K. VENKATACHALAM Vs. PREMIER ROLLER FLOOR MILLS LTD.

JUDGEMENT

(1.) THIS is a petition filed under sections 397 and 398 read with sections 402, 234, 235, 237 and 111A, 111(4) of the Companies Act, 1956 ('the Act') and pertaining to the affairs of Premier Roller Mills, a public limited company incorporated in the year 1960. The company, according to the petitioners, was taken over by the first petitioner and other petitioners in the year 1979. The petitioners claim that there were 44 shareholders including the petitioners as per the annual return for the year ended 31st March, 2004. It is alleged that the share certificates evidencing the shareholding of the petitioners were entrusted to a mediator (RS) as a security for the loan availed from a money lender who are impleaded as respondents 2 to 6. From the year 2006 onwards, the respondents are filing returns with the Registrar of Companies ('RoC'), deleting the names of the petitioners from the list of shareholders. The main allegation is that R2 to 6 had illegally and forcefully seized the share certificates and took possession of the company's properties and later on increased the paid -up capital and started filing wrong returns with the RoC from the year 2006 onwards. R7 is A R R S Mega Mall (P.) Ltd. who had purchased the company's property in the year 2008 for a consideration of Rs. 12 crore, illegally according to the petitioners. The ninth respondent is the son of the so -called mediator (R8). R9 has been appointed as auditor of the company by respondents 2 to 6. 10th respondent is Indian Overseas Bank, Salem, which according to the petitioners could explain the financial position of the various accounts and also explain whether any norms prescribed by the Reserve Bank of India has been violated by the respondents. Respondent 11 is Madras Stock Exchange, which according to the petitioner, could explain how the shares of Premier Roller Flour Mills -a listed company -have been purchased by respondents 2 to 6. SEBI is included as respondent 12 to clarify whether the takeover of the company by respondents 2 to 6 was informed to them and whether any approval was obtained. The company, according to the petitioners, began to face financial crisis in the year 1999 following which Rs. 1.50 crore was borrowed from Salem Urban Co -operative Bank Ltd. When the company failed to service the loan the bank initiated legal process and proceeded to auction the property of the company (2 acres). At that juncture due to the mediation of R7, second respondent bailed out the company by giving a cheque dated 30th October, 2004 from his firm Raja Binding Works for Rs. 1,99,94,597 in favour of the bank. As a security for the loan, documents of the company's properties and share certificates of Venkatachalam & Sons (petitioners) were given to the custody of R2. Incorporating the terms, a special agreement was entered into between borrowers and lenders as per which R7 should keep the documents under his custody till 30th October, 2007 by which time the borrowers should repay the amount to the second respondent and take back the documents. After a period of two years and ten months, when Venkatachalam & Sons approached R2 and R7 with the loan amount and requested to return the documents, they were told that the company absolutely belongs to the second respondent and his group. Form 32 filed by them with the RoC on 1st November, 2007 was given as proof of their contention. As per the agreement the respondents were bound to wait till 31th October, 2007. But the respondents have filed Form 32 on 1st November, 2004 itself indicating the appointment of R2 to R6 as directors and resignation of petitioners as directors with effect from 1st November, 2004. Allegedly five persons have acquired the entire shares of the listed company without complying with the takeover norms. Nor SEBI was informed in the matter. Approval of the Central Government was also not obtained for family directors/relatives of directors being allotted shares en bloc. Thus, the respondents are conducting the affairs of the company in an oppressive manner which is prejudicial to the interest of the members, the petitioners say. The increase of the authorised capital of the company to Rs. 10 lakh and the allotment of three lakh shares to R2 to R6, the change of face value of shares as Rs. 1,000, changing the number of shareholders as five, etc., are other oppressive acts alleged by the petitioners. R2 to R6 filed annual return for the year 2006 as if the petitioners have ceased to be shareholders/directors. Everything was done in collusion with R9 (auditor) who was appointed without obtaining the consent of the earlier auditor. The eighth respondent also committed breach of trust and colluded with R2 to R6 by handing over the documents of the company to the second respondent on the next day of availing the loan.

(2.) IN the counter filed by respondents 1 to 6, the competence of the petitioners to file this petition is challenged. They say that the company is not a listed company as per the records. It is the specific case of the respondents that petitioners transferred their entire shareholding in the company by execution of valid instruments of transfer and delivery of share certificates to the respondents in October 2004 and the transfer came to be effected at the Board meeting held on 1st November, 2004 which was attended by the petitioners who were also the directors of the company. Respondents say that the petitioners who were the original shareholders of the company sold the company to the respondents herein when they were unable to meet the debts of the company and at a time when the company's properties were brought for sale through public auction. The annual return of the company for the year ended 31st March, 2005 discloses the transfers, respondents say, followed by the annual returns for the years 2006 and 2007. The petitioners filed a civil suit OS No. 312/2007 before the Munsif Court, Salem raising the very same allegations. They also sought a declaration that the petitioners are directors of the company. The suit was contested by the respondents which ultimately ended in a comprehensive compromise of all issues pending between the parties, on 8th April, 2008. As per the compromise, an aggregate amount of Rs. 8 crore (including the payments in 2004) was paid to the petitioners who acknowledged and ratified the transfer of shares in favour of the respondents and also the reconstitution of the Board by inducting the respondents as directors, and also the resignation of petitioners from the Board. It was further recorded that petitioners have no right, title or interest in respect of the company's properties. The memorandum of compromise specifically details all the transactions from 29th October, 2004 onwards. Rs. 6,45,00,000 was paid to the petitioners on 8th April, 2008 and the petitioners confirmed the transfer of shares (86.5 per cent) in favour of the respondents and also agreed to transfer the remaining shares, and consented to the sale of the company's properties to A R R S Mega Mall by the respondents/directors. All the cases pending before the various forums were agreed to be withdrawn. On the basis of the compromise, the suit was disposed on 17th April, 2008 as settled out of court. The petitioners executed a receipt for the amount received by them under the compromise. On 28th April, 2008, the petitioners further executed a full satisfaction receipt -cum -compromise deed detailing the full satisfaction of the compromise, and further recording that the petitioners approve the alienation of the properties of the company to the 7th respondent. CP No. 110/2007 filed by them before CLB claiming status as shareholders was also withdrawn. Another company petition, CP No. 6/2008 filed before the CLB was agreed to be withdrawn. The satisfaction/receipt -cum -compromise deed contains all the details of the compromise. All the relevant documents were executed in the presence of the counsel for the petitioners and notary. The bankers have confirmed the encashment of all the demand drafts. By letter dated 29th April, 2008, the petitioners have withdrawn the complaint filed by them before the RoC.

(3.) THE brief extract of the counter filed by R12 is as under. It is contended that R12 is neither a member nor a necessary party to the above proceedings and that the CLB does not have any jurisdiction to pass directions against R12 since it is a statutory authority constituted under the SEBI Act. It is argued that for matters which are within the regulatory purview of SEBI, any party claiming to be aggrieved should not be permitted to forum shope at its whims and fancies.