B K KHANNA Vs. K N KHANNA

JUDGEMENT

(1.) B. K. Khanna & Co. (P) Ltd., (for short, the company) was incorporated on December 3, 1949 with a nominal capital of Rs. 10 lakhs divided into 10,000 equity shares of the value of Rs. 100 each. The subscribed and paid-up capital at all material times has been Rs. 4,99,800. The company was incorporated, inter alia, with the object to acquire and take over as a going concern the business of importers, exporters, agents, distributors, dealers in machinery, contractors, engineers etc. which was then being carried on under the name and style of B. K. Khanna & Co. The company is a family concern. 44 per cent of the issued capital is held by each of the two brothers B. K. Khanna and K. N. Khanna, petitioner and the first. respondent, respectively, while the remaining 12 per cent is held by their mother, Smt. Shama Khanna, the third respondent. The Board consists, besides the three shareholders, of Smt. Kamla Rathour, 2nd respondent, the sister of the two brothers who has, however, no shareholding.

(2.) One of the questions in controversy between the parties is as to whether the continuance of the sister as a Director of the Company during the last over 10 years was valid, the contention of the petitioner being that she was appointed as an ad hoc Director some 14 years back and ceased to be a Director on the expiry of the term for which she was appointed the rival contention of the respondents being that she was appointed a permanent Director and has continued to hold that office in that capacity throughout. The Company owns valuable immove- able property and, infer alia, has controlling interests in Shama Forge Co. Ltd., (for short, Shama Forge, Shama Forge, which was an IFCl aided unit) ran into financial difficulty some time back leading to proceedings against it at the instance of the IFCl under the provisions of the Industrial Finance Corporation Act in course of which a Receiver was appointed of the assets and property of the Company forming subject matter of the mortgage in favour of IFCl. The Company, as well as the individual Directors, had guaranteed the loan which Shama Forge had taken from the IFCl and the claim against the company and the Directors, arising out of the guarantees, forms subjects matter of a civil suit filed by the IFCl. The disputes between the two brothers apparently have their genesis in the financial difficulty facing the Shama Forge and the consequential liability of the company and its Directors which appears to have been accentuated by the facts that, either on account of the old-age, infirmity or mental incapacity, the mother, who held the balance as also the moderating influence on the brothers, may perhaps have become ineffective or is otherwise not able to exercise the necessary cementing force between the two brothers. There is considerable controversy between the parties as to whether the mother has been of unsound mind for some time now and has become incapable by reason of mental infirmity of protecting her interests and of conducting the affairs of the company as its Chairman. as indeed to be an instrument to resolve the unfortunate differences that have arisen between the brothers in the midst of the crisis that appears to have overtaken them. It is a common case of the parties that for quite some time the company has not been carrying on its business and the only worthwhile activity of the company has been the realisation of rent of immoveable property owned by it and in meeting the essential expenditure besides dividing part of the residue between the two brothers. During the years that the sister has been on the Board she has also been drawing salary while there is arrears of salary in respect of some period. Considerable controversy centres round the validity of her appointment as a permanent Director and as to her right to receive arrears of salary and as to her liability to refund the amount already received. By all accounts, the major problem that the company, as indeed the brothers, are called upon to face is the one that arises out of the proceedings initiated by the IFCl against the Shama Forge, the company and the Directors of the Company. H. P. Singh son of the sister is the fifth respondent in the petition. He is neither a member nor a Director of the company but has been made a party because of an allegation that part of the premises of the company was being misused by him for his personal business with the connivance of the other brother and the sister.

(3.) B. K. Khanna, the petitioner has invoked the provisions of Sections 397/398 for a number of directions so as to obtain a declaration that the sister ceased to be a Director since 1963, to restrain her from acting as a Director and from inter-meddling with the affairs of the company, to obtain refunds from her of the monies received by her by way of salary, to restrain the fifth respondent from carrying on business in the company's premises to restrain the first, second and the fifth respondents from using or permitting the use of any part of the company's premises for purposes other than those of the business of the company, to determine the state of the mind of the mother, to appoint an Administrator or an additional Director as Chairman of the company, to restrain any transfer of shares held by his mother, to direct the first respondent to cooperate in facilitating the sale of the company's interests in Shama Forge and in settlement of outstanding tax matters of the company. The petition is grounded on the allegations that since the middle of 1975 the mother has not been able to function as a Chairman or be able to protect her interest being of unsound mind leading to a complete deadlock in view of the fact that the brothers arc Unable to agree with each other on various matters of vital importance to the company, including its management and control ; that the second respondent, the sister, who had been coopted as additional Director in 1962 and, therefore, ceased to be a Director in 1963, has nevertheless been inter-meddling with the affairs of the company and acting in collusion with the first respondent, the other brother, who have collectively been responsible for having brought the company to the present deplorable position; the company is, therefore, liable to be wound up on the ground that it was just and equitable to do so and as the affairs of the company were being carried on prejudicial to the. public interest, to that of the company and also to the petitioner. These allegations are sought to be supported by certain specific instances of acts of commission and omission on the part of some of the respondents which are set out in paras 17 to 38 of the petition.