Property Matter N citation
Rekha.....
(Querist) 01 April 2010
This query is : Resolved
The Agreement between the parties was executed 15years before. The said agreement neither notarized nor registered. But it is Valid in the eyes of LAW. This ruling was passed by BOMBAY HIGH COURT some time in 2008 or 2007. Please it is my requests to all respected members provide us with full text judgment.
INGLE G.[ADVOCATE]9421657505
(Expert) 01 April 2010
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Prabhu Dayal Chitlangia And Anr. vs Trinity Combine Associates Pvt. ... on 7 April, 1999
Cites 8 docs - [View All]
The Companies Act, 1956
Section 397 in The Companies Act, 1956
Section 398 in The Companies Act, 1956
Shiv Dayal Agarwal And Ors. vs Sidhartha Polyster Pvt. Ltd. And ... on 9 August, 1995
Section 402 in The Companies Act, 1956
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S. Ajit Singh vs Dss Enterprises (P.) Ltd. on 31 August, 2001
Abraham Mathew And P.M. Eipe vs The Sungkai Plantations Private ... on 21 November, 2005
Shri Rajesh Patil vs Moonshine Films Pvt. Ltd. And Ors. on 9 June, 2006
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Company Law Board
Equivalent citations: 2000 99 CompCas 21 CLB
Bench: S Balasubramanian, A Doshi
Prabhu Dayal Chitlangia And Anr. vs Trinity Combine Associates Pvt. Ltd. And Ors. on 7/4/1999
ORDER
S. Balasubramanian, Chairman
1. The two petitioners hereinabove, collectively holding 1,900 fully paid equity shares of Rs. 100 each in the issued and subscribed capital of Rs. 10,90,000 constituting about 17.5 per cent, of the subscribed and paid up capital in Trinity Combine Associates Private Limited (for short "the company") have filed this petition under Section 397/398 of the Companies Act, 1956 (for short "the Act"), alleging acts of oppression and mismanagement in the affairs of the company.
2. When the petition was taken up for hearing, in view of the fact that the petitioners and respondents belong to a single family (petitioner No. 2 being the father and petitioner No. 1 and respondents Nos. 2 and 3 being the sons), the Bench suggested that the parties should try to resolve the disputes amicably. In a number of hearings held, attempts were made by the Bench to settle the disputes amicably but unfortunately it could not materialise. Since one of the main contentions was about the composition of the board of directors, on January 28, 1998, this Bench passed an order that the company should convene an extraordinary general meeting for election of directors and in the meanwhile the respondents should also take steps to vacate two shops belonging to the petitioners and pay to them the arrears of rent. This order was taken on appeal to the High Court of Rajasthan.
3. In the hearing on November 10, 1998, when the arguments of counsel on the petition were in progress, it was mentioned by counsel for the petitioners that his clients were prepared to withdraw the petition if the two shops belonging to the petitioners were handed over to them. Since counsel for the respondents desired to consult his clients on this proposal, the matter was adjourned. In the next hearing on November 27, 1998, while the respondents agreed to the suggestion for vacating the shops, they also stipulated, that the civil suit filed by the petitioners in regard to the sale of certain property of the company should be withdrawn by the petitioners. This was not acceptable to the petitioners and as such the efforts to resolve the disputes failed. Thereafter, the arguments of counsel from both the sides on the petition were heard and they were also given the liberty to file their written submissions.
4. Shri Mehta, advocate for the petitioners initiating the arguments submitted that this company is a family company, the father (the second petitioner) and his sons, petitioner No. 1 and respondents Nos. 2 and 3 were directors of the company and the business of the company was smoothly carried on till 1995. However, the differences between the petitioners and respondents arose, in the affairs of the company, due to alleged convening and holding of a board meeting on June 26, 1995, in which certain far reaching decisions were allegedly taken as is seen from the minutes of the meeting. Even though the petitioner-directors received notice for the meeting, no agenda was enclosed with the notice and it was also noticed that the said notices had also been sent to some rank outsiders as "special invitees". When the petitioners reached the venue of the meeting, they were asked to sign the attendance register wherein something had been written in English. The petitioners protested against the same as it was the usual practice of the company to maintain all records in vernacular langauage. Thereafter, respondent No. 2 declared the meeting closed and left with the minutes book and the attendance register. Later, the petitioners came to know that fabricated minutes were prepared as if the meeting was held and certain decisions were taken in that meeting. Learned counsel submitted that, when there was no meeting, any alleged decisions taken in that alleged meeting have no validity especially when such decisions are completely against the interests of the company. Some of the far-reaching decisions alleged to have been taken in that meeting are :
(1) Appointment of five additional directors.
(2) Release of four shops belonging to respondents Nos. 2 and 3 from lease with the company.
(3) Sale of a shop belonging to the company to Smt. Nisha Kothari.
(4) Purchase of a house belonging to Smt. Nisha Kothari.
5. According to learned counsel, all along the board meetings used to be chaired only by the father, i.e., petitioner No. 2 and the minutes do not even mention that both the petitioners came to attend the meeting. When the company was being managed only by the family members right from incorporation, the appointment of five additional directors was made only with a view to gain majority control of the board by the respondents. He, therefore, submitted, that these appointments being for a collateral purpose and not for the benefit of the company should be declared as null and void.
6. In regard to the decision relating to releasing the four shops belonging to the respondents, he pointed out that the company had taken six partly constructed shops on lease--two each belonging to petitioner No. 1, respondent No. 2 and respondent No. 3. As per the lease agreement, the company was to develop these shops with the right to sub-lease. The lease agreements were valid for a period of three years, with effect from July 21, 1992, and were registered with the Sub-Registrar, Jaipur. The lease period in respect of all the shops was to expire on July 20, 1995. However, while the respondents released four shops belonging to them from the lease much before the expiry of the lease period, as indicated in the minutes of the board meeting held on June 26, 1995, they have not released the shops belonging to petitioner No. 1 till date. Even as per the lease agreement, before releasing the shop, the lessor has to pay to the company the cost of construction plus interest thereon for the period of the lease. Without recovering these dues, since they themselves were the lessors, the respondents released the shops without taking into consideration the interest of the company. Since, the respondents have acted against the interests of the company for their own personal benefit, counsel submitted that they should be made liable for misfeasance and misuse of their fiduciary position. He also submitted that by not releasing the shops belonging to petitioner No. 1, the respondents have acted in a discriminatory manner and such a discriminatory act on the part of the respondents against a family shareholder is a gross act of oppression and deserves to be taken note of for appropriate remedy, i.e., the respondents should be directed to release the shops forthwith along with payment of all arrears of lease rental.
7. With regard to the sale of a shop belonging to the company to Smt. Kothari, he submitted that the company owned a shop at Chandpole Bazar, Jaipur, the market value of which is over Rs. 25 lakhs and that the respondents have sold the same at a throwaway price of Rs. 7.2 lakhs to one Mrs. Nisha Kothari. Learned counsel further submitted that with a view to implement this prejudicial decision without the knowledge of the petitioners, various steps were taken by the respondents to register the sale. He submitted that while the board was alleged to have taken this decision at 8.30 p.m. on June 26, 1995, stamp papers were purchased on the same day, a new account was opened in the name of the company on June 27, 1995, and the documents were presented to the Registrar at 3 p.m. on June 27, 1995. Thus, the entire episode was completed within less than 20 hours. He further submitted that the sale proceeds were deposited in the new account on June 28, 1995, and the same was withdrawn on the same date. Thus, according to counsel, the prejudicial action by the respondents has resulted in a loss of about Rs. 20 lakhs. Even the reserve price of that area for this property was Rs. 12.5 lakhs. Thus, the company has been put to a substantial loss of Rs. 20 lakhs by the respondents. He further submitted that the stand of the respondents that there was an "agreement to sell" dated December 28, 1993, allegedly entered into by petitioner No. 2 with Smt. Nisha Kothari is a forged one as no such agreement was ever entered into. Further, this alleged agreement was neither notarized nor registered and as such has no validity in law. Further, counsel submitted that the space left for the date of the board resolution at page No. 4 of the alleged agreement is kept blank indicating therein that no board resolution for sale of this property was ever passed. He also pointed out that the agreement talks of advance payment of Rs. 25,000 which does not find any entry in the books of account of the company. He also pointed out that as per this agreement Shri Ramesh G. Chitlangia has been authorised to actually sell and execute the sale documents on behalf of the company and the agreement also mentions that the other director Shri Ramesh Chitlangia had also consented to the same and has also reported to have signed the documents as witness, which is inconceivable, as according to learned counsel the same person, namely, Ramesh Chitlangia could not have been mentioned more than once in different capacities, clearly establishing that the document is a forged one. The only purpose behind this scheme, learned counsel stressed, was that the respondents not only wanted to bestow certain benefits to Kothari but also desired to put the company into a heavy loss.
8. In regard to the purchase of a house, as decided in the alleged meeting, counsel submitted that, the company entered into an agreement to pur chase a property for an exorbitant price of Rs. 20 lakhs from the same Mrs. Nisha Kothari. A sum of Rs. 7.02 lakhs was paid as an advance with a covenant that the balance of Rs. 12.98 lakhs would be paid within seven days thereafter, failing which the amount of advance would be forfeited. Learned counsel further submitted that not only the price of Rs. 20 lakhs was exorbitant but even the commitment to pay the balance amount could not have been honoured by the company as it had no resources at that time. In view of this, due to forfeiture of the advance, respondent No. 2 had put the company into a loss of Rs. 7 lakhs. He further submitted that the sale and purchase of this property were in fact an exchange of a prime property with a dilapidated property resulting in a loss of approximately Rs. 25 lakhs. Further, he submitted that minutes of the board meeting do not indicate any thing about the price at which the shop is to be sold or the house is to be purchased other than authorising respondent No. 2 to negotiate other formalities. According to learned counsel, such a blanket authority is against commercial prudence, not authorised by the provisions of the Companies Act. Further, he also pointed out that as against the area of 2,400 sq.ft. as reported to the board, the building purchased measures only 1,125 sq.ft.
9. He also submitted that in the same board meeting, a decision is alleged to have been taken to open a second bank account on the ground that the business Was going to be expanded. This opening of an account, counsel submitted was only to ensure to eliminate the petitioners from signing of cheques as both the petitioners and respondents Nos. 2 and 3 were jointly and severally authorised to operate that account. Having opened the second account, now the entire bank operations including depositing of Rs. 7 lakhs received as sale proceeds of the shop are being carried through the second bank account only and from this bank account all the monies are used for the personal benefits of the respondents.
10. Further, according to counsel, respondents Nos. 2 and 3 are guilty of various acts prejudicial to the interest of the shareholders and the company, like non-maintenance of statutory records, non holding of regular board meetings, non-finalisation of accounts of the company and getting them audited, and non-holding of annual general meetings. He also submitted that, respondents Nos. 2 and 3, after having gained control of the company have not bothered to carry on the business and as such the business of the company has come to a standstill from June, 1995, onwards. Further, the company has not been able to discharge its liabilities as is evi dent from the fact that for over four years, the company has not paid the monthly lease rental for the shops given on lease by petitioner No. 1.
11. Summing up his arguments, Shri Mehta submitted that the grounds on which the petition has been filed fully establish that the affairs of the company are being conducted in a manner prejudicial to the interest of the shareholders and the company and these acts clearly show that the company should be wound up on just and equitable grounds. He also cited a few cases to indicate, that the prayers sought for deserve to be granted and the extent of the powers of the Company Law Board. Even though various reliefs have been sought by the petitioners in the petition, in the written brief, learned counsel has sought for the following reliefs : Respondents Nos. 2 and 5 should be removed as directors ; they should be directed to render accounts of the company from 1995 onwards ; they should be directed to pay all the dues as per the lease agreement for their shops leased to the company ; the company should be directed to pay all the arrears of rent for the shops given on lease by petitioner No. 2 along with the vacant possession of the shops ; the respondents be directed to give full details of the suit filed against the lessee of the shops belonging to petitioner No. 2, action be taken against the respondents for giving false affidavits.
12. Shri U. P. Mathur, advocate for the respondents initiating his argu ments stated that this petition has been filed for collateral purposes to put pressure on the respondents for the purpose of settlement of various family properties and other businesses. He also pointed out that one of the main requirements of Section 397/398 petition is that the petitioner should aver that there are just and equitable grounds for winding up of the company and that such winding up is prejudicial to the interest of the petitioners. However, no such averment has been made in the petition and as such the petition is not maintainable as decided by the Company Law Board in Subhash Chand Agarwal v. Associated Limestone Ltd. [1998] 92 Comp Cas 525 (CLB); [1998] 16 SCL 212. He also referred to the efforts for amicable settlement wherein the main demand of the petitioners was that the two shops belonging to the first petitioner leased to the company should be released which itself, according to him, shows, that the petition is for a collateral purpose. He also submitted that the respondents have already filed a civil suit for getting possession of these two shops from the lessees and as soon as the possession is obtained, the same will be handed over to the petitioners.
13. As far as the business transacted in the board meeting held on June 26, 1995, he submitted that the meeting was properly convened with due notice to the petitioner directors. No doubt, no agenda was enclosed with the notice but the same is not required as per the provisions of Section 285 of the Act. He further submitted that the notice for the meeting was sent by certificate of posting on July 15, 1995. Even though neither of the petitioner director attended the meeting. The minutes of the meeting were confirmed in the board meeting held on February 26, 1996, which was chaired by petitioner No. 2 and as such he cannot claim ignorance of the decisions taken in the board meeting held on June 26, 1995. Another board meeting held on March 14, 1996, was also chaired by petitioner No, 2 and minutes of both these meetings were signed by him. Therefore, it is wrong to say that the petitioners were not aware of the various decisions taken in the board meetings held on June 26, 1995.
14. As far as the sale of the shop to Mrs. Kothari is concerned, the same was in pursuance of a sale agreement dated December 28, 1993, entered into with her by petitioner No. 2 in his capacity as a director of the company. Since petitioner No. 2 was delaying the sale and since there was threat from Mrs. Kothari that she would initiate legal proceedings, the board decided to complete the sale in its meeting on June 26, 1995. Further, the shop was in her possession right from 1993 onwards in terms of the agreement and an advance of Rs. 20,000 had also been paid by her at that time. He also pointed out that the petitioners have already filed a civil suit in respect of this sale and as such the same cannot be agitated in the present proceedings.
15. In regard to the purchase of a property from her, Shri Mathur submitted that since the company had decided to expand its business activities including buying and selling of properties, this property was purchased for investment purposes.
16. As far as allegation relating to non-release of the shops belonging to the petitioners is concerned, learned counsel pointed out that the lease period of these two shops was to expire on July 20, 1995, and as such respondent No. 2 had asked petitioner No. 2 whether he was willing to continue the lease, by a letter dated July 14, 1995. Since, there was no reply to this letter the shops were not released. Since respondents Nos. 2 and 3 did not wish to extend the lease, their shops were released. Anyway, Shri Mathur submitted that the company has already initiated civil proceedings to get these two shops vacated by the tenants.
17. In regard to the allegation relating to appointment of five additional directors, Shri Mathur stated that these appointments were on account of the board's decision to expand its activities and the petitioners were fully aware of their appointment as is evident from the fact that in the board meetings held on February 26, 1996, and March 14, 1996, when all these directors were present, petitioner No. 1 chaired these board meetings. However, Shri Mathur pointed out that since they were appointed as additional directors, they ceased to be directors on the day when the next annual general meeting was to be held which was not actually held. Therefore, he submitted that this allegation no longer survives.
18. We have considered the pleadings and arguments of counsel. The admitted position is that the company is a family company with both the petitioners and respondents Nos. 2 and 3 as directors and it is also not disputed that petitioner No. 2 is the managing director of the company. The family nature of the company cannot be ignored in the facts and circumstances of the case. We have already noted the efforts taken by us for settling the disputes amicably but unfortunately the same could not materialise.
19. The main allegations in the petition boil down to three issues ; they are--sale of a shop to Mrs. Kothari, purchase of a building and discriminatory treatment given to the petitioners in relation to vacation of shops. All these allegations arise out of the decisions taken in the board meeting allegedly held on June 26, 1995, a meeting in which the petitioner directors did not participate. While the petitioners admit that they received the notice for the meeting and went to the venue for attending the meeting which did not take place, according to the respondents, the petitioners did not attend the meeting which actually took place. We are of the firm view that so many major decisions should not have been taken in a family company like the respondent-company without the presence of all the family directors. We have no doubt that taking such major decisions without the participation of all the family directors, more so the managing director, who incidentally is the father and head of the family, is an act of grave oppression against the petitioner shareholders. Further, these decisions have been taken even without the same being included in the agenda which should have been sent along with the notice of the meeting. Calling five outsiders to the meeting and appointing five additional directors, all seem to have been done with a view to upset the family control of the management of the company. In a family company like this, utmost good faith and fair play is absolutely essential and any action against these principles having effect on the interests of the family members or the company have to be deemed to be acts of oppression/mismanagement. This being the case, all acts in pursuance of such decisions have to be declared as null and void. However, regarding these decisions, which according to the petitioners are against the interests of the company, there is no prayer regarding the sale of the company shop sold to Mrs. Kothari, perhaps because the petitioners have already initiated civil proceeding in this matter.
20. In regard to the non-vacation of the shops belonging to petitioner No. 2, we are in full agreement with counsel for the petitioners, that the non-vacation of the shop is a clear act of discrimination and a grave act of oppression against a family shareholder. A perusal of the minutes of the meeting of the board on June 26, 1995, indicates that the two shops belonging to petitioner No. 2 given on rent up to May 15, 1995, was to be extended by one more month and that the tenant was to positively vacate the same by June 15, 1995. If it were the decision of the board, then the respondents have not been able to justify as to why they could not have obtained vacant possession of the shops thereafter and hand the same over to the petitioners. They have also not indicated as to what they did till they made a statement before the High Court that they had initiated civil proceedings in this regard. Thus, we find full justification in what counsel for the petitioners has alleged in this regard. However, even though learned counsel for the petitioners relied on the judgment of the Allahabad High Court in Prakash Timbers P. Ltd. v. Smt. Sushama Shingla [1996] 1 Comp LJ 133, wherein the court held that the power of the Company Law Board to transfer properties is implicit in the exercise of the powers under Section 397/398 read with Section 402 of the Act, to state that we should order vacant possession of the shops, we do not propose to do so for two reasons. One is that the tenant is not before us and the other is that the High Court of Allahabad, in its order dated November 12, 1998, recorded the statement of the respondents that the civil proceedings have already been initiated against the tenant. Therefore, as far as this issue is concerned, we only order that the respondents should immediately furnish all details regarding the civil proceedings to the petitioners and should also ensure that the said proceedings are actively pursued.
21. According to the petitioners, at the time of vacating the shops belonging to the respondents, the respondents should have paid certain amount towards construction, etc., to the company. We will be giving appropriate directions in this regard later. As far as the purchase of the property from Mrs. Kothari is concerned, the petitioners have not sought for any directions as per the written submission and as such we are not giving any decision on the same especially when she is not a party to these proceedings.
22. Now, regarding the management of the company. It was stated by Shri Mathur that the additional directors appointed in the board meeting on June 26, 1995, have ceased to be directors. It would mean that there are only four directors on the board, i.e., the petitioner and respondents Nos. 2 and 3. No general body meeting of the company has been held from 1995, onwards. We learn that besides the parties before, us, there are other family shareholders. Therefore, as directed by us in our order dated January 28, 1998, it is imperative that a general body meeting is held to elect four directors so that the board consists of those having the confidence of the shareholders. Accordingly, we direct petitioner No. 2, being the managing director of the company to convene a general body meeting of the company, within six weeks from the date of this order for election of directors. All shareholders will be at liberty to propose names for the directorship. This meeting will be chaired by the official liquidator, Jaipur, to whom notice of the general body meeting will be sent by the managing director. The company will pay him an honorarium of Rs. 3,000. In the meanwhile, the existing board will not take any decision unless and until one of the petitioner directors is present in the board meeting.
23. As soon as the new board is constituted, the respondents will furnish full accounts of the company from 1995, onwards, and the board will get them audited. Till the new board is constituted, the bank accounts of the company will stand frozen and will become operational with the authority of the board. The board will take necessary action to recover all the dues payable by the respondents as per the lease agreement and will also ensure that all the arrears of rent for the shops belonging to the petitioners are paid without delay.
24. With the above, directions, we dispose of this petition. No order as to costs.
Raj Kumar Makkad
(Expert) 01 April 2010
I think your quarry has very well been resolved.
a.manoharan
(Expert) 02 April 2010
may i know the facts of agreement? because, agreement period is more than 1 year is compulsorily Registrable document?
