P R RAMAKRISHNAN Vs. A MOUNAGURUSWAMI

JUDGEMENT

(1.) THE petitioners seek quashing of the proceedings in C. C. No. 251 of 1979 on the file of the Judicial First Class Magistrate, Coimbatore. THE case arises out of a private complaint filed by the respondent herein against the petitioners and a public limited company, to wit, Radhakrishna Mills Ltd., which has been arrayed as the fifth accused in the base. THE complaint has been taken on file under ss. 108A, 187C(2) and 308(3) of the Companies Act, 1956. THE averments of the respondent in the complaint filed by him are to the following effect.

(2.) THE complainant is a shareholder in Radhakrishna Mills Ltd., the fifth accused, and holds 240 equity shares. THE board of directors of the mill is composed mainly of two families, one, that of Sri R. Venkataswami Naidu and his sons and the other, that of the first accused and his three, sons, viz., accused Nos. 2 to 4. THEre are only two outsiders in the board, viz., one R. Palaniswami Naidu and one A. Narayanaswami Naidu. THE first accused is, therefore, virtually controlled by the two families mentioned above. However, there appears to be some disputes between the two families and each family is attempting to gain control of the company. THE complainant is not interested in the dispute between the two families, but as a shareholder he is interested in the proper management of the affairs of the company. THE complainant found that a large number of shares in the fifth accused company had been purchased in the names of persons who do not actually hold them and that the purchasers were holding the shares benami for the benefit of accused Nos. 1 to 4. THE complainant has given a list of the benami shares in the schedule attached to the complaint. THE complainant gained intelligence about the purchase of benami shares by accused Nos. 1 to 4 after making an inspection of the relevant records of the company. On making the inspection, the complainant was shocked to notice that over 32, 000 shares had been purchased by accused Nos. 1 to 4 within the months of July to September, 1978. He found many of the transferees to be either clerks or automobile drivers or other employees serving under the effective control of accused Nos. 1 to 4. THE other benami transferees are obliged to the accused. THE holders of the shares do not have the pecuniary capacity to acquire the shares. Moreover, they would never have invested moneys in the purchase of shares in the company as they are hopelessly unproductive and there is no chance of these shares bearing dividends in the near future. As a matter of fact, the shares have been selling at a low price (below par) for quite a number of years. Accused Nos. 1 to 4, of whom the first accused is the head, and the concerns over which they exercise control, already hold 48, 842 shares, viz., 19. 36 per cent. of the total number of equity shares. THE break-up figures of the shareholders are as under :shares

(3.) IF the 32, 000 odd additional shares acquired benami by accused Nos. 1 to 4 are added to the shares already held by their group, the total holdings of the group headed by the first accused will exceed 25 per cent. of the paid-up capital of the company. However, accused Nos. 1 to 4 have not obtained the permission of the Company Law Board under s. 108B for such acquisition. In order to bypass the mandate contained in s. 108A, accused Nos. 1 to 4 have acquired the shares benami in the names of third parties. There is, therefore, a contravention of s. 108A of the Companies Act, 1956. Moreover, there is also contravention of the provisions of s. 108C and s. 302 of the Companies Act, 1956, because a person having a beneficiary interest in a class or classes of shares of a company should declare the same to the company within thirty days of such acquisition. Contrary to the provisions of law, there has been no such declaration by accused Nos. 1 to 4 to the company. That apart, under s. 308 of the Companies Act, 1956, the directors of a company have to give notice to the company of their shareholdings in order to enable the company to comply with the provisions of s. 307. Accused Nos. 1 to 4 have not given the required notice to the company as enjoined by law. The complainant sent a letter to the company (fifth accused) to retransfer the shares to the original holders and to give him an assurance that the benami shareholders would not be allowed to vote in the general body meeting held on July 30, 1978. Since no reply was received, the complainant sent a further letter to the chairman of the meeting requesting him not to take into consideration the votes of the benami shareholders, but in spite of the request, the shareholders holding shares benami for accused Nos. 2 to 4 exercised their votes against the reappointment of the auditors and they had thus contravened s. 108 of the Companies Act, 1956. The complainant sent such a letter to the chairman against the benami shareholders, because he was of the view that they may have signed the forms without the requisite mens rea to violate the provisions of the Act. Furthermore, the benami shareholders are helpless persons as they are under the effective control of accused Nos. 1 to 4 and cannot, therefore, raise any protest. Accused Nos. 1 to 4 have been collecting proxies from shareholders even long before the annual general meeting held on July 30, 1978, in order to get a majority of the votes for themselves : As a shareholder, the complainant is interested in the fair management of the affairs of the company and it is for that purpose, he is forced to file a complaint against the accused. The complainant has furnished a list of witnesses who are to depose in the case to prove the averments in the complaint : On such averments, the complainant has prayed for the case being taken on file and an enquiry held and for the accused being punished for the offences committed by them.As already stated, though contravention of several sections is complained of, the complaint has been taken on file only under ss. 108A, 187C(2) and 308 of the Companies Act, 1956.