CP No. 20 (ND) of 2011. Case: Dev Bhushan Nohria Vs Kinematics Marketing (P) Ltd. and Others. Company Law Board

Case Number:CP No. 20 (ND) of 2011
Party Name:Dev Bhushan Nohria Vs Kinematics Marketing (P) Ltd. and Others
Counsel:For Appellant: Atul Sharma & Shri Abhishek Sharma and For Respondents: Virender Ganda, Senior Advocate, Satish Garg, S.K. Giri, Amarjit Singh, Ms. Runjita Das, Devansh Garg & Ms. Amrita Singh
Judges:Vimla Yadav, Member
Issue:Companies Act, 1956 - Sections 397, 398; Indian Penal Code (45 of 1860) - Sections 402, 406, 420
Citation:2012 (111) CLA 285
Judgement Date:March 14, 2012
Court:Company Law Board
 
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Order:

Vimla Yadav, Member, (New Delhi Bench)

  1. In this order I am considering CP No. 20 (ND) of 2011 filed by the petitioner against the respondents alleging oppression and mismanagement in the R-1-company under sections 397 and 398 of the Companies Act, 1956 ('the Act"). It has been prayed for direction to audit/enquiry/investigation by an independent chartered accountant with regard to the affairs of the R-1-company and the dealings of respondent Nos. 2 and 3 for ascertaining the Joss incurred by the R-1-company due to opening of the R-1-company's bank account at Corporation Bank at Malout and the amounts of money belonging to the R-1-company siphoned off through various transactions carried on in the said account since its opening, diverting the stocks and business of the R-1-company by the respondent Nos. 2 and 3 into the respondent No. 4 firm with a deceptively identical name to the R-1-company or any other modus operandi resorted to by the respondent Nos. 2 and 3 including opening of other bank account(s) in the name of the R-1-company to siphon off the funds of the company; to direct the respondent Nos. 2 and 3 to bring back the siphoned off monies and diverted stocks to the R-1-company; to direct the respondent Nos. 2 and 3 to account for and return/pay the consideration for all the stocks transferred pay the consideration, for all the stocks transferred from the respondent No. 1-company to the respondent No. 4 firm owned and controlled by them; to direct the respondent Nos. 2 and 3 to render the account of the businesses done by the respondent No. 4 firm owned and controlled by them with the customers of the respondent No. 1-company and the profit so earned and pay the said profit into the account of the R-1-company; to direct the respondent Nos. 2 and 3 to cease and desist from using the name of the respondent No. 1-company and carrying on business under the name and style of "Kinematics Marketing Co."; to direct the respondent Nos. 2 and 3 to cease and desist from carrying on the business of supply of auto parts of Royal Enfield Motorcycles as a dealer of the respondent No. 5, through the respondent No. 4-firm and under the name and style of "Kinematics Marketing Co."; to direct the respondent Nos. 2 and 3 to allow the petitioner to discharge his duties and function as a director of the respondent No. 1-company; to direct the respondent Nos. 2 and 3 not to take any decision pertaining to the operation and management of the respondent No. 1-company without the participation of the petitioner in his capacity as a director of the respondent No. 1-company; to pass an order declaring the resolution dated 14th February, 2011 passed by the respondent Nos. 2 and 3 authorising themselves to operate the bank account of the R-1-company to the exclusion of the petitioner as null and void; to pass an order declaring that any or all resolutions passed by the respondent Nos. 2 and 3 without the knowledge/participation of the petitioner as null and void; to direct the respondent Nos. 6 and 7 not to act upon the Board resolution dated 14th February, 2011 or any other resolution passed by the respondent Nos. 2 and 3 without the knowledge/participation of the petitioner, etc. The R-1-company, namely, Kinematics Marketing (P) Ltd., having authorised share capital of Rs. 45,00,000 divided into 45,000 equity shares and issued share capital of Rs. 36,05,000 divided into 36,050 equity of Rs. 100 each, was incorporated on 4th June, 1990 with its Registered Office at 1223, Payare Lal Road (Bank Street), Karol Bagh, New Delhi-110 005 with the main objects to carry on the business of importers, exporters, consignees, dealers, agents, stockists, retailers, traders of brokers and business of, refining, blending, storing, selling and distributing petroleum, petro-chemicals, chemicals, lubricants, deferential oil, gear box oil, engine oil, grease, coolants, automatic transmission oil and by products and derivatives thereof, to purchase or otherwise acquire refine, reduce, distil, purify, blend, pump, store hold use experiment with market, distribute, exchange, supply otherwise dispose of and deal in all kinds of petroleum and petro-chemicals, coolants, grease oil, chemicals and by-products parts and derivatives thereof, to carry on business of equipment for improving the fuel efficiency and to increase the level of operational output of engine in automotive, non-automotive applicants, to design, service of the related equipment in the field of fuel conservation and operation efficiency, of automotive, marine, aircraft, industrial, domestic and other applications for conservation, of fuel and energy. The R-1-company is engaged in the business as distributor of the spare parts of Royal Enfield vehicles (the owner of which are Eicher Motors).

  2. The petitioner's case is that by operation of a secret bank account at Malout, Punjab by the respondents the R-1-company has been defrauded of Rs. 1.38 crore by R-2 and R-3 in connivance with R-5 by using documents obtained by deception. The R-2 and R-3 diverted a substantial part of the incentives paid by the R-5 for the period December 2006 to August 2010 to the company in the Malout account. Further, it was pointed out that R-2, who was managing the day-to-day affairs of the company, ensured that the payments received into the Malout account were not reflected in the books of the company. The existence of the Malout account was kept a secret from the company and its directors and the company's money which was received into that account was siphoned off by the R-2 and R-3 with the help of their employees, their children, etc., and was used to meet the personal expenses of the respondents including purchase of securities and payment of LIC premium. Till December 2006 all of such incentives given by R-5 were deposited into the company's bank account and were duly accounted for in the books of the company, there was never any need to open a separate bank account, that too, in Malout, Punjab.

  3. It was pointed out that the respondents have admitted that they opened an account in Corporation Bank, Malout, Punjab. The account statement of the Malout bank account clearly shows the misappropriation of funds by the R-2 and R-3 and proves that the company's funds were embezzled by the said respondents through their employees/children, etc., by way of cash withdrawals as well as account transfers. My attention was drawn to cheques issued by the R-3 to his son Mr. Vineet Garg; to his daughter Ms. Neha Garg; towards premium of his LIC Polices; to MLD Securities (P.) Ltd. towards payment for purchase of securities; cash withdrawals/self-cheques issued in the name of Mr. Jhanda Ram, Mr. Ram Nath and Mr. Angrez Singh - all employees of R-2 and R-3 in their business concerns in Malout, Punjab. It was pointed out that all deposits and all withdrawals from the Malout account were made by R-2 and R-3, and not a single cheque was signed by the petitioner or issued to the petitioner. It was argued that this points to the fact that the petitioner was neither aware of the existence of the Malout account nor did he derive any benefit therefrom. The R-3 has signed the cheques as the "managing director" of the company and the cheques bear such a stamp, this is an admission on the part of the respondents that the petitioner was not the whole-time director of the company. It was pointed out that the pay-in slips confirm that R-2 was controlling the inflow of funds into the Malout account, all of the pay-in slips bear the signatures of the R-2 or his employees, including one Mr. Satyender Kumar Jha, the accountant of R-2 at his firm ESSAAR Motors and Mr. J.K. Bali, who was earlier working with R-1 and is now working for R-2 at his new firm R-4. It was pointed out that the respondents admit that on 15th February, 2011 they closed this account in Corporation Bank, Punjab, no substantial reasons why this account had to be closed have been provided. It was stated that the account was closed after the petitioner had approached the Economic Offences Wing ('EOW') of Delhi Police, bringing to light, the existence and operations of this account.

  4. Responding to the respondents' contention that 3 cheques were issued from the Malout account by the respondents to transfer certain amounts to the South Indian Bank account of the company at New Delhi, and these amounts were reflected in the company's books, and therefore, the petitioner cannot claim to be unaware of the existence of the Malout account, it was contended that this is just an attempt by the respondents of justifying the embezzlement of over Rs. 1 crore by saying that the amount of Rs. 3,64,797 did, infact, reach the legitimate recipient of the money. It was contended that in order to prevent the petitioner from becoming suspicious about the non-receipt of the incentives from the R-5, the R-2 and R-3 transferred this small amount of money vide 3 cheques into the company's legitimate account, these amounts were not shown in the books of the company as transfers from the Malout account but were rather disguised by the R-2 as refund of cash discounts received from the R-5.

  5. Without prejudice it was argued even if it is presumed that the petitioner was, infact, aware of the Malout account...

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