CP No. 32 of 2006. Case: Murari Mohan Kejriwal and Others Vs Shree Hanuman Cotton Mills Ltd. and Others. Company Law Board

Case NumberCP No. 32 of 2006
CounselFor Appellant: A.K. Mitra, senior advocate (Paritush Sinha, Jishnu Saha & Sabyasachi Chowdhury with him) and For Respondents: S.N. Mookherjee, senior advocate (Ratnanko Banerji, Shivratan Kakrana & Deepam Borah with him)
JudgesD.R. Deshmukh, Chairman
IssueCompanies Act, 1956 - Sections 173, 173(2), 205, 270(1), 283(1), 286, 290, 300, 397, 398, 399, 402, 403, 406, 409, 81(1A), 94(1)(d)
Citation2013 (116) CLA 50 (CLB)
Judgement DateJune 01, 2013
CourtCompany Law Board


D.R. Deshmukh, Chairman, (Principal Bench, New Delhi)

  1. The Patriarch Mr. Murari Mohan Kejriwal (MMK) P-1, his younger son Mahesh Kumar Kejriwal (MKK) P-3 and daughter-in-law Alka Kejriwal (AK) P-2 have filed a petition under sections 397, 398, 399, 402, 403, 406 and 409 of the Companies Act, 1956 ('the Act') alleging acts of oppression and mismanagement in Hanuman Cotton Mills Ltd. ('HCM') by the elder son Ramesh Kumar Kejriwal R-2 (RKK), his wife Mrs. Saroj Kejriwal (SK) R 4 and their son Ankit Kejriwal (ANK) R-3. Wellcast Products (P.) Ltd. (WC) R-5 a company promoted by RKK and Mr. Ranendra Nath Sen (RNS) whose appointment as an additional director in HCM is under challenge, have also been impleaded as R-5 and R-6. Admittedly one Pratpmtull Bagaria and members of his family promoted HCM on 12th July, 1952 and continued to run the affairs of HCM till 1989. HCM owned a valuable asset, i.e., approx. 24 acres of land situated at Railway Station Road, Fuleswar, P.O. Uluberia, Distt. Howrah. The said land was, at all material times used by Shree Hanuman Foundry & Engineering Co. Ltd. (HF) a sister company of HCM on a monthly rent of Rs. 30,000 payable to HCM.

  2. It is not disputed that the Kejriwal Family had carried out five registered partnership firms as under:

    (a) Subhadra Trading Co.

    (b) Murari Mohan Agarwalla

    (c) Subhadra Exports

    (d) Subhadra Scrap Flow, and

    (e) Vinay Steels

    Between 1975-76 and 1989-90 all the above partnership firms had made considerable profits and since most of the buyers/consumers in aforesaid firms were foundry works the Kejriwal family decided to take over both HCM and HF as a measure of forward integration of the family business. This resulted in the takeover of HCM and HF by the Kejriwal family in December 1989. In or about March 1990 the Government of India changed their policy with regard to the distribution and/or sale of scrap, arising out of the slag dump of Steel Authority' of India Ltd. As a result whereof, the businesses of the aforesaid firms gradually started to dwindle, and, eventually the Kejriwal family decided to wind-up the said firms, and they are now in the process of being wound up.

    In or about December 1989 after the takeover of the HCM and HF by the Kejriwal family the shareholding of the parties in HCM was as under:

    The authorised capital of HCM was Rs. 50 lakh divided into 50,000 equity shares of Rs. 100 each. Out of the aforesaid authorised capital 7,000 equity shares of Rs. 100 each aggregating to Rs. 7,00,000 had been subscribed, issued and paid up as projected above.

  3. Admittedly, during 1989-90 to 1997-98 HCM was trading in foundry products manufactured by HF.

  4. It is also not disputed that after the takeover of HCM and HF from Bagaria's, MMK, RKK and MKK were the directors in HCM. Admittedly the last page of the annual return filed by HCM for the year 1999 bears the signatures of MKK and the annual return filed by HCM for the year showing appointment of ANK as an additional director also bears the signature of MMK.

  5. It is also not disputed that dispute and differences having arisen between MKK and RKK in 1996, with the intervention of Dr. V.K. Kejriwal (VKK) uncle of MKK and RKK a family arrangement ('FA') was arrived between them under which the day-to-day administration and business of HF was to be looked after by RKK and the machines (belonging to the partnership business) was to be handled by MKK. The FA was signed and accepted by MMK, MKK and RKK. Admittedly the business of HCM dwindled between 1997 and 2005 and losses were reported. It is also admitted that MKK had stood personal guarantor for the loan advanced by Vysya Bank to HF.

  6. According to the petitioners, in or around the year 1996 irreconcilable disputes and differences arose by and between MKK and RKK, inter alia, on account of failure to settle diverse dues of HCM under the management of RKK as a result whereof uncle VKK intervened and was able to formalise a family arrangement (FA) between RKK and MKK on 10th June 1996. The said FS was reduced to writing (Annexure A-3) by VKK and signed by VKK, MMK, MKK and RKK on 29th September 2002 and read as under:

    (i) The foundry work will be looked after by Mr. RKK independently and he will be owning and accepting all liabilities of the same. Make proper admission before the people if they make MKK responsible.

    (ii) RKK will provide necessary paper for MKK to resign from the company.

    (iii) Machine work with all liabilities will be tackled by MKK, he will own and accept all the liabilities.

    (iv) Both are free to sell their properties to augment in business and for liquidation of debts.

    (v) They are supposed to provide monthly account to Sri MMK.

    (vi) The house and office expenses will be joint and would be paid 50: 50 from September 2002 onwards. Any of them can pay and subsequent accounting will be done, any less contribution from either will be made good.

    (vii) Indian Bank and Punjab National Bank will be tackled jointly and liability will be paid on 50: 50 basis including legal and other charges.

    (viii) Godown, office property will be sold and would be apportioned towards payment of Indian bank and Punjab National Bank.

    (ix) Mr. MKK has put forward his apprehension about personal guarantee he has given to Vysya Bank, which Mr. RKK will make arrangement so that Mr. MKK is not affected.

    (x) This arrangement will continue till the joint bank liability is liquidated.

    (xi) This arrangement has been done keeping in view that all concerned would act diligently and promote own business and bring the family out of the mess.

  7. The petitioners allege that in conformity with the letter and spirit of the aforesaid family arrangement MKK resigned from the Board of directors of the HF and continued to look after the machine work under a company "Parijat Vyapar (P.) Ltd." floated by him. However, RKK in violation of the understanding under the FA completely inter alia, failed and neglected to:

    (i) redeem the mortgage of the aforesaid Hanuman Foundry, inter alia involving the aforesaid land of the said company.

    (ii) accept the letter of resignation furnished by the Petitioner No. 3 from the Board of directors of Hanuman Foundry or to file the same with the Registrar of Companies, West Bengal (until August 2005).

    (iii) pay household and/or office expenses and taxes including electricity charges, as a result whereof, the petitioner No. 3 was constrained to pay taxes amounting to Rs. 50,000 in or about January 2005.

    (iv) clear the liabilities of Vysya Bank Ltd. Or redeem the mortgage of the aforesaid land of the said company notwithstanding the fact that all the other assets of the said Hanuman Foundry were sold ostensibly for payment of dues of the said Bank.

  8. It is further alleged that on or about 3rd February, 2005 there was an assertion of right by RKK before MMK that all the shares held in the capital of HCM by the petitioners group must be transferred to RKK and SK. This request was denied by MMK on the ground that HF was entrusted to RKK merely for the purpose of running the day-to-day affairs of HF and the question of transfer of the shares held by the petitioners group in HCM or HF to RKK and his family did not and could not arise.

  9. Strangely the petitioners allege that later on 11th February 2005 MMK was shocked to find that all the share-scrips in the capital of HCM and HF were missing from his almirah. Upon intervention by his brother VKK, RKK returned and restored possession of all the share-scrips in HCM and HF to MMK. This goes to show that in HCM and HF, being a family company, the share-scrips were always in the possession of the patriarch, i.e., MMK. It was also noticed by the petitioners that 700 equity shares of Rs. 100 each held by HF in the capital of HCM had been wrongfully and/or illegally and or fraudulently transferred to ANK on 22nd February, 2005 without the consent of MMK and MKK who were the Directors and shareholders of HCM.

  10. On 8th June, 2005, MMK and MKK were surprised to receive at their office copies of Form 2 and Form 23, notice of general meeting under section 81A of the Act, Explanatory Statement under section 173(2) of the Act and the extract of the EGM of HCM held on 17th May, 2005. Upon making enquiry as to the correctness of the statutory forms and the extract of the EGM, etc., RKK assured not to take any decision or file the aforesaid documents with the Registrar or Companies ('RoC'), West Bengal and to hold further discussions after the first anniversary of "Shraadh" of his mother Smt. Savitri Devi. After waiting till 25th November, 2005 MKK and MMK made enquiries from the office of RoC West Bengal on 13th and 16th January, 2006 and were shocked to find that RKK had wrongfully/illegally/fraudulently transferred 1,025 shares held by MKK in HCM held under folio 96 in his favour.

  11. Curiously though, MKK admits having signed the annual returns for the year 1998-99 on the last page merely on the advice of RKK and believing his representation to be true and correct even though it is alleged in the petition that since 10th June, 1996 irreconcilable disputes and differences had arisen between MKK and RKK. The said annual return for the year 1999 shows that RKK held 1025 shares under ledger folio 96. These shares were held by MKK under folio 96 prior to 1999. According to the petitioner under article 97 of the articles of association ('AoA') even though in the annual return for 1999 the shares held by MKK were shown as transferred to RKK yet, MKK continued to be a director of HCM. Under article 97 of the AoA of HCM the office of director ipso facto would fall vacant on his ceasing to hold his qualifying shares, i.e., ordinary shares of the normal value of Rs. 5,000 held in his own name solely or jointly with another. According to the petitioners, from 1999 onwards taking advantage of MKK's signature on all the last pages of the annual returns, RKK deceived MKK by allowing MKK to continue as director...

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