C.P. No. 7 of 2009. Case: Dr. K. Balasundaram Vs G.K. Alloy Steels P. Ltd. and Others. Company Law Board
|Case Number:||C.P. No. 7 of 2009|
|Party Name:||Dr. K. Balasundaram Vs G.K. Alloy Steels P. Ltd. and Others|
|Judges:||Smt. Lizamma Augustine (Member)|
|Citation:||2012 (108) CLA 538, 2011 (167) CompCas 269 (CLB)|
|Judgement Date:||June 10, 2011|
|Court:||Company Law Board|
Smt. Lizamma Augustine (Member), (Chennai Bench)
1. In this company petition filed under sections 397 and 398 of the Companies Act, 1956 ("the Act"), the petitioner is having 5, 185 shares, amounting to 14.80 per cent. of the issued, subscribed and paid up capital of the respondent-company. The company (G. K. Alloy Steels P. Ltd.), incorporated in 1980, was founded by the petitioner's father. The second and fourth respondents are his brothers. The father died intestate in 1999. Disputes arose in the respondent-company thereafter. According to the petitioner, the second and fourth respondents and their group are in possession of most of the properties. The demand made by the petitioner for partition of the properties was denied. It is alleged in the present petition that the respondents are managing the respondent-company as if it were a sole proprietary concern. The petitioner has approached the Company Law Board on seeing construction activities in the 10 acres of land belonging to the company in Coimbatore. The petitioner could understand that it was a joint development work along with the seventh respondent-company. On further inquiry, it was revealed to the petitioner that a total of 6.63 acres, out of the 10 acres, was sold to the two sons of the fourth respondent. They are arrayed in the petition as respondents Nos. 5 and 6. The sale value was remarkably less than the then prevailing market value. On the basis of a search effected by the petitioner, the creation of charge by equitable mortgage of company property was revealed. The mortgage was for the purpose of securing facilities to Akkammal Steel Private Limited, a company under the total control of the respondents. Though the property with an extent of 3.37 acres was released, the petitioner apprehends that it is a prelude for further alienation. This is evident, as claimed by the petitioner, from the annexed brochure issued by the seventh respondent. The petitioner is aggrieved by the feeling that his brothers are trying to divide and appropriate the property of their father to the total exclusion of the petitioner. Though the petitioner was the eldest in the family, he was not appointed as a director of the company. This deliberate exclusion was to facilitate their manipulations. The annual general meetings were defaulted; notices for general body meetings were not sent to him; and no information regarding the affairs of the company was given to him. He was not even permitted to enter the registered office of the company when he reached there on November 5, 2008 to inspect the register of members. The group led by the second respondent is conducting the affairs of the company in a way which amounts to oppression and mismanagement. The petitioner, on the basis of the above averments, seeks the following reliefs:
(a) A declaration making the sale of 6.63 acres of land belonging to the company to the fifth and sixth respondents as illegal, non est and void in law.
(b) An order setting aside the memorandum of understandings, powers of attorney, agreements, etc., relating to the sale and joint development of 10 acres of land belonging to the company in Coimbatore.
(c) A direction for investigation into the affairs of the company and surcharge the respondents to make good the loss caused to the company.
(d) Appointment of a committee consisting of the petitioner and one person from the respondents for the management of the company.
(e) Removal of the second and third respondents from the board of directors.
2. According to respondents Nos. 1 to 4, the company, founded by the late G. Kandasamy as a family company, was incorporated for the purpose of carrying on the business of manufacture of all varieties of alloys, steel castings, rounds, bars, billets and related activities. In the counter affidavit, filed by the first and second respondents, the position of the petitioner as holder of 14.81 per cent, of the paid-up share capital of the company is admitted. Denying the charge of appropriation of all the income from the estate of the late Kandasamy, the answering respondents say that they, along with their mother, were willing to accept the demand of the petitioner for partition. However, it did not materialize because of the reluctance of the petitioner to take into account the liabilities created by their deceased father. Details of the liabilities existing at the time of the demise of the founder and as on March 31, 2009 are tabulated and furnished along with the counter affidavit as exhibit R2. According to the respondents, the petitioner was always keeping himself away from the affairs of the company and he is interested only in having his share of the property without his share in the liability. While disposing of C. P. No. 33 of 2000 (Dr. K. Balasundaram v. G. K. Steels (Coimbatore) Ltd. (2003) 117 Comp Cas 293 (CLB)), filed by the petitioner in respect of another company in the group-G. K. Steels (Coimbatore) Private Limited, the Company Law Board gave him an option to exit. He did not avail of that opportunity. Instead, he has again approached the Company Law Board with the oblique purpose of securing an unreasonable partition of family assets sans liabilities.
3. According to the respondents, the pretended ignorance of the petitioner about the affairs of the company is false. The respondent-company along with other companies in the group became sick during the lifetime of the founder. The secured borrowing and/or obligations to banks and other institutions are detailed in the counter affidavit. The petitioner's averment regarding the creation of a charge to secure the borrowing of a group company-Akkammal Steel P. Ltd.-is admitted. But it is further clarified that the resolution authorising creation of the charge was passed on April 24, 1998 when their father was in charge of the affairs of the company. This liability has not been discharged and Dena Bank has approached the Debts Recovery Tribunal claiming Rs. 713 lakhs together with subsequent interest. Following the Debts Recovery Tribunal proceedings and threatened action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, both by Dena Bank and State Bank of India, landed property of the company admeasuring an extent of 6.63 acres, adjacent to the 3.37 acres of charged property, was sold to the fifth and sixth respondents. The sale proceeds were fully utilised for discharge of the liabilities of the company. The respondents thought it fit to sell the vacant land rather than suffer distress sale of the factory, factory land and building.
4. The respondents claim that and the land sold to the fifth and sixth respondents (6.63 acres). The joint development agreement dated May 23, 2008 entered into with the seventh respondent is annexed as exhibit R10. Denying the charge of personal enrichment, the respondents claim that the entire sale proceeds as well as the advance received under the JDA were utilised only for the discharge of the company's liabilities. Denying further the charge of mismanagement, the respondents say that the procedure of selling vacant land for the purpose of discharging liabilities and rehabilitating the company is a recognised mode recommended by the Board for Industrial and Financial Reconstruction. Contending that the petitioner is not a permanent resident in India, the respondents allege that he is in the habit of refusing to accept notices and summons. Even in proceedings before the Debts Recovery Tribunal, summons sent to the petitioner were returned unserved. Notices of the meetings were regularly sent to him. The petitioner was conveniently opting out of the management of all companies in order to evade responsibilities and liabilities.
5. The seventh respondent, a builder with whom the company had entered 5 into an agreement for joint development, has already invested substantial amount in the project. Accounts will be settled and profits will be determined, taking into account the rights of the parties in the company petition. The respondents pray that the Board may not interfere with the joint development scheme as it will harm the interests of the company.
6. In the rejoinder filed to the counter affidavit, the following contentions 6 are raised: "That the petitioner is further entitled to 33.33 per cent, of the shares and voting rights, out of the 14, 147 shares that belonged to the father (expired in 1999) and mother (expired in 2006), that the company was a deemed public limited company by operation of law until December 24, 2001, that the appointment of respondent No. 3 as additional director on July 4, 2001 is invalid, that the directorship of respondent No. 4 following his reappointment on October 29, 2001 has been lost for not holding the annual general meeting before September 30, 2002, that there has never been a validly constituted board from July 4, 2001 onwards that respondents Nos.. 3 and 4 have fabricated the statutory records and minutes, and there is collusion between respondent Nos. 3, 4 and 7 for their personal gains and thereby caused loss to the company, and the company was unable to file its financial statements from 2001, that the shares held by the deceased parents are not represented in the general meetings, that respondent No. 3 lost his directorship for not acquiring qualification shares, and non attendance of meetings and non regularisation in the general meeting, that the board meetings on October 24, 2005 and June 18, 2007 and the subsequent extraordinary general meetings on November 21, 2005 and July 12, 2007 are invalid, that the subject-matter of this company petition is the affairs of the company as against the rights of the petitioner as a major shareholder, that the order in C. P. No. 33 of 2000 in the matter of G. K. Steels has no relevance in this case, that the sold out properties are worth Rs. 9.55 crores, that the impugned sale deeds...
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