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3. The second respondent appearing in person, in support of the petitioner submitted:

The company was promoted by the second respondent and his father in the year 1970 and are subscribers to the memorandum and articles of association of the company, each subscribing to one share of Rs. 100 each in terms of Section 13(4)(b)(c) of the Act. Among others, the second respondent is the first director of the company. Article 35 provides that the number of directors both the maximum and minimum shall be five. By virtue of article 37 the Tamil Nadu Industrial Investment Corporation Ltd. ("TIIC") shall have right to nominate two directors on the board, so long as any amounts are owing by the company to TIIC. The other shareholders shall have the right to nominate two directors (other shareholder-directors). There shall be appointed by the board a general manager, who shall also be appointed as director of the company. Mr. J. I. Coil Pillai was the first general manager of the company. The directors appointed pursuant to article 37 shall not be required to hold any qualification shares. The first general manager had resigned in March 1976, and after closure of TIIC loans, TIIC withdrew its nominees with effect from December 28, 1979. Article 40(a) stipulates that if the office of any other shareholder-director becomes vacant, the resulting vacancy shall be filled by other shareholders by passing any special resolution at the general meeting of the company. Consequently, there could be only two shareholder-directors even on this date in terms of article 37(b). Articles 37 and 40 have not been amended till date. Respondents Nos. 3 and 6 claim to be directors, which is hit by the provisions of article 37. Similarly, the appointment of A. Arulraj and S. Johnson are not sustainable. The third respondent is not a member of the company and cannot file any affidavit for and on behalf of respondents Nos. 4 and 5. The third respondent can neither be the managing director. With the death of KSN in July 1995, the office of other shareholder-director became vacant, and the second respondent, being the only surviving shareholder-director, by virtue of article 40(a), appointed on September 9, 1995, the petitioner as shareholder-director. At the board meeting, appropriate resolutions were passed ratifying the appointment of the petitioner as director and approving the appointment of the second respondent as chairman of the company. The second respondent's appointment as chairman after the demise of his father in accordance with article 39, is borne out by the authority given in his favour to appear in land acquisition proceedings as chairman of the company.
The resolution passed on January 29, 1970, by the board of directors discloses the allotment of shares in the name of the petitioner's father. The petitioner's father sold his landed property to the company and by way of consideration 2,498 shares were allotted to him and got in addition 13,570 shares in the company by way of conversion of his partnership firm's movable and immovables such as machinery, lorries, building, etc. The shares held in the name of KSN are reflected in the balance-sheet for the year ended on December 31, 1973, according to which no cash has been received for these shares. Clause 22 of the partnership deed clearly shows that the entire 16,068 shares shall go to the petitioner's father. TIIC took 4,500 shares as additional security, which on closure of the liabilities must form part of the shareholding of the petitioner's father, with which he became entitled to 20,570 (16,068 + 4,500) shares. Article 26 contemplates, inter alia, that where any shares devolve on the heirs of the deceased member not covered under article 25, the directors may at their absolute discretion admit such heir as a member and recognise the transfer of shares in his name. Article 27 provides that where shares are inherited or devolved on more than one heir, it shall be open to the directors to choose any one of the heirs to be shareholder, and thereupon other heir(s) of the deceased member shall sell to the person so chosen their rights and interest in the said shares. The board of directors, keeping in view of 60 per cent, of the shareholding of the petitioner's deceased father in the partnership firm and with a view to ensure control over the company by the second respondent, as the only surviving senior member, passed resolutions on August 9, 1995, in terms of articles 26 and 27, transmitting 60 per cent, of the shares namely, 12,342 in favour of the second respondent and the balance of 8,228 shares in the name of the petitioner.
The first directors of the company consisted of the second respondent, his father, being shareholder directors, two nominees of TIIC and Mr. J. I. Coil Pillai, a common non-shareholder director. Though the company stopped its operations in the year 1976, KSN had taken steps to settle the dues of TIIC. The board of directors at the meeting held on August 10, 1988, authorised the chairman of the company to arrange for Rs. 81 lakhs in any manner in order to settle the dues of TIIC. At the board meeting held on October 12, 1988, the proposal for disposal of the entire landed property and machinery belonging to the company was approved. At the same board meeting the chairman was authorised to negotiate and finalise the terms with any prospective buyers for sale of the property. The board of directors at the meeting held on December 16, 1988, authorised the chairman to negotiate and conclude a sale in favour of S. X. Francis. The company ultimately cleared the dues of TIIC in full in instalments by September 1989, upon which TIIC returned on November 25, 1989, the title deeds belonging to the company and the right to nominate two directors by TIIC by virtue of article 37 ceased to operate, upon which the nominee directors of TIIC vacated their office and respondents Nos. 2, 3 and 6 were elected as directors in November 1989, making the directors to five as envisaged in article 35. At the board meeting held on December 4, 1989, 4,500 equity shares of the company held by TIIC were transferred in favour of KSN (1,500), fourth respondent (1,000) fifth respondent (1,000) and the sixth respondent (1,000). The second respondent was a party to the resolutions approving the transfer of shares passed at the said board meeting. The board meetings held on December 4,1989, August 24, 1990, and October 9, 1991, were attended by all the five directors including respondents Nos. 2, 3 and 6. The extracts of the resolutions passed at the meeting of board of directors held on October 9, 1991, and March 28, 1994, were signed by, among others, the second respondent. Thus, the company, on and after November 17, 1989, was having a maximum strength of five directors as per article 35. When KSN died on July 24, 1995, respondents Nos. 2, 3, 5 and 6 were directors of the company. After the death of KSN the second respondent without convening a board meeting appointed the petitioner as director and unilaterally declared himself on August 9, 1995, as chairman of the company, which is violative of article 39 and transferred 20,570 shares held in the name of KSN in their favour in the ratio of 60 : 40 per cent., namely 12,342 shares to the second respondent and 8,228 shares to the petitioner. The serious disputes among the legal heirs of KSN were sought to be sorted in panchayat meetings held during November and December 1995, but no amicable settlement could be reached.

12. The sale of property in Maduravayal belonging to the company, in favour of the purchaser-respondents is under challenge. It is observed that certain agreement holders sought to implead themselves to the present company petition by taking out appropriate applications, who are found to be necessary parties, in view of the interest in the disputed property and therefore, they have been impleaded as respondents Nos. 52 to 54. A close scrutiny of voluminous records produced before the Bench reveals that as many as 35 sale deeds have been executed and registered in the name of respondents Nos. 1 to 54 save respondents Nos. 16, 30, 34, 39, 44, 45 and 48 to 51, 53 and 54, during the period between November 7, 2001, and February 6, 2002. However, it appears that no sale deeds have been so far obtained by respondents Nos. 16, 30, 34, 39, 44, 45 and 48 to 51, 53 and 54. While questioning these sale transactions, it was argued that the requisite legal formalities for sale of the property were not duly satisfied and that there was no need to sell the whole of the property and that too at a meagre price. The company incorporated in January 1970 for manufacture and sale of mechanised bricks stopped all its activities since the year 1976, on account of mainly shortage of coal supply. The company was indebted to TIIC and other agencies towards electricity consumption dues, property taxes, sales tax dues, etc. The board of directors at the meeting held on August 10, 1988, authorised the chairman (KSN) to arrange for an amount of Rs. 81 lakhs to settle the dues of TIIC. At the board meeting held on October 12, 1988, the directors resolved to dispose of the entire land and building including machinery in one or more lots and authorised the chairman (KSN) to call for prospective buyers, negotiate and finalise any deal found to be reasonable and suitable. Similarly, the chairman (KSN) was authorised at the board meeting held on December 16, 1988, to negotiate and conclude the sale with one S. X. Francis. The company had ultimately cleared the dues of TIIC in instalments by September 1999, from and out of the sale proceeds of machinery and equipment, financial assistance of Rs. 33.25 lakhs obtained from Canara Bank, etc. Thus, there was acute necessity for sale of the company's property even way back in October 1988.