Company Law Board
T. Ramesh U. Pai And Ors. vs The Canara Land Investments Limited And ... on 16 April, 2004
Equivalent citations: [2005]123COMPCAS869(CLB), [2004]55SCL616(CLB)
ORDER
K.K. Balu, Member
1. This petition is filed under Sections 397 and 398 of the Companies Act, 1956 ("the Act") against M/s The Canara Land Investments Limited: ("the Company") and others alleging that the affairs of the Company are being conducted in a manner prejudicial to the interests of the petitioners and seeking the following reliefs: -
* to supersede the Board of Directors of the Company;
* to appoint an auditor to investigate into the conduct of the respondents 2 to 7 and surcharge them for diversion and siphoning of the funds of the Company and for the loss suffered oh account of leasing out the fixed assets of the Company for meagre amount;
* to amend the Articles of Association of the Company providing proportionate representation for the holding of the petitioners in the Company;
* to direct the Company to register the transfer of 215 shares in the name of the petitioners 6 & 7;
* to set aside the appointment of the fourth respondent as the Managing Director of the Company with directions for refund of the remuneration periodically paid by the Company;
* to set aside the allotment of 2000 8% Cumulative Redeemable Preference shares made in favour of the respondents 8 & 9;
* to set aside the various lease deeds executed by the Company which are detrimental to the interest of the Company and its members; and * to declare that the proceedings of the extraordinary general, meting of the Company held on 05.12.2002 are null and void and to appoint a provisional administrator to take charge of the affairs of the Company.
2. Shri A.K. Mylsamy, learned Counsel appearing for the petitioners, while initiating his arguments and tracing the background of the parties, pointed out that the petitioners and the respondents belonging to Pai group at Manipal have established and have been controlling a number of industries and managing educational institutions including the first respondent-Company. Learned Counsel further elaborated the first petitioner's dedicated work embracing various fields like education, finance, medical care, community service etc. resulting in the betterment of Manipal and the Pai family, as borne out by the speech of the Chairman of Manipal Academy of Education made at one of its annual general meetings and biography of the first-petitioner under the name and style of "Ramesh. Pai-the Man and His Mission" (Annexure A-28). The petitioners 1 & 2 are husband and wife and the third petitioner is their son. The fifth respondent is brother of the first petitioner. The respondents 2, 4 and 6 are the first cousins of the first petitioner. The respondents 3 & 7 are brothers-in-law of the first petitioner and the fifth respondent. During 1990, differences arose between the petitioners group and the respondents' group resulting in the initiation of several cases against each other. At the intervention of well-wishers of both the groups, Shri Dirubai Ambani, before his demise came to be appointed as a sole Arbitrator for settling the differences, who gave an award on 03.11.1993 by which each group was allotted certain companies exclusively. While the late Ambani award settled most of issues between the two groups, it could not resolve the disputes with regard to the first respondent-Company because of time constraint as well as lack of information. Thereafter, the parties had referred the unresolved disputes to Shri C. Subramaniam, former Finance Minister of India, who passed two awards dated 21.03.1995 and 27.05.1997. The award dated 27.05.1997 in respect of the educational institutions stood implemented. The award dated 21.03.1995 dealing, inter-alia, with the first respondent-Company envisages that the lands belonging to the first respondent-Company should be leased to the petitioners' group in proportion to their shareholding for a period of 99 years for their corporate office and staff quarters on similar terms and extent already given to the respondents' group, simultaneously enhancing the latter's lease for a similar period. While the first, petitioner honoured the late C. Subramaniam award, the respondents reaped benefits under the award in so far as the commercial institutes are concerned and agreed before the arbitrators for bifurcation of the lands, but intentionally refused to abide by the terms of the award in regard to the first respondent-Company, in spite of the negotiations for amicable settlement of the issues, taking advantage of the control and management and exclusive possession of the Company's assets and indulged in various acts of oppression and mismanagement in the affairs of the Company, ultimately forcing the petitioners to approach the CLB for appropriate relief.
3. Shri Arvind P. Datar, learned Senior Counsel, appearing for the respondents, while denying any act of oppression and mismanagement in the affairs of the Company, pointed out that the petitioners 1 & 3 have been fighting against their cousins and brothers-in-law for the past several years. The various companies under management of the first petitioner including Maharashtra Apex Corporation Limited, Canara Nidhi Limited and Manipal Home Finance Limited etc. are in serious financial difficulties and defaulted in repayment of public deposits to the tune of Rs. 365 crores. The first petitioner having ruined the family name and misappropriated public money does not deserve any sympathy. The sole intention of the petitioners 1 & 3 is to get some of the lands belonging to the Company. The relief under Sections 397 and 398 is an equitable relief which is entirely left to the discretion of the Court. Therefore, the requirement of good faith is absolutely required on the part of any one claiming equitable relief as held in Srikanta Datta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Enterprises (Pvt.) Ltd. - (1991) 72 CC 211. In the present case, the petitioners lack good faith and deserve no relief. The claim of the petitioners seeking corporate partition of the assets of the Company is not permissible in law. Shri Datar, learned Senior Counsel further pointed out that the disputes in regard to the Company are forming part of the awards passed by the late Dirubai Ambani and late C.Subramaniam as back as in the years 1993, 1995 & 1997. In spite of these awards, the disputes in regard to the Company could not be amicably sorted out among the parties and the same cannot be agitated after a lapse of number of years. The fact that the petitioners have not agitated their grievances all these years indicate that they have not been in any way aggrieved in the conduct of affairs of the Company. Similarly, every complaint of the petitioners excepting the allotment of preference shares in favour of the respondents 8 & 9, is barred by inordinate delay and acquiescence, disentitling the petitioners to claim any relief. Learned Senior Counsel relied on Amalgamations Ltd. v. Shankar Sundaram - (2002) 4 Comp LJ 392 (Mad) and Gover Rustom Irani v. Property Co. (P) Ltd. - 1976 Tax LR 1682 (Cal) to show that a petition under Section 397 should be rejected on the ground of delay and acquiescence.
4. The acts of oppression and mismanagement enumerated by Shri A.K. Mylsamy and replies of Shri Arvind P. Datar made at the time of oral submissions together with allegation-wise findings of this Bench are as under:-
(A) ALLEGED ACTS OF OPPRESSION:
Allotment of Preference Shares:
Shri A.K. Mylsamy: When the petitioners carried out the inspection at the office of Registrar of Companies, Karnataka, Bangalore they became aware of the extraordinary general meeting held on 05.12.2002, amending Article 3 of the Articles of Association of the Company, apart from passing a special resolution under Section 81(1A) of the Act, empowering the Board of Directors of the Company to allot shares in favour of outsiders, not being the existing members. The petitioners did not receive any notice for the extraordinary general meeting held on 05.12.2002. If the petitioners had received any notice, they would not have stayed away from the meeting especially when the impugned shares were sought to be allotted in exclusion of the petitioners. The Board of Directors at the meeting held on 11.12.2002 had allotted 2,000, 8% cumulative redeemable preference shares in favour of the respondents 8 & 9 increasing the paid-up capital to Rs. 5 lakhs which was reportedly to comply with the statutory requirement of the Companies (Amendment) Act, 2000. The allotment in favour of the respondents 8 & 9, being "Trusts" hit by the provisions of Section 153 is ex-facie illegal and must be set aside by the CLB. The Company has neither produced any document to show that notice was sent to the petitioners for the extraordinary general meeting held on 05.12.2002 nor minutes of the Board meeting approving the allotment in favour of respondents 8 & 9. Moreover, the allottees are in control and management of the respondents' group. By virtue of the impugned allotment, the Company has not derived any benefit and the petitioners are deprived due to non- allotment of the proportionate number of shares, constituting an act of oppression, for which reliance has been placed on the following decisions: -
* Mrs. Farhat Sheikh v. 1. Esemen Metalo Chemicals Pvt. Ltd. 2. Detinners Pvt. Ltd. - [1996] 87 CC 290.
* In re: Cine and Supply Corporation Pvt. Ltd. - [2003] 115 CC 481.
* Micromeritics Engineers Pvt. Ltd. v. S. Munusamy - [2003] 116 CC 465, wherein the additional allotment of shares was held to be an act of oppression against the minority shareholders.
Shri Arvind P. Datar: The allotment of 2000 preferential shares was made at the Board meeting held on 11.12.2002 in order to meet the mandatory requirements of Section 3(4), whereby every public limited company is required to enhance its paid-up capital to Rs. 5 lakhs, as borne out by the notice of EOGM dated 31.10.2002 with the explanatory statement given for the said extraordinary meeting. The petitioners did not choose to attend the EGM, in spite of service of the notice on them and therefore, cannot have any grievance on account of the allotment. Accordingly, the Company had issued preference shares of Rs.2 lakhs in favour of the respondents 8 & 9, with the object of benefiting the educational trusts and not the respondents' group. Any allotment made to meet the statutory requirements is not an act of oppression as held by the apex court in the case of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. - (1981) 51 CC 743. Even in the event of the allotment of shares in favour of the petitioners' group in proportionate to their holding, they would be entitled to meagre number of shares. By virtue of the impugned allotment, the voting rights of the petitioners and their shareholding in the Company are not adversely affected and there is no personal aggrandizement on the part of the respondents. Thus, the petitioners are in no way prejudiced on this account. The power to issue further shares was exercised by the directors for the benefit of the educational institutions and even if such an act affects the interests of the petitioners, they cannot complain of oppression.
FINDINGS: While the petitioners claim that no notice was received for the EOGM held on 05.12.2002, the same is denied by the respondents. The denial of the respondents that "the petitioner has falsely pleaded non-receipt of notice" (para 2 at page 2 of counter of the Company) apart from being bald lacks details. The petitioners 1 to 3 are individuals and the remaining petitioners are corporate, entities and Trust. There is nothing on record to show as to how the notices were served upon the corporate bodies and the Trust, in the absence of which the plea of the respondents that notices were sent to the petitioners for the EOGM held on 05.02.2002 does not merit any consideration more so when/there is no cordiality between them for several years. The shares impugned in the Company Petition have been allotted in favour of the respondents 8 & 9, being the Trusts, which are under the management of the respondents' group the fact of which remains unchallenged. The plea of the respondents that the Voting rights of the petitioners and their shareholding in the Company are not adversely affected cannot justify the impugned allotment, in exclusion of the petitioners. Moreover, we also note that the allotment in favour of the trusts is prohibited by the provisions of Section 153. While there is justification for the allotment made by the Company to meet the statutory requirements, the allotment for the benefit of educational institutions, under the management of the respondent group, in exclusion of the petitioners can in no way be justifiable. Thus, the impugned allotment of shares in exclusion of the petitioners would amount to an act of oppression against the minority shareholders.
Non-sending of notices and balance sheets:
Shri A.K. Mylsamy: The petitioners were not receiving notices for general meetings and annual general meetings and notices for the Board meetings during the period when the first petitioner was a director of the Company nor received the minutes of the Board meeting and balance sheets, in spite of their repeated complaints, as borne out by Annexure A-6 series. The first petitioner had deposited Rs. 500/- on 06.05.2003 with the Company for sending notices for all meetings and annual accounts by registered post. The fifth petitioner had deposited Rs. 700/- with the Company on 05.05.2003 for furnishing certified copies of minutes of the annual general- meetings and extraordinary general meeting of shareholders since 01.01.1995. Nevertheless, the respondents have not chosen to comply with the request made by the petitioners, as is evident from the various communications sent by the petitioners (pages 86, 87, 90, 92, 94, 98 and 272 of Petition).
Shri Arvind P. Datar: The petitioners have been staying in Manipal, which is relatively a small town and, therefore, the notice for annual general and other general meetings were used to be sent to the petitioners by hand delivery. Though the Company used to deliver the notices by hand delivery, the first petitioner never gave any acknowledgement for receipt of such notices, which resulted into the practice of delivering the notices in person without insisting for any formal acknowledgement from the first petitioner. There was no practice of sending notices by registered post or certificates of posting for several decades. While the petitioners were complaining of non-receipt of the notices and balances sheets, they never expressed grievances about non-receipt of the dividend warrants. All the balance sheets were sent to the petitioners and the dividend warrants were received and encashed by the petitioners. Moreover, the first petitioner was not attending most of the AGMs and EGMs and was never Concerned with the affairs of the Company or the educational institutions. The petitioners were in the habit of writing letters on various matters from time to time as seen from the correspondence made by them (pages 86 to 98 of petition - vol.1 and page 272 of petition - vol.II), which were not replied by the respondents on account of the nuisance value.
FINDINGS: The Company is at liberty to serve notice on any member either personally or by sending it by post to him to his registered address. However, in the present case, admittedly the relationship between the parties is strained for several years. Moreover, the respondents 4 to 7 are corporate bodies and Trust, in which case, the plea of the respondents that the notices were used to be sent by hand delivery appears to be impracticable. In the event of the petitioners refusing to give acknowledgement for receipt of the notices, nothing prevents the Company from sending notices by registered post. It is on record that the first petitioner was in the habit of calling for copies of the balance sheet on several occasions, which was admittedly not replied by the respondents on account of nuisance value. It is observed that the petitioners 1 & 5 have deposited the requisite amount with the Company for sending notices for meetings and certified copies of minutes of the annual general and extraordinary general meetings of members of the Company. When the money has been deposited, in terms of Section 53(2)(a) of the Act, is incumbent on the Company to send the notices by Regd. Post, notwithstanding any other mode that was being followed by the Company. The sequence of events show that the Company has not been regular in sending either notices or copies of minutes of the annual general meeting or extraordinary general meeting of members to the petitioners.
Delisting of shares:
Shri A.K. Mylsamy: The Company's shares listed in Bangalore Stock Exchange came to be delisted during the year ended 31.03.2002, without following the procedure prescribed by the Securities Exchange Board of India and the Stock Exchange. The. respondents have not produced any Board resolution or minutes pf the general meeting or the correspondence between the Company and the Stock Exchange in their custody establishing the requisite compliance in this behalf by which adverse inference must be drawn against the respondents as held in Gopal Krishnaji Ketkar v. Mohamed Haji Latif - AIR 1968 Supreme Court 1413, wherein it has been held that if a party in possession of best evidence which would throw light on the issue in controversy is withholding the same, the court must draw an adverse inference against him, notwithstanding that onus of proof does not lie on him. Though the Company reportedly made a representation to Bangalore Stock, Exchange to the effect that the shares would be listed in the Mangalore Stock Exchange, the same was not clone by the Company. By virtue of delisting the shares of the Company, the petitioners are not in a position to transfer their shares freely in the open market, thereby Imposing restrictions on transfer of the shares held by the petitioners.
Shri Arvind P. Datar: The Board of Directors of the Company had resolved, as early as in the year 1998, to delist the shares on account of the cumbersome and expensive procedural formalities involved in complying with SEBI guidelines of which the petitioners were fully aware. Moreover, there was virtually no trading of the shares of first respondent-Company in the open market during the period from 12.12.1972 to 02.06.1992. At no point of time, the petitioners were aggrieved on account of the delisting of shares, more so, when they were only acquiring shares of the Company enhancing their holding from 19% to 44%, and they were not sellers in the market. The Company is not accepting any public deposit and no shares are held by the public. There was no malafide intention or purpose on the part of the respondents for delisting the shares of the Company.
FINDINGS: Though the Board of Directors is said to have resolved to delist the shares of the Company as early as in the year 1998, the Company has not chosen to produce minutes of the meeting of the Board of Directors or the correspondence ' exchanged with the statutory authority to establish the compliance of the requisite guidelines in this behalf. The plea of the respondents that there was no trading of shares of the Company for several years and that the petitioners would not be aggrieved on account of delisting of shares cannot hold good, especially when the Company has not maintained any transparency in important matters like delisting shares of the Company and keeping the shareholders having substantial interest in dark. Further it is on record that the petitioners have been acquiring shares in the market, which facility would not be freely available now due to delisting.
Non-registration of shares:
Shri A.K. Mylsamy: The petitioners 6 & 7 had lodged 379 and 2274 shares respectively acquired by them, with the Company, on 07.10.1993 for effecting registration of the transfer in their favour. The Company, instead of registering the transfer of these shares, made a reference before the Company Law Board under Section 22A(4)(c) of the Securities Contracts (Regulation) Act, 1956 for confirmation of the decision of the Board of Directors of the Company to refuse registration of the transfer. The CLB ultimately dismissed the said reference on 05.07.1999 setting aside the resolution of the Board of Directors of the Company refusing registration of the transfer in the name of the petitioners and further directed the Company to register the shares in favour of the petitioners, against which the Company preferred an appeal before the Division Bench of High Court of Karnataka. The High Court was pleased to dismiss the appeal filed by the Company on 23.11.1999 upon which the Company registered the transfer of shares only on 07.03.2001 after a delay of eight years. Again the petitioners 6 & 7 had purchased 496 and 60 shares respectively and lodged with the Company the original share certificates together with instruments of transfer in the year 1995 for registering the transfer of shares, which is deliberately delayed by the Company in spite of the protracted correspondence, the complaint lodged before the SEBI, the legal notice and the lawyer's personal visit to the Company's office, thereby harassing the petitioners by not registering the transfer of shares in favour of the petitioners.
Shri Arvind P. Datar: The grievance of the petitioners in regard to non-transfer of shares of the Company in their favour is on account of the litigation between the parties, which went up to the Supreme Court, However, the Company had effected the transfer of shares in favour of the petitioners' group, when the disputes reached finality by virtue of the order of the apex court. The grievances in regard to transfer of the pending shares, the Company will ensure registration of such shares provided all the legal requirements are satisfied.
FINDINGS: The grievances in regard to non-transfer of shares of the Company in their favour of the petitioners is found to be on account of the protracted litigations establishing bitterness between the two groups. However, taking into account the categorical statement made by Shri Datar, learned Senior Counsel that the Company will expeditiously dispose of registration of the pending transfer of shares subject to fulfillment of the legal requirements in this behalf by the petitioners, nothing survives of this allegation.
Exclusion of the petitioners from management:
Shri A.K. Mylsamy: The petitioners' holding after taking into account the transfer of shares pending registration in favour of the petitioners 6 & 7 and the shares purchased by the fifth petitioner, which are yet to be lodged for registration of the transfer, accounts for 44 per cent of the total paid-up capital of the Company. The respondents hold 52 per cent and remaining 4 per cent of the paid-up capital of the Company is held by the public. The first petitioner became a director with effect from 01.04.1945 and was the Managing Director for the period from 1945 to 1957. The first petitioner was not re-elected as director of the Company at the 64th Annual General Meeting for the year ended 31.03.1997. When the first petitioner gave notice under Section 257 signifying his candidature for the office of director at the annual general meeting held on 30.09.2003, the same was rejected by the Company on the ground that he had incurred disqualification under Section 274(1)(g) of the Act. Similarly, the notice given by the third petitioner under Section 257 for his appointment to the office of director was defeated at the annual general meeting held on 30.09.2003. These events subsequent to the filing of the company petition, according to the petitioners, reveal the conduct of the respondents' group in excluding the petitioners holding 44% from the management of the Company. At present there is none from the petitioners' group on the Board of the Company. The respondents having thin majority are in entire control of the Board by inducting their own relatives and ignoring the interest of the petitioners. The petitioners holding substantial interests, must have equal representation on the Board in the interest of justice and fair play. Thus, the petitioners have lost trust and confidence in the respondents, whose conduct is harsh, burdensome, wrongful amounts to an oppressive act on the part of the respondents as held in Jagjit Singh Chawla v. Tirath Ram Ahuja Limited - (2002) 2 Comp LJ 72 (CLB).
Shri Arvind P. Datar: The removal of the first petitioner from the post of director cannot be an act of oppression, especially when he had acted against the interests of the Company. None of the acts, complained of in the Company Petition is in any way prejudicial, either to the rights of petitioners or shareholders or prejudicial to the Company and the acts complained of are not continuing. The real test is whether the majority shareholders have acted prejudicially or in a wrong, burdensome and harsh manner. There should be an element of lack of probity or fair dealing in relation to the interest of minority shareholders, as held in Vinod Kumar Mittal v. Kaveri Lime Industries Ltd. - (2000) 2 Comp LJ 354.
FINDINGS: It is on record that the petitioners' group holds substantial shares to the extent of 44 per cent (inclusive of the shares that are yet to be registered). Taking this aspect into consideration and also the fact that the/petitioners' group had a representation on the Board right from the beginning till 1997, the respondents should not have denied a representation for them at the AGM held on 30.09.2003, when the third petitioner signified his candidature, for the office of director, notwithstanding the fact that the respondents hold majority shares. Such an act could definitely be considered as an act of oppression against the petitioners holding 44 per cent shares. The relationship between the parties would indicate that the Company is a family company, wherein the representation from both the groups on the. Board of the Company should have been ensured. The petitioners with substantial holding, in our view, must have some representation on the Board ensuring fair opportunity in the management of the Company.
(B) ALLEGED ACTS OF MISMANAGEMENT:
Leasing of Lands:
Shri A.K. Mylsamy: The Company owns vast extent of the immovable properties, comprising of land and buildings aggregating 83 acres, shown in Annexure A-19, valued at Rs. 88 crores as per the Valuation Report of Simons and Associates (Annexure A-18 and Vol.III of Petition). The Company had leased out the vacant lands and buildings at a very nominal rent for a period ranging from 20 to 90 years. By virtue of these leases, the lessees, in which the respondents 2 to 7 are interested are only the beneficiaries. The details and location of the properties which are leased to 'various' companies under the control of the respondents 2 & 7 and their associates, other properties under the control and enjoyment of the respondents, as well as the vacant land available with the Company are separately given in the Company Petition (page 85-vol.I of petition; page 24-vol.II of Petition & page 4 & 5 of reply statement). Several of the registered lease deeds were executed by the second respondent, for the Company and the fifth respondent on behalf of the lessees for periods ranging from 20 years to 99 years at a very nominal rent. These lease deeds do not envisage any enhancement of rent from time to time. There was none from the petitioners' group in the management of the Company, while the properties were leased out by the Company. Thus, the properties of the Company are being enjoyed by the respondents on nominal rent without any benefit either to the Company of to the petitioners. The respondents have not furnished particulars of the extent of lands or other properties owned by the Company or the valuation or market rental prevalent at the relevant point of time or any document showing these details or the revision of rentals from time to time, or usage of the lands for public purposes and for the educational institutions as contended by the respondents. The Government of Karnataka granted 300 acres of land to the educational institutions of the respondents 8 & 9 at a nominal cost, most of which are not being used by these respondents.
Shri Arvind P. Datar: The respondents are denying the extent and value of the lands belonging to the Company as made out by the petitioners. These lands and buildings were leased put and lying vacant. The vacant lands are used for the public purposes like parks, play grounds etc. The lands were given on lease at the time when the first petitioner was a director of the Company. The leases are for the periods varying between 20 and 99 years. The respondents 2 & 7 are not beneficiaries of the lease transactions. The rental income in respect of the leased lands and buildings were revised from time to time and presently the Company's rental income accounts for nearly Rs. 35 lakhs per month as against rental income of Rs. 22 lakhs during the year 1988.
FINDINGS:-The Company owns a vast extent .of the immovable properties, which are leased out for specified periods of time. The petitioners have produced records showing the details of such properties such as location, extent, value, lessees under the control of the respondents and the properties in the enjoyment of the respondents and the remaining properties which are left with the Company separately. The petitioners have produced valuation report in respect of these properties. Though the respondents denied the extent and value of these properties, they have not come out with their version of the extent and valuation of these properties. While, according to the petitioners, the properties were leased out by the respondents' group to several of the companies under their management as well as outsiders and lease rental was not revised from time to time, it is denied by the respondents. It is on record that the second respondent had executed a number of lease deeds in respect of the properties of the Company in favour of the lessees represented by the fifth respondent, (pages 37 to 142 of vol.11 of Index to Documents). These registered lease deeds are for a period from 20 years to 99 years. There is no provision for revision of the lease amount during the currency of the lease deeds. The lease amount in respect of these properties is varying from Rs. 0.02 to 3.30 per sq. ft. per annum. There is no record to show that the lease rentals have been increased in respect of these properties, though the lease rentals in respect of certain other properties are found to be revised from time to time. The plea of respondents that the vacant lands belonging to the Company are used for public purpose or for educational institutions remains unsubstantiated and is not in tune with the object clause as contained in the Memorandum and Articles of Association of the Company.
Exorbitant expenses and personal expenses debited to the Company's account:
Shri A.K. Mylsamy: The main business of the Company is currying on the business of collecting rents and managing the Hotel Green Park, at Manipal with 30 or 40 rooms and without any boarding facility. The Company does not carry on any business outside Manipal or any manufacturing activity. All the fixed assets held by the Company are in Manipal. Huge sums of money were incurred on account of traveling expenses, salary of the Managing Director, administrative expenses, postage, telex and telephone, repairs and maintenance as well as vehicle maintenance expenses as revealed from the balance sheet of the Company for the years ended 31.03.2000 to 31.03.2002. There is no need of huge salary of Rs. 5 lakhs per annum for the Managing Director or necessity to spend on repairs and maintenance of the properties, especially when they are all under occupation of various tenants. Moreover, when the Company does not carry on any business outside Manipal, there is no occasion to spend huge sums of money on account of postage, telex, vehicle maintenance etc. Thus, the Company's income is being diverted by way of such expenses, thereby benefiting the respondents 2 to 7. In these circumstances, the petitioners are seeking for themselves the immovable properties owned by the Company in proposition to their holdings in the Company, as per the awards passed by the late Ambani and C. Subramanian, according to which the landed properties of the Company are divisible.
Shri Arvind P. Datar: The balance sheet of the Company for the year 2002-2003 reveal a gross income of Rs. 80 lakhs and the remuneration of the Managing Director of Rs. 5 lakhs per annum working out at six per cent of the gross income of the Company falling within the parameters laid down in Schedule-XIII of the Act cannot in any way be complained by the petitioners. The other expenses incurred on account of telephone, postage and administrative expenses incurred duly approved and adopted by the members of the Company cannot in any way amount to misuse of the Company's funds.
FINDINGS: The grievances of the petitioners are two-fold, the first being the remuneration paid to Managing Director of the Company and the second being that the respondents are misappropriating the funds of the Company by inflating the expenses of the Company incurred in connection with traveling, communication, administration etc. These grievances must be seen in the light of the income earned by the Company, The balance sheet of the Company for the year 2002-2003 reveals a gross income of Rs. 80 lakhs, in which case, remuneration of the Managing Director at Rs. 5 lakhs per annum cannot be said to be exhorbitant. The grievances on account of the various expenses, though appear to be on higher side, the petitioners, have not established that such expenses have been incurred on personal account of the respondents. There is, therefore, no merit in the plea of the petitioners.
5. Shri Mylsamy, learned Counsel while concluding his submissions reiterated that in spite of the petitioners holding 44 per cent of the paid capital of the Company, they do not have any representation on the Board. The parties are fighting for the last several years in various Forums. The petitioners have lost trust and confidence in the respondents and it is impossible for both of them to continue to carry on the business together. In these circumstances, learned Counsel urged that the CLB in exercise of its powers under Section 402 may direct the Company to purchase the petitioners' shares and reduce the share capital to the extent of 44 per cent, as held in Gurmit Singh v. Polymer Papers Limited - (2003) 3 Comp LJ 228 (CLB). The Company instead of paying the petitioners by cash, may release its assets both movables and immovables with liabilities thereon to the extent of 44 per cent in favour of the petitioners. The Green Park Hotel yielding annual income of Rs. 37 lakhs along with the vacant lands, which are not put to use by the Company may be given to the petitioners and the respondents may retain the lands fetching rental income of Rs. 37 lakhs per annum. In the event, of any difference in the income of the properties allotted to the petitioners, the same may be adjusted from and out of the vacant lands to be given to the petitioners. Shri Mylsamy, learned Counsel in support of this legal proposition that the CLB in exercise of its powers under Section 402 can order division of the properties and all the business between the parties in dispute with a view to bringing to an end the matters complained of in the company petition, in support of which he relied upon the following decisions: -
* K.N. Bhargava v. Trackparts of India Ltd. - [2001] 104 CC 611.
* Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. - (1997) 1 Comp LJ 268 (CLB).
* Atmaram Modi v. ECL Agrotech Ltd. - (1999) 4 Comp LJ 379 (CLB).
* Bangalore Union Services Ltd. v. Tenneco Mauritius Ltd. - (2003) 2 Comp LJ 315 (CLB).
6. According to Shri Datar, learned Senior Counsel, the awards made by the late Dirubai Ambani and late C.Subramaniam during the years 1993, 1995 & 1997 having not been acted upon by the parties even after a lapse of several years are not binding on the respondents with regard to the Company and could not be implemented. The very same disputes cannot be now the subject matter of the proceedings under Section 397/398. The petitioners in the event of having any right arising under these awards are at liberty to execute them in accordance with the Arbitration and Conciliation Act, 1996, as held in V.M. Rao v. Rajeswari Ramakrishnan (1987) 61 CC 20. (Mad). The Company is getting rental income and income from hotel business. The petitioners are receiving dividend for the shares held by them in the Company and their claim for partition of the properties of the Company, not being division of business, as contemplated in the various decisions cited on behalf of the petitioners is not justifiable. Shri Datar, learned Senior Counsel pointed that even if the relationship between the parties is not cordial, but inimical, one party cannot be forced to buy the other party in support of which he relied on the following passage of the commentaries of Ramaiah of the Companies Act, 1956 which reads as under:-
"It is clear that even an irretrievable breakdown in relations does not in itself amount to oppression and under that pretence one member or faction of members cannot be allowed the liberty of forcing the other to buy him out. A Company, Re (No. 004475 of 1982), (1983) 2 All ER 36. "
The petitioners have failed to make out a case for winding up of the company on just and equitable grounds and have no relief can be granted by a court, as held in Hanuman Prasad Bagri v. Bagress Cereals Pvt. Ltd. - (2001) 4 SCC 420. Shri Datar, learned Senior Counsel, therefore, sought for dismissal of the Company Petition.
7. A perusal of the various allegations made in the petition and the findings given by us would indicate that except the allotment of preference shares in exclusion of the petitioner; non-representation of the petitioners' group on the Board and leasing of properties of the Company, others are not material. It is an admitted fact that the relationship between the two groups has not been cordial for a very long time. With the intervention of two eminent personalities, the parties have resolved a number of issues resulting in parting of ways in other companies. We arc of the view that the disputes in respect of the present company also should be resolved by one of the groups going out of the Company. Since the respondents hold 52 per cent shares in the Company, it would be appropriate to direct the petitioners to go out of the Company on receipt of proper consideration. In a number of cases as cited by Shri Mylsamy, this Board has divided the business of the Company between the two groups of family members. In the present case, the Company is not having any business except running a hotel, but is in possession of a vast real estate. Therefore, we are of the view that instead of cash consideration being paid to the petitioners for their shares, the assets and properties of the Company could be divided and properties to the extent of 44 per cent by value could be given to the petitioners. Determination of the value of the Company as a whole and the value of 44 per cent shares held by the petitioner c6uld be done by an independent valuer. On the basis of the valuation report, the respondents could prepare two or three alternate packages of assets and properties to be given to the petitioners to the extent of 44 per cent of the value of the Company, and the petitioners could have the liberty to chose one of the packages. Once the petitioners choose one of the packages, they will no longer be shareholders of the Company and the Company could reduce its share capital to the extent of 44% of the shares at the face value. This would complete the parting of ways between the two groups as far as this company is concerned. Accordingly we direct so.
The parties will appear before us on 20.05.2004 at 2.30 p.m. to suggest a mutually acceptable valuer to determine the value of the Company at which time further directions regarding valuation will be given.