V M RAO Vs. RAJESWARI RAMAKRISHNAN

JUDGEMENT

(1.) These two appeals have been filed against the common judgment in C. S. No. 322 of 1975 and Company Petition No. 94 of 1976. The plaintiffs in the suit and the petitioner in the company petition are the appellants. The first appellant, V. M. Rao, is the elder son of late V. Ramakrishna, I.C.S. Appellants Nos. 2 and 3 are the wife and daughter, respectively, of the first appellant. The first respondent, Rejeswari Ramakrishnan, is the elder sister and V. L. Dutt, the fifth respondent, is the younger brother of the first appellant. The third respondent, P. R. Ramakrishnan, is the husband of Rajeswari Ramakrishnan and respondents Nos. 2 and 4 are two of their sons. The sixth respondent is V. Ramakrishna Sons Ltd. which is a company registered under the Companies Act, 1956, hereinafter referred to as "the company." The company was incorporated under the Companies Act and a certificate of incorporation was granted on July 7, 1949. The nominal capital of the company is Rs. 10, 00, 000 divided into 1, 000 shares of Rs. 1, 000 each. The company was promoted by the late V. Ramakrishna, I.C.S., and Rajeswari Ramakrishnan as a private limited company, the shareholding being distributed as follows : V. M. Rao ... 199 V. L. Dutt ... 199 Rajeswari Ramakrishnan ... 95 R. Prabhu ... 4 V. Ramakrishna, I.C.S. ... 1 P. R. Ramakrishnan ... 1 V. R. Durgamba ... 1 (V. R. Durgamba got this share from her husband, V. Ramakrishna, in the year 1951) The entire share capital of the company was contributed, according to the plaintiffs, by the late V. Ramakrishna and his wife, V. R. Durgamba. The late Ramakrishna also promoted another company by name R. S. Industrial Corporation P. Ltd. V. Ramakrishna Sons Ltd. were the managing agents of K.C.P. Ltd. and R. S. Industrial Corporation Ltd. were the managing agents of Jeypore Sugar Co. Ltd. With the abolition of the managing agency system, the said companies became merely holding companies chiefly deriving their income from investments in other companies. The company became a public company by reason of section 43A(1B) of the Companies Act with effect from February 1, 1975.The shareholding increased sometime in 1953 or 1954 and thereafter V. M. Rao held 398 shares, V.L. Dutt 398 shares, Rajeswari Ramakrishnan 190 shares, R. Prabhu 8 shares, P. R. Ramakrishnan 2 shares and Durgamba 4 shares totalling 1, 000 shares. This was the position in 1961. There were some transfer of shares among the shareholders in between 1961 and the filing of the suit. On the date of plaint, the plaintiffs together held 473 shares, that is 47.3% of shares and Rajeswari Ramakrishnan 66 shares, her husband 2 shares and her two sons 66 shares each and V. L. Dutt 323 shares and thus respondents Nos. 1 to 5 were together holding 52.3% of the shares and the balance of 4 shares or 0.4% of the shares was held by V. R. Durgamba in V. Ramakrishna Sons Ltd. At the time of incorporation of the company, Rajeswari Ramakrishnan was appointed as a lifetime director of the company. The case of the first plaintiff in the suit was that he and his sister, Rajeswari Ramakrishnan, have not been on friendly terms for a considerable period and that the temperamental differences between them escalated further when he got married to a foreign lady, the second plaintiff in the suit, in the year 1961. When this matter was brought to the notice of the father late V. Ramakrishna, he brought about an oral family arrangement. The oral family arrangement thus brought about by the father at Madras, according to the first plaintiff was that the two sons would be in exclusive management of one company and the daughter the other company and accordingly the exclusive management of V. Ramakrishna Sons Ltd., vested with V. M. Rao and V. L. Dutt along with their mother, V. R. Durgamba, and that of R. S. Industrial Corporation Ltd., with Rajeswari Ramakrishnan. The arrangement also enjoined that in the event of the shareholding of V. Ramakrishna Sons Ltd. or that of V. M. Rao and V. L. Dutt in Jeypore Sugar Co. Ltd., or Krishna Industrial Corporation were to be disposed of, a right of pre-emption be given to Rajeswari Ramakrishnan and a corresponding right of pre-emption in favour of V. M. Rao and V. L. Dutt in case Rajeswari Ramakrishnan or R. S. Industrial Corporation wanted to dispose of their shares in K.C.P. Ltd., Andhra Cement Co. Ltd. and V. Ramakrishna Sons Ltd.According to the plaintiffs, the family arrangement so brought about by the father was agreed to by Rajeswari Ramakrishnan, V. M. Rao and V. L. Dutt, the children of the late V. Ramakrishna. In accordance with this family arrangement, V. M. Rao, who was on the board of directors of Jeypore Sugar Co. Ltd. and R. S. Industrial Corporation (P.) Ltd. resigned on October 29, 1961, and February 1, 1962, from the above companies and also gave up all positions and responsibilities in respect of those companies. He had also transferred to Rajeswari Ramakrishnan and to her branch and/or nominees the shares which he was holding in Jeypore Sugar Co. Ltd. The company also had sold the bulk of its holding in Jeypore Sugar Co. Ltd. to Rajeswari Ramakrishnan and/or her branch or nominess. Likewise, Rajeswari Ramakrishnan also resigned her life-directorship on the board of V. Ramakrishna Sons Ltd. on October 19, 1961, which was accepted on January 9, 1962. It is further stated that the late V. Ramakrishna had informed of the family arrangement to his wife, Durgamba (R.W.-1) his brothers-in-law, A. V. Subramanayam, and A. Visweswara Rao (P.W.-15) and the late A.V. Raghava Rao and friends like S.V.R. Appa Rao, M. Sitharama Rao (P.W.-8), A.V.M. Caesar, son of late A. V. Raghava Rao, and M. K. Bhandarkar (P.W.-13) also know of the above arrangement. Punniah (P.W.-6) a former manager of Jeypore Sugar Co. Ltd., knows of this arrangement, having been informed thereof by the first defendant. The plaint further stated that the family arrangement was accepted, implemented and acted upon by volition of the parties. All the parties to the family arrangement, having acted on the faith thereof, and having materially altered their respective positions, none of the parties is entitled now to seek to resile therefrom. However, contrary to the said family arrangement, Rajeswari Ramakrishnan and her son the second defendant were elected as directors at the annual general meeting of V. Ramakrishna Sons Ltd. held on April 22, 1975. The election of these two directors and their continued functioning, as such directors, are illegal and opposed to the accepted family arrangement. The board of directors of the company in the meeting held on December 3, 1975, had also passed certain resolutions. According to the first plaintiff, these resolutions of the board are calculated to exclude him from the rights of management and participation, that these acts are opposed to and contrary to the family arrangement and have led to a disruption of the special relationship, which is the substratum of the company. The plaintiffs alleged that the substratum of v. Ramakrishna Sons Ltd. is comprised in the special relationship of the parties and the specific understanding between the parties, in particular V. M. Rao, Rajeswari Ramakrishnan and V. L. Dutt and their respective branches, that Rajeswari Ramakrishnan and her branch will have only the role of sleeping partners in the company, the right of management being vested solely with the first plaintiff, fifth defendant and their mother and their branches, and violation thereof amounts to breach of the basic obligations and manifest lack of probity and the loss of mutual confidence. Such acts of violation of the arrangement constitute fraud on the rights of the plaintiffs. The plaint further states that the first plaintiff has been trying to avoid conflict since March, 1975, and has been trying to arrive at a reasonable and mutually acceptable compromise through very respectable mediators, but the negotiations did not produce any fruitful response.With these allegations, the plaintiffs filed C.S. No. 322 of 1975 on December 17, 1975, praying for a decree declaring :

(2.) That for quite sometime, the petitioners, have been collecting materials, consulting lawyers in drafting the petition. The petitioners are aware that the opposite parties had also become aware of the proposed move of the petitioners and were keeping watch over the situation. Petitioner No. 2. Dr. Subba Rao, has received a telephonic message during these two previous days from petitioner No. 1 that the opposite parties have become aware that the petitioners have gone to Cuttack with their advocates. Petitioner No. 2 has further received information that opposite parties, more particularly opposite parties Nos. 2 and 3, are taking steps to remove/destroy vital papers, records and documents which disclose fraud, misappropriation and other criminal activities, etc. The petitioners also genuinely apprehend that unless some immediate action is taken to ensure preservation of the papers and records of the company and prevent the respondents from syphoning off the funds of the company, the petitioners and the company would suffer irreparable loss. The petitioners apprehend that unless some interim orders are passed, funds of the company may be misappropriated.

(3.) A petition which is launched not with the genuine object of obtaining the relief claimed, but with the object of exerting pressure in order to achieve a collateral purpose is, in my judgment, an abuse of the process of the court.