Citation Codes

Equivalent Citations

citation codes

Case Number

L.P.A No. 127 and 128 of 2000

Attorney(S)

Mr. B.Raviraja, Advocate for Appellant.
Mr. R.Senthilkumaran, Advocate for Respondents.

Judges

K.Govindarajan
N.Kannadasan, JJ.

Acts

Sections 397, 398, 402 and 403 of the Companies Act, 1956,
Section 397 and 398 of the Companies Act, 1956

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Smart Summary

Judgment Summary — N. Kannadasan, J.

Factual and Procedural Background

The appellants (who appear as respondents in certain Civil Miscellaneous Appeals and as petitioners before the Company Law Board) filed a petition under Sections 397, 398, 402 and 403 of the Companies Act, 1956 before the Company Law Board, Chennai, alleging oppression and mismanagement in M/s. Anugraha Jewellers Limited, including irregularities in allotment of shares, siphoning off of company funds as loans and advances to allegedly fictitious companies, wrongful appointment of a Managing Director, irregular removal of appellants from the Board, and an invalid Annual General Meeting held on 4.9.1996.

The Company Law Board, after hearing, appointed an independent Administrator (Aghoramurthy). The appellants challenged that appointment by filing an appeal; the learned single Judge of this Court allowed the appeal on 17.12.1999 and set aside the order appointing the Administrator. Those respondents (who had been parties before the Company Law Board) filed the present appeals against the learned Judge's order.

Legal Issues Presented

Whether the appellants have made out a case for relief on the ground of prevention of oppression and mismanagement in the affairs of the company?
Whether the order of the learned single Judge (which set aside the Company Law Board's appointment of an Administrator) is sustainable in law in the facts and circumstances of the case?

Arguments of the Parties

Appellants' Arguments

The learned Judge improperly set aside the Company Law Board's order by relying merely on legal provisions without adducing valid reasons.
The Company Law Board had considered extensive evidence (including objections about the Annual General Meeting of 4.9.1996) and appointed an Administrator after going into details; that appointment should not have been set aside.
A Commissioner was appointed during the pendency of the appeal and submitted a report which, according to appellants, substantiated their case.
The resolution passed at the Annual General Body meeting was invalid, and that invalidity warranted the relief sought in the Company petition.

Respondents' Arguments

The Company petition was not maintainable because the appellants had initiated parallel proceedings in civil court and criminal complaint procedures — a conduct aimed at harassing the respondents.
The Company Law Board considered the facts and materials and reached conclusions adverse to the appellants; the learned Judge's interference was unwarranted.
The allegations of irregularity (including those about conduct of the AGM and mismanagement) were not based on true facts and were not proved before the Company Law Board.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Vivek Goenka v. Manoj Sonthalia, 1992 (2) M.L.J. 163	The principle of recognising corporate democracy and limiting judicial interference in day-to-day management of a company.	The court relied on this decision to support the view that the appellants were not entitled to the relief claimed and that courts should not interfere with routine management matters.
G. Kasturi & Another v. N. Murali & Others, 1992 (74) Com. Cases 661 (Madras)	The same overarching principle that courts should respect the board's managerial domain and not unduly interfere in corporate administration.	The court invoked this decision as authority for the limited jurisdiction to disturb corporate management and to uphold the learned Judge's refusal to grant relief to the appellants.
Nurcombe v. Nurcombe & Another, 1983 (3) Com. L.J. 163 (CA)	Authority supporting non-interference in ordinary corporate decisions and recognition of corporate governance norms.	The court relied on this authority, together with the others, to conclude that the appellants were not entitled to relief for oppression or mismanagement on the material before the Company Law Board.

Court's Reasoning and Analysis

The court's analysis proceeded by comparing the appellants' allegations and the findings recorded by the Company Law Board with the materials before the learned single Judge:

The Company Law Board had considered the allegations (share allotment, transfer and non-receipt of share certificates) and found that the appellants did not substantiate non-receipt: share certificates applied for had been dispatched. The Board declined to enter into a controversy about alleged fabrication of transfer instruments.
With regard to complaints about the Annual General Meeting held on 4.9.1996, the Company Law Board noted that such complaints are not normally entertained in petitions under Sections 397 and 398, and that the decisions of a democratically conducted General Body may not be subjected to routine judicial scrutiny. The Board nonetheless appointed an Administrator, an action the learned Judge later set aside.
The court observed that the appellants had not proved the serious allegations, including the principal claim that Rs. 65 lakhs had been siphoned off: documentary evidence (cheques) showed joint signatories — one being an appellant — undermining a contention that those transactions occurred without appellants' knowledge.
The Commissioner's report filed during the pendency of the appeal related to transactions not pleaded as irregularities in the Company petition; the court therefore treated those subsequent materials as irrelevant to the correctness of the Company Law Board's order.
The court found the Company Law Board had not established mismanagement on the basis of material evidence; in several respects the Board's own findings were adverse to the appellants (for example, stock shortage allegations were contradicted by a finding of excess stock).
The appellants were criticized for not approaching the Company Law Board with clean hands: they had initiated civil suits that sought essentially identical relief to the Company petition and subsequently withdrew those suits only after a preliminary objection was raised about maintainability. The court treated this conduct as undermining their case for equitable relief.
Applying established authorities, the court emphasized the duty to recognise corporate democracy and the limited scope for judicial interference in the day-to-day management and administration of a company, particularly when disputes between promoters are at the core.
On the basis of the unfavourable factual findings, the lack of cogent material proving oppression or mismanagement, and the limited jurisdiction to intrude into corporate management, the court concluded that the learned Judge's order (which had set aside the Administrator's appointment) was legally sound.

Holding and Implications

Holding: The appeals are dismissed; the court held that the appellants did not make out a case of oppression or mismanagement and that the order of the learned single Judge is valid in law.

Implications and direct effects:

The learned Judge's order setting aside the appointment of an Administrator is upheld.
There will be no order as to costs.
Connected Civil Miscellaneous Petitions (CMPs) are dismissed.
The opinion does not announce or claim to establish any new legal precedent; it applies existing authorities on recognition of corporate democracy and restraint on judicial interference in company management.

Source: Summary is strictly based on the facts, arguments, findings and citations set out in the provided opinion text authored by N. Kannadasan, J.

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K.R.S Mani And Three Others v. Anugraha Jewellers Limitd, 473, Big Bazaar Street, Coimbatore-641 001 And Others S

N.Kannadasan, J.

1. Appellants are respondents in C.M.A and the petitioners before the Company Law Board. The respondents 1 and 2 in L.P.A No. 127 of 2000 and the respondents 10 and 11 in LPA 128 of 2000 are the appellants in the C.M.A No. 1312 of 1998 and the respondents 1 and 2 before the Company Law Board. The respondents 10 and 11 in L.P.A No. 127 of 2000 and respondents 1 and 2 in L.P.A No. 128 of 2000 are the appellants in C.M.A No. 1391 of 1998. The other respondents are the respondents in the above CMA and the respondents in the Company Petition.

2. The appellants herein have filed a petition under Sections 397, 398, 402 and 403 of the Companies Act, 1956, before the Company Law Board Chennai for prevention of oppression and mismanagement in the affairs of the Company viz., M/s. Anugraha Jewellers Limited, Coimbatore. It is alleged that there has been irregularity in the allotment of shares to them that the funds of the company have been siphoned off in the form of loans and advances to certain fictitious companies, that the appointment of the Managing Director is neither legal nor proper, that the appellants were removed from the Board in a irregular manner, that the Annual General Body meeting was not conducted in an orderly manner and alleged the Annual General Body meeting held on 4.9.1996 was invalid and illegal and that in order to prevent the oppression and management of the company, the relief prayed for in the petition should be ordered.

3. The said petition was opposed by the respondents before the Company Law Board that the petition is not maintainable in view of the fact that the petitioners have approached the Civil Court in respect of the same relief as claimed in the said petition and a criminal complaint was also lodged and the petitioners have initiated parallel proceedings and their act is nothing but to harass the respondents and the the General Body Meeting was conducted in accordance with law and none of the allegations are based on true facts. The Company Law Board has passed an order dated 23.9.1998 to the effect that it would be appropriate to entrust the management of the company to an independent person so that the inter dispute between the promoters do not affect the business of the company and accordingly one Aghoramurthy, former Regional Director of the Department of Company Affairs, was appointed as the Administrator. Aggrieved against the same, the above C.M.A was filed and the learned Judge of this Court by considering various relevant facts and circumstances of the case, with reference to the legal provisions has allowed the said appeal on 17.12.1999 and set aside the order of appointment of Administrator. Aggrieved against the said order, the above appeals are filed by the appellants herein.

4. The learned counsel for the appellants contended that the learned Judge has without adducing any valid reason by merely relying upon the legal provisions, has set aside the order of the Company Law Board, which is not permissible in law. Learned counsel further contended that inasmuch as a specific plea was raised with regard to the manner in which the Annual General Meeting was held on 4.9.1996 and extensive arguments were advanced before the Company Law Board and by considering all the facts and circumstances of the case, the order was passed by the Company Law Board, which has also gone into all the details and finally appointed an administrator, and as such the said order ought not to have been set aside. The learned counsel further submitted that during the pendency of the appeal a Commissioner was appointed who has submitted a report which substantiates the plea made by the appellants. It is also contended that inasmuch as the resolution which was passed in the Annual General Body meeting is not valid, the learned Judge ought not to have set aside the order of the Company Law Board.

5. Per contra, the learned counsel for the respondents has contended the appellants have not substantiated their plea before the Company Law Board with reference to the conduct of the Annual General Body meeting and other irregularities were not proved and the company petition is filed only to harass the respondents and the learned Judge has passed the order after going through the entire materials placed on record, and as such no interference is called for.

6. The points for consideration are:

(a) Whether the appellants have made out a case for the grant of the relief on the ground of prevention of oppression and mismanagement of the company affairs?

(b) Whether the order of the learned single Judge is sustainable in law in the facts and circumstances of the case?

7. We have considered the rival submissions of the parties.

8. Admittedly, the company petition is filed under Sections 397, 398, 402 and 403 of the companies Act, 1956. The relevant Chapter VI in the Companies Act deals with “PREVENTION OF OPPRESSION AND MISMANAGEMENT.”

9. As regards various allegations urged before the Company Law Board, it is seen that the Board has not accepted the plea of the appellants as stated by them. In fact, with regard to the allegations relating to allotment of shares and transfer of shares are concerned, the Board has rendered a finding that the appellants/petitioners have not been able to substantiate their stand regarding the non receipt of share certificates they had applied for. In fact, a finding is rendered that the share certificates which were applied for, had already been despatched to the appellants/petitioners and as such the Board has expressed that it did not intend to enter into the controversy, as to whether the instruments of transfer have been fabricated or not.

10. As regards the next question viz., the appellants/petitioners complaint on the resolution of the Annual General Meeting held on 4.9.1996 is concerned, the Company Law Board having observed that it cannot normally entertain such complaints as set out in the company petition filed under Section 397 and 398 of the Companies Act, 1956 and the decision of the General Body, which is being conducted in a democratic manner may not be subjected to judicial scrutiny, has passed an order of the appointment of Administrator without adducing any valid reasons.

11. As rightly pointed out by the learned Judge, none of the serious allegations alleged by the appellants were proved. In fact, one of the main allegations that a sum of Rs. 65 lakhs was siphoned off by way of loans and advances, it is evident that the cheques were issued under the joint signatures of one K.R.S.Anandkumar (one of the appellants herein) and Hari Loganathan. It cannot be suggested that all such transactions took place without the knowledge or consent of the appellants. As regards the Commissioner's report is concerned, the said report is filed relating to certain transactions about which no allegations of irregularity was pleaded. The learned Judge has rightly held that the Company Law Board has not decided the issued of mismanagement with reference to material evidence on record. Inasmuch as there is no oppression or mismanagement is established, the jurisdiction of the Company Law Board is very limited, more particularly when it revolves the dispute between the parties.

12. The learned counsel for the appellants vehemently contended that the report submitted by Commissioner appointed during the pendency of the CMA should be looked into. Since the appeals are concerned about the correctness of the order of the company Law Board, the subsequent events have no relevance to decide the issue and accordingly we do not propose to go into that aspect.

13. Inasmuch as the Company Law Board having in not agreed with the appellants main grievances, more particularly about the conduct of the Annual General Body Meeting and the resolution passed thereon, we are at a loss to know as to how the final conclusion was arrived at for appointment of the independent Administrator. Even with regard to the allegations relating to the shortage of stock is concerned, the Company Law Board has given a finding that there is an excess of stock available. Thus none of the allegations of the appellants/petitioners were found in favour of them.

14. Further, it is seen that the appellants/petitioners have not approached the Company Law Board with clean hands. Even though in their company petition under the column “matters not previously filed or pending with any other courts” a reference is made that Original Suit is filed in O.S No. 945 of 1996 which is concerned only proceedings of the Annual General Meeting of the 1st respondent Company held on 4.9.1996 and O.S No. 788 of 1996 on the file of the Sub Court, Coimbatore, which concerns only the issue as to the 2nd respondent holding Office as Managing Director of the 1st respondent. However, the relief claimed in the said suit is almost identical with the relief claimed in the Company Petition. It is only when a preliminary objection is raised about the maintainability of the company petition, the said suit seems to have been withdrawn later on. Merely because, the appellants/petitioners have withdrawn the suit on subsequent date, the same will not absolve them about their conduct in not approaching the Company Law Board with clean hands. Hence, we do not agree for the grant of relief the appellants on this score also.

15. Further, as per the various decisions rendered by this Court as well as the Supreme Court, it is the duty of the courts to recognise the Corporate Democracy of a Company in managing its affairs. The court should not restrict the powers of the Board of Directors and it shall not interfere with the day to day affairs and management and administration of the company. The principles laid down in the decisions rendered by this court reported in Vivek Goenka v. Manoj Sonthalia, 1992 (2) M.L.J 163; G.Kasturi & Another v. N.Murali & Others, 1992 (74) Com. Cases 661 (Madras); and in Nurcombe v. Nurcombe & Another, 1983 (3) Com. L.J 163 {CA} makes it clear that the appellants/petitioners are not entitled to the relief as claimed for in the company petition.

16. For the foregoing reasons, we are of the opinion that the appellants have not made out a case of oppression and mismanagement in the affairs of the company and as such the order of the learned Judge is perfectly valid in law. Accordingly, the appeals are dismissed. There will be no order as to costs. Consequently, connected CMPs are also dismissed.

K.R.S Mani And Three... v. Anugraha Jewellers L...