ANAM PREMKUMAR REDDY Vs. INDIA FRUITS LIMITED

JUDGEMENT

(1.) This is a petition under section 155 of the Companies Act, 1956.

(2.) According to the petition, the first petitioner is the son of the third respondent, and the other petitioners are the wife and children of the first petitioner. They are shareholders in the first respondent-company and the second respondent-company. The fourth respondent is the wife of the third respondent. The fifth respondent is the family trust set up by the third respondent. The first respondent-company had been functioning practically as a family concern, and in 1960 it set up a unit for manufacture of electrical conductors as a division under the name Anam Electrical Manufacturing Company which later became the second respondent-company. Another partnership firm called Godavari Electrical Conductors was set up and it purchased 4,436 out of 5,450 equity shares in the first respondent-company utilising a sum of Rs. 1.55 crores taken from the second respondent. The said loan was being repaid with the dividends earned on the shares with the result that in 1988 the outstanding principal was only Rs. 10.09 lakhs and unpaid interest amounted to over Rs. 1.30 crores. On 21/10/1982, the third respondent executed a trust-deed with an initial fund of Rs. 1,116 reciting as the object, the maintenance of a controlling interest in the company by holding more than 66 per cent. of the equity shares and to provide reasonable income for life for the members of the family. It was declared to be a private non-discretionary and irrevocable trust. The beneficiaries under the trust were a charitable trust known as A.V. Reddy Charitable Trust - 15 per cent., with the other beneficiaries as Smt. A. Saraswathy, the fourth respondent 12 1/2 per cent.; the first petitioner 20 per cent.; the second and third petitioners 5 per cent. each; the fourth, fifth and sixth petitioners 12 1/2 per cent. each; and the seventh petitioner 5 per cent., in respect of whom only the share of the distributed income had to be given during their life time and after their life, the share of each person has to be divided equally among his heirs in the male line and in their absence among his heirs in the female line in respect of sons only while in respect of the wife and daughters of A. Premkumar Reddy their shares after their life will accrue to the corpus of the trust. Some of the petitioners had moved a Company Petition No. 42 of 1990, feeling oppressed by the conduct of the third and fourth respondents who are in management, and a compromise was effected on 19/11/1990, whereupon two of the petitioners amongst petitioners Nos. 4 to 6 were taken into the board of the company and, accordingly, that company petition was withdrawn. Subsequently, a deed of extinguishment of the trust was registered by the third respondent on 25/02/1991, and in the register of members of the company the entry relating to the shares held by the trust was changed to indicate that the shares were held by the third respondent in his individual status and not as a trustee. According to the petition, the change effected in the register of members was invalid as the trust continued to exist without extinguishment and hence the petition originally prayed for declaration that the fifth respondent-trust is a valid and legal owner of the shares or in the alternative to declare that 4,436 shares belong to the partnership firm Godavari Electrical Conductors and its partners. Subsequently, the petition was amended with the permission of the court to pray for rectification of the entries newly made in folios 38 and 39 of the register of members and to declare that the original entries remain intact. The earlier prayers have been given up.

(3.) In the counter-affidavit filed on behalf of the first respondent, the third respondent stated that the application was not maintainable; that the earlier application under section 397 filed on the apprehension that he is likely to transfer the shareholding of the company as the trustee, having been withdrawn, the same matter could not be agitated in a fresh petition; and that the petitioners had no locus standi to maintain the petition because the shares do not stand in their names and could not be transferred in their names. It is also stated that the matter was entirely a family dispute for control of the company which could not be agitated in the form of a rectification petition. The further pleading is that the conflicting issues of fact had to be gone into by recording voluminous evidence and it should be done in an appropriate suit in the civil court and not in summary proceedings under section 155. According to the respondent, a 100 per cent. subsidiary company called Anam Machinery Fabricators Limited with an authorised capital of Rs. 2 crores and paid up capital of Rs. 1.5 crores was established in February, 1978, by which a substantial portion of cash of the first respondent passed to the second respondent which in turn gave a loan to the partnership firm Godavari Electrical Conductors with which it purchased 4,436 shares of India Fruits Limited at the rate of Rs. 3,450 per shares totalling to Rs. 1.53 crores. Thereafter, the firm pledged the shares with the second respondent as security for the loan which carried interest of 18 per cent. Between 1978 and 1983, Rs. 1.20 crores were repaid and adjusted against the capital account. The third respondent states that he executed a trust deed on 21/10/1982, with an initial fund of Rs. 1,116 and purchased 4,436 shares from Godavari Electrical Conductors at Rs. 3,169 per share in respect of which the trust had to pay to the Godavari Electrical Conductors, Rs. 1.40 crores. Since the firm was already indebted to the second respondent, the equivalent liability was taken over by the trust. Subsequently, on 25/02/1991, he executed a registered deed of extinguishment of the family trust for the reason that in the income-tax proceedings the purchase of the shares with the corresponding liability was not accepted and a huge tax liability was levied and the price of the shares went down to Rs. 2,053 per share on yield basis with the result that the capital value of the shares was exceeded by the liability and it became impossible to perform the objects of the trust. Accordingly, the shares were registered in the name of the third respondent as an individual by transmission. The respondent states that the entry in the register was therefore correct and the petition under section 155 does not survive. The fourth and fifth respondents have also filed counter-affidavits in support of this stand. The petitioner filed a reply-affidavit disputing all the statements in the counter-affidavit .The third respondent again filed a rejoinder.