K S NARAYANAN Vs. S GOPINATHAN

JUDGEMENT

(1.) CR. M. P. 4496 of 1978 - This is a petition filed under S. 482 Crl. P. C. by the accused in C. C. 23771 of 1978 on the file of the II Additional Metropolitan Magistrate, Egmore, Madras to call for the records in that case and quash the proceedings.

(2.) ACCORDING to the private complaint filed by the complainant, who is the respondent in this petition, he is a shareholder in the India Cements Ltd. and accused 1 to 5, who are petitioner 1 to 5 herein, are the directors of the said public limited company which is having its registered office at Dhun Buildings, No. 175/1 Mount Road, Madras 2. The sixth accused, who is the sixth petitioner herein, is the brother of the first accused and he is the General Manager of the factory of the said company at Sankaranagar, Talaiyuthu, Tirunelveli. The seventh accused, who is the seventh petitioner herein, is the Secretary of the said company. According to the complaint, accused 1 to 7 have entered into a conspiracy at Madras to defraud the funds of the India Cements Ltd. and misappropriate the same through various methods in order to enrich themselves at the expense of the shareholders. The misappropriation was between 1-4-1976 and 31-3-1977 and the amount was Rs. 25,00,000/ -. A-1 is the managing director and he is in charge of the day to day administration and supervision of the entire company. Subject to the approval of the Board of directors. A. 6 as General Manager is in charge of the administration of the factory at Sankaranagar, working under and taking orders from A. 1. The said Company was incorporated on 21-2-1976 with the object of setting up a cement factory. The company obtained mining lease in 1956 of more than 1000 acres of land in the reserve forest area. As the quality of lime stone from the reserve forest area was not good, the plant had to be stopped soon after the mines were commissioned.

(3.) AGRICULTURAL Farms Ltd. , according to the complaint, was having lands of choice limestone bearing areas. The main director of this concern was one of the promoters of the India Cements Ltd. , namely, late Mr. S. N. N. Sankaralinga Iyer. He and his son, A-1, were directors for a number of years. India Cements, Ltd. had to buy quality limestones from Agricultural Farms Ltd. , owned by A-1 and his father. In 1951, a contract was entered into by which Agricultural Farms Ltd. , K. S. Narayanan and Ors. vs. S. Gopinathan (22. 12. 1981 -MADHC) Page 3 of 12 supplied 62 to 65 per cent of India Cements' requirements of limestones up to 30-3-1958. In 1958, a fresh contract was entered into for another 15 years. As India Cements Ltd. , has not secured any lands bearing quality limestones, they depend solely on Agricultural Farms Ltd. A number of complaints were sent to the Company Law Board, New Delhi, against the malpractices in purchase of limestones by paying higher rates to Agricultural Farms Ltd. to the detriment of India Cements Ltd. Agricultural Farms Ltd. purchased limestones from suppliers and sold to India Cements Ltd. , at an increased rate of Rs. 4 to Rs. 5 per tonne. They also secured a good sum by way of transport charges from the pitsmouth to the crusher of the India Cements Ltd. 's. factory. The lorries engaged by the Company belonged to Abcoy and Company or Contractors who are only benami of 46. Abcoy and Company is a partnership firm; the partners are the wife of A. 6 and her father. The entire gains from the transport go to A. 6 via Abcoy and Company. Agricultural Farms Ltd. has not declared any dividends from its inception. They had all their profits made only through one client namely India Cements Ltd. They were able to pay the tax under the Voluntary Disclosure Scheme for a total income of Rs. 50 lakhs, which was because of the settlement arrived at between the Agricultural Farms Ltd. , which had to pay nearly Rs. 1. 5 crores as tax liabilities, and the Income-tax authorities. Rs. 1. 5 crores represent the income derived by Agricultural Farms Ltd. , at the expense of India Cements Ltd. Accused 1 and 6 are responsible for this loan of Rs. 1. 5 crores incurred to India Cements Ltd. , on the purchase of limestones alone. This figure is mentioned by the Income-tax department, but the loot must be more than that and the statements of accused 1 and 6 before the officers of the Company Law Board would prove this. The Department of Company Law Affairs, Government of India in its letter dated 20-11-1976 asked India Cements Ltd. to discontinue forthwith the transport arrangements entered into with Agricultural Farms Ltd. but A-1 managed to get a letter dated 2-7-1977 from the Company Law Board wherein they had withdrawn their earlier order dated 2011-1976, and they approved the continuation of the arrangement for transport by Agricultural Farms Ltd. Accused 1 and 6 paid exhorbitant rates for the purchase of limestone from Agricultural Farms Ltd. They are purchasing gypsum from Ramanathan Farms Ltd. which belonged to another brother of A. 1. They paid hire charges heavily for the compressors, earth moving equipment bulldozers and transport vehicles of Abcoy and Co. which is also a benami concern of A. 1 and A. 6. The Company Law Board examined accused 1 to 6 in November 1975 on receipt of complaints. Thereafter they had to divulge the truth to accused 2 to 5 who entered into a conspiracy with accused 1 and 6 to share the looting of India Cements Ltd. The proceedings before the Company Law Board were not placed before the Board of Directors and on 2-8-1976 accused 1 and 6 were summoned by the Joint Secretary of the Board. A-1 wrote a letter to each of the Directors about the nature of the discussions with the Joint Secretary, Mr. N. Srinivasan, the Joint Managing Director of the India Cements Ltd. wrote a letter on 4-8-1976 to A. 1 regretting the conduct of A. 1 in not placing the copies of the statements made by A. 1 and A. 6 to the officers of the Company Law Board. The Company Law Board on 2-8-1976 sent letters to all the Directors asking whether the periodical renewal of the contract with Agricultural Farms Ltd. and Sri Ramanathan Farms Pvt. Ltd. for supply of limestones and gypsum were considered by the Board and whether the terms offered were fair and reasonable. Accused 2 to 5 sent replies stating that everything was placed before the Board and there was no attempt directly or indirectly to allow the close relations of A. 6 to derive benefits. They supported A. 1 and A. 6 because they have entered into a conspiracy as early as in November 1975 with A. 1 and A. 6, when they were taken into confidence by A. 1 and A. 6, and shown the sworn statements given by A. 1 and A. 6 before the officers of the Company Law Board. The misappropriation of funds of India Cements Ltd. is going on for a number of years. The period of conspiracy as far as this complaint is concerned is between 1-4-1976 and 31-3-1977. Agricultural Farms Ltd. buys limestones from its sub-suppliers and sells it to India Cements Ltd. at a profit of Rs. 5 per ton. They supply 2000 tons per day, thereby making a profit of Rs. 10,000 per day. This will account for nearly Rs. 36 lakhs per annum and leaving a margin for Sales Tax etc. the net profit is not less than Rs. 25 lakhs for the period between 1-4-1976 and 31-3-1977. This amount belongs to India Cements Ltd. and it has been misappropriated by the accused in view of the fact that Agricultural Farms Ltd. is a creation of accused 1 and 6. Hence accused 1 to 7 are liable for offence under S. 120b read with S. 409 I. P. C. and S. 409 I. P. C. It is on these terms, the private complaint was filed by the complainant to issue summons to the accused and prosecute them for offences of criminal conspiracy and misappropriation. Crl. M. P. 4498 of 1978 - This is a petition filed by accused 1 to 7, the petitioners in Crl. M. P. 4496 of 1978, and accused 8 and 9 in CC No. 23772 of 1978 on the file of the Second Additional Metropolitan Magistrate Madras to call for the records in that case and quash the proceedings.