence pf PW-1, the first petitioner, PW-5, the second petitioner, and RW-1,the fifth respondent, reveals that in spite of several enquiries made by PWs-1 and 2 and the directors of the company for the accounts of the sixth respondent company, there was no proper reply from the first respondent; that on September 27, 1983, petitioners Nos. 1, 2 and the fifth respondent met and passed a resolution to the effect that the fifth respondent shall also be the managing director of the sixth respondent company with full powers and the first respondent should assist the fifth respondent in the management of the company; that the chewue powers shall be exercised by the fifth respondent or the second petitioner; that the said resolutions were passed by them in view of the bad management of the company by the first respondent and in view of the fact that he was not rendering proper accounts and not holding the meetings; that the work of the company came to a standstill due to the disconnection of electricity; that the minutes books were not being properly maintained and were being kept unauthorsedly with Sri S. Raghuram Murthy, auditor; that the meeting to be held on October 5, 1983, was called for by the second petitioner by notice dated September 28, 1983, sent to the other directors under certificate of posting; that the second petitioner sent the notice by registered post also to respondents Nos. 1 and 2; that the meeting of the board of directors held on October 5, 1983, was attended by petitioners Nos. 1, 2 and the fifth respondent at the factory premises; that the first respondent and the second respondent did not attend the meeting; that as the minutes book of the meetings of the board of directors ws with the first respondent, they recorded the minutes of the meeting dated October 5, 1983, in a separate note book marked as exhibit A-40; that after the meeting they took over the godown and the stocks therein in the presence of PW-4, Siva Prasad and a few others ; that the stocks were inventoried ; that the copies of the resolution passed at the board meeting on October 5, 1983, were sent to the other directors and the State Bank of India, Arun-delpet branch, Guntur, and Perecheria branch as well as the Registrar of Companies ; that on October 31, 1983, petitioners Nos. 1, 2, the fifth respondent, PW-4, M. Siva Prasad and a few others went to the factory premises and took over possession of the office premises by removing the lock and that various items in the office were invendtoried as per exhibit A-45.
29. Their evidence further reveals that in October, 1983, the first respondent got issued an advertisement in the newspaper to the effect that the fifth respondent was not in the management of the sixth respondent company; that in October, 1983, a suit was goty filed by the first respondent through his brother-in-law, B.V. Gandhi, in O.S.No.433 of 1983, on the file of the Sub-Court, Guntur, for recovery of the loan said to have been advanced by him to the company; that two Commissioners were appointed by the District Munsit's Court at Guntur, and that one of the Commissioners has seized the account books and records of the sixth respondent company from the office of Sri S. Raghuram Murthy, chartered accountant. It is further brought out in their evidence that five days later respondent Nos. 1, 4 and their ment numbering about 40 came to the factory premises and tried to break open the locks of the factory premises; that the fifth respondent made a complaint to the police officials about the incident and that the police proceeded to the spot and averted the incident. It is also stated that in December, 1983, the fifth respondent filed O.S.No.1173 of 1983, on the file of the District Munsif's Court, Guntur, against the Postal Department and the First respondent for directing the Postal Department to despatch the letters of the sixth respondent company to the new premises in his name, RW-1 , deposed that in spite of his efforts, the business of the sixth respondent company could not be revived because of the obstacles created by the first respondent and hence, he filed O.S.No.71 of 1984, on the file of the Principal Subordinate Judge's Court, Guntur, against respondents Nos. 1 to 4 and the bank for declaration , for a permanent injunction restraining respondents Nos. 1 to 4 from interfering with the management of the company, for a mandatory injunction directing them to abide by the resolution of the board of drectors at its meeting held on October 5, 1983, and other reliefs. The second petitioner as PW-5 deposed that the business of the sixth respondent company could not be revived because of the obstructive tactics adopted by the first respondent, his notice in the newspaper and the non-co-operation of the bank in the management of the company. PW-5 either advertently or inadvertently stated even during the chief-examination that in that suit they could not get any relief and that thereafter he and petitioners Nos.2 and 3 filed the present company petition.
30. As against the above evidence of PWs-1, 5 and RW-5 putting the blame on respondents Nos. 1 to 4 in general and the first respondent in particular for the stalemate caused in the business of the sixth respondent company, the contention of respondents Nos. 1 to 4 is that in view of the mismanagement of the affairs of the sixth respondent company by the fifth respondent, resulting in production of sub- standard pesticides and the consequential complaints, misunderstandings developed between respondents Nos. 1 to 4 on the one hand and the fifth respondent on the other and that the misunderstandings became very intense resulting in initiationof proceedings in the court. Admittedly, the production activity of the sixth respondent company was closed in June, 1983. Thus , whoever is responsible, it is an admitted fact that the business of the company came to a standstill by the dated of filing of this petition. Thereafter, there were attempts made by petitioners Nos. 1,2 and the fifth respondent to get at the possession of the factory premises and management of the factory whereas respondents Nos. 1 to 4 and others tried to get at the possession of the factory and its management thereof. Thus, there is a scramble for possession of the sixth respondent company by respondents Nos. 1 to 4 on one side and petitioners Nos.1, 2 and fifth respondent on the other. From the above material placed on record by both the parties, I find on this issue that there are disputes between the two groups of shareholders the directors one led by the first respondent and the other led by the fifth responded pertaining to the business of the company and leading to an impass to its detriment.
31. In view of my finding on issue No.7, what is the nature of the order that can be passed in this petition is the next point that arises for consideration. Since the petitioners failed to establish that respondents Nos. 1 to 4 have conducted themselves in a manner oppressive to the fifth respondent and his group of shareholders, I hold that the petition filed under section 397 of the Act is not maintainable. However, in view of the conclusion arrived at by me that the management of the company had miserably failed in protecting the interests of the company, resulting in prejudice being caused to the company and in view of the circumstances that the constant fight among the directors, who were also the shareholders of the company, has an adverse effect on the conduct of the company's business which has resulted in a complete deadlock or stalemate of the company's business, it is just and necessary that certain directions should be given. It is a factor to be taken into consideration that the complaining parties themselves have contributed to the deadlock and stalemate of the business of the company by passing the resolution dated September 27, 1983, convening the meeting of the board of dirctors on October 5, 1983, illegally and trying to take possession of the factory premises highhandedly. The evidence is also clear that having failed in their attempt to get any relief in O.S.No.71 of 1984, on the file of the Sub-Court, Guntur, they have filed this company petition. The evidence on record clearly establishes that the parties had irretrievably fallen from each other and their continued collaboration in the management of the company in future is out of the question.
32. It is seen from the evidence on record that it is the first respondent that has commenced the company. It is at his invitation that the fifth respondent joined as a shareholder by purchasing initially 75 shares. Thereafter, his family members have purchased 1,425 shares. Having so entered the company as a director and then bringing his own family members into the company, by filing O.S.No.71 of 1984, on the file of the Sub-Court, Guntur, and by filing this company petition, he tried to eliminate respondents Nos.1 to 4 completely from from the management of the sixth respondent company. Since the first respondent is the person who has floated the company in the first instance with his own funds and by the time the first respondent and his group joined as shareholders, the company was in a flourishing condition, I feel that the first choice should be given to respondents Nos. 2 to 4, who are the legal representatives of the first respondent to purchase the shares of the fifth respondent and his group of shareholders. The sixth respondent company is a private limited company of which the shareholders belong to the first respondent's group and the fifth respondent's group.
33. I, accordingly, direct that respondents Nos.2 to 4 shall exercise their first choice to purchase the shares of the petitioners, the fifth respondent and the other shareholders of the fifth respondent's group within two months from today at the face value of the shares. In case of default, the petitioners and the fifth respondent shall have the choice of purchasing the shares of the first respondent and his group of shareholders at the face value of the shares. If both the groups fails to exercise the above choice or commit default in payment, there is no other choice, but for the company to be wound up. It is open to any one of the shareholders to move the court for appropriate orders in the event of the above two options not being exercised by respondents Nos. 2 to 4 in the first instance and the fifth respondent and his group of shareholders in the second instance.
34. With the above directions, the company petition is dismissed but without costs.