C.P. No. 38 of 2007. Case: Satish Chandra Jha and Another Vs Orichem Drugs & Pharmaceuticals (P.) Ltd. and Others. Company Law Board
| Case Number | C.P. No. 38 of 2007 |
| Judges | Smt. Vimla Yadav, Member |
| Issue | Companies Act, 1956 - Sections 166, 171, 172, 190, 193, 194, 210, 225, 255, 255, 256, 257, 260, 284, 397, 398, 53 |
| Citation | 2012 (110) CLA 460 |
| Judgement Date | May 25, 2012 |
| Court | Company Law Board |
Order:
Smt. Vimla Yadav, Member, (Principal Bench, New Delhi)
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In this Company Petition No. 38 of 2007 in the case of Orichem Drugs & Pharmaceuticals (P.) Ltd. and others alleging oppression and mismanagement under section 397/398 of the Companies Act, 1956 ('the Act') the petitioner's case is that the late Shri Jaswantlal Jha, the father of petitioner No. 1 and the deceased R-2 started his business of trading of various drugs during the year 1929 under the name and style of "Bombay agencies" which continued for three years, during the year 1932-33 Shri Jaswantlal Jha also started manufacturing activities under the name and style of "Oriental Chemical Works" at Indore (MP). Owing to increasing work responsibilities, Late Shri Jaswantlal Jha, introduced his two elder sons, i.e., Shri Prabhash Chandra Jha, the R-2 and Shri Chandra Shankar Jha as partners into the business and, thus, his sole proprietary business was converted into a partnership with three partners, i.e., (1) Shri Jaswantlal Jha, (2) Shri Chandra Shankar Jha and (3) Shri Prabhash Chandra Jha. On 22nd August, 1957, Shri Jaswantlal Jha expired and very next day on 23rd August, 1957, the partnership was reconstituted and Shri Satish Chandra Jha (the present petitioner No. 1) and his younger brother Shri Sharad Chandra Jha, were inducted as partners having equal rights into the business. Therefore, on 23rd August, 1957, all four sons of late Shri Jaswantlal Jha became the partners in "Oriental Chemical Works" having equal rights and liabilities and the partnership continued till 3rd July, 1979. On 20th June, 1979, Shri Chandra Shankar Jha expired and the partnership firm was reconstituted and it being a family business, Smt. Manbai Jha (R-5) the widow of Late Shri Chandra Shankar Jha was inducted as partner in his place having equal rights and liabilities. On 4th July, 1979, the partnership deed was executed wherein it was once again reiterated that all the four partners, i.e., (1) Prabhash Chandra Jha, (2) Shri Satish Chandra Jha, (3) Shri Sharad Chandra Jha and (4) Smt. Manbai Jha W/o Late Shri Chandra Shankar Jha shall have equal rights in the family business under the name and style of "Oriental Chemical Works". On 2nd May, 1986, all the four partners of "Oriental Chemical Works" promoted a company under the name and style of "Orichem Drugs & Pharmaceuticals (P.) Ltd." and introduced the R-1-company as a partner with effect from 23rd June, 1986. On 2nd November, 1986, the partners of "Oriental Chemical Works" entered into an agreement wherein the whole of the business of the partnership firm including the entire assets and liabilities of the family business as on 2nd November, 1986, were taken over by the newly incorporated company, i.e., Orichem Drugs & Pharmaceuticals (P.) Ltd. All the four partners of the firm became the first directors of the R-1-company. On 23rd October, 2000, the second generation of the four families, including the R-3 and 4, were offered the post of 'executive' in the company, vide letter dated 23rd October, 2000. However, the R-3 and 4 did not accept the invitation. The petitioner No. 2 along with the R-7 accepted the offer and they were inducted in the company as 'executive' and subsequently they were offered directorship in the company, vide letter dated 14th September, 2002. Admittedly, the R-3 and R-4 voluntarily remained outside the company and never tried to work for the family company. By the end of the financial year 2002 shareholding in the company of all four families was 25 per cent each. However, during March 2003 Smt. Manbai Jha, the R-5, the widow of Shri Chandra Shankar Jha, who does not have any issue, transferred 10 per cent of her shareholding to the petitioner No. 2 and his wife and 10 per cent shares to the R-7 for consideration and retained balance 5 per cent shares in her name, thereby increasing the shareholding of the petitioners' family and that of R-7 to 35 per cent each which is also undisputed.
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The petitioners' case is that R-3 and R-4 are not even the shareholders of the company. R-3 and R-4 are having parallel business in competition with the company manufacturing similar products which are manufactured by the R-1-company under a registered trade mark. My attention was drawn to the list of the products manufactured by the R-1-company for which the R-1-company and R-5 had issued a caution notice to the public against the deceitfully similar products manufactured by the R-3 and R-4. The R-2 to R-4 even issued deepawali greetings card with the names of the similar products. Misleading letter dated 13th August, 2002 was addressed by the R-3 to the shopkeepers showing the products of the company as that of his own products. It was argued that the presence of the R-3 and R-4 in the R-1-company is highly prejudicial to the interest of the company and its shareholders and liable to be declared as nullity.
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Further, the petitioners' case is that no annual general meeting ('AGM') dated 30th September, 2006 was convened. It was pointed out that on 8th October, 2005, the R-3 and R-4 being sons of the R-2 were inducted as additional directors of the R-1-company. The fact that the R-3 and R-4 were inducted into the company without even being shareholders of the company goes to show that it was only a family precedence and values that prompted the petitioners to involve the R-3 and R-4 also into the company. However, the respondent Nos. 3 and 4 on becoming director of the company started acting arbitrarily and forcefully took charge of the entire affairs of the company. They neither convened nor gave any notice of the 20th AGM for the financial year ended 31st March, 2006, as shown to have been convened by them on 30th September 2006. No notice for AGM was issued to the petitioners and the same has not been brought on record by the respondents. The petitioner No. 2 through his wife, who is also a member of the company, vide letter dated 11th December, 2006 intimated non-receipt of notice and accounts. Belatedly with the CA No. 9/2010, the respondents have frivolously placed on record illegally obtained UPC Stamp without issuing and bringing any notice on record and have not uttered any word about issue of notice through UPC. However, it was pointed out by the respondents that since the benefit of increase in remuneration was given to the petitioners also, the petitioners at this stage cannot object to the validity of the AGM. It was argued that any assumption that since the Board meeting dated 2nd September, 2006 was attended by the petitioners and the decision to convene AGM on 30th September, 2006 was taken thereat, the petitioners were aware that the AGM will take place on 30th September, 2006 is against the scheme of sections 53 and 171 of the Act. It was argued that the judgment of the hon'ble Supreme Court relied by the respondents at the time of arguments V.S. Krishnan v. Westfort Hi-tech Hospital Ltd. [2008] 83 CLA 371 (SC)/[2008] 3 SCC 363 squarely does not apply to the respondent's case, as in that case under para 19 it is clearly mentioned that the notice of the AGM was on record and it was also published in two newspapers, while in the present case both the crucial aspects are missing. It was argued by the counsel for the petitioners that the objective behind preparing frivolous documents to show AGM behind the back of the petitioners was only to show confirmation of appointment of R-3 and R-4 from additional director to regular ordinary director without convening any meeting. The minutes of the AGM dated 30th September, 2006, not being in conformity with the provisions of section 193 of the Act, presumption under section 194 of the Act, cannot be drawn in favour of the respondents. It was argued by the counsel for the petitioners that the 20th adjourned AGM is illegal and void. The minutes of the 20th AGM shown to be held on 30th September, 2006 was to consider all agenda items except passing and adoption of the accounts. Therefore, as per the minutes, the only agenda item which was adjourned was adoption of accounts. The statutory auditors of the company vide their letter dated 2nd September, 2006 had forwarded the annual accounts of the company, duly certified by them to the R-1-company and the annual accounts were available to the respondents on 2nd September, 2006 itself. Therefore, it is utterly false to say that the annual accounts were not available to the respondents and this resulted into delay in placing of the same before the members at the AGM dated 30th September, 2006. Section 166 and section 210 of the Act, no where permits any company to delay placing of the annual accounts beyond 30th September of the month, unless permitted by the Registrar of Companies ('RoC'). In the present case no permission from the office of the RoC has been secured for extension of time for placing annual accounts by the respondents and, therefore, the adjourned AGM dated 6th December, 2006 is illegal and resultantly all decisions taken thereat are void ab initio. It was further argued that the contention of the respondents that since the petitioners had attended the adjourned AGM, the validity of the same cannot be challenged is ill designed for two reasons firstly the presence of the petitioners can not validate an unlawful act and secondly the petitioners and the statutory auditors of the company had strongly objected to the validity of the adjourned AGM and their objections were not recorded in the minutes prepared by the...
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