Company Petitton No. 29 of 2009. Case: Ajay Ramnathkar and Ors. Vs Dragon King Container Handlins Services Ltd. And Ors.. Company Law Board

Case NumberCompany Petitton No. 29 of 2009
JudgesKanthi Narahari, Member
IssueCompany Law
Citation2011 (105) CLA 153, 2011 (3) CompLJ 330 (CLB)
Judgement DateMay 23, 2011
CourtCompany Law Board

Order:

Kanthi Narahari, Member, (Western Bench At Mumbai)

  1. The present petition is filed by invoking various provisions of the Companies Act, 1956 ('the Act') against the Respondents 2 and 3 alleging certain acts of oppression and mismanagement committed by them and sought reliefs, inter alia, that the Respondents 2 and 3 be -

    (a) Ordered and directed to file affidavit with details and particulars of all the lands purchased/ acquired on behalf of the R1 company by using the monies of R1;

    (b) Sought direction to the R2 and R3 to execute the transfer of all the lands set out in exhibit 'E';

    (c) Sought direction to R2 and R3 to execute appropriate power of attorney in favour of the Petitioners so as to enable them to complete the purchase of land as set out in exhibit 'E' and sought removal of R2 and R3 as directors and further sought direction to R2 and R3 to pay a sum of Rs. 62 lakhs to R1 which was wrongly appropriated by them towards expenses;

    (d) Direct the Respondent No. 2 to render true and proper accounts on oath of the entire amount of Rs. 2,30,70,000.

  2. Shri Sharan Jagtiani, Learned Counsel appearing for Petitioners, submitted brief facts which necessitated to file present petition. He submitted that the Petitioners together hold approximately 74.02% of the equity share capital of R1 company. Petitioner Nos. 1 and 2 are presently directors of R1 and are founding members and promoters, Petitioner No. 3 is a company owned and controlled by Petitioner Nos. 1 and 2, Petitioners Nos. 4 and 5 are promoter shareholders of R1. Petitioner No. 4 is also a director on the board of directors of R1. R1 has not yet commenced its business operations as it is still in the process of acquiring the main capital asset required for the business, i.e., the land needed for starting the said business. R2 and her husband R3 are also promoter-shareholders and directors on the board of directors of R1. The said Respondents together hold approximately 25.97% of the equity share capital of R1. The present petition is directed against the gross acts of oppression committed by the minority shareholders, i.e., R2 and R3, against the majority and the acts of mismanagement by the said Respondents by abusing their authority and power as directors of R1 that are gravely prejudicial to the interests of R1 and other shareholders. Soon after the incorporation of R1 and at the time of taking appropriate steps for purchasing land, the R2 and R3 represented to the Petitioners and the other directors that there would be possible legal difficulties and hurdles that would come in the way of R1 for acquiring agricultural land directly. It was therefore proposed and suggested by R2 and R3 that R2 would acquire the land for and on behalf of R1 so as to enable the R1 to commence its operations on the said land. It was understood between the parties that even if R2 and R3 acquired any land or agreed to acquire any land in their own name they would then transfer it to the R1. Those lands were to be acquired from the funds and moneys of R1. The R1, through other Petitioners, relying upon the representation of the R2 and R3 agreed to proceed with the acquisition of land on this basis. R2 has acquired/ entered into agreements for sale/memorandum of understanding and Bayana receipts in respect of 54.03 acres of land on behalf of R1 but has failed and refused to transfer the same to R1 in breach of this understanding and its fiduciary duties towards R1.

  3. On 19 December, 2005, the Petitioner No. 1, 4 and R3 as directors of R1 executed a special power of attorney in favour of R2. By this power of attorney, it was specifically recorded that the R2 was authorized to purchase lands for and on behalf of the company, more specifically, in Uran and Panvel Taluka to take necessary permissions from Tehsildar, Collector or any other Government body/ bodies to carry on all activities for acquisition of land required by the company, and thereafter to hand over and transfer the same in the name of the company. On the basis of the said power of attorney R2 acquired various lands for and on behalf of R1. The total extent of land is 54.03 acres. R1 has paid for the entire land purchased by R2. Some of the payments have been made directly by R1 by crossed cheques in the name of the vendors. The balance payments have been made by the R2 either by crossed cheques/bearer cheques/cash to the vendors, from and out of Rs. 2.31 crores that were transferred (over a period of time) in an account in NKSG Bank by R1 which account was in the name of R2 and was specifically opened and operated for acquisition of land. The fact that these lands were acquired for and on behalf of the said company is evident even from some of the sale deeds executed by R2 with various vendors of land. Moreover, the agreements for sale that have been entered by R2 have, in respect of 39.43 acres covered by the said agreements, been deposited with the NKSG Bank as further collateral for a term loan given by the bank for the business of R1 thereby establishing, inter alia, that even the lands covered by these agreements for sale aggregating to an area of 39.43 acres have been acquired for and on behalf of the company. Approximately 54.03 acres of land has been acquired/ agreed to be acquired on behalf of R1. Sale deeds in favour of R2 have been executed for approximate 11.72 acres of the total 54.03 acres. Agreements for sales between R2 and vendors have been executed for 28 acres out of 54.03 acres and Bayana receipts were executed for 14.06 acres.

  4. Towards the acquisition of the above lands the R2 has spent/withdrawn an amount of Rs. 2,30,70,000 from the bank account of R2 which money was transferred to her by R1 for acquiring land. Till about August, 2008, R2 despite repeated requests had failed to transfer to R1 the land purchased by her (of which the R2 already had a conveyance in her favour) for and on behalf of R1 to R2. The total area of land of which R2 has a conveyance amounts to approximately Rs. 11.72 crores. On 18 August, 2008, the Petitioner No. 1 as a director of R1 addressed a letter to the manager of the North Kanara GSB cooperative Bank Ltd. giving the status of land acquired by R1. This was necessary as the R1 was intent on creating an equitable mortgage of the said land in favour of the said bank. On 28 August, 2008, the Petitioner No. 4 addressed a letter/e-mail to R3 referring to the last board meeting of R3 held on 23 August, 2008, where it was agreed that R2 would sign all the sale deeds covering land which was yet to be transferred by R2 and R1 and forward the same to the office of the R1. On 2 September, 2008, the Petitioner No. 1 addressed an e-mail to R3 which sets out the hardships that has been caused to the R1 due to the failure on the part of the R2 to transfer the land to R1. This e-mail also records that R2 has signed only 2 out of 5 sale deeds prepared in the name of R1 which were to be executed for transfering the land to R1. Suspecting serious fraud and other irregularities committed by R2 and R3 during the land acquisition process, on 10 September, 2008, the R1, through its director, Petitioner No. 2, appointed Sakhalkar & Company, Chartered Accountants, to conduct a specific/special audit into the expenses incurred by the R2 and R3 for and on behalf of the R1 as part of land acquisition process. On 10 September, 2008, the Petitioner No. 1 on behalf of R1 addressed a letter to the R3 forwarding two sale deeds for the transfer of land from R2 to R1 to be executed by R2. On 12 September, 2008, R2 wrote to Petitioner No. 1 responding to the letter of 10 September, 2008. By the said letter R2, for the first time, indicated her refusal to execute the said deeds on the pretext that the same was prohibited by Section 43/63 of the Bombay Tenancy Act. On 15 September, 2008, R2 addressed a letter to Sakhalkar and Company, Chartered Accountants, stating that cash payments had to be made to the farmers for acquiring land which was made for her own bank account and that, as on 31 March, 2007, her own outstanding with the R1 is Rs. 1,16,83,403 which was not taken into account in an audited account of R1. Without adding the abovementioned amount to her credit in the audited balance sheet of the R1, the audited accounts cannot be closed for the said year. R2 also mentioned that she had spent from her personal funds and bank accounts a sum of Rs. 3,58,75,450 of which the above amount was a part. For the first time R2 asserted that R2 and R3 had incurred expenses of Rs. 3,58,75,450 as capital expenditure and the same be treated as their equity contribution to R1 and that until this is done there would be no transfer of land to R1. Petitioner No. 1, as a director of R1, wrote to R2 on 10 November, 2008, thar only directors may be permitted to attend the proposed board meeting on 17 November, 2008, R2 was asked to give her detailed explanation including detailed audit by her auditors, V.A. Bapat and Company, before the proposed date of meeting. R2 responded to the above letter on 12 November, 2008, insisting upon the presence of Mrs. Gharat and Mr. Kape and specified that her auditor, V.A. Bapat and Company, would be present at the board meeting. The advocates for the Petitioners issued a public notice on 20 January, 2009, asserting the claim of R1 to the land that has been purchased by R2 for and on behalf of R1 and, therefore, advising the public not to deal with R2 in respect of the said land. On 5 February, 2009, the R2 issued a public response to the above public notice where the R2 accepted...

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