SAVITHRI VASANTHKUMAR Vs. KARTHIKEYA ANCILLARIES P. LTD.

JUDGEMENT

(1.) THE present petition is filed by invoking various provisions of the Companies Act, 1956, alleging certain acts of oppression and mismanagement in the affairs of the company and sought various reliefs as prayed in the petition. The brief facts of the case are that respondent No. 1 company was incorporated as a private limited company on December 10, 1978, with four subscribers to the memorandum namely, Mr. G.R. Karthikeyan (brother of Mr. G.R. Vasanthkumar, who is the husband of the petitioner), Mrs. Sheela Karthikeyan (wife of Mr. G.R. Karthikeyan), Mr. G.R. Vasanthkumar and the petitioner. Each of them subscribed to 116 equity shares of respondent No. 1 company. Respondent No. 1 company, right from the time of its incorporation, was intended and has been functioning as a family company held closely by relatives and members of the same family. Respondent No. 1 company was primarily run by the petitioner's husband who was at the helm of the affairs and was also the managing director. The company grew from strength to strength under his leadership. The turnover reached significant levels and substantial assets including in the form of immovable properties were acquired. The petitioner, who is his wife, was not involved in the management of the company, and neither has the necessity as the company is a family company which was run by her husband for the benefit of all. In the year 1995, the second respondent attained majority, and was appointment as director on June 2, 1995. Shares were also transferred to the second respondent. Though the second respondent, considering the fact that she had attained majority of age was provided with shares of respondent No. 1 company and also made a director thereof, no notable changes took place in the management of the company which was continued to be run by the late G.R. Vasanthkumar. Thereafter and in the year 2005 -2006, the third respondent for the first time in a manner similar to the initiation of the second respondent was brought into the company, came to hold 13,591 shares. She was also brought on board as a director of respondent No. 1 company, just as in the case of her sister namely the second respondent. Consequent to these changes in the shareholding partem and in composition of board as on March 31, 2006, the three directors and shareholders of respondent No. 1 company were the petitioner, the second respondent and the third respondent. Mr. G.R. Vasanthkumar, who was ailing, resigned from directorship of the company on March 24, 2005. Thereafter, he expired on April 5, 2006. As set out in further detail hereinafter, subsequent to his death and capitalising on the absence of a male member in the family, the fourth respondent began to exercise increasing control over the second and third respondents over the affairs of the company as well. Sometime in the year 2006 -07, at the insistence of the second respondent 6,641 shares which stood in the name of the late G.R. Vasanthkumar came to be transferred in the name of the fourth respondent who is the husband of the second respondent. The petitioner submits that while the marriage of the second respondent and the fourth respondent happened purely on account of the personal volition of the second respondent, the petitioner and her late husband nevertheless accepted the same in the interest of the happiness of their daughter and to keep the peace within the family. Thereafter and with the entry of the fourth respondent into the picture, the dynamics of family equations as well as in the affairs of respondent No. 1 company underwent a change. The patriarch of the family that is the late G.R. Vasantbkumar no longer being there, the fourth respondent being the only male member began to exercise increasing control over the affairs of respondent No. 1 company. He designated himself as the only whole -time director of respondent No. 1 company, with the petitioner and the second respondent being directors. The third respondent was designated as the managing director of respondent No. 1 company. The fourth respondent on several occasions also got himself designated as an alternate director to both the second and third respondent and thereby purported to act on their behalf whenever either of them was travelling or not available for board meetings. As the petitioner subsequently discovered only upon a search of the documents filed with the Registrar of Companies and a perusal thereof, the fourth respondent had begun to make significant business decisions in relation to respondent No. 1 company and its several extremely valuable immovable properties. One such transaction which the fourth respondent appeared to have initiated was an arrangement with a company named Presidium Constructions (CBE) P. Ltd., for a project to develop one of the properties belonging to respondent No. 1 company. The petitioner was not made specifically aware of the same, and neither is she aware of any board or general body meeting approving the commencement of such project or authorising the fourth respondent to act or transact in any manner, in connection with the same. The petitioner submits that the status of such project as on date is unknown, as also the status of loan for a sum approximately Rs. 8 crores reflected in the balance -sheet for the year ended March 31, 2007, as having been advanced to respondent No. 1 company by the said Presidium Constructions (CBE) P. Ltd. The petitioner submits that thereafter and in an attempt to virtually takeover the entire company and its assets, the fourth respondent has in conjunction with the second and third respondents has taken a series of blatantly mala fide and oppressive actions with the intent of excluding the petitioner altogether from the company. This has apart from oppressing the petitioner as a shareholder who was also one of the promoters of the company, alienated her from the second and third respondents who are her own daughters. The second respondent ever since her marriage to the fourth respondent, has been clearly brainwashed to act against the petitioner, and has managed to convince the third respondent her sister to go along with her and the fourth respondent.

(2.) THE petitioner submits that while it was becoming increasingly clear to her from the year 2007 onwards that her role was being marginalised, she was shocked to receive a notice on June 27, 2009, from the second and fourth respondents purporting to deposit a requisition with the board of respondent No. 1 company for the calling of an extraordinary general meeting of respondent No. 1 company. The said notice contained the proposal for a resolution to remove the petitioner from her office as a director of respondent No. 1 company with immediate effect. Strangely, the summary of reasons sought to be set out in such notice for the requisition was a paragraph of several deliberately vague and completely unsubstantiated statements. Pertinently, prior to such notice of requisition in respect of respondent No. 1 company, similar notices were issued in respect of other group companies controlled by the same family such as M/s. Anju Farms P. Ltd., M/s. Parkins Textiles P. Ltd., etc., indicating that the larger design was to effectively wipe out the petitioner's presence and control from all companies so that the fourth respondent under whose directions the second and third respondents were virtually functioning, could have a free hand. Having issued the requisition notice as referred to above, the respondents appear to have gone ahead and convened a board meeting for the purpose of holding the extraordinary general meeting as planned by them. The petitioner submits that this became obvious by the fact that immediately thereafter, she received a notice dated August 6, 2009, purporting to hold the extraordinary general meeting on September 3, 2009, the only business proposed to be carried on at such extraordinary general meeting, being the removal of the petitioner as a director. She further pointed out that the attempt to remove her as a director was neither justified, nor legal or proper. Further, and considering the fact that for the first time completely baseless and unsubstantiated allegations were being raised that she owed monies to respondent No. 1 company, the petitioner was at pains to point out through her letter the actual positions to the contrary. She pointed out that at the request of the third respondent, it was in fact she who had paid amounts totalling to Rs. 54,81,000 towards payments of debts owed by the companies in question to several banks, and the said amounts were raised by her liquidating herself acquired shares in M/s. Lakshmi Card Qothing Ltd. She pointed out that using the said money provided by her, the concerned companies had settled their debts and thereby benefited out of the same. Despite assurances made by the third respondent that the money would be paid back at the earliest, and despite several demands, no such attempt had been made. The petitioner submits that while no reply was received from the respondents to this letter, they went ahead and held the extraordinary general meeting as sought to be convened and also removed this petitioner from directorship of respondent No. 1 company. Not stopping with this, the respondents to the further shock of the petitioner in the month of November 2009 addressed a letter dated November 13, 2009, to an entity named "M/s. Veeyss Enterprises" referring to the petitioner as the sole surviving partner, and independently marked to the petitioner as well. In this letter which was signed by the third respondent in her capacity as the managing director of respondent No. 1 company for the first time a highly contrived and obviously motivated stand was sought to be taken for a clearly ulterior purpose. It was sought to be contended that M/s. Veeyss Enterprises had borrowed term loans and other loans from the Punjab National Bank for which respondent No. 1 company had as a collateral security mortgaged on November 17, 1997, by way of deposit of title deeds, its immovable properties located in Coimbatore District. It was further contended that the said firm had defaulted in the repayment of the loans and interest following which there was a demand notice from the bank and thereafter, an application filed under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 numbered as T. A. No. 361 of 2002 for recovery. It was further stated that since no payment had been made, a notice drawing up a proclamation of sale of the property of respondent No. 1 company had been drawn up on April 20, 2005, but in the meantime due to negotiations by respondent No. 1 company, the bank had granted a one -time settlement vide a letter dated September 20, 2006, stating that upon payment of Rs. 6,53,00,000 the dues would be deemed to be settled fully and finally. It was stated that respondent No. 1 company had made the payment of the said amount and had also incurred legal and other costs to a tune of Rs. 22 lakhs. The notice concluded by stating that a sum of Rs. 6,53,00,000 along with interest at 36 per cent, per month was due from the principal debtor. Consequently, a resolution has been passed by the board of respondent No. 1 company at a meeting held on September 10, 2009, by which a demand was being issued, calling upon the petitioner to pay the amount in demand along with the interest within a period of 14 days, failing which action would be initiated against the petitioner under article 25 of the articles of association of the company, in terms of which according to the respondents, respondent No. 1 company has a first and paramount lien on the shares held by the petitioner. The notice finally stated that if the demand amount was not paid within 14 days, the shares held by the petitioner would be sold in such manner as deemed fit and the sale proceeds would be appropriated. The details of the shares held by the petitioner were also set out. The petitioner submits that such measure smacks of mala fides, was designed only with a view to take over the entire company and was but the next logical step in the respondents' design after having removed the petitioner as a director. The fact that the notice for removal completely lacks any reason or substance for the petitioner's removal but instead has vague reference to the petitioner having acted against the interests of respondent No. 1 company will amply demonstrate this. Immediately following this, the respondents having discovered that it would be better for their agenda, to exclude the petitioner altogether, conjured up a claim which had been settled as early as in the year 2006 and of which the petitioner was not even aware, to take over her shareholding. All of these efforts are clearly on account of the tremendous value that the several immovable properties of respondent No. 1 company represents, and which is evidently the target of the fourth respondent. The fourth respondent who has done nothing to build this value, and who has not even contributed to the capital of respondent No. 1 company but managed to acquire shares pursuant to his marriage to the second respondent, has orchestrated the entire exercise and managed to convince the second and third respondents to go along with him.

(3.) THE respondents filed counter to the petition. It is stated that respondents Nos. 2 and 3 are the daughters of the petitioner. Respondent No. 4 is her son -in -law, the husband of respondent No. 2. The statement of the petitioner on affidavit that she was not aware of the joint development agreement dated October 18, 2006 (JDA) and the consequent development thereof is utter false. She cannot feign ignorance and say that she had only witnessed the signature. The joint development agreement was followed by a supplementary agreement dated November 15, 2006 (supplementary agreement) in which also she had signed as a witness. Subsequently she had even received the payments under the said agreement and remitted them to the bank. The petitioner miserably suffers from suppression of material information as regards the sale of its prime immovable properties due to default in repayment of dues from a partnership firm, and aware of the fact that the fourth respondent executing all these agreements in his capacity as an executive director. The petitioner is in knowledge of receipt of 4 crores by way of performance guarantee and a sum of Rs. 8.75 crores under an agreement styled as area assignment agreement to settle the liabilities and obligations of the company. The petitioner had participated in several board meetings and signed several documents in the year 2006 including the appointment of the fourth respondent as executive director. The petition suffers due to latches of acquiescence, waiver and delay with regard to her removal from the board of directors and about the lien marked on her shares. She was removed for valid reasons in a lawful manner, lien was marked in accordance with articles of association for the dues liable to be recovered from a partnership firm of which she is presently the sole surviving partner. As these matters were within her knowledge, she cannot maintain a petition on these grounds in this jurisdiction. The petition deserves to be dismissed on this ground too. Legality of an action initiated by the board of directors of the company cannot be considered as an act of oppression even though the result of such an action may render her share less. An action intended for recovering money due to the company from a shareholder in terms of its articles of association cannot be termed as an oppressive action. Consequently it cannot be subject matter of a petition under this jurisdiction. The petition deserves to be dismissed on this ground too. Mere directorial complaints cannot be a ground for seeking relief under this jurisdiction. She has lost her directorship by virtue of the unanimous resolution passed at the extraordinary general meeting held on September 3, 2009. In this extraordinary general meeting, all the votes cast were in favour of the resolution for removing her directorship. She lost her directorship with due notice and in accordance with law. She did not even attend the said meeting. The extraordinary general meeting was held in pursuance of a requisition received from shareholders of the company holding 3,38,230 (84 per cent.) fully paid -up shares out of 4,04,640 shares in the paid -up capital of the company. On the first and paramount lien upon her shares constitutes 16 per cent, of the capital. The respondents state that admittedly she owes to the company crores of rupees. The nature of demand against the petitioner is set out in the notice annexed to the petition. She has replied to this notice. In matters relating to recovery of dues to the company, the board of directors has absolute authority to exercise the lien on her shares. If she wants to challenge the action of the company in any manner she could have done the same immediately upon the receipt of notice. There were 40,764 shares in the capital of the company ever since 1995. In O. S. No. 132 of 1995, which was a suit between two brother, viz., Mr. G.R. Karthikeyan and G.R. Vasanth Kumar and their respective families who were jointly holding shares and properties including the shares of this company, an arbitrator came to be appointed. The arbitrator gave ah award dated April 17, 1995. This award was confirmed by the second Additional District Judge in O. S. No. 132 of 1995 by an order and decree dated April 24, 1995 (annexure No. 15). As a result, the entire shares in the company came to be allotted to the family of late G.R. Vasanth Kumar: As a result of the same 13,591 shares were allotted each to late G.R. Vasanth Kumar and petitioner and 13,282 shares were allotted to respondent No. 2. Thus, at that time, those three persons were the shareholders of the company. Subsequently on September 28, 2004, 13,591 shares held by the late G.R. Vasanth Kumar were transferred to respondent No. 2. As at September 28, 2004, the petitioner was holding 13,591 shares in her name and respondent No. 2 was holding 26,873 shares. At that time, only the petitioner and respondent No. 2 were the shareholders. Subsequently on January 9, 2006, 15,391 shares of the petitioner were transferred to respondent No. 3 and on the same day 6,641 shares of respondent No. 2 were transferred to late G.R. Vasanth Kumar and another 6,641 shares were transferred to the petitioner. Thus, as on January 9, 2006, the shareholding partem was as follows: