P RADHAKRISHNAN Vs. MADURAI HOSIERIES LTD.

JUDGEMENT

(1.) MADURAI Hosieries Ltd. -the R1 -company was incorporated in 1991 as a public limited company, with an objective to establish an industrial estate for the development of hosiery garment and ancillary industries, with an authorised share capital of Rs.2 crore consisting of 20,00,000 equity shares of Rs 10 each and paid -up capital of Rs.30,75,000. In this company petition filed under sections 186, 235, 237, 397, 398, 402 and 403 read with Schedule XI of the Companies Act, 1956 ('the Act), the petitioners 1 to 16 jointly hold share capital of Rs.4,50,000 (45,000 shares of Rs.10 each) in the company, out of the total issued/paid -up share capital of Rs.30,75,000. The total number of shareholders of the company is 137. The petitioners have made the following allegations :

(2.) THE respondents submitted that the petitioners have not made out a case establishing that the above acts amount to oppression and mismanagement. It is submitted that the acts complained of by the petitioners do not amount to oppression or mismanagement since isolated acts cannot give rise to a cause of action for proceedings under sections 397 and 398 of the Act. It is argued that the acts complained of must be continuous, continuing upto the date of filing of the petition so that the continuation of the wrong or injury can be prevented. In the absence of challenge by the other shareholders it is pointed out that the petitioners were never prevented from exercising any of their rights as shareholders. When the petitioners called for an EGM, the Board immediately called for the EGM on 1st March, 2007. According to the respondents the intention of the petitioners is to wind up the company and seek sale of the assets and distribution of the same among the shareholders. It is, therefore, alleged that the real intention behind the petition is not the interest of the company in continuing its affairs, but to close down the company. According to the respondents, the petitioners are well aware of the affairs of the company since 1993. They were also the members of the Madurai Hosieries Industries Association (R2), though currently disaffiliated due to non -payment of subscriptions. The R1 -company and R2 -society are having their registered office at Madurai Hosiery Industrial Estate which is a closely knit unit. The petitioners' proposal to wind up the first respondent -company was defeated in the EGM convened by them. The sale of the land to the second respondent was ratified in the EGM. All the members of R1 -company were also members of R2 association, with an idea to set up a private industrial estate. Because R2 could get tax benefits, it was decided that the industrial estate should be left to R2. For that purpose R2 purchased 80 acres of land in Madurai and then tied up with SIDCO (Government of Tamilnadu undertaking) as nodal agency, signed agreements with Larsen & Toubro to build and develop the industrial infrastructure. With the consent of the members financial assistance was arranged from TIIC to individual members, on the guarantee of R2 and SIDCO. The second respondent serviced the interest to TIIC on the understanding that the first respondent will repay the amount paid by R2. As on the date of the CP each shareholder owes at least Rs.64,000 to the second respondent. Since the members could not repay the amount, the second respondent was unable to refund the money to SIDCO. The work of the industrial estate not being completed the government sought for return of fund from SIDCO which put pressure on the second respondent to return the money to SIDCO In order to discharge its liabilities the second respondent transferred all the lands owned by it in the Estate to SIDCO in 1997. The left out land measuring an extent of 2.96 acres was sold by R2 to Cora Garments Ltd. for Rs.6,45,280 in 1997 which offered the same for resale to R2 since they have abandoned their project in the industrial estate. In order to avoid SIDCO making a claim against R2 and with the intention to retain the land for the use of the estate, R1 and R2 jointly decided that the land would be registered in the name of R1, for the same consideration.

(3.) SMT . Saraswathi Gopalakrishnan v. Surana Textile Mills Ltd. : [2004] 119 Comp Cas 917 (Mad)