R. KHEMKA Vs. DECCAN ENTERPRISES (P.) LTD

JUDGEMENT

(1.) The petition is laid under sections 397 to 399 of the Indian Companies Act, 1956. It has been orbiting for over a decade. Final curtain was laid by this Court by hearing the matter on day-to-day basis. Voluminous documentary evidence and enormous oral evidence was pressed into service. The following reliefs were claimed in the company petition :

(2.) The averments in support of the petition can be narrated in nut-shell for proper appreciation of the case : The Deccan Enterprises Private Limited (D.E.P.L.) is the 1st respondent Company (for short R- 1) was incorporated on 15-4-1966 under the provisions of the Companies Act with Registered Office at Rastrapathi Road, Secunderabad. The authorised capital of the Company was Rs. 10 lakhs and issue capital was Rs. 5 lakhs divided into 50,000 shares of Rs. 10 each. The petitioner No. 1 Shri R. Khemka (for short P-1) and Petitioner No. 2 possessed 11,320 of shares and thus they held more than 1 / 10th share under the 1st Respondent Company. The 7th Respondent Shri S.G. Jalan (for short R-7) was sought to be inducted to the Board of Directors of the 1st Respondent Company in Jan., 1987 and the validity of such appointment is being questioned. P-1 and the 9th Respondent Shri R.N. Jalan (for short R-9) conceived the idea of setting-up of a personal business for himself and R-9 as a partnership in recognition of their close and cordial relations with a view to provide opportunity to the children of two families namely Khemka and Jalan families. During 1965 the son of P-1 and R-9 were students and they intended to hand over the business after they completed their studies. Therefore, the company was promoted in April, 1966 as a Private Limited Company, but in fact it is a partnership concern inter alia for manufacturing of rubber rings. Since its inception the P-1, R-9 were the Directors. Respondent No. 3 Shri O.P. Jalan (for short R-3) was brought on Board for looking after the affairs of the Company as P-1 and R-9 were already pre-occupied with the employment in the management of the large public limited company namely Hyderabad Asbestos Company Limited (later on re-named as Hyderabad Industries Limited) (for short HIL). It was the understanding that the R-3 will function under the guidelines of P-1 and R-9. All the major decisions like capital expenditure, increase of share capital, financial arrangement etc. were being done with the consultation of these two persons. Thus, it is the case of the petitioners that two groups namely Khemka Group and Jalan Group were to function as partners and reposed implicit faith in each other. It is the case of the petitioners that the proportionate of shareholdings in the company has always in the ratio of 1/ 3 and 2 /3 as between Khemka Group and Jalan Group and it was maintained whenever the share capital was increased. The son of P-1 is the 11th Respondent Shri Mahesh Khemka in the Petition and subsequently he was transposed as Petitioner No. 3 (for short P-3). After completing the Engineering Degree he was appointed as Executive Director of the R-1 company for looking after the affairs of the company. It is the case of the petitioners that the P-1 and R-9 had rendered invaluable technical management and support for the improvement of the company. There was always mutual consulta tion whenever major decisions were being taken. The Company grew leaps and bounds and it bagged Export Awards continuously for Foreign Exchange earnings. The company had built-up large reserves and had been getting huge profits with the cooperative efforts of Khemkas and Jalans (for Short 'K' and 'J' group). However, this prosperous trend continued upto 1982-83. It is the case of the P-1 that he was regularly being furnished with the Agenda Minutes of the Board and A.G.M. of the company and he used to sign the balance sheet. However, this practice continued till J group conceived ways and means to pave the way for exclusion of K group in or around 1983. The scheme could not be understood by the petitioners till March, 1984. The Company had established good commercial links with the foreign buyers and has also been rendering technical know-how to the foreign companies. The Company acquired joint-venture project for the manufacture of similar products in Saudi Arabia by investing 2096 equity interest in Amiant Rubber Industries Limited (for short ARIL) in Saudi Arabia. Thus, the P-1 and R-3 became directors of the Foreign Company ARIL and P-3 was the General Manager of ARIL in 1977. Accordingly, P-3 shifted the residence to Saudi Arabia for supervising construction and commission of the project till 1982. After P-3 returned in 1982 from Saudi Arabia, he was expecting that he would be associated with the management of the R-1 company as Executive Director, when the Company was in a very prosperous and sound state of affairs. However, the P-3 was not inducted on the Board on his return from Saudi Arabia. Thus, the disproportionate management took its seeds in the administration of the company. In March, 1985 in furtherance of the idea of J group to oust K group from the joint venture company informed the K group not to deal with any longer with P-3 on behalf of the R-1 Company. Thus the humiliation and harassment was being caused to P-3. It is the case of the petitioners that from about 1983, R-3 of J group unilaterally stopped sending the monthly reports, statement of affairs, notices, minutes of the meetings or AGM. They did not receive any such notices or the audited annual accounts from 1983 and thus the K group was completely kept in dark and it was being surreptitiously excluded from the management and participating in the affairs of the company for the benefit of the J group. The scheme of exclusion was known by March, 1985 when a resolution was passed on 21-8-1984 interfering with the Directorship of the P-3 on the Board of Joint venture company ARIL. Under the said resolution, nomination of the 3rd petitioner was withdrawn from the Board of joint-venture company, Saudi Arabia and the said company removed the P-3 in the middle of 1985. Thus, the expectation of K group that the 3rd petitioner would suitably accommodated in the R-1 company and also in the joint venture company became futile. Even then, the petitioners were made to sign the balance sheet and statement of accounts for 1982-83 on the assurance of proper management participation held out by R-9. But, however, the J group continued to work against the interest of P-3. Even though the son of R-9 was accommodated in a suitable management capacity in a position in another company, yet the P-3 was kept in lurch. During March, 1985 R-9 also left the employment in the Public Limited Company HIL. Under these circumstances, P-1 addressed a letter dated; 25-3-1985 expressing his anguish over the affairs of the company and filed a suit in Calcutta High Court challenging the resolution dated 21-8-1984 withdrawing P-3 from the Board of Joint-venture company and the same is pending. It is stated that the said resolution is illegal and invalid and no notice of meeting dated 21-8-1984 was issued to K group. Thereafter, R-3 assumed the role of representation of the R-1 company on the Board of Joint Venture company in Saudi Arabia and continued to enjoy the extensive and rich benefits. During the year 1984 also it is the case of the petitioners that no notice of the Board meetings were sent to P-1, no AGM was held, no notices of the AGM which should be held statutorily in 1984 was sent to the petitioners. In effect it is their case that upto Jan., 1985 no notices were received by them. R-3 used unfair means and thereby lacked probity and thereby the affairs of the company were conducted in a manner prejudicial to the interest of K group. By letter dated 25-3-1985, the petitioners complained about the non-receipt of the notices etc. However, by letter dated 30-4-1985, the R-3 falsely alleged that the notices were sent. It is only along with the letter dated 30-4-1985, the annual statement and balance sheet of 1984-85 were sent to him. But, it was not disclosed as to when the balance sheet was placed before the Annual General Meeting and how the notices of the meetings were sent to all the shareholders. None of the K group shareholders received the notices. However, after a lapse of 18 months for the first time, notices for two board meetings scheduled to be held on 27-6-1985 and 8-7-1985 were sent. For 1984-85 Annual General Meeting no notices were received and there has been statutory violation of holding minimum four meetings of the Board for the year 1984-85. On account of the differences between R-3 and R-9, R-2 and R-3 started excluding R-9 of J group from the participation in the affairs of the company and thus R-9 and his wife and children isolated. R-9 also did not receive the notice of any Board in the year 1984-85 or Annual General Meeting. This was brought to the notice of the R-2 and R-3 by R-9 by letters dated 21-10-1985 and 29-10-1985. The petitioner also by letter dated 17-12-1985 hinted R-3 not to attempt to alter the pattern of shareholding. The petitioner also by letters dated 9-2-1986 and 22-10-1986 brought to the notice of R-1 company the violations of the provisions of the Companies Act. The Registrar of Companies (R.O.C.) issued a show-cause notice dated 6-11-1986 to the petitioner and other Directors alleging breach of the provisions of the Act and the petitioner by his letter explained the various developments in the company including wrongful exclusion. He also called upon the R-3 to intimate the action taken. It is also the case of the P-1 that even in the year 1986, he received certain notices for Board meetings, but they either reached on the date of the meeting or beyond the date of the meeting making it impracticable to attend the meetings. The Respondent No. 2 Shri V.K. Chemariya, Company Secretary (for short R-2) has also been conspiring with R-3 to keep the K group out of participation. The petitioner was not furnished with the minutes of the meetings nor the audited copy of the balance sheet and accounts. Though the R-2 and R-3 claimed to have held board meetings dated 8-11-1985 and 11-11-1985 at which the accounts and the balance sheet for the year 1984-85 was supposed to have been considered and that the Annual General Meeting was said to have been held in respect of the same on 18-2-1985, no such meeting took place and no notices were issued. Even though the requisition was made to R-3 for copies of the balance sheet and annual accounts for the year 1984-85 and 1985-86, they were not supplied. The notices for Annual General Meeting for the year 1984- 85 and 1985-86 have not been issued to any members of the K group. One of the resolutions alleged to have been passed on 11-11-1985 relating to grant of Power of Attorney in favour of R-3 with regard to joint venture company was not passed and no notices of the meeting was issued to the petitioners. On account of calculated silence the petitioners seriously apprehended that fraudulent resolutions were brought on record and R-3 appears to have resorted to unauthorised and wrongful allotment of shares contrary to understanding of proportionate representation. The induction of R-7 as Director was illegal and unwarranted. The petitioner recorded his dissent for such induction. Thus, the petitioners stated that there was a systematic oppression of K group, although they were substantial shareholders of the company. Even R-9 and his relations were persistently excluded from the management. R-3 has been mismanaging the affairs of the company and flouted the provisions of the Act. In the balance sheet for 1983-84 it was shown as if the company had incurred a loss of Rs. 13 lakhs and it was not real and accounts were manipulated. The Company has been lending money to other concerns where R-3 had substantial interest. There was a systematic channeling out of funds by way of lending to related concerns. The income-tax arrears made the authorities to initiate compulsory recovery proceedings. Any further control in the hands of R-2 and R-3 would cripple the company and cause severe loss to the petitioners and other shareholders of both K group and R-9 group. There was a deliberate oppression of the petitioners. Therefore, the petitioners sought various reliefs referred to above.

(3.) In this regard, it is necessary to note the names of respective parties and relationship which is as detailed below : <FRM>JUDGEMENT_122_LAWS(APH)7_1997.HTML</FRM>