C. P. No. 85 of 1999. Case: Capt. Sanjeev Nagpaul Vs Seasons Creation (P) Ltd. and Ors.. Company Law Board

Case Number:C. P. No. 85 of 1999
Party Name:Capt. Sanjeev Nagpaul Vs Seasons Creation (P) Ltd. and Ors.
Counsel:For Appellant: Alok Kumar Pandey, G. S. Khatri and Nitin Kumar Sharma and For Respondents: Sanjeev Nagpaul for the petitioner appeared in person, Vibhu Bakhru, Vikas Chandel, Gurleen Chhabra, Shruti Ranjan, Sumesh Dhawan and Sonal Sinha
Judges:Vimla Yadav, Member
Issue:Companies Act, 1956 - Sections 397, 398, 402, 403 and 406
Citation:148 CompCas 30
Judgement Date:June 03, 2008
Court:Company Law Board


Vimla Yadav, Member, (At New Delhi)

In this order I am considering Company Petition No. 85 of 1999 filed by Capt. Sanjeev Nagpaul under sections 397 and 398 read with sections 402, 403 and 406 of the Companies Act, 1956 (hereinafter referred to as "the Act") against M/s. Seasons Creation P. Ltd. and Others, alleging oppression against the minority shareholders having 24.63 per cent. shares in the respondent-company as well as mismanagement of the affairs of the company alleging embezzlement and siphoning off of funds, fabrication of records and documents, preparation of two balance-sheets, one showing loss and the other profit for the same year for personal gains by the respondents and hence seeking removal of respondent No. 2 and the other illegally appointed directors and praying for appointment of an independent company application or a financial consultant or a cost accountant to investigate into the accounts for five years so as to order the respondents to make good the losses and siphoned off funds.

The undisputed facts of the case are: M/s. Seasons Creation P. Ltd. (respondent No. 1) was incorporated on June 20, 1989, having its registered office at 410/2-WZ Shakurpur, Opp. Lawrence Road, Delhi-110 034 with the authorised share capital of Rs. 20,00,000 divided into 20,000 equity shares of Rs. 100 each. The paid-up capital of the company is Rs. 4,10,000 divided into 4,100 equity shares of Rs. 100 each. The objects of the company are to carry on the business of manufacturers, traders, importers and exporters and of dealers in readymade garments, fabrics, carpets and all other such kinds of textile goods of all varieties and distinctions and hosiery goods. The company is engaged in the business of manufacture and export of garments, it has two manufacturing units one at Delhi and the another at Tirupur near Coimbatore, Tamil Nadu.

Shri Alok Kumar Pandey, counsel for the petitioner contended that the petitioner, who was the managing director of the company was sent to Tirupur in 1990-91, Shri Pawan Jaggi (respondent No. 2) was handling exclusively the banking operations, disposition of funds, observation of statutory compliances and operations and transactions, being stationed at the registered office of the company. It was alleged that respondent No. 2 dissipated the accumulated funds of the company to his friends and relatives by way of loans and advances and the business of the company was conducted by the respondents with the intent to defraud its members. The affairs were being conducted in a fraudulent manner for personal gains, affairs of the company were being conducted in a manner oppressive to its members and the members of the company were not given full details of the financial transaction and its working. It was contended that the influence of the respondent over the bank is obvious because the respondent's father was on the board of Allahabad Bank and had undue influence on the bank for perpetuating their wrongful acts and deeds. The respondents on the basis of fictitious forged export purchase order, obtained packing credit limits and siphoned off the funds, falsified the accounts and left the country leaving the company in a lurch for more than 51/2 months in November 1998 after dissipating the funds of the company, so much so that respondent No. 2 incorporated a company in Singapore and took LIC policies in foreign currency to use the funds siphoned out of the respondent-company. It was contended that the act of the respondent culminated into a raid of the Income-tax Department on his premises and the matter was reported in the newspaper. Further, it was contended that respondent No. 2 issued two sets of audited balance-sheets and the profit and loss accounts of the company for the year ended March 31, 1997 and filed the same with Income-tax Department to defraud the exchequer. This fact has been vindicated by the CBI while filing the charge sheet dated October 31, 2003.

The petitioner contended that respondent No. 2 disposed of the plant and machinery, stocks available at Delhi in a clandestine manner and usurped all the proceeds, he was supposed to deposit with the Allahabad Bank, though the respondents have denied this fact but the copy of the I. O. report and the banker visit to Delhi premises in the presence of the respondent and his father as admitted in the Debts Recovery Tribunal's petition confirm this siphoning off of the funds. It was pointed out that the machinery and the rejected stock at Tirupur factory were sold by the petitioner to pay off the legitimate liabilities of the respondent-company and the petitioner had the power to do so as per articles 53 and 56 of the memorandum and articles of association of the company. Respondent No. 2 and the company knew about the admitted liabilities subsisted at Tirupur. Further, contended that there are more instances of such financial bungling and defrauding the shareholder, which the petitioners have brought on report by filing an additional affidavit. It was argued that the arguments that there is no prejudice caused and there are no financial irregularities in the accounting of the respondent-company or sale of Delhi machinery is based on non germane factors. It was reiterated that the respondents perpetuated the financial irregularities, resorted to fabrication of documents, siphoned off the funds of the respondent-company for personal gain.

Shri Vibhu Bakhru, counsel for the respondents contended that the present petition is not maintainable and is liable to be rejected. It was argued that in order to approach this hon'ble court the petitioner alleging the mismanagement and oppression has to show that it is just and equitable to wind up the company and further that the winding up would unfairly prejudice the shareholder/the petitioner complaining of the same. It was argued that in the present case the petitioner is responsible for completely denuding the net worth of the company and has further siphoned away the assets and funds for which criminal complaints have been made against the petitioner. The manufacturing units of the company have been shut down and no activity is being undertaken by the company. In the circumstances the petition under sections 397 and 398 is liable to be rejected. In fact there have been no acts of oppression and mismanagement on the part of the respondents to warrant winding up of the company and in any event winding up would not in anyway prejudice the petitioner. Thus, the present petition is liable to be dismissed.

It was further contended that the petitioner has in connivance with his brother Mr. Rajeev Nagpaul and certain others committed a theft of plant, machinery and stocks at the Tirupur unit of the respondent-company despite the fact that the said plant, machinery and stocks were hypothecated to the Allahabad Bank. It is submitted that the said plant and machinery were clandestinely removed from the premises of the petitioner-company and taken to the premises of M/s. Seasons Creations Corporation a concern floated by the petitioner's brother, which concern was engaged in the same business as the respondent-company. The said concern was floated by the petitioner's brother Mr. Rajeev Nagpaul with the active connivance...

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