SUBRAMANI Vs. SUPERSTAR POLYMERS (P.) LTD.

JUDGEMENT

(1.) THIS is a petition filed under sections 397, 398, 402 and 408 of the Companies Act, 1956 ('the Act'). As per the last available annual return, the petitioners jointly hold 7,500 equity shares in the first respondent -company. First petitioner S Subramani died during the pendency of the petition and represented by his wife (second petitioner) and two daughters (3rd and 9th petitioners) and two sons (S Kartik and S Kumar). 4th petitioner is the power agent of petitioners 5 to 8. Even though petitioners 1 to 3 and 9 have been provided with share certificates, petitioners 4 to 8 have not been issued with share certificates following which criminal prosecution has been launched. Respondents 2 to 8 along with other family members are holding majority of the shares and the Board of directors are acting in accordance with their directions. Respondents 9 and 10 are impleaded as parties since they have been shown as directors as per Form 32 filed with the Registrar of Companies ('RoC) on 18th April, 2005. In the year 1995 -96, petitioners 1 to 4 were induced by R2 and R3 to participate in the proposed business by agreeing to participate by contributing the capital. However, respondents 2 and 3 incorporated R1 company on 25th January, 1996 by naming themselves alone as subscribers to the memorandum of association and also nominated themselves as permanent directors. Believing the respondents, the first petitioner transferred his land to start the proposed business, without receiving any consideration. The first petitioner transferred a total extent of 1 acre and 74 cents to the R1 -company represented by the second respondent as managing director, as per sale deed dated 13th March, 1995. Even though the sale deed described that a consideration of Rs. 1,50,000 has been paid to the first petitioner, no such amount has been actually paid by the company. Petitioners 1 and 4 also contributed money to the extent of Rs. 8,50,000 by the first petitioner group and Rs. 7,80,000 by the fourth petitioner group. As against this contribution, 5,000 equity shares alone are issued to the group belonging to petitioners 1 to 3 and 9 and 2,500 shares to the group of petitioners 4 to 8. Further, the respective share certificates have not been issued to them. Annexures to the financial statements for the year ended 31st March, 1999 disclose names of several persons being associates, friends and relatives of R2 and other respondents as shareholders. This could have been possible only by siphoning off the funds of the company. The fourth petitioner, has given an amount of Rs. 2,50,000 by way of hand -loan and the same is yet to be repaid by the company. The petitioners also arranged finances of Rs. 12,00,000 from their family friend P V Gangadharan who had initiated civil proceedings for the recovery of that amount. Besides, an amount of Rs. 114 lakh was sanctioned from the bank by creating equitable mortgage of petitioners' residential property as well as the factory property. Despite the contributions by the petitioners, they were sidelined by the respondents. The petitioners were supervising the construction of the factory building and securing quality machineries from various reputed manufacturers and toiling day and night in the factory for the sake of the company. Despite all this, the mismanagement by respondents 2 to 8 resulted in the default in the repayment of the loan availed from the bank. The respondents failed to finalise the annual accounts of the company and submit the same for audit and circulate the annual accounts to the shareholders, failed to convene and hold annual general meeting ('AGMs') for the past several years, failed to file the mandatory forms and returns, failed to account for the financial transactions over the past several years, failed to pay statutory dues like sales tax, etc., failed to account for the amounts contributed towards share capital and failed to allot shares to the petitioners and share certificates to petitioners 4 to 8 and deliberately attempted to hand -over the control of the company to third parties like R9 and R10 without the authority of the Board and consent of the shareholders, deliberately manipulated the records to show that P1 and P4 had resigned from the Board and failed to settle the creditors. However, all the accounts and records were under the control of R2 and R3 and they were operating the bank accounts. The petitioners trusted the second and third respondents in good faith. In 1997, the company approached State -run financial institution for term loan in relation to factory construction and machinery purchase but without success. Even though the amount of Rs. 62,98,000 was raised by way of share capital advance, the issued, subscribed and paid -up capital has been shown only as Rs. 2,000 and authorised capital of Rs. 5,00,000. This anomaly was corrected only in the year 1999. No annual audited financial statements and annual returns are seen filed after 1999. Since the company was not making profits, respondents 2 and 3 refrained from calling, convening and holding AGMs. Even though petitioners 1 and 4 were directors, respondents 2 to 4 - in connivance with R5 to R8 were managing the affairs of the company. Hence, the petition seeking the following reliefs :

(2.) THE issues that arise for consideration are whether the acts complained of by the petitioners amount to acts of oppression and mismanagement on the part of respondents 2 to 4 and whether the MoU entered into with 9th and 10th respondents is liable to be set aside and whether the appointment of respondents 9 and 10 as directors on 11th April, 2005 is valid.

(3.) THE respondents deny the averment that first petitioner's group had contributed Rs. 8,50,000 and fourth petitioner's group had contributed Rs. 7,80,000, but they would admit that first petitioner's group contributed Rs. 6,25,000 and second petitioner's group contributed Rs. 2,50,000 against which shares were allotted. The details of 8,750 shares allotted to the petitioner are available at page 5 of the counter affidavit. The first respondent has undertaken in the counter to issue duplicate share certificate if and when the application is received from any member of the company. So it is open to the petitioners to apply to the company on the basis of the details in the counter affidavit. The averment regarding the contribution of the balance amount is liable to be rejected for want of evidence.