CP No. 3 of 2007. Case: G. Vijayalakshmi Alias Brinda and Another Vs Tirupur textiles (P.) Ltd. and Ors.. Company Law Board

Case NumberCP No. 3 of 2007
Party NameG. Vijayalakshmi Alias Brinda and Another Vs Tirupur textiles (P.) Ltd. and Ors.
JudgesLizamma Augustine, Member
IssueCompany Law
Citation[2011] 100 CLA 435
Judgement DateSeptember 06, 2010
CourtCompany Law Board


Lizamma Augustine, Member, (Additional Principal Bench, Chennai)

  1. This is a petition filed by two shareholders of a family company, under Sections 397 and 398 of the Companies Act, 1956 ('the Act'). The averments in the petition can be briefly stated as below:

    The first Respondent-company, Tirupur Textiles was incorporated on 19th January, 1956 and later the articles have been amended adopting a new set of articles with effect from 1st October, 1971. The textile mill, incorporated on 19th January, 1956, by G T Krishnasamy Naidu, the grandfather of the Petitioners and the second Respondent, was meant to be a closely held family company. Of the original 7,500 shares, only 500 went to an outsider, P Asher, who owned the licence for setting up the mill. Gradually, Krishnaswamy Naidu's two sons, G T K Sivasubramaniam and G T K Shanmugasundaram, came to own all the family's shares in the company. After the death of Sivasubramaniam on 10th December, 1984, his adopted son Vijaykrishna, the second Respondent, became the managing director of the company. Shanmugasundaram continued as a director till his death on 6th November, 2000. The second Respondent owns 51 per cent of the company's paid-up capital. The Petitioners who are daughters of Shanmugasundaram jointly own 31 per cent of the shares. On 12th March, 2007, they filed this company petition saying they are being excluded by the second Respondent' from participating in the day-to-day management of the company.

  2. In 1974, the paid-up capital was Rs. 7,50,000, divided into 7,500 shares of Rs. 100 each, out of which Krishnaswamy Naidu held 2,000 shares, his wife Vijayammal held 1,000 shares and their children, Rajasekaran, Sivasubramaniam, Parthasarathy and Shanmugasundaram held 1,000 shares each. Asher was allotted 500 shares. Thus, the entire paid-up capital except 500 shares was held by the family members. The shares held by Rajasekaran was transmitted in the name of his son (Ranganathan), following the adoption of Rajasekaran by T R Narayanaswamy (the paternal cousin of Naidu), and thereafter he was no longer associated with the company. After the death of Krishnaswamy Naidu and his wife, the 3,000 shares held by them were equally transmitted in the name of his three sons, Sivasubramaniam, Parthasarathy and Shanmugasundaram. Thus, prior to 31st December, 1974, 6,000 shares were being held by the three brothers, and the remaining 500 and 1,000 shares were held by Asher and Ranganathan, respectively. These three brothers were having 2,000 shares each in another company (Palani Andavar Mills) and Sivasubramaniam sold his 2,000 shares to Parthasarathy and in turn purchased 2,000 shares of Respondent No. 1-company from Parthasarathy, and, thus, became a 4,000 shares shareholder. Later, Ranganathan sold his 1,000 shares among Sivasubramaniam and Shanmugasundaram proportionately. The company had issued bonus shares on 31st December, 1974, 31st December, 1975, 31st December, 1985 and 31st March, 1995. As on 31st March, 2006, the paid-up capital of the company is Rs. 90 lakh consisting of 90,000 equity shares of Rs. 100 each. The first Petitioner holds 13,800 shares and the second Petitioner holds 13,800 shares. Except P Asher (non-family member), the members on the Board of the company were, Krishnaswamy Naidu and his sons.

  3. The third Respondent is the mother of the second Respondent, the fifth Respondent is a friend of the second Respondent and the fourth Respondent is son of P Asher who is associated with the company after the death of his father, and he is a director from 19th December, 1969, onwards. The sixth Respondent is an employee of the company and functioning as executive director from 18th February, 2002. The first Petitioner got married and settled in Hyderabad and the second Petitioner is settled in Coimbatore. After the death of the Petitioner's father on 6th November, 2000, the Petitioners who hold 31 per cent stakes, have been making representations to the second Respondent that the Petitioners should be associated with the management of the company and they be made the directors. Several attempts were made to settle the issue amicably. As evident from the shareholding pattern and the representation on the Board from time-to-time, each group had their nominees on the Board and they have been sharing the responsibilities as also the profits. The Petitioner's father and the second Respondent's father were alone associated with the management of the company as directors from the family. The other directors were nominees of these two families and they had no say in the management of the affairs of the company. Since the Petitioner's father had no male issues, the second Respondent has been avoiding the Petitioners and ignoring the demand to spin off one out of the three undertakings to the Petitioners. The second Respondent who is the majority shareholder is having absolute control of the affairs of the company, and enjoying the movable and immovable properties of the company. The company does not declare more than 15 per cent dividend even though it had a reserve of Rs. 9,64,50,354 as on 31st March, 2006. During the past nine years the company has expanded the business by replacing the old plant and machinery with modern, sophisticated and high productive machinery. The company has implemented voluntary retirement scheme by spending substantial amount. Nine wind mills were installed at a cost of Rs. 1,840 lakh and plant and machinery worth Rs. 2,628 lakh was imported. Besides, Rs. 63 lakh has been incurred towards voluntary retirement scheme. The above facts will be evident from annexures A2 and A3 documents. The Petitioners have not been receiving notices for extraordinary general meeting ('EGM') and annual general meeting ('AGM') for the past six years.

  4. The Petitioners are not given notice of the EGM and AG Ms for the past six years. They did not challenge the same since negotiations were progressing. The second Respondent has treated their silence as an approval of the various acts and mismanagement of the company. The company has three units, the second Respondent has master minded a scheme to settle all the workmen of Unit II and sell the 14 acres of land belonging to the company in Peelamedu. The company has constructed a bungalow worth several crore, and the second Respondent is in exclusive possession of it without paying any rent. This would show that he is not bothered about the interest of the company. The second Respondent, in the name of modernisation is disposing of the old machinery at book value and siphoned off the differential amount. There is nobody on the Board to protect the interest of the Petitioners since all the other members are the nominees of the second Respondent. The second Respondent as managing director is being paid a salary of Rs. 7 lakh and the sixth Respondent (executive director) is also being paid Rs. 8 lakh towards salary and other purposes. The sixth Respondent has been reappointed for a period of five years from 1st November, 2005, at the EGM dated 28th December, 2005. There are several inter-company transactions reflected in the balance sheet for the year 2004 to 2006 which are detrimental to the interest of the company. Those companies are under the control of the second Respondent and he is being benefited illegally, thus, diverting the profits of the company to his group concerns. The actual income of the company is not disclosed in its books. The net profit disclosed in the balance sheet ending 31st March, 2006, is very meagre. It must earn a net profit of Rs. 5 crore per annum as against Rs. 48 lakh shown in the balance sheet. An investigation is required in this matter. As on 24th December, 1975, the company had three subsidiaries, viz., Respondent Nos. 8 and 9 and Tirupur Gin and Press (P.) Ltd. Currently Respondent No. 8 and Respondent No. 9 are no longer subsidiary companies of Respondent No. 1. After the introduction of Section 43A, the company became a public limited company with effect from 1st April, 1976.

    The second Respondent purchased the shares of Respondent No. 8 and Respondent No. 9 companies at a very nominal value and deprived the company of actual market price. These two companies along with other group companies are entering into various contracts with the company, which are detrimental to the interest of the company and minority shareholders. The eighth and ninth Respondents were profit making companies even while they were subsidiaries of the company. It is not known how these two companies ceased to be the subsidiaries of the company. The entire plant and machinery, land and building of the three units are mortgaged to Andhra Bank, Tirupur and charges have been created in respect of the loan sanctioned from time-to-time. The Petitioners did not interfere in this matter because they were awaiting a settlement by way of an exit from the company.

  5. The company has been incorporated for the benefit of G T K family, and as on today the family is in management of the company. The following are the seven shareholders:

    and nbsp; 

    and nbsp; 



    S Vijayakrishna (Respondent No. 2) 



    Chandrakumar P Asher (Respondent No. 4) 



    S Krishnakumari (Respondent No. 3) 



    R Johendran (Respondent No. 5) 



    G Vijayalakshmi (Petitioner No. 1) 



    S Nanditha (Petitioner No. 2) 



    K Chelladurai 


  6. After the death of the Petitioners' father, their branch has been excluded from participation in the management and enjoying other benefits as shareholders. They have a legitimate grievance of being oppressed by the majority shareholders. Their claim to be on the Board is justified. The Petitioners did not raise a dispute because the second Respondent has been negotiating for an amicable settlement in the sharing of the profits of the company. Taking undue advantage of this fact, the Respondents had...

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