Rajeev Kapur v. Grentex & Company Private Limited

1. The instant Company Petition is filed alleging various acts of oppression and mismanagement in the attain of the R1 Company by the Respondents and seeking various main and interim reliefs as prayed in para VIII & IX of the petition.

2. Shri Seervai, Learned Counsel, appearing for the petitioners submitted the brief facts which lead to file the present petition. He submits that Shri Shyamsunder Kapur, the husband of Petitioner No. 3 and the father of Petitioner No. 1 and Respondent Nos. 2 to 4, during his lifetime was head of the family and various businesses of combers, worsted/semi worsted and woolen spinners of yarns were commenced and managed by his sons Petitioner No. 1 and Respondent No. 2. These businesses were carried on inter alia, in the name of the Company, Respondent Nos. 6, 7 and Grentex Spinners Private Limited (hereinafter referred to as ‘the said Companies of the Kapur Family’). Respondent No. 6 and 7 were formed to hold assets coming to the share of the father of petitioner No. 1. Petitioner No. 1 and Respondent No. 2 to 4 upon division/settlement between him (father of the Petitioner No. 1. Petitioner No. 1 and Respondent No. 2 to 4) and his brothers (uncles of the petitioner No. 1 and Respondent No. 2 to 4). Grentex Spinners Private Limited, a subsidiary of the Company which has not done any business activity since incorporation. The Respondent No. 8 was commenced by Shri Rattanchand Kapur father of Shri Shyamsunder Kapur i.e the grandfather of Petitioner No. 1 and Respondent Nos. 2 to 4. The company is the flagship company of the said companies of the Kapur family

3. Initially the said Shri Shyamsunder Kapur. Petitioner Nos. 1 and Respondent Nos. 2 were carrying on business in partnership under the name and style of Grentex & Co. (‘the said partnership firm’) on the terms and conditions contained in the partnership deed dated 3rd September, 1980 and further modified vide vanous supplement deeds and registered with the Registrar of Firms. The said partnership firm was convened into a private company under Section 566 of the Companies Act, 1956 and shares were allotted therein to the partners of the said partnership firm.

4. During the lifetime of Shri Shyamsunder Kapur, Petitioner No. 1 was handling the production, quality control, sales/marketing, product development and customer service up to December 2007 of the said company and Respondent No. 8 of the Kapur family. Whereas Respondent No. 2 was handling the accounts, finance, administrative, raw material purchases. Logistics and legal matters. Respondent No. 2 was also handling the legal proceedings and liaison with various government bodies of Respondent No. 7 up to December 2007 and liaison with various government bodies in matters related to the properties owned by/leased to Respondent Nos. 6 and 8 upto December 2007.

5. The Petitioner No. 1 observed that Respondent No. 2 conducted the affairs of the Company unilaterally and without consulting Petitioner No. 1 but the Petitioner No. 1 did not object to every action taken by Respondent No. 2 as he was his elder brother and also when Petitioner No. 1 spoke to Respondent No. 2 he assured him that things would be set right. One instance of conducting the affairs of the Company unilaterally was resolution dated 26 March, 2004 purportedly passed by the Board of Directors of the Company, Respondent No. 2 owns premises situated at 5, Shree Anandgin Co-operative Society Limited, Lonavala (‘the Lonavala property’). When the Petitioner No. 1 received a copy of the resolution passed at the Meeting of the Board of Directors of the Company on 27 November, 2004 he found that the purported resolution stated that the Company had taken the Lonavala property belonging to Respondent No. 2 on leave and licence basis and the Lonavala property was to be used as an Extension-office-cum-guest house for employees and guests of the Company at a compensation of Rs. 9000/- per month and that the furniture, etc. at the Lonavala property would be maintained by the Company. The Petitioner No. 1 objected to this resolution being acted upon and also on it being part of the record of the Company and the Respondent No. 2 assured him that the same would be deleted from the records of the Company. However, though the Respondent No. 2 assured Petitioner No. 1 that the said resolution would not be acted upon, it was acted upon and implemented and till date, the Petitioner No. 1 is not aware whether the said resolution has been deleted from the record of the Company.

6. The Petitioner No. 1 was also not sent minutes of meetings of the Board of Directors of the said companies of the Kapur family, immediately after a particular meeting, but was sent minutes of meetings of the Board of Director of Respondent Nos. 1 & 8 on different dates between 27 November, 2004 and 30 November, 2004, after several reminders from the Petitioner No. 1 as the division talks were initiated. By an email dated 5 January, 2005, addressed by the Petitioner No. 1 to the Company Secretary of the Company he (P1) recorded that he has received copies of various minutes of the meetings purported to be held by the Board of Directors of the said companies of the Kapur Family. He also stated that henceforth the resolutions should bear the signature of the petitioner No. 1 so that the resolutions are to his complete knowledge Though the Company received the said email they failed and neglected to forward all resolutions for his signature.

7. During September, 2006 there was an oral agreement between Petitioner No. 1 and Respondent No. 2 whereby it was agreed that assets of the Textile Companies would be divided so as to allow Respondent No. 2 to control of the Company along with some flats and godown land belonging to Respondent No. 7 and Petitioner No. 1 would take control of the textile mills of Respondent No. 8 with all balance assets/properties belonging to or leased to the said Companies of the Kapur family which were to be sold and disposed off except residential bungalow belonging to Respondent No. 6 and first monies that were to be received was to be paid to all other shareholders, namely Petitioner No. 3 and Respondent Nos. 3 and 4 and residual amount, if any, was to be thereafter shared one half each by Petitioner no. 1 and Respondent No. 2 in Sept., 2006 itself. Several proposals were discussed/revoked thereafter through close relatives acting as mediators or directly by all shareholders, however, no conclusion or agreement was arrived at.

8. Finally after several months of further negotiations, on 24 December, 2007 a new proposal as discussed and agreed upon in the presence of the family mediator, Mr. Pawan Mahendro. The said proposal was written down and signed by Petitioner Nos. 1 and 3 and Respondent Nos. 2 to 4 and two witnesses. As per the said agreement the said companies of the Kapur family were divided into two pans, one called the ‘Business assets group’ and the other called the ‘Property assets group’ It was further agreed that the business assets group was to be controlled by Respondent No. 2 whereas the property assets group was to be controlled by Petitioner No. 1. It was further agreed that the Petitioner No. 3 and Respondent Nos. 3 and 4 would also be part of the property assets group of Petitioner No. 1. The Respondent Nos. 3 and 4 settled their claim of shares substantially against the immoveable properties coming to the share of the property assets group and the minuscule balance was to be paid to them upon Respondent No. 4 vacating the residential property being occupied by her within two years and additional 1 year in the event of one of the immoveable properties coming to their share (Amritsar property) not being sold. The business assets group was to consist of the Company and assets and liabilities of Respondent No. 1 and ownership land of Respondent No. 8 (except the corporate entity of Respondent No. 8) and godown land belonging to Respondent No. 7. The property assets group was to consist of all balance assets/properties including residential properties at Amritsar, Punjab, Delhi, Haridwar, UP and Ghatkopar, Mumbai and assets of or leased to Respondent No. 6 residential flats and commercial properties owned by Respondent No. 7 excluding the godown land and some properties belonging to Shri Rattanchand Kapur HUF at Amritsar Punjab, Delhi, Haridwar, UP and Ghatkopar, Mumbai which had been leased to Respondent No. 8. It was also agreed that an aggregate amount of Rs. 5 crores was to be paid at the time of signing of the Memorandum of Understanding (that was to be drawn by the solicitors of the Kapur family) and Rs. 2 crores was to be paid with interest at the rate of Cash Credit of State Bank of India, within three months from the signing of the Memorandum of Understanding

9. Thereafter the Solicitors of the Kapur famil) were instructed to draw up a detailed document. The Respondent No. 2 asked the Petitioner No. 1 to permit him to conduct the day to day business of the Company immediately after the agreement and asked the Petitioner No. 1 not to interfere in the same. On 2 January, 2008. Respondent No. 2 circulated a note informing all concerned that as per the internal arrangement, the business assets group would be under his purview/control and that Respondent No. 4 would assist him. Respondent No. 2 also confirmed that all functions and management related to some properties of the property assets group would be earned out by Petitioner No. 1 with the assistance of his son an employee of Respondent No. 1. He also stated that any matter relating to the business and attain of the Company should be referred directly to him for any decision to be taken in the matter. The said note was signed by Petitioner No. 1 and Respondent No. 2. Since 24 Dec., 2007 Petitioner No. 1 commenced withdrawing himself from the day to day attain of the business assets group as was asked to do so by Respondent No. 2 at the time of the Agreement though he continued to be a director of the Company as well as shareholder and guarantor of the loans taken from the banks and financial institutions. On 8 January, 2008 the Petitioner No. 1 addressed a note to Respondent No. 2 requesting him to hand over the keys of the flats belonging to Respondent No. 7 and also to handover the books of account of Respondent No. 7 along with all statutory records. As there was no response from Respondent No. 2 the Petitioner No. 1 addressed a letter dated 28 January, 2008 to the Company Secretary of the company also working as Personal Assistant of No. 2 requesting him to handover charge of all documents pertaining to the property assets group.

10. The telephone bills of Petitioner No. 1 were being paid by the Company, but since about July, 2008 the bills were not being paid in time. The Petitioner No. 1 vide his letter dated 26 August, 2008 addressed to Respondent No. 2 recorded that he had requested for various payments several times but the same was not done. Petitioner No. 1 also that he needed cheque books of Respondent No. 7 Company to facilitate various statutory and other relevant payments. Petitioner No. 1 also stated that arrears had not been paid to the staff that was working for him whereas all other staff had been paid arrears. Thus, the staff working for Petitioner No. 1 was being discriminated by Respondent No. 2 and clearly efforts were made by Respondent No. 2 to harass the staff working under Petitioner No. 1.

The Learned Counsel submits that the petitioner was denied the payments due to him. In this context he relied upon a judgement reported in:

(2003) 54 CLA 236 (CLB) In the matter of Mc Subrahmanyam v. Mannariah & Sons (P.) Ltd. Paras 246, to show. ‘It is not denied that the 1st petitioner hod attended only three Board Meetings and one General Meeting during the period between 1990 and 1999 and that the petitioner attended only three Board Meetings. This shown that the 2nd petitioner did not evince interest in the affairs of the Company. The letter dated 7th August, 1996 shows that the petitioners are not interested in the Company as directors Yet, since the petitioners had continued as directors even without attending Board Meetings regularly and were getting remuneration for a long time, it would show that the intention of the parties had been to provide all the branches of the family some source of income from the Company Stopping of this source of income on the ground of vacation of office is oppressive’.

11. The son of petitioner No. 1 was also getting some allowances from the Company, in addition to his salary on monthly basis since three years. But since October, 2007 the allowances were not paid to the son of Petitioner No. 1 though he had enclosed account statements supported by payment vouchers/receipts. The son of Petitioner No. 1 addressed a letter dated 4 Sept., 2008 to the Company and requested that payments be reimbursed to him. Though the letter was received, neither were the payments reimbursed to him nor was any reply given. The son of Petitioner No. 1 has been paid no salary and/or allowances since August, 2008 for his services and he has not even paid arrears which were paid to all other employees since last two years.

12. The staff working for Petitioner No. 1 was not paid their salaries for the month of August, 2008. The petitioner No. 1 addressed a letter dated 10 Sept., 2008 to the accounts department of the Company and requested that the salary be released to them at the earliest. The R2 has till date not ensured that all the payments requested have been made. Again, the staff working for petitioner No. 1 was not paid their salaries for the month of October, 2008. Some of the staff was not paid salaries since August, 2008 as will as no bonus was paid to them for the financial year ended 31 March, 2008. Further, various bills raised by petitioner No. 1 were also not paid by the Company. The petitioner No. 1 addressed an email dated 8 November, 2008 to Respondent No. 2 and requested that the payments be released to them at the earliest, some of which have not been released till date. Thus dearly petitioner No. 1 has been systematically excluded from the business of the Company and no information regarding the Company is being furnished to him, despite repeated requests. Thus clearly petitioner No. 1 has been systematically excluded from the business of the Company and no information regarding the Company is being furnished to him, despite repeated requests. Even, the staff working for Petitioner No. 1 has been harassed by Respondent No. 2 by not paying them their dues/salaries on tune including the arrears and yearly bonus as had been paid to all other employees of all group companies.

13. Further, the Company does not have a proper functioning board of Directors because there are only two directors on the Board of the company, namely Petitioner No. 1 and Respondent No. 2. Both the Petitioner No. 1 and Respondent No. 2 are permanent directors of the Company and not liable to retire by rotation. Though from 24 Dec., 2007 Petitioner No. 1 withdrew himself from the day to day affairs of the business assets group as requested by Respondent No. 2 though he continued to be a director and guarantor of the company, Respondent No. 2 did not withdraw himself from the property assets group. Respondent No. 2 failed and neglected to hand over all the documents/correspondence/statutory records concerning the property assets group including 15 flat keys belonging to Respondent No. 7 (a part of property asset group), but continued to control the properties and accounts of Respondent No. 6 (also a part of property asset group) including all other family group companies During first week of Sept., 2008 Respondent No. 2 unilaterally let out the premises belonging to Respondent No. 6 situated at Amritsar, Punjab for film shooting and has not accounted to the petitioner Nos. 1 and 3 for the same, till date.

14. Since January, 2008 onwards various ‘without prejudice’ notes and/or letters were exchanged between the Petitioner No. 1 and Respondent No. 2 and other mail members and also the solicitors of the Kapur family, but these notes and/or letters are not being referred to and or relied herein, as these notes and/or letters mention that they are ‘without prejudice’. In or about May, 2008 the solicitors of the Kapur family circulated a draft of the detailed Memorandum of Understanding to be executed between Petitioner No. 1 and 3 and Respondent No. 2 to 4 with a suggestion to meet at the office of the Solicitors of the Kapur family on 3rd June, 2008 to discuss the same. However, Respondent No. 2 and 4 (R3 and 4) called off the meeting. Thereafter, several meetings were held in the office of the solicitors of the Kapur family, to finalise the detailed Memorandum of Understanding, but till date no Memorandum of Understanding has been signed. As the draft of the detailed Memorandum of Understanding which has been drawn up in furtherance of the agreement dated 24 Dec., 2007 is neither finalized nor signed, the petitioners have neither relied upon nor annexed the same hereto.

15. On 23rd October, 2008 the Company received an email from the Department of Company Affairs informing them that the Company had not filed the balance sheet and statement of Profit & Loss Account and Annual Returns for the financial year ended 31st March, 2008 with the Registrar of Companies. By the email the Company was requested to file the same at the earliest. This email clearly shows that the Respondent No. 2 is conducting affairs of the Company in a manner which is in contravention of the provisions of the said Act.

16. On 13 November, 2008 the Petitioner No. 1 was surprised to receive an email from Respondent No. 2 admitting that the Companies of the Kapur family were without a fully functioning Board. Respondent No. 2 offered two choices to petitioner No. 1 to save the companies to let them run with full support by either of them i.e (a) that either petitioner No. 1 takes over the running of the business and properties etc. and Respondent No. 2 goes out of directorship or (b) Respondent No. 2 takes over the running of the business and properties etc. and Petitioner No. 1 goes out of directorship. The Respondent No. 2 also falsely alleged that Petitioner No. 1 had a deadlock with Respondent No. 3 and 4 for about a year which was allegedly compounded by a serious conflict of interest by Petitioner No. 1 setting up a competing wool spinning business along with his wife and son. The Respondent No. 2 also stated that the long delay and change in circumstances had completely destroyed the very basis of attempting any family settlement. Further, Respondent No. 2 falsely alleged that his work was constantly sabotaged by Petitioner No. 2 and/or at his instance. The Respondent No. 2 also stated that there were many issues with which the said companies of the Kapur family were faced with, which could not be resolved till the management was full and complete and required a fully functional board of directors committed to the well being of the Company. The Respondent No. 2 also forwarded his resignation in advance, addressed to the Board of Directors.

17. Since Respondent No. 2 took over the exclusive control of the day to day affairs of the Company including the functions being handled by the Petitioner No. 1 the capacity utilization of the Company is down substantially. A majority of skilled employees have left or been removed by Respondent No. 2 and there is a drop/reduction of over 50% in the income of the Company. The Company is also facing several complaints from customers. Further, the relations with the customers and business associates are deteriorating due to no follow up visits by the Company personnel since January, 2008. In view of resignation of Respondent No. 2 as a director of the Company, the Petitioner No. 1 addressed an email to Respondent Nos. 2 to 4 and Petitioner No. 3 and convened an urgent meeting of the Board of Directors of the Company on 15 November, 2008. On 15 November, 2008 the Respondent No. 2 did not attend the urgent meeting of the Board of Directors of the Company, but addressed an email to Petitioner No. 1 alleging that his email dated 13 Nov., 2008 was misinterpreted. It was always understood by and between Petitioner Nos. 1 and 3 and Respondent Nos. 2 to 4 that after having withdrawn himself from the day to day affairs of the Business Assets Group, the Petitioner No. 1 along with his son, would tun a new business of wool textiles. This was because Petitioner No. 1 had been in the business for the past many years and it was agreed that Petitioner No. 1 would be free to avail of the corporate opportunities that presented themselves in the market. In any event, since Petitioner No. 1 would not be associated with the Company and Respondent No. 8, there was no question of any corporate opportunity that presented itself to the Company being diverted to the companies to be formed by Petitioner No. 1 in fact, once Petitioner No. 1 withdrew himself from the day to day management of the Company, there was no question of any corporate opportunity that presented itself to the Company being diverted to the companies formed by Petitioner No. 1. As far back as Sept., 2006 it became evident to Petitioner No. 1 that the assets belonging to the said companies of the Kapur family would be divided and he would be going his own way. On or about 23 June, 2007 petitioner No. 1 along with his son incorporated a company named Kaposta Carpets private Limited. The said company was kept dormant and did not carry on any business. In or about 29 May, 2008 the Petitioner No. 1 alongwith his wife and son, incorporated another company named Kapotex Industries Private Limited and has purchased land, machinery, etc. in GIDC, Sarigam, Dist. Valsad, Gujarat for setting up a factory for the manufacture of wool textiles. However, till date neither has Kapotex Industreis Pvt. Ltd. nor Kaposta Carpets Pvt. Ltd. commenced commercial production nor sold any products in the market. The petitioners submit that Petitioner No. 1 having totally withdrawn from the day to day management of the Company, the question of competing with the Company did no and does not arise.

18. Recently, the petitioners became aware that as far as January, 2006 even before a settlement was proposed in Sept., 2006 Respondent No. 2 had formed a proprietary firm named Gorashyam Enterprise for offering products of scoured wool, tops and yarns, carpets etc. Further, the petitioners have also recently become aware that R2 unilaterally imported a scouring plant from New Zealand despite objections from Petitioner No. 1 during Sept.,/Oct., 2005 and paid for all the costs/expenses through the company. Respondent No. 2 also declared W/s. Gorashyam Enterprises as supporting manufacturer of the Company for the said plant to various government authorities. Petitioners have also learnt that during the period 2006 to 2008 large amounts were withdrawn from the Company towards expenses for building a factory for Gorashyam Enterprises on farm land belonging to Respondent No. 2 at Khopoli, Maharashtra. Gorashyam Enterprises also applied to the Director of Industries, Maharashtra for converting farm land at Khopoli, Maharashtra from agricultural use to industrial use with increased FSL Without the knowledge of Petitioner No. 1 amongst others, a key employees of the Company and Respondent No. 8 was transferred/sent to Khopoli by Respondent No. 2 for the installation of the imported scouring machine during the financial year 2006–2007 which affected the day to day management of the Company and Respondent No. 8. Petitioner No. 1 vehemently opposed the import and installation of the scouring plant as it was not required by the company since sufficient existing capacity was available and the report of the technical engineer cum plant manager sent (without informing Petitioner No. 1) to inspect the machinery concluded that the machinery purchase was not recommended. However, when the said permission was not granted by the Director of Industries Mantralaya, for conversion of land from agricultural to industrial use, in or about May/June 2008 the plant was shifted to the company's factory in Sarigam, Gujarat. The business of Gorashyam enterprises thus directly competes with the business of the R1 and R. 8 Companies. The Respondent No. 2 has been a competing business since past couple of years in a clandestine and surreptitious manner in spite of being a director of the Company and being in control of the day to day management of the Company. In fact, Respondent No. 2 placed advertisements in the name of the Gorashyam Enterprises in the official publications of the Wool Industry Export Promotion Council. This clearly shows that for the past two years Respondent No. 2 in breach of the trust and confidence reposed by the petitioners on Respondent No. 2 in relation to the management and affairs of the Company and in breach of his duties and obligations which are of a fiduciary character owned to the company and its shareholders, including the petitioners, has been directly competing with the business of the Company and such conduct is prejudicial to the interest of the Company and is also prejudicial to the shareholders of the Company. The Learned Counsel submitted that the Gorashyam is in a competing business and as stated above the loan given by the Company to purchase the machinery for Gorashyam and the statement of facts which are non traversed by the respondents by filing sur-rejoinder must be admitted. Every statement is made in rejoinder is un-rebutted. In this context the Learned counsel relied upon the citations reported in 1) AIR 1991 Bombay 422 In the matter of Padmakar Balkrishna Samant v. The State of Maharashtra. Para 19. It is held. ‘The Chief Minister is represented by the Learned Counsel Mr. K.H Bhabha. Though opportunity was given, no affidavit is filed, submission being that it is not necessary at this stage. Nothing wrong in that behalf. But then the consequence flowing from the averments and allegations in this petition on affidavit will have to follow. One would have thought that in a matter such as this affidavit at this very stage could have considerably assisted the Court in evaluating the prima facie worth of these averments and allegations. In its absence, result is that, as at present, there is no challenge thereto, not even a bare denial thereof.’ 2) AIR 1964 SC 538 In the matter of Badat & Co., Bombay v. East India Trading Company. Para 11. It is held ‘But on the original side of the Bombay High Court, we are told, the pleadings are drafted by trained lawyers bestowing serious thought and with precision. In construing such pleadings the proviso can be invoked only in exceptional circumstances to prevent obvious injustice to a party or to relieve him from the results of an accidental slip or omission, but not to help a party who designedly made vague denials and thereafter sought to rely upon them for non-suiting the plaintiff. The discretion under the proviso must be exercised by a court having regard to the justice of a cause with particular reference to the nature of the parties, the standard of drafting obtaining in a locality and the traditions and conventions of a court wherein such pleadings are filed. In this context the decision in Tildesley v. Harper will be useful. There, in an action against a lessee to set aside the lease granted under a power, the statement of claim stated that the donee of the power had received from the lessee a certain sum as a bribe and stated the circumstances; the statement of defence denied that the sum had been given and denied each circumstance, but contained no general denial of a bribe having been given. The Court held, under rules corresponding to the aforesaid rules of the Code of Civil Procedure, that the giving of the bribe was not sufficiently denied and therefore it must be deemed to have been admitted.’ (3) AIR 1964 SC 962 In the matter of C.S Rowjee v. State of A.P Para 18. It is held ‘The Secretary to the Home Department - one Mr. S.A Iyengar has filed a counter affidavit in which the allegations we have set out earlier have been formally denied. He says. “I have been expressly instructed and authorized by the Hon'ble Chief Minister to state that the allegations suggesting personal animus and giving mandate are false and mischievous and have been deliberately made to create an atmosphere of sympathy’ “the learned-general did not suggest that the Court could act upon this second hand denial by the Chief Minister, as the statement by Shri S.A Iyengar is merely hearsay.’ We are therefore, constrained to hold that the allegations that the Chief Minister was motivated by bias and personal ill-will against the appellants, stands unrebutted.

19. The Learned Counsel further submitted that the Respondent No. 2 has systematically but in a fraudulent manner, taken the support of Respondent No. 3 & 4 to gain full control of and/or hijacked the Company and its Board of Directors. On the other hand the Petitioner No. 1 had stood guarantor for the Company and Respondent No. 8 from time to time of which he was to be get relieved by the respondents on implementation of the family arrangement. Therefore, on one hand the Petitioner No. 1 has been ousted from the day to day management of the Company though he continues to be a director of the Company and also a guarantor for the Company which is being run down by Respondent No. 2 to 4 and on the other hand the Petitioner No. 1 has not been released from his guarantees.

20. The petitioners submit that the conduct of respondents in the management of the affairs of the Company has been extremely harsh and oppressive to the petitioners. The petitioners have been compelled to subject themselves to such conduct on the part of the respondents which conduct is clearly lacking any probity. Thus the respondents have completely ousted the Petitioner No. 1 from the management and affairs of the Company. The Respondent No. 2 with the support of assistance of Respondent No. 3 and 4 is maneuvering the affairs of the Company in a manner, so as to ensure, inter alia that the petitioners are ousted from the Company without adequate compensation. By the aforesaid acts of oppression and mismanagement the Respondent No. 2 has brought about a situation where the company's operation and business is carried on for their sole benefit.

21. The conduct of Respondent No. 2 to 4 as outlined in the foregoing, has given rise to a justifiable lack of confidence on the pan of the petitioners, inter alia, on account of lack of probity on their part in the conduct of management affairs and business of the company. The Respondent No. 2 with the support and assistance of Respondent No. 3 & 4 is in a position to perpetuate mismanagement without any hope of remedying such mismanagement, except through the immediate intervention of this Board.

22. Shri Seervai, Learned Counsel for the petitioners after compiling the facts as stated in the petition submitted his oral and legal submissions as follows: He submits firstly on the issue of acts of mismanagement by the Respondents that though there was a final settlement arrived at on 24.12.2007 but the said family agreement has not implemented so far and the R2 has not convened Board Meetings, statutory returns have not filed for the year ended 31.3.2008 and it is evident from the records. The Company is in dead-lock situation. As per the family agreement the petitioner did not get the benefit on the other hand he was thrown out of the Company and the R2 even deprived of the documents, records etc. The Learned Counsel further submitted that the acts of oppression have been made out by the petitioners in their petition. Even the oppression is not pleaded the CLB is having power to pass orders. In this context he relied upon the citations reported in 1) (2008) 6 SCC 750 In the matter of M.S.D.C Radharaman v. M.S.D Chandrasekara Raja Para 7, 15, 16. At para 15 it is held ‘Ordinarily, therefore, in a case where a case of oppression has been made a ground for the purpose of invoking the jurisdiction of the Board in terms of Sections 397 and 398 of the Act, a finding of fact to that effect would be necessary to be arrived at. But, the jurisdiction of the Company Law Board to pass any other or further order in the interest of the Company, if it is of the opinion, the same would not be powerless. The jurisdiction of the CLB in that regard must be held to be existing having regard to the aforementioned provisions. At para 16 it is held ‘The dead lock in regard to the conduct of the business of the Company has been noticed by the Company Law Board as also the High Court. Keeping in view the fact that there are only two shareholders and two directors and bitterness having crept in their personal relationship, the same in our opinion, will have a direct impact in the matter of conduct of the affairs of the Company.’ 2) (2005) 11 SCC 314 in the matter of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (Dead) through L.Rs. Paras 184, 190, 191, 199. The Learned Counsel for the petitioner submitted that in view of the stalemate in the affairs of the Company and also keeping in view of the paramount interest of the Company, the Learned Sr. Counsel suggested either the petitioners take the Company and the respondents will go out of the Company or else the petitioners are willing to buy out the respondents on fair valuation of shares of the Company upon its value is done by a valuer to be appointed by this Bench. The petitioners hold 31% of the shares in the R1 Company, let the respondents buy out the petitioners and petitioners will exit the Company. In this context the Learned Counsel relied upon the judgement reported in (2005) 1 SCC 212 In the matter of Dale & Carrington Invt. (P.) Ltd. v. P.K Prathapan. Para 38. It is held ‘On the question of relief, the learned counsel for the parties referred to decisions in support of their respective stands. We do not consider it necessary to refer to these decisions because relief depends on facts of a particular case. We have seen the facts of the present case which to our mind are so manifestly against Ramanujam that two opinions are not possible on the aspect of relief. The only relief that has to be granted in the present case is to undo the advantage gained by Ramanujam through his manipulations and fraud. The allotment of all the additional shares in favour of Ramanujam has to be set aside. In our view, the High Court was fully justified in granting the relief of setting aside the impugned allotments of additional shares in favour of Ramanujam. The approach of the Company Law Board was totally erroneous inasmuch as after having found that there was oppression on the part of Ramanujam, he was still allowed to take advantage of his own wrong inasmuch as he was given the option to buy Prathapan's shares and that too not for a proper price. In our view the Company Law Board was wrong in allowing purchase of shares of Prathapan and his wife by Ramanujam. Such an order amounts to rewarding the wrongdoer and penalizing the oppressed party. In the circumstances of this case asking the oppressed to sell his shares to the oppressor not only fails to redress the wrong done to the oppressed, it also results in heavy monetary loss to him. The relief granted by the High Court was a proper relief in the facts of the case’.

23. The Respondents filed the detailed counters and traversed the allegations, averments and contentions made in the petition. Shri Samdhani, Learned Senior Counsel appearing for the Respondents, took preliminary objections on its very maintainability of the petition on the following grounds. Firstly, he submits that the petition is malafide on the following reasons. It is the petitioner's own case that he has voluntarily taken to back seat in the management of Respondent No. 1 company. Having voluntarily withdrawn from the affairs of Respondent No. 1 Company, the petitioners are today estopped from filing a petition under the guise of Sec. 397/398 of the Act alleging oppression and mismanagement of Respondent No. 1 Company. In view of this the grievance of the petitioners about the alleged ousting of the petitioners and the alleged oppression and mismanagement of Respondent No. 1 Company is nothing but a malafide and vain attempt on the part of the petitioners to defeat the rights and powers of these respondents. Secondly, the petitioners approached this Board with unclean hands and disentitled themselves from grant of any reliefs, inter alia on account of their following acts/actions:

1) Surreptitiously and secretly setting up and starting wool spinning business in the name of Kapotex Industries Pvt. Ltd., incorporated on 29 May, 2008.

2) diverting business of Respondent No. 1 company inter alia by manufacturing the same/similar product as R1 company and selling/supplying/exporting the same to regular customers of Respondent No. 1 company. 3) poaching of employees who were originally working for Respondent No. 1 company. 4) Petitioner No. 1 is guilty of violation and breach of his fiduciary duty as a director of Respondent No. 1 company.

Thirdly, the petitioners misrepresented and committed perjury in the captioned petition, inter-alia averred that the said Competing Business has not commenced commercial production nor sold any products in market and the question of competing with Respondent No. 1 company did not and does not arise at all. As set out herein, Petitioner No. I has contrary to what he has set out in the captioned company petition and in complete violation/breach of his fiduciary duty, inter alia indulged in the following:

i) Carrying on and establishing the said competing business to the complete detriment of the business of Respondent No. 1 company ii) under-cutting the contracts/agreements of Respondent No. 1 company with its regular customers iii) poaching the employees of Respondent No. 1 company.

iv) utilizing the business contacts (including the same suppliers, logistics companies. Chartered Accountants etc.) of Respondent No. 1 company to further the said competing business, v) utilizing the assets (including office premises, office equipments, furniture & fixtures, vehicles, utilities, stationery IPR data, technical & commercial information etc.) of Respondent No. 1 company to further the said competing business.

25. The Learned Senior Counsel further submitted that the petitioners have in the petition sought to allege that Respondent No. 2 has through its proprietary concern named Gorashyam Enterprises commenced a business competing to that of Respondent No. 1 company. The said allegation is a complete falsehood and the petitioners have at all relevant times been well aware of the facts that i) it is due to the arbitrarily and obstructive whims and fancies of Petitioner No. 1 that Respondent No. 2 was constrained to set up Gorashyam Enterprises for housing the scouring/wool washing plant (along with a dryer, accessories and effluent treatment plant) purchased by Respondent No. 1 company from the year 2005 and was declared as a supporting manufacturer to Respondent No. 1 company for this specific purpose ii) all the monies towards setting up and housing the said scouring/wool washing plant (along with a dryer, accessories and effluent treatment plant) have been expended with full knowledge and consent of Petitioner No. 1 and that the same have been accounted for in the books of R1 Company and Petitioner No. 1 has even signed the audited balance sheets for the financial year 2005–2006 and 2006–2007, which clearly reflect the above expenses iii) in any event, the said scouring/wool washing plant (along with a dryer, accessories and effluent treatment plant) has sometime since May-June 2008 been transported to and installed at the factory of Respondent No. 1 company at Sarigam, Gujarat and the same has also commenced operations/production as on 21 March, 2009. The petitioners have stated that they came to know of Gorashyam Enterprises recently. It would mean that a few days before filing of CP and moreover in the petition they have stated that they objected to the purchase of machinery. As stated supra the plant imported in June 2006 and initially housed at Khopoli and the same was shifted in the month of June, 2008 to the premises of R1 Company. The petitioner is aware of all the acts and these acts pertain to the year 2005, 2006, 2008 and he signed the balance sheet uptil 31st March, 2007 on 6.9.2006 and on 6.9.2007 much prior to impending division the R1 Company only paid the money to plant and machinery. However the Respondent No. 2 purchased the land on his name only to house the machine at Khopoli. Further Gorashyam Enterprises was formed as supporting company to R1 Company and not carried on any business admittedly since the plant and machinery shifted back to R1 company at Sarigam. Therefore, the question of competing business by Gorashyam to R1 Company does not arise. The petitioner is untruthful and has not come with clean hands. The Learned Counsel submits that they have not given any broacher nor paid any money to print the broachers.

25. On issue of non filing of sur-rejoinder by the respondents and the statements made in the rejoinder is unrebutted is not correct. The Learned Counsel for the respondents submitted that the averments made in the rejoinder are all false. Hence no need to file any sur-rejoinder. He submits that there is no provision to file sur-rejoinder in the CLB Regulations. On issue of Lonawala Bungalow belongs to R2 given on leave and licence basis to the Respondent No. 1 Company, is concerned, the respondent submits that the Board of Directors of the Company passed resolution on 26.3.2004 unanimously. The leave and licence is only for a period of 11 months which expires in the month of Feb.,2005. The petitioner in his rejoinder admitted that the audited accounts for the relevant period were signed in good faith without going into the details of the accounts especially when he believed the family agreement dated 24.12.2007 would be implemented. The acts pertain to the year 2004–2005 and stated that he signed the audited accounts hoping the family agreement which event would take place after three yean cannot be believed. The events pertain to the year 2004 hence the petitioner cannot raise this issue belatedly and it is barred by latches.

26. It is thus clear and evident that the petitioners have with ulterior motives, knowingly indulged in misrepresentation to this Board and also committed acts of perjury with a view to mislead and cause a sham upon this Bench. On this ground alone captioned Company Petition is liable and ought to be dismissed by this Bench.

27. The Learned Sr. Counsel submits that Respondent No. 1 company carried on the business of scouring, combing, worsted/semi worsted and woolen spinning of yarns. Respondent No. 1 company employs almost two hundred people and is a government recognized Star Export House and award winner having annual exports 10 the tune of about Rs. 30,00,00,000/-. R1 company was managed by Respondent No. 2, Petitioner No. 1 and by their father Shyamsunder Kapur until his demise in December 2002 after which the Respondent No. 1 company has been managed by Respondent No. 2. Petitioner No. 1 and Respondent No. 4 (who discharges several duties, inter alia including operating all bank accounts, which were earlier carried out by their father Late Mr. Shyamsunder Kapur.) Admittedly, upto Dec., 2007 Petitioner No. 1 and Respondent No. 2 were handling/carrying out the following in respect of R1 company. The production and quality control, sales/marketing, product development and customer service in respect of yarn production of Respondent No. 1 company and some administrative, raw material purchases, logistics and legal matters, looked after by Petitioner No. 1 and the production and quality control, sales/marketing, product development and customer service in respect of yarn production of Respondent No. 1 company and some administrative, raw material purchases, logistics and legal matters and also liaisoning with various government bodies on behalf of Respondent No. 1 company by Respondent No. 2.

28. Further, the accounts and finance were jointly managed by Respondent No. 2 and Petitioner No. 1. Sometime in April, 2004 due to the unscrupulous, self-centered, obstructive and non-co-operative attitude of Petitioner No. 1, he raised disputes inter alia with regard to the profit sharing and running of Respondent No. 1 company. Despite attempts made by family members, close relatives, to sort out the matters and to separate the family interests/assets, no finality was arrived at. The father-in-law of petitioner No. 1 i.e Mr. Vishwanath Khanna intervened and a meeting was called by Petitioner No. 1 and held on Sunday 23rd Dec, 2007, in the presence of the Mr. Pawan Mahendro when a board without prejudice proposal came to be agreed and executed between the Respondent No. 2, Petitioner No. 1 and 3 & Respondent No. 3 and 4 on 24 December, 2007. The family assets were to be divided into two lots, on a melting pot basis, viz the ‘Property Assets Group’ (which included properties of the Rattanchand Kapur (HUF) and other charitable trust leased properties) and the ‘business assets group’. The Respondent No. 2 was allotted the entire business assets group Petitioner No. 1 elected to partake in the property assets group along with petitioner No. 3 and Respondent No. 3 & 4.

29. These respondents state that the aforesaid division of assets was agreed upon and the Without Prejudice Proposal was executed on the basis of a clear understanding that having elected to take the property asset group, it would not be upon the petitioners to commence the same business or compete with Respondent No. 1 company's business in any manner whatsoever. By having allotted the Business Asset Group, Respondent No. 1 company was to come to the share of R2. Admittedly Petitioner No. 1 himself withdrew from the management of the Business Asset Group, leaving Respondent No. 2 to manage the same. In fact. Respondent No. 2 and Petitioner No. 1 also jointly signed a working arrangement, in the form of the note dated 2 January, 2008 recording therein that Respondent No. 2 would henceforth manage the Respondent No. 1 company and Respondent No. 8 company and that petitioner No. 1 would henceforth manage some of the property are of Respondent No. 7 and 8 companies. Thereby, the petitioner No. 1 did withdraw from the management of the Business Asset Group. The Learned Counsel submits that though there is a MOU dated 24.12.2007 but it is lying in an escrow and the parties have not acted upon unless the document is released by escrow and no detailed MOU is finalized. Hence no cognizance can be taken by this Bench. It is further to note that the MOU is ‘without prejudice’. In this regard the Learned Counsel relied upon the following decisions 1) 2000 (1) Bom. C.R 716 In the matter of M/S. Hira Mistan…Plaintiff; v. Rustom Jamshedji Noble & Others…Defendants. 18, 25. It is held at para 21 ‘we may now consider the case law on escrow. In Thompson v. Mc Cullough, 1947 (1) K.B 447 the issue was whether the document is delivered as an escrow or as a deed. The Court after considering the matter held that question is a matter of fad and for that purpose all the facts attending the execution all that took place at the time and to the result of the transaction must be and therefore, though it is in form and absolute delivery, if it can reasonably be inferred that it was delivered not to take effect as a deed till a certain condition was performed, it will nevertheless operate as an escrow. In fact what a escrow contemplates is the 3rd proviso to Sec. 92 namely that evidence can be led that the agreement was not to come into being until happening of certain events.’ The petitioners have not sought any relief based on MOU and no relief can be granted for enforcement and all submissions based on MOU ought to be rejected and submitted that the MOU is a subject matter of contractual obligation and this Bench does not have any powers to entertain these disputes. In this context the Learned Counsel relied upon the judgement reported in 2) (2005) 11 SCC 314 in the matter of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (Dead) through L. Rs.. Para 144. It is held ‘A dispute as regards right of inheritance between the parties is eminently a Civil dispute and cannot be said to be a dispute as regards oppression of minority shareholders by the majority shareholders and/or mismanagement. At para 185 it is held ‘It has to be born in mind when a complaint is made as regards violation of statutory or contractual rights, the shareholders may initiate a proceeding in a Civil Court but a proceeding under Sec. 397 of the Act would be maintainable only when an extra ordinary situation is brought to the notice of the Court keeping in view the wide and far reaching power of the Court in relation to the affairs of the Company.’ 3) (2007) 137 Comp. Cases 605 CLB In the matter of R. Ishwaran v. Ishwar Oil Industries Pvt. Ltd.. At page 615 to show ‘Any remedy for the alleged breach of the agreement and the consequential relief do not lie before the Company Law Board, particularly when these acts in my view do not make out any cause of action under Sec. 397/398.’

30. Respondent No. 2 has despite the non co-operative and selfish attitude of Petitioner No. 1 and the current global economic downturn, independently and successfully managed the business of Respondent No. I company (save and except complying and non-statutory obligations which require a functional Board of Directors). Pertinently, while Respondent No. 2 selflessly and single handedly worked in the interests of Respondent No. 1 company and substantially well, the petitioners continued to draw their remuneration, salaries, benefits and/or expenses from Respondent No. 1 company, to the tune of over Rs. 60,00,000/-. Respondent No. 2, however, dote not admit that any sums of monies are/have been due to the petitioners and it is clarified that Respondent No. 2 reserves his rights to recover the said monies paid to the petitioners. Petitioner No. 1 has from time to time along with petitioner No. 3 drawn remuneration and expenses from Respondent No. 1 company. In fact a number of the aforesaid amounts were and are currently withdrawn by petitioner No. 1 by himself signing the cheques for the same.

31. Petitioner No. 1 adopted the following obstructive acts with the intention to ruin the business of R1 company. Due to the disputes that arose within the property assets group more particularly between petitioner No. 1 and R3 and 4, Petitioner No. 1 refused to implement the without prejudice proposal and with ulterior motives stalled the same. The petitioner No. 1 further adopted the obstructive act by way of back tracking on decisions taken by the Company. The R2 realized in or around early 2005 that the scouring plant of R1 company did not possess the required/sufficient capacity and that it was therefore necessary that a scouring/wool washing plant (along with a dryer, accessories and an effluent treatment plant) would be purchased by R1 company. Petitioner No. 1 initially consented to the purchase of the said machinery and a sum of US $25,000/- was duly paid by R1 company towards advances for the purchase. In August, 2005 petitioner No. 1 in contradiction to the consent initially accorded by him for purchase of the said machinery objected to the same. Despite monies already having expended towards the purchase of the said machinery, the purchase was cancelled. As the said machinery was still required for the R1 company, R2 went ahead with the purchase of the same, after petitioner no. 1 for a second time gave his consent to such purchase. R2 accordingly, purchased the said machinery on or about 5 October, 2005 and the sum of US $25,000/- earlier paid by towards advances, was appropriated towards the purchase of the said machinery.

32. On account of petitioner No. 1's objection and obstructive attitude, the said machinery could not be installed/set-up at the factory of R1 company at Sarigam, Gujarat and R2 was in the circumstances left with no option but to purchase land near Khopoli. Maharashtra and establish Gorashyam Enterprises, for the purpose of housing the said machinery purchased by RI company. R1 company in that regard declared as a supporting manufacturer to R1 company by the Director General of Foreign Trade, for the specific purpose of permitting to house the said machinery purchased by R1 company on the personal land of R2. R2 permitted the use of his personal land, free of coat, for construction of the said shed to house the said Machinery because of petitioner No. 1's refusal to have the said Machinery installed/housed in R1 company's factory at Sarigam, Gujarat. The fact, however, remains that the said Machinery was purchased for and by R1 company and nor for R2's personal benefit. Further the respondents state that over the years 2005–2007, an aggregate sum of Rs. 1,60,44,000/- has been spent by R1 company towards the import of the said Machinery and the building of the said shed. The aforesaid sum of Rs. 1,60,44,000/- was spent and project commenced with the full knowledge and consent of petitioner no. 1. In fact petitioner No. 1 has even signed the audited balance sheets for the financial year 2005–2006 and 2006–2007 which reflect the aforesaid expenditure in the sum of Rs. 1,60,44,000/-. Having been spent by R1 company under the head ‘capital work in progress’. Further sums spent by R1 company towards completing the said Machinery and the said shed have been duly accounted for in the books of R1 company which accounts have Oil date are pending final approval due to the hostile attitude of petitioner.

33. On the other hand Petitioner No. 1 along with his wife and/or son established the said competing business, kaposta Carpels Pvt. Ltd. (incorporated on 23 June, 2007) is inter alia indulging in undercutting the contracts/agreements of R1 company with the regular customers of R1 company, one such example whereof is that one Southern Yarns Dyers Inc. Cortersville, USA (is a regular customer of R1 company since about 2005 and R1 company has from time to time been exporting to Southern Yarns, 100% Woollen Worsted Yam (Grey) of various counts. R1 company has during the year 2008 sold through R2 and supplied/exported to Southern Yarns, approximately 864 lbs bales of 100% Woollen Worsted Yarn (Grey) of various counts, at the rate of US $3.15 per lbs. It is pertinent to state that one such instance of supply/export to Southern Yarn is that of Mr. Chandrasekharan V the sales representative having for and on behalf of Southern Yams, addressed an email dated 2 May, 2008, whereby Southern Yarns agreed and accepted to purchase from R1 company. 100% Woollen Worsted Yarn (Grey) of various counts at the rate of US $3.15 per lbs and accordingly the same were supplied and exported to Southern Yarns. Pertinently, R1 company presently has outstanding orders for 2×40′ containers of 100% Woollen Worsted Yarn (Grey) of various counts, valued at over US $ 3 lacs for which raw materials have been procured by R1 company since April 2008.

34. While on one hand R1 company was following up with Southern Yarns with regard to the said outstanding containers and the purchase orders, it has come to the knowledge of these respondents that on the other hand petitioner No. 1 has in complete breach and violation of his fiduciary duty towards R1 company through the competing company Kapotex Industries Pvt. Ltd. recently i.e sometime during March 2009 already exported to Southern Yarns approximately 101 Bales of 100% Woollen Worsted Yarn (Grey) of various counts at the flat rate of US $ 2.80 per lbs which rates are much lower than the rates agreed and accepted by Southern Yarns for the outstanding purchase of the same goods from Respondent No. 1 company Petitioner No. 1 has also provided a longer credit period of 120 days to Southern Yarns which period is double the period agreed and accepted by Southern Yarns for the purchase of the same goods from R1 company. Thus, the Petitioner No. 1 has with ulterior motives and to the complete detriment of the business of R1 company indulged in carrying out competing business and under-cutting the contract/agreement of R1 company with its regular customer. The Learned Counsel submits that the petitioner addressed letter dt. 2.2.2008 to the respondent No. 2 on various issues and without waiting further he filed the present petition on 10 December, 2008 thereby the petitioner trying to build up the present case without there being any substance. In this context the Learned Counsel relied upon the decision reported in (2007) 136 Comp. Cases 211 CLB In the matter of Pearson Education Inc v. Prentice Hall of India Pvt. Ltd.. At page 252. To show ‘While it is a settled law that a director should not compete with the business of the Company in which he is a director, without full disclosure to the Company as it would be in breach of his fiduciary duties the same criteria to a shareholder cannot be liberally applied.’

35. The Learned Counsel further submits that the Petitioner No. 1 has also poached several employees who were originally working for R1 company and a list of names of employees have been annexed at page 144 of Vol. ‘A’. He submits that the petitioners have not disputed that they are in competing business and diverting the business of the Company to the existing buyers and also the employees of the Company engaged by Kapotex is not in dispute. Petitioner No. 1 has been giving the impression to various third parties, particularly to the bankers and regular customers of R1 company, that the said competing business are the group companies of R1 company and that the petitioner No. 1 is a major shareholder and common director in all the companies. Petitioner No. 1 is clearly guilty of violation and breach of his fiduciary duty as a director of R1 company. Petitioner No. 1 is thus, on the one hand refusing to vacate the directorship of R1 company, adopting on immensely rigid and non-co-operative attitude while putting fetters on the running of R1 company thus making it very difficult for R2 to carry on the business and affairs of R1 company and on the other hand is running the said competing business with a professed view to diverting the business of R1 company. It is apparent that having failed to settle their disputes with Respondent No. 3 & 4, the petitioners are now seeking to renege on the Without Prejudice Proposal and by settling up the said competing business are hell-bent on ruining R1 company in their pursuit of harassing R2 and R3 & 4. It is therefore obvious that the petitioners have filed the captioned Company Petition along with three more equally frivolous company petitions being Company Petition No. 113 of 2008, Company Petition No. 114 of 2008 and No. 120 of 2008 concerning three other companies also jointly held by the petitioners and the respondents with a view to harass these respondents. None of these company petitions fulfil the requirements of Section 397/398 of the Act and are therefore in fact all liable to be dismissed by this Hon'ble Board.

36. Concluding the above facts these respondents state and submit that:

a. The petitioners have on their own free will, handed over the control and management of R1 company to R2.

b. The petitioner No. 1 have thereafter attempted to ruin R1 company, inter alia by starting the said competing business, poaching employees & clients and undercutting the contracts/agreements.

c. Petitioner No. 1 has and is misusing the assets of R1 company towards furthering the said competing business.

d. Petitioner No. 1 thus completely breached his fiduciary duties towards R1 company and

e. Under no circumstances whatsoever can the petitioners be said to be either oppressed or can R1 company be said to have been mismanaged.

37. In reply to the contention, that the Company is without proper functioning of Board of Directors, the Learned Counsel for the respondents submitted that the petitioner himself created dead lock situation in the Board. It is an admitted fact that the Respondent No. 2 had addressed letter to the petitioner No. 1 by an e-mail dated 13.11.2008 wherein he has given two choices/offer to save the Company and he also states that the companies are without a fully functioning Board. However, the petitioner has not exercised the option either ‘A’ or ‘B’ of the said letter and there is no reply from him. Without accepting offer to the letter of the Respondent No. 2 the petitioner tried to convene a Board Meeting on 15.11.2008 at 2.00 P.M vide his e-mail dated 14.11.2008 The Learned Counsel further submitted that the petitioner has not made out any case on just and equitable ground to wind up the Company. When, if the case is made out then only, the Company Law Board under equitable jurisdiction may pass orders. In this context the Learned Counsel relied upon the judgement of Hon'ble Apex Court reported in (2001) 4 SCC 420 In the matter of Hanuman Prasad Bagri v. Bagrees Cereals Private Limited. Para 2, 3, 12. It is held ‘No case appears to have been made out that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members. Therefore, we have to pay our attention only to the aspect that the winding up of the Company would unfairly prejudice the members of the Company who have a grievance and are the applicants before the Court and that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up. In order to be successful on this ground, the petitioners have to make out a case for win ding up of the company on just and equitable grounds. If the facts fall short of the case set out for winding up on just and equitable grounds no relief can be granted to the petitioners’.

38. On the point that the PI and P3 were not paid salaries is not correct The CP is filed in the month December, 2008 and the counter affidavit has been filed by the respondents in the month of June, 2009 and at para 3.11 it is categorically stated that the petitioners continued to draw their remuneration, salaries, benefits, expenses from R1 company to the tune of over Rs. 60 lacs. Further, the respondents averred in CA 594 of 2009 that the petitioners withdrawn amount from June 2009 till November, 2009 from the Company. The Learned Counsel for the respondents further submits that the petitioners have miserably failed to make out any case to interfere by this Bench. Therefore, he prayed this Bench to dismiss the CP.

39. Shri Sharan Jagityani, Learned Counsel appearing for the Respondent No. 3A 4 adopted the arguments of the Senior Counsel Shri Samdhani. He further submits that the Respondent No. 3 & 4 hold 12.01% in R1 company. He submitted that theres are no direct allegation against these respondents in the petition. However, the Learned Counsel for the petitioner made his submissions against these respondents. The allegations against these respondents that they have been planted in property asset group to frustrate the implementation of MOU dated 24.12.2007 is not correct. The MOU is not acted upon. The shares of these respondents are to be settled holistically in property asset group for ever. In support of his contention he relied upon the following decisions of the Hon'ble Apex Court. (1976) 3 SCC 259. In the matter of Hind Overseas Private Limited v. Raghunath Prasad Jhunjhunwala At para 44 it is held ‘It is not a proper principle to encourage hasty petitions of this nature without first attempting to sort out the disputes and controversy between the members in the domestic forum in conformity with the Articles of Association. There must be materials to show when just and equitable clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the Company and to all its shareholders. The Company court will have to keep in mind the position of the Company as a whole and the interest of the shareholders and see that they do not suffer in a fight for power that ensues between two groups.’ (1996) 10 SCC 696. In the matter of Kilpest Private Limited v. Shekhar Mehra At para 11 it is held The promoters of a company whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi partnership should therefore not be easily accepted. Having regard to the wide powers under Sec. 402 very rarely would it be necessary to wind up any company in a petition filed under Sec. 397/398.

40. The petitioners filed their rejoinder to the aforesaid reply in affidavit of the Respondent Nos. 2 and 5 and submitted that the purported reply in affidavit dated 8 June, 2009 as filed by the R2 and 5 deserves to be rejected and not taken on record for the following amongst other reasons. The said respondents have failed and neglected to file their reply within the time stipulated by the Hon'ble Board. The said reply) is not on oath as is required by rules. The respondents have in the said reply expressly admitted the following facts: a) The shareholding of the petitioners in the company is admitted, b) Gorashyam Enterprises is a sole proprietorship of R2 and was established for putting up Industrial Project of Scouring Plant on his farm land in Khopoli (Maharashtra). It is admittedly by R2 that Gorashyam was declared as supporting manufacturer c) The factory building was constructed on farm land of R2 in Khopoli (Maharashtra) utilizing the funds of the Company d) Family Agreement dt. 24 December, 2007 was signed by all the family members.

e) Export orders booked w.e.f January 2008 to June 2009 are about 50% when compared to the earlier year period f) No dividend payments have been made for the last three years since the financial year 2006–2007. g) Respondent No. 2 has taken control of all cheque books, statutory and other records, etc. and has stopped all information of accounts from period prior to Family Agreement and all the information after the Family Agreement h) Respondent No. 2 has unilaterally delayed or stopped various payments to the petitioners and the employees assisting them, i) Respondent No. 2 did neither send any notice for Board of Directors meeting nor take any signatures on resolutions as called upon by petitioner no. 1 vide his letter dated 5 January, 2005.

41. The respondents are trying to twist the pleadings of the petitioners to suit their own case. Respondent No. 2 is reading a case in the pleadings which does not exist and the stand adopted by R2 that I have voluntarily withdrawn/taken a back seat in the management of the Company is a figment of his imagination. The petitioner No. 1 has honoured the arrangement dated 2 January, 2008 which was pursuant to the Family Agreement dated 24 December, 2007 whilst Respondent No. 2 has backtracked from the same and has played fraud with the petitioners by maintaining control over the assets/companies that were to be handled by the petitioner. The Respondent No. 2 has after having control of day to day functioning of the companies belonging to the Business Assets Group dishonoured the Family agreement dated 24 December, 2007. The petitioners deny that they have approached this Board with unclean hands or that the petitioners have disentitled themselves from grant of any reliefs by this Board, as alleged or at all. The petitioners deny that they have surreptitiously or secretly set up or starting wool spinning business in the name of Kapotex Industries Pvt. Ltd. (incorporated on 29 May, 2008). The petitioners deny that Kapotex is in direct competition with the business carried on by the Company. The petitioners deny the insinuation that they have diverted business of the Company, as alleged or at all. The petitioners tel they have poached any of employees who were originally working for the Company. The petitioners have not contacted any employee whilst they were in employment after the Family Agreement. The business of Kapotex has a different business model being forward integration and would go into finished products whereas the business of the R1 is of backward integration and is concentrating on early stage of procesing. The petitioners deny that they have acted in violation or breach of fiduciary duty, as alleged or at all. The petitioners deny that they are carrying on any business to the detriment of the business of R1 company. The petitioners deny that they are under-cutting the contracts or agreements of the R1 company with its regular customers.

42. Heard the Learned Counsel appearing for the parties and perused the documents, pleadings and various authorities cited by them. After hearing the Learned Counsel for the parties elaborately and continuously for some days and after analyzing the pleadings of the parties, the following issues are fell for consideration and need to be addressed. 1) Whether the affairs of the Company conducted unilaterally? 2) Whether the Memorandum of understanding dt. 24.12.2007 between the parties would be subject matter of jurisdiction of this Bench? 3) Whether the Company is functioning with proper Board of Directors? 4) Petitioner No. 1 commencing withdrawing himself from day to day affairs of business asset group end non handover of keys of flats belonging to R7 and non payment of bills/dues to petitioner No. 1 and discriminating the staff working for P1, whether amounts to oppression 5) Whether Gorashyam Enterprises belonging to R2 is in business with R1 Company and whether Kapotex Industries belonging to P1 is in competing business with R1. 6) Whether the Company in deadlock situation 7) Whether any case is made out by the petitioners to grant reliefs as prayed for? 8) To what relief?

Now I deal with the issue No. 1. Whether the affairs of the Company conducted unilaterally?

The grievance of the petitioner that the respondent No. 2 is conducting the affair unilaterally without consulting petitioner No. 1. He averred that the Board of Directors of the Company passed is resolution on 26 March, 2004 and reeolved that the Company had taken the Lonawala property belonging to Respondent No. 2 on leave and licence basis and the said premises was to be used as an extension office-cum guest house for employees and guests of the Company in spite of his objection. The respondents replied to this averment and stated that the petitioner is well aware of the fact and the said resolution dated 26 March, 2004 was passed keeping in the best interest of and for the benefit of R1 Company. From the pleadings it is evident that the licence period was only for 11 months i.e March, 2004 to January, 2005. It is an admitted feet that the No. 1 approved the audited accounts for the relevant period. However, the petitioner states that the audited accounts for the relevant period were signed in good faith without going into the details of the Recounts especially he believed that the family agreement dated 24 Dec., 2007 would be implemented. Having regard to the feet that the petitioner is well aware of the Board Resolution and signed the audited accounts for the relevant period. The petitioner may be of the impression that the family agreement would be drawn up and implemented in December, 2007. The petitioner No. 1 being a director of the Company and having full knowledge of the decision of the Board and having approved the accounts and now at a later point of time cannot allege that the respondent No. 2 had taken decision unilaterally. I do not find any reason to believe that the R2 had taken any decision without there being any approval of the members of the Board. Therefore, I negate the allegation and the issue is answered against the petitioner.

Now I deal with the issue No. 2 Whether the Memorandum of Understanding dt. 24.12.2007 between the parties would be subject matter of jurisdiction of this Bench?

The whole gamut of the case is revolving around the Memorandum of Understanding dt. 24.12.2007 between the parties. The contention of the petitioner that in pursuance of the Memorandum of Understanding dt. 24.12.2007 between the parties, the Kapoor family were divided into two parts viz. ‘Business Asset Group’ and ‘the property asset group’. As per the MOU the Business Asset group was to be controlled by Petitioner No. 1. The petitioner No. 3 and Respondent Nos. 3 & 4 would be part of the Property Asset Group. It is the case of the petitioners that the R2 circulated a note dated 2 Jan., 2008 informing all concerned that as per the internal arrangement the Business Asset Group would be under the control of R2 and R4 will assist him and it is also confirmed that all functions and management related to some properties of the Property Asset Group would be carried out by P1 with the assistance of his son and employees of R1. The petitioner averred that since 24 Dec., 2007, he commenced withdrawing himself from the day to day affairs of the Business Asset Group but he continued to be a director of the company as well as shareholder and guarantor of the loans taken from the Banks. The respondents contended that the aforesaid division of assets was agreed upon and the without prejudice proposal was executed on the basis of a clear understanding that having elected to take the property asset group but the fact that the disputes remained unresolved within the property asset group. From the pleadings it is evident that a note dated 2 January, 2008 circulated and signed by the P. and P2 (annexed at page 127 to the petition) according to which the R1 Company & R8 Company will be handled by R2 with immediate effect including the production unit of R8 and Grentex Wools godown, Grentex & Company Sarigam and the plant & machinery at Khopoli. The matters pertaining to Gren Ville Park A Wing and Flats, Grentex Wools Pvt. Ltd. along with the lease hold land of GRWM at Ghatkopar will be handled by Petitioner No. 1 It is also an admitted fact that the petitioner commenced withdrawing himself from the day to day affairs of the Business Asset Group. It is also an admitted fact that the MOU dated 24.12.2007 is lying in an escrow and the parties have not acted upon. Though the petitioners have not sought any relief based on MOU, but however, as stated supra the whole case revolving around the MOU and subsequent events. This Bench is of the view that the differences between the parties arose basically on the implementation of the MOU. Whatsoever it may, the MOU cannot be taken in to cognizance by this Bench. It is also noted that the MOU is without prejudice document. The MOU is a subject matter of contractual obligation and this Bench does not have any powers to entertain these disputes. The Apex Court in the matter of Sangramsinh P. Gaekwad (2 supra) it is held that ‘a dispute as regards right of inheritance between the parties is eminently a civil dispute and cannot be said to be a dispute as regards oppression of minority shareholders by the majority shareholders and/or mismanagement. It is also held that when a complaint is made as regards violation of statutory or contractual rights, the shareholders may initiate a proceeding in a civil court’. In view of the Apex Court judgment and also keeping in view of the facts in the present case this Bench is of the view that the MOU cannot be a subject matter of 397/398 and these acts do not make out any cause of action under Sec. 398/399. Accordingly, the issue is answered.

Now I deal with the issue No. 3 Whether the company is functioning with proper Board of Directors?

It is an admitted fact that the petitioner No. 1 and the respondent No. 2 are the directors of the company. The petitioner contended that one Mr. Jayprakash Shetty was appointed as a director of the Company ten years ago but retired after teaching the retirement age in August, 2008. Even Mr. Shetty retired as director on his retirement, the Board still having quorum as per law. However, the respondents also admit that the R1 company has a non functional Board. Further it is stated that due to the non cooperation of P1, no Board Meetings of R1 company have been held. In view of the precarious situation the Company has to act upon in accordance with its Articles of Association and also in accordance with the law, keeping in view of paramount interest of other shareholders and the Company.

Now I deal with the issue No. 4 Petitioner No. 1 commencing withdrawing himself from day to day affairs of business asset group and non handover of keys of flats belonging to R7 and non payment of bills/dues to Petitioner No. 1 and discriminating the staff working for P1 and the allowances were not paid to son of P1 whether amounts to oppression?

As stated supra the petitioner himself admitted that he withdrew from the day to day affairs of the business asset group and continued to be a director and shareholder of R1 company. The grievance of the petitioner that the Respondent No. 2 did not hand over the keys of flats belonging to R7 Company in pursuance of the internal arrangement dated 2.1.2008 In this regard the petitioner addressed a letter dated 8.1.2008 to R2 to handover 10 keys of GWPL flats along with cheque book to Mr. Rao, nominee of P1, immediately and also asked to hand over all books of accounts of Grentex Wools Pvt. Ltd. The stand of the respondents that according to MOU the property asset group was to consist four persons namely P1, P3, R3 and R4 due to the disputes the properly asset group has till date not intimated R2 as to the manner in which R2 should transfer his share in the property asset group and/or to whom should R2 hand over charge in respect of the various documents pertaining to the property asset group. The property asset group has not given/transferred full ownership to R2 of business assets. Since the issue is also covered by the MOU/internal arrangement, this Bench cannot interfere in respect of this allegation. The petitioners also contended that the respondents failed to pay the bills and dues and also discriminated the staff working for the P1. The respondents have categorically stated that the petitioners continued to draw their remuneration salaries, benefits and/or expenses for R1 Company to the tune of over Rs. 60 lacs and the respondents denied that any dues are pending to the petitioners. The respondents enclosed a statement of summary transactions from 2.1.2008 to 15.5.2009 showing the payments to the petitioners. The respondents also categorically stated that the petitioners withdrawn amounts from June, 2009 till Nov., 2009 from the Company. Per se this Bench is of the view that the petitioners have drawn/drawing the amounts from the Company and any dues payable by the Company the petitioners are entitled to claim from the Company. Hence, I do not find any default on behalf of the respondents in respect of payments. The other allegation regarding discrimination, non payment of salaries to the staff working for the petitioner is concerned and non payment of allowances to son of P1 does not constitute an act of oppression. Hence this Bench is of the view that there is no substance in the allegations as leveled. In view of the above, I negate the contention of the petitioners.

New I deal with the issue No. 5 Whether Gorashyam Entterprises belonging to R2 is in competing business with R1 Company and whether Kapotex belonging to P1 in is competing business with R1?

The Petitioner contended that the R2 is in competing business with R1 Company by incorporating Gorashyam Enterprises. The facts are well before me. The petitioner contended that the R2 imported a scouring plant form Newzeland despite objections form petitioner No. 1 during Sept./Oct., 2005 and paid all the costs, expenses through the Company and declared as supporting manufacturing unit of the Company for the said plant to various government authorities. The petitioner also alleged that he vehemently opposed the import and installation of the plant as it was not required by the Company since sufficient existing capacity was available. The respondents contended that the Gorashyam Enterprises constrained to set up for housing the plant purchased by R1 Company form Newzeland and was declared as a supporting manufacturer to R1 company for this specific purpose. The monies towards setting up and housing the said plant have been spent with full knowledge and consent of the petitioner No. 1. The petitioner has earlier consented to the purchase of the said machinery. However, the petitioner had objected to the same only when the machinery had been shipped to India. The petitioner has even signed the audited balance sheets for the financial year 2005–2006 on 6.9.2006 and 2006–2007 on 6.9.2007 which reflect the expenditure having been spent by the R1 company towards purchase of the said machinery and construction of shed under the head Capital Work in Progress. The respondent No. 2 permitted the use of his personal land free of cost for construction of the said shed to house the said machinery. The petitioner alleged that Gorashyam Enterprises is in competing business as is evident form the advertisements in the name of Gorashyam Enerprises in the official publications in the wool industries export promotion council and also permission to the Government for conversion of land from agricultural to industrial. But the fact remained that the plant and machinery shifted back and installed at the factory of R1 Company during May/June 2008 and same has also commenced operation/production as on 21st March, 2005. The petitioners except the statement in respect of advertisement and conversion of land, there is no other substantial evidence/material to prove that it is a competing business. The petitioner No. 1 is well aware of the fact and he is a party to the decisions take and approved in that regard. Further, it is a fact that the machinery has been shifted to the Respondent No. 1 company. There is no evidence that the unit commenced any production activities which caused loss to R1 Company. In view of lack of substantial evidence in proving the case that Gorashyam Enterprises is in competing business, this Bench do not accept the said contention of the petitioner. Hence the allegations are not proved. Accordingly the issue is answered.

The respondents in their counter affidavit took a preliminary objection stating that the petitioner No. 1 secretly started wool spinning business in the name of Kapotex. Industries Limited incorporated on 29 May, 2008 which is in direct competition with the business carried on by the R1 company. The respondents also stated that the business of the R1 company is being diverted and poaching the employees who were originally working for R1 company and the petitioner No. 1 is guilty of violation and breach of his fiduciary duty as a director. The petitioners in their rejoinder denied the allegations and submitted that the circumstances that led to start of Kapotex since the P1 commenced withdrawing himself from the day to day affairs of the business asset group that being the case, the petitioner No. 1 with his family members started the Kapotex. He submitted that the other allegations/contentions as stated in the counter are totally untrue. He submitted that the business of Kapotex has a different business model being forward integration and would go into finished products whereas the business of the R1 is of backward integration and is concentrating on early stage processing. The respondents have produced a document annexed along with the counter/reply whereby they rely that Kapotex Industries is in direct contact with the customers of the R1 Company (annexed at page 143 Exhibit K of Vol. A). From the said document it is evident that the Kapotex Industries exported to Southern Yarn approximately 101 bales of 100% woolen worsted yam (grey) of various counts at the flat rate of US $ 2.80 per lbs. After perusing the documents this Bench accepts the contention of the respondents that the Kapotex Industreis are in direct contact with the customers of the R1 company viz. Southern Yams Dyers Inc. USA However, this Bench was not appraised how much loss incurred to the R1 company by the petitioner No. 1 owned Kapotex. The reliance placed by respondent in the matter of Pearson Education, (2007) 136 Com. Cases is applicable in principal to the facts of present case, the petitioner No. 1 is continued to be a director of R1 Company.

Now I deal with the issue No. 6 Whether the Company is in deadlock situation?

The petitioners alleged that the Company is in dead lock situation since no Board Meetings, no General meeting and no statutory compliance are made as per law on the other hand the Respondents submitted that the Company is doing well and carries on business of scouring, combing, worsted and woolen spinning of yams. The R1 Company employed nearly 200 people and is a government recognized star export house and award winner having annual exports to the tune of Rs. 30 crore. It is an admitted fact that due to the petitioner No. 1 non cooperation, the company is not able to hold its Board meeting and other statutory requirements, Prima facie it appears from the facts that there is a difference of opinion between the P1 and R2. Admittedly, both are the directors of the Company. It is not such a situation that the Company cannot hold the Board Meeting and take decisions accordingly to comply all the statutory requirements as per law. Therefore. I am of the view that the Company is not in a dead-lock situation. However, I could find that there is a difference of opinion on the basis of the pleadings and the arguments put forth by the Learned Counsel appearing for the respective parties. The Learned senior Counsel for the Petitioner submitted that in view of the dead lock situation and the oppressive acts he relied upon the decision of the Hon'ble Apex Court in the matter of M.S.D.C Radharaman (1 supra). The Hon'ble Apex Court held the CLB has the power to pass orders in the interest of the Company. But the facts in the present case are totally different. There are other shareholders in the Company whereas in the aforesaid case there are only two shareholders as noticed by the CLB. In my view in the present case a little there is no deadlock in the R1 Company. Hence the issue is answered accordingly. I, therefore, direct the Company to hold the Board Meetings and General Meetings as per its Articles and the law and accordingly comply the statutory requirements of law.

Now I deal with the issue No. 7 Whether any case is made out by the petitioners to grant reliefs as prayed for?

The Learned Senior counsel for the petitioners during the course of arguments submitted that the petitioners hold 31% of the shares in the R1 company and they are willing to buy out the respondents' shares on fair valuation upon its value is done by a valuer to be appointed by this Bench. The Learned Senior Counsel also suggested that the respondents may buy out the petitioners on the same ratio and the petitioners will exit the company. He relied upon the Hon'ble Apex Court judgement in the matter of Dale & Carrington Investment Pvt. Ltd. The respondents are not willing to accept the proposal of the petitioners. In view of the uninclination of the parties, this Bench cannot direct the respondents to accept the said proposal as suggested by the Learned Counsel for the petitioner. However, if both the parties mutually agree for either buy out or sell or sell out their respective sharcholding in the R1 Company, the parties are at liberty to apply before this Bench or seek indulgence/assistance for appointment of a valuer with the consent of both the parties. In the facts of the present case, the aforesaid judgement is not of much assistance to the facts of the present case. On the other hand the Learnd Senior Counsel for the respondents submitted that the Petitioners have not made out any prima facie case either on oppression or mismanagement, hence this Bench cannot grant any relief to the petitioners. The citations relied upon by the petitioners on various points have been dealt with and of not much assistance to the present facts of the case.

8) To what relief?

After analyzing the facts, the main issues which fell for consideration and addressed the same. Apart from the issues which were dealt, the other allegations contentions and averments made in the petition does not have any merit and there is no substantial evidence and the petitioners failed to establish the same. Since the petitioners failed to make out any case on all issues and other allegations, averments and contentions, the petition is miserably failed and liable to be dismissed. Hence the Company Petition is dismissed. No orders as to costs. All the applications Pending as on this date are disposed off. All the interim orders stand vacated.