JAGDISH CHANDRA MANSUKHANI Vs. MAN INDUSTRIES (INDIA) LTD.

JUDGEMENT

(1.) THE present petition is filed by invoking various provisions of the Companies Act, 1956 ('the Act') alleging certain acts of oppression and mismanagement in the affairs of the company and sought various reliefs, viz., to appoint an administrator or special officer to take possession and charge of the assets and properties of R1 -company and to manage the business and to remove the 3rd respondent as director of the company and appoint such number of persons as independent directors and appoint chartered accountants as special auditors for carrying out special audit of the company, etc., and other reliefs as prayed in para 7.11 of the petition. Shri U K Choudhary, learned senior counsel for the petitioners while initiating his arguments pointed out the acts of oppression and also siphoning of moneys of the company. He submitted that the company is a listed company and the principles of quasi -partnership applies and the 3rd respondent is the real brother of the 1st petitioner and the company is a glorified partnership of Mansukhani family and the respondents have not denied the fact that it is a family company. He narrated the brief facts which led to filing of the present petition. The disputes primarily pertain to Mansukhani family. The respondent No. 1 -company was formed and incorporated on or about 19th May, 1988 and ventured into the business of Aluminium Extrusion plant and did not turn back thereafter. Starting with an LSAW Line Pipe Mill in 1995, with strategic investments and continuous growth, Man Industries (India) Ltd. has emerged as a prominent player in the leagues of world class manufacturers of Line Pipes and Coating Systems in a very short span. Petitioner No. 1 is the managing director and vice -chairman of the R1. The R2 is director of the R1 and the family patriarch. Due to petitioner No. 1's unrelenting endeavours, the net profit for the MAN group for the year ended on 31st March, 2010 was Rs. 6,709 lakh. The petitioner No. 1 has a long and extensive experience of 28 years in the field of project implementation, Pipe manufacturing, quality assurance and marketing. Starting with one product line for LSAW Line Pipe in 1995, due to his foresight and vision, the respondent No. 1 continued to expand by commissioning an HSAW Line Pipe in 1999 and the coating plants in the year 2001. Just four years after commissioning of the coating plant, petitioner No. 1 was instrumental in launching a mega project of Pipe and Coating Complex at Anjar, Gujarat with an investment of over Rs. 180 crore which has brought the MAN group to the top league of global players in line pipe industry. It is further submitted that since 2009 differences cropped up between the 1st petitioner and respondent No. 3 and the R3 adopted an attitude which was oppressive to the 1st petitioner. Since, 2009 the 1st petitioner was not permitted to have access to relevant information or documents with regard to the R1 to enable him to have a say in the management and affairs thereof or to enable him to take decisions in respect of matters laid before the directors for their consideration. The R1 had a SAW Pipe Plant at Pithampur, Indore with a manufacturing capacity of 2,50,000 MT. The R1 also had an office admeasuring 25,542 sq. ft. at Indore. It was the desire of the R3 that a Plate/ Coil Plant be set up in Karnataka or Maharashtra and the said Pithampur Plant and the Indore office, be sold. A meeting of the Board of directors of the R1 was purportedly held on 31st October, 2009, wherein it was decided that the said Pithampur Plant and Indore Office, be sold. It was also decided that 5 per cent of the investment of the R1 in its subsidiary, namely, Man Infraprojects Ltd. be also disinvested. The petitioner No. 1, vide his e -mail dated 4th November, 2009 recorded that neither the decision to set up Plate/ Coil Plant in Karnataka or Maharashtra was decided previously nor was the decision to relocate the Indore Plant also previously discussed. A meeting of the Board of directors of the R1 was held on 18th December, 2009 and the draft minutes of the same were circulated to the directors of the R1. The 1st petitioner by his e -mail dated 27th December, 2009 addressed to the other directors stated that as it was decided to sell the Indore Office, the 1st petitioner had entered into an agreement with a third party and submitted the same to the Board. However, R3 objected to the same and the Board decided to defer the decision to sell the Indore office. The 1st petitioner in his capacity as the vice -chairman and managing director of the R1, on 26th February, 2010 convened a review meeting on 2nd March, 2010. However, R3 vide his e -mail dated 27th February, 2010 objected to the same and stated that review meeting be fixed with his consultation.

(2.) IT is further submitted that a meeting of the Board of directors was held on 18th May, 2010 when R3 submitted a confidential report to the directors of R1 and stated that the role of the 1st petitioner in the management of R1 was required to be curtailed and that a new managing director was required to be appointed. The confidential report was false and baseless and the 1st petitioner sought time to reply to the same and stated that in the meantime he would be available in the office but would not be involved in any independent decision related to marketing, procurement and production and all decisions would be taken with consent of R3. The 1st petitioner also addressed an e -mail dated 31st May, 2010 to R3 stating that at the meeting of the Board of directors, the 1st petitioner had raised concerns about the composition of the Board of directors and the independence of the directors. The 1st petitioner had stated that Mr. Kirit Damania, a director of the company was not independent as he provided consultancy to the subsidiary of the R1, namely MAN Infraprojects Ltd. and Mr. Vijay Kalantri, a director of the company was not independent as he was closely related to R3 (Mr. Kalantri's son is married to the daughter of the R3). The 1st petitioner stated that the refusal of the R3 to correct the draft minutes was made with an ulterior motive of not bringing true facts on record and called upon the R3 to address the issue in the meeting of the Board of directors and record the same in the minutes. The 1st petitioner called for a meeting of the Board of directors of the R1 and requested that an independent director (appointed by Exim Bank) act as chairman and that an independent observer be appointed at the meetings of the Board of directors. The 1st petitioner also stated that he would continue to act as vice -chairman and managing director of R1. R3 vide his e -mail dated 5th June, 2010 addressed to the 1st petitioner, replied to various letters and contended that the directors on the Board of R1 were independent as per the requirements of clause 49 of the listing agreement. R3 alleged that the COC was drafted jointly by the 1st petitioner and R3 along with the auditors. R3 also alleged that he as chairman was the final authority for recording minutes of the Board of directors. R3 also denied that there was any need for outside observers. The 1st petitioner by his e -mail dated 11th June, 2010 addressed to the R3 refuted all the points mentioned in e -mail dated 5th June, 2010 and repeated that the directors on the Board of R1 were not independent. The 1st petitioner suggested that the COC should be drafted by an independent audit firm, The 1st petitioner insisted that observers be appointed on the Board. Finally, the 1st petitioner suggested a name of a mediator to show that he was ready and willing to solve the differences that had cropped up between the 1st petitioner and R3. R3 addressed a note dated 11th June, 2010 to the members of the Board of directors of R1 wherein he alleged that there was a serious question about the discharge of responsibilities by 1st petitioner. He alleged that 1st petitioner had not been attending meetings nor delegating his work to resolve critical issues. He also alleged that the 1st petitioner was tapping telephone extension lines of 13 employees. He also alleged that the 1st petitioner was taking foreign tours without giving tour reports, etc., and that the 1st petitioner was not attending marketing/business development meetings scheduled as per the approved COC for discussions on the existing and future projects. He also alleged that the 1st petitioner had floated a competing company named MAN Futures Ltd. and was using the premises of R1 so as to create an impression that MAN Futures Ltd. as part of the group. The 1st petitioner denied the allegations in the confidential report dated 18th May, 2010 and pointed out in detail as to how certain decisions taken by R3 had resulted in loss of around Rs. 300 crore in foreign exchange. The 1st petitioner denied that he was not attending meetings, etc.

(3.) THE learned senior counsel on the factual issues vehemently contended on the points, that the R1 -company is a glorified partnership and is a family managed company as admitted by the respondents vide letter dated 29th September, 2010. The acts of oppression committed by the respondents are that the respondents have taken out the powers as managing director and restored back and thereafter taken out the power once again, is an act of oppression. He contended that the R1 -company is a listed company and its capital is more than Rs. 5 crore, hence, the company requires managing director as per section 269 of the Act. Further, the respondents mismanaged and siphoned off the amounts of the company as detailed out at para 7.5 of the petition and para 49 to 53 of the rejoinder. However, the respondents merely denied the same in their sur -rejoinder. He further contended that there are directorial complaints in the petition, more particularly by the first petitioner and the directorial complaints are not infructuous in family companies. When a material change is brought about in the management to the detriment of the interest of the main promoter it is squarely covered under section 398(1)(b) of the Act as held in :