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2004 DIGILAW 554 (DEL)

VINNI CHEMICAL PVT. LTD. v. AKHIL KUMAR SANGAL

2004-07-30

A.K.SIKRI

body2004
A. K. SIKRI,j. ( 1 ) SCOPE of dispute involved in this appeal is narrow. The Company Law Board (hereinafter called as the Board ) Principal Bench, New delhi has passed the impugned order dated 13th December, 2002 in CP No. 64/2001 filed by the respondent herein. The said petition by the respondent herein was filed under sections 397 and 398 of the Companies Act, 1956 (for short the Act ) alleging oppression and mismanagement on the part of the appellants herein. In fact perusal of the impugned order would show that this allegation of the respondent is not substantiated and petition to that effect is rejected and, therefore, naturally, the appellants have no grievance against that part of the order. However, in the process, while deciding the company petition the Board also gave directions to the appellants to refund rs. 3. 58 lacs to the respondent herein within two months of the said order. Feeling aggrieved against this part of the order present appeal is preferred. ( 2 ) I may quote para 4 of the impugned order which gives indication of events which took place and also the circumstances under which order of refund of amount to the respondent herein by the appellants was passed: "i have considered the pleadings and arguments of the counsel. The main complaint of the petitioner is that the jain group has not adequately financed the company in terms of the MOU due to which the performance of the company has suffered, while according to the Jain Group, in spite of their having invested nearly Rs. 50 lakhs, the company is not doing well as the project is not a viable one. It is on record that the petitioner was in charge of the company right from 1994 when the company took up Coolant project and as per the records made available, the turn over of the company in 1998-99 was Rs. 1. 7 lakhs with a loss of Rs. 12 lakhs and the turn over for the year 1999-2000 was Rs. 8. 1 lakhs with a loss of Rs. 12. 6 lakhs. In the year 2000-01, the turn over was Rs. 13. 1 lakhs with a loss of Rs. 3. 6 lakhs. From the Annual report filed by the petitioner after the conclusion of the hearing, it is seen that for the year 2001-02, the turn over had come down to Rs. 1 lakhs with a loss of Rs. 12. 6 lakhs. In the year 2000-01, the turn over was Rs. 13. 1 lakhs with a loss of Rs. 3. 6 lakhs. From the Annual report filed by the petitioner after the conclusion of the hearing, it is seen that for the year 2001-02, the turn over had come down to Rs. 4. 3 lacs with a loss of Rs. 7. 1 lacs,. The total cumulative loss is about Rs. 35 lacs. From the Balance Sheet, I also find that the jain Group has inducted nearly Rs. 43 lacs as unsecured loan. From the financial performance of the company, it is clear that as contended by the Jain group, the project does not appear to be a viable one and the claim of the petitioner that the Jain Group has not funded the company is also not borne on the facts as they invested over rs. 40 lacs as unsecured loans. In view of the statement of the counsel for the respondents that the Jain group is prepared to take the petitioner on the board if he is so willing and that proportionate shares will be issued to the petitioner as and when further shares are issued and that they would not dispose of the assets of the company or transfer its business, and that the company would send all notices for general meetings to the petitioner by registered post, nothing appears to survive in the petition. However, the fact is that the Jain Group holds 79. 5% shares in the company and the petitioner having only 20. 5% cannot have any say in the affairs of the company, especially in view of the present disputes. Without being in the active management of the company, he cannot be expected to keep his loan of rs. 1. 85 lakhs and also cannot be denied reimbursement of the expenses of rs. 1. 73 lakhs as recorded in the annual report for 2001-02 under the heard "for services". Therefore, it is but equitable that the company refunds rs. 3. 58 lakhs to the petitioner within 2 months of this order and accordingly I direct so. 1. 85 lakhs and also cannot be denied reimbursement of the expenses of rs. 1. 73 lakhs as recorded in the annual report for 2001-02 under the heard "for services". Therefore, it is but equitable that the company refunds rs. 3. 58 lakhs to the petitioner within 2 months of this order and accordingly I direct so. As far as the shares held by him in the company is concerned, I do not propose to pass any order, in view of the have accumulated losses except that, if the respondents are desirous of purchasing the shares of the petitioner, they may do so on consideration mutually acceptable to both the sides. " ( 3 ) IT may be recapitulated that the company was earlier with Goel group and the said group had inducted respondent herein as a Director on the Board of the company to look after the Randd, Marketing, Business Development etc. keeping in view his managerial and technical expertise. However, as the company was in need of additional funds which could not be mobilized by Goel group, they entered into an MOU with Jain group on 26th May, 1999 which, inter alia, provided the investment by Jain group on the purchase of stakes of Goel group by Jain group. In the company petition filed by the respondent herein his allegation was that the Jains were mismanaging the affairs of the company and they had not brought the adequate finances because of which the company was even suffering losses. There is an indication that this grievance of the respondent herein was not found to be justified. The Board observed that although the respondent herein was in- charge of the company right from 1994 during his period the turnover of the company was low and the losses substantial. After taking over of the company by Jain group the turnover increased and losses reduced substantially. The Board was also of the opinion that the project does not appear to be a viable one which was the reason for losses even when the Jain Group had invested over Rs. 40 lacs as unsecured loans. However, no final opinion was expressed in view of certain statements of the appellants and taking note of the fact that the Jain group holds 79. 5 per cent shares in the company whereas the respondent herein has only 20. 40 lacs as unsecured loans. However, no final opinion was expressed in view of certain statements of the appellants and taking note of the fact that the Jain group holds 79. 5 per cent shares in the company whereas the respondent herein has only 20. 5 per cent share holding and thus the respondent herein is not in the active management of the company he was not expected to keep his loan of Rs. 1. 85 lacs and also could not be denied reimbursement of the expenses of Rs. 1. 73 lacs as recorded in the annual report for the year 2001-02, the board directed the company to refund the said sum of Rs. 3. 58 lacs to the respondent herein. ( 4 ) ADMITTEDLY, in so far as refund of the aforesaid amount is concerned, there was no prayer made by the respondent herein in the petition. However, perusal of the impugned order shows that it was argued by learned counsel for the respondent herein that there were several reasons, including failure on the part of the company to repay him Rs. 1. 85 lacs being unsecured loans and reimbursement of imprest amount of Rs. 1. 72 lacs (sic. Rs. 1. 73 lacs ?) towards expenses incurred by him, which forced the respondent herein to resign as Managing Director and also as Director with effect from 20th April, 2000. ( 5 ) IT was argued by Mr. D. Moitra, learned counsel appearing for the appellants that in the absence of any prayer, the Board does not have any jurisdiction under the provisions of the Act to pass such an order for refund of the amount and in support of this, reliance is placed on the order of the Board in the case of Naresh Trehan Vs. Hymatic Agro equipment (P) Ltd. and others reported as (1999) 4 Comp LJ 369 (CLB ). ( 6 ) ON the other hand, Mr. Jayant Tripathi, learned counsel for the respondent herein submitted that in fact there was no adjudication upon the contentions raised by the respondent herein inasmuch as the appellants had made a statement before the board that they would take care in future to see that the respondent herein received all the notices by registered post and the Board was competent to pass such an order to do complete justice in the matter. ( 7 ) WHEN a petition under Sections 397 and/ or 398 is filed before the Board, it powers on such an application are delineated in Section 402 of the Act. This Section is reproduced for ready reference: "402 Powers of [tribunal] on application under section 397 or 398- without prejudice to the generality of the powers of the [tribunal] under section 397 or 398, any order under either section may provide for- (a) the regulation of the conduct of the company s affairs in future; (b) the purchase of the shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand; an any of the following persons, on the other, namely:- (i)the managing director, (ii)any other director, (v) the manager, upon such terms and conditions as may, in the opinion of the [tribunal], be just and equitable in all the circumstances of the case; (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned; (f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against ah individual, be deemed in his insolvency to be a fraudulent preference; (g) any other matter for which in the opinion of the [tribunal] it is just and equitable that provision should be made. " ( 8 ) CLAUSES (a) to (0 are obviously not applicable to the present fact situation. What needs to be decided is as to whether in exercise of its powers under Clause (g) such an order can be passed purportedly on the ground that it would be "just and equitable". " ( 8 ) CLAUSES (a) to (0 are obviously not applicable to the present fact situation. What needs to be decided is as to whether in exercise of its powers under Clause (g) such an order can be passed purportedly on the ground that it would be "just and equitable". ( 9 ) I may point out at the outset that the expression just and equitable appears in section 433 (f) of the Act as well which stipulates that the company can be ordered to be wound up if in the opinion of the court it is "just and equitable". It may be mentioned that Section 433 provides for some other circumstances in clauses (a) to (e) and (g) to (i) also when the company can be ordered to be wound up. In the corresponding provision contained in the Companies Act, 1913 the words just and equitable specifying the grounds for winding up came up for consideration before the Supreme Court in the case of Rajahmundry Electric Supply corporation Ltd. Vs. A. Nageshwara Rao and others reported as AIR 1956 SC 213 and the court held that these words are not to be read as being ejusdem generis with the preceding words of enactment. Taking clue from there one may interpret clause (g) contained in Section 402 of the Act. Section 402 stipulates powers of the Board when application is made to it under Section 397 or 398. In order to effectively deal with such an application complaining oppression and mismanagement wide powers are conferred upon the adjudicating authority. The nature of these powers is in specific terms as can be found from the reading of Clauses (a) to (f ). Clause (g) is a residual Clause which gives powers to the Board to provide for any matter for which the Board is of the opinion that it just and equitable that such a provision should be made. In the instant case, the Board was dealing with the application of the respondent herein wherein he alleged oppression and mismanagement on the part of the appellants herein. In the instant case, the Board was dealing with the application of the respondent herein wherein he alleged oppression and mismanagement on the part of the appellants herein. The order although gives an indication that much fault could not be found with the appellants herein, however, there is no adjudication or final opinion expressed in this behalf because of the statement made by the counsel for appellants herein on the basis of which the Board observed : " In view of the statement of the counsel for the respondents that the jain group is prepared to take the petitioner on the Board if he is so willing and that proportionate shares will be issued to the petitioner as and when further shares are issued and that they would not dispose of the assets of the company or transfer its business, and that the company would send all notices for general meetings to the petitioner by registered post, nothing appears to survive in the petition". ( 10 ) NONETHELESS, the Board was conscious of the fact that the Jain group holds 79. 5 per cent shares whereas the respondent herein holds 20. 5 per cent and therefore would not have any say in the affairs of the company specially in view of the disputes between the parties. The Board was influenced by this significant factor to conclude that because of this kind of share holding of the two groups the respondent herein would not be in the active management of the company and therefore he could not be expected to keep his loan of Rs. 1. 85 lacs and was also entitled to reimbursement of the expenses of Rs. 1. 73 lacs incurred by him and found it equitable that the company refunds this amount of rs. 3. 58 lacs to the respondent herein. Keeping in view the aforesaid ground realities, passing of such an order for paying back the amount due to the respondent herein by the company may not be unreasonable. After all liability in this behalf by the company is not denied. The respondent herein has to recover this amount from the appellants. There may not be any specific prayer but perusal of the order shows that grievance to this effect was made and this was an instance cited to allege oppression and mismanagement. After all liability in this behalf by the company is not denied. The respondent herein has to recover this amount from the appellants. There may not be any specific prayer but perusal of the order shows that grievance to this effect was made and this was an instance cited to allege oppression and mismanagement. ( 11 ) THEREFORE, the Board was, in the facts and circumstances of the case, entitled to make provision towards this and give directions on the ground that the same was just and equitable. Order of the Board in the case of Naresh Trehan (supra) would be of no help to the appellants as it does not lay down in legal principle in this behalf. A reading of the said order would make it clear that CA 259/1998 was filed by the petitioner in the said case claiming back the unsecured loans and the said application was disposed of on the statement made by the respondents therein to the effect that after the reconciliation of the accounts whatever amount may be due to the petitioner would be paid to him. ( 12 ) THE appeal is, therefore, without any merit and is accordingly dismissed without any order as to costs.