CLIVE MILLS CO LTD Vs. STATE

JUDGEMENT

(1.) THIS is an application under sections 397, 398 and 186 of the Companies Act, 1956 (hereinafter referred to as the Act ). Both the petitioner and the Clive Mills Co. Ltd. (hereinafter referred to as the Company) are public Companies incorporated under the Indian Companies Act, 1913. The petitioner is a holding Company, its main object being to acquire and hold shares, stocks, debentures, bonds etc. in other Companies. The dispute, out of which this application has arisen, is a dispute between the step mother and the step sons. The petition is supported by Sm. Tribeni, Debi, the respondent No. 7. Sambhu prosad Bajoria, Dwarka Prosad Bajoria and Radhebehari Bajoria, the respondent Nos. 2, 3 and 6 are the step sons of Sm. Tribeni Debi. The application is opposed by the Company which is the respondent No. 1, though no affidavit has been filed on its behalf. Sourendra Mohon Basu, the respondent no. 5, is also opposing this application, though no affidavit in opposition has been filed by him.

(2.) THE petitioner was the Managing Agent of the company from 1949 up to October 19, 1959. It claims to be the holder of 1,63,9581/2 equity shares in the capital of the company which are registered in its name in the company's books. It is alleged, however, that actually the petitioner is the owner of l,38,5931/2 equity shares. The present Directors of the Company are the said Sambhu Prosad Bajoria, Dwarka Prosad Bajoria, Sourendra Mohan Basu and one Babulal Shroff, the respondent no. 4. It is alleged that each of the said respondents and Radhebehari, the respondent No. 6 hold only 100 shares of Rs. 10/-, each. It is further alleged that out of the said 1,63,9581/2 shares registered in the name of the petitioner, Sm. Tribeni Debi holds 71,721 shares with transfer deeds duly executed in her favour by the petitioner. Out of the shares which are registered in the petitioner's name, 73,225 shares were pledged with the Punjab National Bank Ltd. to secure the petitioner's overdraft account with that Bank. This block of pledged shares was taken away by Sambhu Prosad, after payment of the claims of the said Bank. Out of this lot, 64,525 shares were registered in the names of Radhebehari and Dwarka Prosad on August 22, 1963. I shall refer to the matter of release of the shares by the said Bank later in this judgment. Sambhu Prosad's conduct in taking the pledged shares from the Bank and thereafter having a portion of them, registered in the names of Radhebehari and Dwarka Prosad, has been severely criticised by the petitioner in this application. These matters also constitute one of the major charges made by the petitioner in this application.

(3.) IN order to appreciate the merits of this application, it is necessary to examine the charges as laid in the petition. The principal charge is that the respondents other than Sm. Tribeni Debi and the company are controlling the affairs of the company as Directors, although they are holders of a negligible minority of shares. Radhebehari, though not a Director, purports to act as such, and takes part in the day to day management of the company's affairs. The petitioner and Sm. Tribeni Debi who control the overwhelming majority of equity shares, carrying voting rights, have been kept out of the management and control of the company's affairs, by various unlawful means. The petitioner and Sm. Tribeni Debi who have the right to elect the Directors and are in a position to do so, by reason of their voting strength, have been prevented from exercising their lawful rights. A negligible minority of share holders are in control of the Company's affairs, and being in such control they have committed various wrongful and unlawful acts including misappropriation of the company's assets. I set out below the other major charges, as framed in the petition: (1) The respondents Nos. 2, 3, 4 and 6 are guilty of wrongful, fraudulent and illegal acts which are detrimental to the interest of the company. They are mismanaging the company's affairs and their conduct is oppressive to the shareholders. (2) The said respondents have by improper and fraudulent means misused and misapplied large sums of money belonging to the company and are guilty of contravention of the provisions of the Companies Act, 1956. The company has suffered huge loss since the petitioner ceased to be the managing agent. The chart which is Annexure A to the petition will show the loss suffered by the company. (3) The Company has not been utilising the loom hours allotted to it and has been selling the same surreptitiously. Secret profits have been made by such sale. Large sums obtained by selling the loom hours have not been credited in the company's account. (4) Honest and proper management would have resulted in huge profits. But the company is shown to be running at an enormous loss. (5) For the year ending with 31. 3. 61, trading loss has been shown at Rs. 8,75,000/- and for the year ending 31. 3. 62 rading loss has been shown at Rs. 16,80,000/ -. Other jute mills of similar nature had shown profits during the said years. (6) The loss and reduction in profit for the past few years has been due to the wrongful and illegal acts of the Directors. (7) The expenditure incurred is exorbitant and irregular and the Directors do not exercise any control over such exorbitant expenditure. (8) The said respondents have sold and are selling various machinery, waste products and other valuable articles belonging to the company without keeping any accounts and have misappropriated the sale proceeds. (9) Two working softeners have been sold and have been replaced with two discarded softners. The said sale fetched a very high price and the sale proceeds have been misappropriated. (10) Jute procured is of inferior quality, the middle quality used is nothing but the bottom quality and the bottom quality is no better than cross bottom. (11) There has been abnormal rise in stores consumption and also in salary and wages, though production has been going down in the past few years. (12) By the aforesaid wrongful acts the respondents have made wrongful gains for themselves and the amount of such gain is Rs. 40,00,000/ -. (13) The illegal activities of this said respondents have become notorious in the business community and in consequence thereof the value of the shares of the Company has come down from Rs. 15/- at the time of the death of the petitioner's Managing Director Ramnath Bajoria in 1959 to Rs. 9,75 np. per share. (14) In September 1959 Sambhu Prosad withdraw from the Company's accounts with Allahabad Bank Ltd. a sum of Rs. 8,10,000/ -. On September 3o, 1959 he paid Rs. 5,00,000/- to Punjab National Bank Ltd. and wrongfully obtained 73,225 equity shares belonging to the company. Out of this lot 8700 shares were deposited by Sambhu Prosad in the petitioner's account with the Central Bank of India Ltd. and the balance of the shares is still wrongfully withheld by him. Being threatened with legal action Sambhu Prosad paid Rs. 3,05,000/- to the company in part payment of the said sum of Rs. 8,10,000/ -. The balance has not yet been paid by him. (15) Large number of equity and preference shares of the company have been lodged for registration, but such registration has not been done. (16) By letter dated April 1, 1963 Tribeni Debi requested the Directors of the petitioner to co-opt three of her nominees in the Board of the petitioner. An extraordinary general meeting of the petitioner was called for that purpose. On May 7, 1963, one Biswanath Dalmia instituted a suit in this Court being suit no. 827 of 1963 and in that suit he applied for and obtained an injunction restraining the petitioner, its Directors and Tribeni Debi from holding the said extraordinary general meeting or from passing any resolution for appointment of the nominees of Tribeni Debi as Directors. At the final hearing of the application for injunction no order was made. The suit itself was withdrawn on June 20, 1963. (17) Sambhu Prosad filed a suit for partition in this Court in April 1963, being suit no. 783 of 1963. In that suit a claim has been made for declaration of the title to the shares of the company, partition of the joint properties and other reliefs. (18) The affairs of the company are being badly mismanaged. Particulars of such mismanagement will appear from the chart which is Annexure 'a' to the petition. This chart will show the result of mismanagement and the state of affairs of other companies. (19) The company and its Directors are not maintaining proper contract register in violation of sections 260, 356, 358 and 369 of the Companies Act, 1956. It is alleged that the particulars mentioned in the contract register are inadequate and not in compliance with the provisions of the Act. (20) The respondents Sambhu Pro-sad, Dwarka Prosad, Babulal Shroff and Radhebehari are charged with misappropriation and misapplication of the funds of the company by fraudulent and illegal means. These respondents are making personal gains at the expense of the company. For this reason the company is suffering loss running into lakhs of rupes. The alleged method of misappropriation and misapplication have been set out under paragraph 40 of the petition. (21) The Directors have suppressed material information about the affairs of the company from the shareholders. The respondent nos. 2, 3, 4 and 6 have failed to supply information asked for on frivolous pretexts. (22) A material change has taken place in the management of the company consequent upon the relinquishment of the office of managing agent by the petitioner in 1959. (23) The respondents Nos. 2, 3, 4 and 6 have been intimidating the employees of the company to suppress evidence against the said respondents. The said respondents are also wrongfully dismissing old and efficient employees of the company. R. S. Sharma was summarily dismissed on June 24, 1963. (24) The company is maintaining a huge cash credit account up to a limit of Rs. 40,00,000/- with Allahabad Bank Ltd. It is not necessary to maintain such an overdraft account and this account is maintained for the benefit of respondent nos. 2, 3, 4 and 6. (25) The shareholding of the company is in the most unsatisfactory state for general meeting. Large blocks of shares have been immobilised. Tribeni Debi and her children have been restrained by an injunction from exercising voting rights. 46,356 shares belonging to the petitioner stand registered in the name of the Central Bank of India Ltd. The company's share register does not correctly represent the share position as many applications for transfer remain undisposed of. The petitioner and other shareholders have called upon the company not to hold the general meeting on July 29, 1963 for which a notice had been issued. But the respondents threatened to hold the meeting and obtain a snap vote to enable them to act in furtherance of their wrongful schemes. (26) The views of the shareholders about the proposed general meeting are important and to ascertain such views an investigation should be made into the affairs of the company. The company and the respondents nos. 1 to 6 should be restrained by an injunction from holding the general meeting. (27) Relationship between the Bajorias and Tribeni has become bitter by reason of their disputes and differences. The respondents have been interfering with the affairs of the petitioner so that no. steps may be taken by the petitioner against the company. (28) The petitioner wanted to requisition for a meeting of the company far appointment of more Directors. But by reason of the existing feeling between the parties it has become impracticable to call or to hold or conduct such a general meeting. Any attempt to call or hold such a meeting would result in a crop of litigations and will jeopardise the position of the petitioner company. (29) It is claimed that the respondents nos. 2, 3, 4 and 6 should be directed to refund to the company the sum of Rs. 40,00,000/ -.