1. The present petition is filed by invoking various provisions of the Companies Act, 1956 (‘the Act’) alleging certain acts of oppression and mismanagement in the affairs of the Company and sought various reliefs viz. to appoint an administrator or special officer to take possession and charge of the assets and properties of R1 company and to manage the business and to remove the 3 respondent as director of the Company and appoint such number of persons as independent directors and appoint Chartered Accountants as Special Auditors for carrying out special audit of the Company etc. and other reliefs as prayed in para 7.11 of the petition. Shri U.K Choudhary, Learned Senior Counsel for the petitioners while initiating his arguments pointed out the acts of oppression and also siphoning of moneys of the Company. He submitted that the Company is a listed company and the principles of quasi partnership applies and the 3 respondent is the real brother of the 1 petitioner and the company is a glorified partnership of Mansukhani family and the respondents have not denied the fact that it is a family company. He narrated the brief facts which led to filing of the present petition. The disputes primarily pertain to Mansukhani family. The Respondent No. 1 Company was formed and incorporated on or about 19 May, 1988 and ventured into the business of Aluminium Extrusion plant and did not turn back thereafter. Starting with an LSAW Line Pipe Mill in 1995 with strategic investments and continuous growth. Man Industries (India) Ltd. has emerged as a prominent player in the leagues of world class manufacturers of Line Pipes and Coating Systems in a very short span. Petitioner No. 1 is the Managing Director and Vice Chairman of the R1. The R2 is director of the R1 and the family patriarch. Due to Petitioner No. 1's unrelenting endeavors, the Net Profit for the MAN Group for the year ended on 31.3.2010 was Rs. 6,709 lakhs. The Petitioner No. 1 has a long and extensive experience of 28 years in the field of Project Implementation, Pipe manufacturing. Quality assurance and Marketing. Starting with one product line for LSAW Line Pipe in 1995, due to his foresight and vision, the Respondent No. 1 continued to expand by commissioning an HSAW Line Pipe in 1999 and the coating plants in the year 2001. Just four years after commissioning of the coating plant, Petitioner No. 1 was instrumental in launching a mega project of Pipe and Coating Complex at Anjar, Gujarat with an investment of over Rs. 180 crores which has brought the MAN Group to the top league of global players in line pipe industry.
2. It is further submitted that since 2009 differences cropped up between the 1 Petitioner and Respondent No. 3 and the R3 adopted an attitude which was oppressive to the 1 petitioner. Since, 2009 the 1 petitioner was not permitted to have access to relevant information or documents with regard to the R1 to enable him to have a say in the management and affairs thereof or to enable him to take decisions in respect of matters laid before the Directors for their consideration. The R1 had a SAW Pipe Plant at Pithampur, Indore with a manufacturing capacity of 2,50,000 M.T The R1 also had an office admeasuring 25,542 sq. ft. at Indore. It was the desire of the R3 that a Plate/Coil Plant be set up in Karnataka or Maharashtra and the said Pithampur Plant and the Indore office, be sold. A meeting of the Board of Directors of the R1 was purportedly held on 31 October, 2009, wherein it was decided that the said Pithampur Plant and Indore Office, be sold. It was also decided that 5% of the investment of the R1 in its subsidiary, namely Man Infraprojects Limited be also disinvested. The petitioner No. 1 vide his email dated 4 November, 2009 recorded that neither the decision to set up Plate/Coil Plant in Karnataka or Maharashtra was decided previously nor was the decision to relocate the Indore Plant also previously discussed. A meeting of the Board of Directors of the R1 was held on 18 December, 2009 and the draft minutes of the same were circulated to the directors of the R1. The 1 Petitioner by his email dated 27 December, 2009 addressed to the other directors stated that as it was decided to sell the Indore Office, the 1 petitioner had entered into an agreement with a third party and submitted the same to the Board. However, R3 objected to the same and the Board decided to defer the decision to sell the Indore office. The 1 petitioner in his capacity as the Vice Chairman and Managing Director of the R1, on 26 February, 2010 convened a review meeting on 2 March, 2010. However, R3 vide his email dated 27 February, 2010 objected to the same and stated that review meeting be fixed with his consultation.
3. It is further submitted that a meeting of the Board of Directors was held on 18 May, 2010 when R3 submitted a confidential report to the directors of R1 and stated that the role of the 1 petitioner in the management of R1 was required to be curtailed and that a new Managing Director was required to be appointed. The confidential report was false and baseless and the 1 petitioner sought time to reply to the same and stated that in the meantime he would be available in the office but would not be involved in any independent decision related to marketing, procurement and production and all decisions would be taken with consent of R3. The 1 Petitioner also addressed an email dated 31 May, 2010 to R3 stating that at the meeting of the Board of Directors, the 1 petitioner had raised concerns about the composition of the Board of Directors and the independence of the directors. The 1 petitioner had stated that Mr. Kirit Damania, a director of the Company was not independent as he provided consultancy to the subsidiary of the R1, namely MAN Infraprojects Limited and Mr. Vijay Kalamri, a director of the Company was not independent as he was closely related to R3 (Mr. Kalantri's son is married to the daughter of the R3) The 1 petitioner stated that the refusal of the R3 to correct the draft minutes was made with an ulterior motive of not bringing true facts on record and called upon the R3 to address the issue in the meeting of the Board of Directors and record the same in the minutes. The 1 petitioner called for a meeting of the Board of Directors of the R1 and requested that an independent director (appointed by Exim Bank) act as Chairman and that an independent observer be appointed at the meetings of the Board of Directors. The 1 petitioner also stated that he would continue to act as Vice Chairman and Managing Director of R1. R3 vide his email dated 5 June, 2010 addressed to the 1 petitioner, replied to various letters and contended that the directors on the Board of R1 were independent as per the requirements of clause 49 of the listing agreement. R3 alleged that the COC was drafted jointly by the 1 petitioner and R3 along with the auditors. R3 also alleged that he as Chairman was the final authority for recording minutes of the Board of Directors. R3 also denied that there was any need for outside observers. The 1 petitioner by his email dated 11 June, 2010 addressed to the R3 refuted all the points mentioned in email dated 5 June, 2010 and repeated that the directors on the Board of R1 were not independent. The 1 petitioner suggested that the COC should be drafted by an independent audit firm. The 1 petitioner insisted that observers be appointed on the Board. Finally, the 1 petitioner suggested a name of a mediator to show that he was ready and willing to solve the differences that had cropped up between the 1 petitioner and R3. R3 addressed a note dated 11 June, 2010 to the members of the Board of Directors of R1 wherein he alleged that there was a serious question about the discharge of responsibilities by 1 petitioner. He alleged that 1 petitioner had not been attending meetings nor delegating his work to resolve critical issues. He also alleged that the 1 petitioner was tapping telephone extension lines of 13 employees. He also alleged that the 1 petitioner was taking foreign tours without giving tour reports etc. and that the is petitioner was not attending marketing/business development meetings scheduled as per the approved COC for discussions on the existing and future projects. He also alleged that the 1 petitioner had floated a competing company named MAN Futures Limited and was using the premises of R1 so as to create an impression that MAN Futures Limited as part of the group. The 1 petitioner denied the allegations in the confidential report dated 18 May, 2010 and pointed out in detail as to how certain decisions taken by R3 had resulted in loss of around Rs. 300 crores in Foreign Exchange. The 1 petitioner denied that he was not attending meetings etc.
4. It is further submitted that with regard to the allegation of floating a competing company named MAN Futures Limited, the 1 petitioner stated that the company was floated four years ago around the time the subsidiary of R1 namely MAN Infraprojects Limited was floated. The 1 petitioner stated that R3 along with his daughter and son had started a company named MAN Global Limited and the Company was run from the office premises of R1. Further, some employees of R1 though ostensibly employed by R1 were exclusively working for MAN Global Limited. On 15 June, 2010 the Assistant Company Secretary of R1, vide email informed the promoters that the shareholding of the promoters had increased since 31 March, 2010 and fell short by 4,00,000 shares before breaching the permitted limits. R1 informed the promoters that any collective purchases of the shares of R1 by the promoters should be restricted to 4,00,000 shares. On 17 June, 2010 Assistant Company Secretary of R1 vide email informed the promoters that all purchases in excess of 50,000 shares in number shall be pre-cleared as per the ‘MAN Industries (India) Limited Code of Conduct for Prohibition of Insider Trading’. This requirement was necessitated to breach the limit of SEBI Regulations which was 4,00,000 shares and it was stated that pre-clearance would be required for any purchases by the promoters starting on 16 June, 2010. The 1 petitioner addressed a letter dated 23 Sept., 2010 to the Board of Directors of R1 and stated that through the COC the 3 Respondent was trying to control the entire organization without giving the 1 petitioner any rights and powers. On 27 Sept., 2010 the 1 petitioner received an email dated 24 Sept., 2010 addressed by R3 alleging that the acquisition of 1,06,471 shares of R1 by the 1 petitioner on 16 June, 2010 and 17 June, 2010 and JPA Holdings Private Limited was without pre-clearance. R3 alleged that as a result of this acquisition the shareholding of the promoters exceeded 55% and as per the SEBI guidelines the promoters could not acquire shares exceeding 55% unless they made a public announcement in accordance with the SEBI Regulations. Pursuant to notice dated 24 Sept., 2010 a meeting of the Board of Directors of the Company was held on 27 Sept., 2010 when the 1 petitioner was informed that he had been removed as the Vice Chairman and Managing Director of RI. It is pertinent to note that the alleged violations of SEBI Take Over Code took place in June, 2010 whereas in a preplanned manner the Board usurping the powers of SEBI, a Regulatory Body, after a lime gap of almost three months purported to remove the petitioner No.) from discharging his functions as the Managing Director of R1. The 1 petitioner vide his letter dated 27 Sept., 2010 stated the correct facts as transpired at the meting of the Board of Directors. He stated that the majority of the directors were not independent and again requested that an independent director be appointed as Chairman for subsequent meetings of the Board of Directors. He repeated that an independent observer should be appointed to ensure proper conduct and record of the meeting. The 1 petitioner also denied that he had violated any SEBI Regulations and stated that he had been independently acquiring shares of R1 since the beginning of the year and was not acting in concert with anyone. On 28 Sept., 2010 the 1 petitioner received a letter dated 27 Sept., 2010 informing him that the 1 petitioner had recently acquired equity shares of R1 and in view of the purported seriousness of the commissions and omissions in such acquisitions the Board of Directors had decided to constitute a committee to inquire into such acquisitions and the consequences thereof. Pending the enquiry, the Board of Directors had decided to suspend the 1 petitioner as Managing Director and consequently all his powers of management exercisable as Managing Director were withdrawn. The P1 petitioner vide his reply dated 29 Sept., 2010 addressed to R3 stated that the purported decision taken by the Board of Directors was illegal and malafide and would cause prejudice to the Company. The sole purpose of the meeting was to oust the 1 petitioner from discharging the functions of the Managing Director. On 29 Sept., 2010. R3 addressed a letter to the 1st petitioner asking him to provide complete details of all urgent matters relating to the marketing, production and purchase to an employee of the R1. On 29 Sept., 2010 the 1 petitioner addressed a letter to the R1 as a shareholder and director of R1 and called upon the R1 to provide inspection of statutory records of the R1 to the 1 petitioner. R1 has received this letter but till date no inspection of the statutory records has been given to the 1 petitioner. In fact, by letter dated 4 October, 2010 R3 wrote back to the petitioner No. 1 inter alia stating that the petitioner No. 1 is not entitled to inspect any documents of the Company. Again, on 1 October, 2010 the petitioner No. 1 wrote to R3 putting on record that in spite of him requesting for the fourth time, the 1 Department of the Company acting on the instructions of R3 is yet to restart the e-mail and internet facility of the petitioner No. 1 which needless to say is hampering the official activities of the petitioner No. 1. In the meantime on 30 Sept., 2010 the petitioner No. 1 was in receipt of a purported Show Cause notice dated 29 Sept., 2010 signed by R2 calling upon the petitioner No. 1 as to show cause why he should not be dismissed as the Managing Director of the R1. The purported show cause Notice was based on only premises that of allegation of violation of SEBI Takeover Regulations. In response to the said Show Cause Notice, the petitioner submitted a response dated 6 October, 2010 clearly bringing out the fact that there is no violation of any regulation much less SEBI Takeover Code. Further on 7 October, 2010 an additional response was sent by the petitioner as director of the Company along with demand of issuing Show Cause Notice to R1 on the grounds spelt out in the said additional response. Petitioner has clearly brought the fact before the Board of Directors about the non compliance done by Respondent including but not limited to miss appropriation of funds of the Company, misuse of powers as the Chairman of the Company, breach of provisions of SEBI Takeover Code for the year ended on 3181 March, 2009 by acquisition of shares for more than 5% in a year, transfer of funds to his own company Man Global Limited and then buying the shares of the Company etc., R1 has misused his powers in the Company. He is in total control of the administration and finance functions. R1 has in tact at one instance misused his powers to create bogus billing and invoicing arrangement with several traders and siphoned away huge sum from the subsidiary of the Company for his own benefit. (Since R1 is the Company whether the allegations attributed against the Company or any individual is not clear from the this para).
5. The Learned Senior Counsel on the factual issues vehemently contended on the points, that the R1 Company is a glorified partnership and is a family managed company as admitted by the Respondents vide letter dated 29.9.2010 The acts of oppression committed by the respondents are that the respondents have taken out the powers as managing director and restored back and thereafter taken out the power once again, is an act of oppression. He contended that the R1 Company is a listed Company and its capital is more than Rs. 5 crores hence the company requires Managing Director as per Section 269 of the Act. Further, the respondents mismanaged and siphoned off the amounts of the Company as detailed out at para 7.5 of the petition and para 49 to 53 of the rejoinder. However, the respondents merely denied the same in their sur-rejoinder. He further contended that there are directorial complaints in the petition, more particularly by the first petitioner and the directorial complaints are not in fructuous in family companies. When a material change is brought about in the management to the detriment of the interest of the main promoter it is squarely covered under Sec. 398(1)(b) of the Act as held in (1) (2006) 7 SCC 613 at para 46 In the matter of Kamal Kumar Dutta v. Ruby General Hospital Ltd. It is held “the Company which is floated by the elder brother and which has been run by the younger brother in the absence of the elder brother, the younger brother manages the whole company and that the Managing Director is totally ousted and shares are being cornered substantially so as to have full control of the Company is oppression being squarely covered by Sec. 397(1)(b) of the Act.” Further the Learned Senior Counsel relied upon the following decisions on the point of directorial complaints. (2) (1997) 1 Comp LJ 268 (CLB) Para 72 In the matter of Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. It is of the view “In view of the nature of the Company as already stated being a family company, keeping in mind the equitable considerations as has been already recognized by various English and Indian Courts, we are convinced that in such cases directorial complaints cannot be ignored and we consider these acts as oppressive. (3) (2004) 4 Comp LJ 593 (CLB). In the matter of T.A.M Athavan v. Sun Freight Systems (P.) Ltd. It is of the view “That directorial complaints have been entertained by this Board in cases of family companies in the guise of quasi partnership and on equitable consideration depending upon the facts of each case.”
On the points of oppression and mismanagement the Learned Counsel relied upon the following decisions:
(4) (2008) 143 Comp Cas 97 (SC) In the matter of M.S.D.C Radhararaanan v. M.S.D Chandrasekara Raja
(5) (1998) 5 Comp LJ 463 (Cal). In the matter of Tea Brokers (P.) Ltd. v. Hemendra Prosad Barooah. It is held “the Court therefore can pass appropriate orders under sec. 397 read with Sec. 402, if it comes to the conclusion that the affairs of the Company are being conducted in a manner oppressive to any member or members and that to wind up the Company would unfairly prejudice such member or members but the facts would otherwise justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up.”
(6) (1978) Comp Cases (SC) 312 (Vol. 48) In the matter of Cosmosteels P. Ltd. v. Jairam Das Gupta
(7) AIR 1966 Calcutta 512 In the matter of Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd. It is held “Application for relief under Sec. 397 by a majority of shareholders is maintainable.”
(8) (2001) Comp. Cases (Bombay) Page 25 In the matter Jer Rutton Kavasmaneck v. Gharda Chemicals Ltd. It is held “In a petition for relief under Sec. 397 of the Companies Act, 1956, it is permissible to bring on record by an amendment not only the facts pertaining to the events upto the filing of the petition but also subsequent events. Once the Court comes to the conclusion that the petition is maintainable, then subsequent events can also be considered in order to do complete justice between the parties and to make appropriate orders for removing the oppression.”
In view of the reasons, facts supported with precedents, the Learned Senior Counsel prayed this Bench to grant the reliefs as prayed for.
6. Respondent No. 1 Company filed its detailed reply.
Shri J.J Bhatt, Learned Senior Counsel appearing for the Company submitted that the petition is misconceived and not maintainable in as much as the petition is based on the footing that R1 Company is a close corporation and a glorified partnership while it is a matter of fact that the petitioners have in the petition themselves admitted that R1 company's shares are listed on Stock Exchange and consequently R1 Company is a Public Limited Company and not a close corporation or a glorified partnership as alleged by the petitioners. Therefore. R1 Company is not a closely held family Company belonging to the Mansukhani family as alleged. About 43% of the total paid up share capital of R1 Company is held by public consisting of about 26,500 shareholders. Grievances have been made by the petitioners not in their capacity as shareholders of R1 but basically pertaining to the position of Petitioner No. 1 as the Vice Chairman and Managing Director of R1 and consequently the present petition is not maintainable. Alternative remedy of a Civil Suit is available to the petitioners and filing of this petition for their alleged grievances is not at all justified. It is further submitted that the petitioners have sought to allege mismanagement and oppression of the minority shareholders of R1 Company. However, the fact remains that Petitioner No. 1 has been the Managing Director of R1 Company for the last several years and it does not lie in his mouth to make allegations of mismanagement or alleged oppression of minority shareholders and consequently the present petition is misconceived and the same ought to be dismissed. R1 Company had reserves and surplus to the extent of Rs. 436.50 crores against paid up share capital of Rs. 26.76 crores and the value of its net current assets was Rs. 369.67 crores and R1 Company declared dividend of 35%. R1 has been declaring and paying dividend for the last many years. R1 could not be having so much reserves and assets and could not have been in a position to declare dividend if it was mismanaging its affairs as alleged by the petitioners. R1 has an Audit Committee and the Petitioner No. 1 is a member of the Audit Committee. R1 also has strong Management Information System (MIS). Though Petitioner No. 1 was suspended as the Vice Chairman and Managing Director of R1 at the meeting of the Board of Directors held on 27 Sept., 2010, subsequently by a resolution passed at the meeting of the Board of Directors of R1 held on 16 October, 2010 Petitioner No. 1 was restored as the Vice Chairman and Managing Director of R1.
7. It is further submitted that Mansukhani's ventured into construction and infrastructure business of Aluminium Extrusion Plant in 1988 and thereafter did not turn back and emerged as a prominent player in the league of world class manufacturers of Line Pipes and Coating Systems in a very short span. R1 would not have succeeded in its business the way it has succeeded as described by the petitioners if its affairs were or are being mismanaged as alleged. The petitioners have mentioned that the net profit of R1 was about Rs. 67,09 crores in the year ended on 3191 March, 2010 which could not have been achieved if the affairs of R1 were allegedly mismanaged. On one hand the petitioners contended that Petitioner No. 1 has played a significant role in the exponential growth of R1 on the other hand are alleging that affairs of the R1 are being mismanaged. Petitioner No. 1 in his capacity as the Managing Director of R1, was entitled to have access to all the relevant information and or documents of R1 which were always made available to him.
8. It is further submitted that at the meeting held on 3141 October, 2009 the subject of possibility of setting up Plate/Coil Mill was discussed and the Board was informed that pre-feasibility, research was done and it was favorable and it would help the Company to have long terms sustainability and the Board recommended that consultants be appointed and a detailed project report should be prepared and placed before the Board. The question of demerger or shining of the Indore Plant was also considered because of the capacity of the Indore Plant not being fully utilized and the Board recommended appointment of merchant banker and then the proposal should be submitted to the Board. The copy of the minutes of the meeting held on 31 October, 2009 annexed to the petition is not correct. It is true that at the said meeting the question of disinvestment in equity shares was discussed and it was stated that the valuation of equity shares of Man Infraprojects Limited will be worked out and will be placed before the potential investor. Petitioner No. 1 on his own and without prior knowledge and consent of the Board of Directors of R1 entered into an Agreement for sale of the office premises at Indore to S.K.M Infrastructure and Food Park Private Limited, the purchaser who is very close and known to petitioner No. 1 and the prospective purchaser directly remitted the amount straight into the Bank Account of R1 at Indore. R1 was unable to make out as to how the said amount was credited in its bank account and on enquiry being made. Petitioner No. 1 for the first time informed the Company that he had entered into the said agreement. R1, however, did not ratify the said agreement. It appears that the petitioner No. 1 entered into the said Agreement in favour of his friend and agreed to sell the said office premises at a price which was much tower than the price which could have been obtained and consequently R1 avoided the said Agreement for Sale.
9. It is further submitted that the minutes of the Meeting of the Board of Directors held on 18 May, 2010 were correctly recorded. Some of the suggestions made by Petitioner No. 1 for incorporating them in the minutes were defamatory or irrelevant and were not required to be incorporated in the Minutes. R1 has complied with the requirements of Clause 49 of the Listing Agreement and there are two independent directors on its Board. At a meeting of Board of Directors of R1 held on 14 Feb., 2011 two more independent directors viz. Mr. Pramod Kumar Tandan and Mr. Annavarapu Venkat Rammurty have been appointed. The code of conduct has been prepared and the same is being followed and complied with. The Code of Conduct is also approved by the Board of Directors of R1 at its meeting held on 5 Feb., 2010. Under the relevant provisions of the Companies Act, 1956 the Chairman of the Meeting is the final authority to decide as to what is to be incorporated in the Minutes of the Meeting and the decision of the Chairman is final. R1 has made good profits for the year ended 31.3.2010 and it has also substantial reserves and surplus and therefore the question of any independent observer being required to attend the Board Meeting does not arise.
10. It is further submitted that if is a serious matter concerning about petitioner No. 1 tapping the telephone extension line of thirteen employees of R1 and that such tapping was done is confirmed by the service provider. Such conduct can never be tolerated either by R1 or its Board of Directors under any circumstances. Petitioner No. 1 as the Vice Chairman and Managing Director of R1 is also required to submit the reports as and when he undertakes any foreign tours about the work done by him on such tours and explaining the reasons for undertaking such tours. If such reports are not submitted it is a serious breach of duty on the part of petitioner No. 1 in as much as the Company is then kept in dark about the reasons and the need for Petitioner No. 1 undertaking such tours and also as to what was achieved by him by undertaking such tours. It is further denied that R1 has suffered loss around Rs. 300 crores in Foreign Exchange as alleged or at all. The code of conduct was prepared under the alleged influence of R3. It is also denied that R1 has allowed its employees to work for Man Global Limited as alleged. It is also denied that the performance of R1 for the year ended 31 March, 2010 was poor as alleged. The petitioners themselves have admitted in the petition that R1 made profits of about Rs. 67.09 cores for the year ended 31 March, 2010. So far no incident whatsoever has come to the notice of R1 or its Board of Directors which allegedly shows that R3 has allegedly siphoned the money of R1.
11. Further, it is submitted that so far no instance has come to the notice of R1 or its Board of Directors which allegedly indicates that R3 is trying to control the entire organization as alleged. It is also pertinent to note that petitioner No. 1 takes credit for growth of R1 while on the other hand he alleges mismanagement in the affairs of R1. R1 is not concerned with the mediation between Petitioner No. 1 and R3 and it is their personal affairs and R1 has nothing to do with such mediation. The Board of Directors of R1 had appointed Ernst & Young Private Limited to investigate into the allegation of insider trading against Petitioner No. 1. They have submitted their report dated 14 February, 2011 to R1 Various allegations made by petitioner No. 1 vide his letter dated 27 Sept., 2010 are denied by the respondents. The show cause notice dated 29 Sept., 2010 issued to Petitioner No. 1 has become in fructuous in view of his subsequent restoration as Vice Chairman and Managing Director of the Company The Board of Directors of R1 in good faith and on legal advice accepted the explanation given by petitioner No. 1 by his letter dated 15 October, 2010 and revoked his suspension and restored him as Vice Chairman and Managing Director of the Company. Neither R1 nor its Board of Directors have come across any incident indicating R3 misusing his power in the Company as alleged. As Executive Chairman of the R1, R3 is entitled to control the administration and financial functions of the Company and in doing so he has not committed any illegality.
11. This respondent denies that R1 is a family company as alleged. Petitioner No. 1 has no vested right to participate in the management of R1. R1 is a public limited listed Company and any alleged understanding between two groups of shareholders which is not made a part of the Articles of Association of R1 is not binding on R1 and petitioners cannot enforce the alleged understanding against R1. It is denied that R1 is a glorified partnership or the principles of partnership would be applicable to R1 as alleged or otherwise. It is submitted that R1 is not concerned with the alleged breakdown of the mutual confidence and trust between the petitioner's group and R3's group and that at all time in the past the petitioners have received their due share as shareholders of R1 and they are always treated fairly and their rights have never been oppressed as alleged or at all. Petitioners have no vested right to participate in the management of R1 and such rights are not conferred upon them pursuant to Articles of Association of R1. The petitioners can certainly derive the benefits by the growth prosperity and profitability of R1 as shareholders. The shares of R1 are listed on Stock Exchanges and the question of the petitioners shareholding being rendered valueless does not arise. It is denied that there is any apparent lack of probity in the manner in which the affairs of R1 have been conducted as alleged or at all.
11. It is further submitted that the present petition is not a proper remedy for the petitioners' alleged grievances regarding ouster of Petitioner No. 1 from the management, the petitioners and a petition under Sec. 397, 398 and 402 of the Companies Act is maintainable only if the rights as shareholders are violated and the Articles of Association of the Company do not confer any rights on the petitioners to participate in the management of the Company which can be enforced by petitioners by filing the present petition and consequently the petition ought to be dismissed.
12. The Respondents 2 to 8 have filed a detailed reply. Shri Cyrus Ardeshir, Learned Counsel appearing for them submitted that the R3 joined the Board of Directors of R1 Company in the year 1988 and since then he has been actively engaged in the management of the day to day affairs and business of R1 Company and working as Executive Chairman since 1 October, 2003. The petitioners are challenging a decision taken by the Board of directors of R1 to suspend the petitioner No. 1 as Vice Chairman and MD. Therefore, the petitioners are not entitled to ask for winding up of the Company on just and equitable grounds in as much as there is an appropriate remedy by way of Company Suit which can give the petitioners will relief if such action had been taken by the company on inadequate grounds. He submitted that the question of having any desire to set up a coil plant by R3 does not arise. The meeting of the Board of Directors of R1 held on 31.10.2009 the subject of possibility of setting up plate coil was discussed and the Board was informed that pre feasibility research was done and it was favourable and it would help the Company to have long term sustainability. Thereupon the members of the Board discussed the matter and recommended that consultants be appointed and detailed project report should be prepared and placed before the Board. At the said Board Meeting the question of demerger/shining of Pithampur plant was also considered because the capacity of plant was not been fully utilized and this matter also the Board members recommended the Merchant Banker should be appointed and the proposal should be submitted to the. Board. In the said Board Meeting the members suggested that to improve the liquidity of R1, the Indore office and other land at Indore should be liquidated and suggested that competitive bids should be obtained from the market for sale of Indore Office and other land. In August, 2009 the 1 petitioner approached the 3 respondent and expressed his desire to purchase the Indore office as he was emotionally attached to the said office and submitted a valuers certificate certifying that the value of office was Rs. 4.26 crores. The R1 Company obtained quotation from Gopichand Property Brokers, Indore dated 20 November, 2009 and they offered Rs. 9.75 crores for the said premises. The 1 petitioner without any prior knowledge and consent of the Board of Directors entered into an agreement for sale of the office premises at Indore to SKM Infrastructure and Food Park Private Limited who is very close and known to petitioner No. 1 and remitted the amount straight in R1's Account. The R3 objected to the sale in the capacity as Executive Chairman and he is duty bound to protect the rights and interests of R1. R3 come across various instances which convinced him that the role of petitioner No. 1 in the management of R1 was required to be curtailed and accordingly he submitted the report to the Board of Directors for discussion and appropriate decision. It is submitted that the draft minutes circulated to the directors by R1 correctly recorded as to what transpired at the meeting of the Board of Directors held on 18.5.2010 Mr. Kirit Damania and Vijay Kalanthri, two of the directors of R1 are independent directors as required by the relevant clause. It is also submitted that with a view to have smooth functioning and working of R1 Company a code of conduct was drafted regulating the conduct of the managerial personnel and this code of conduct was drafted jointly by R3 and Petitioner No. 1 and the same has been approved by the Board of Directors at its meeting held on 5.2.2010 It is reiterated that the conduct of petitioner No. 1 in discharge of his duties, it became apparent that he was not acting in the interest of the Company but was promoting his own interest and the said fact was brought to the notice of the Board of Directors of the company. The petitioner No. 1 having realized his misdeeds been discovered that he has filed the present petition making baseless allegations against the Company and other respondents. These respondents deny that the Company has suffered a loss of about Rs. 300 crores or any other amount in foreign exchange. It is a fact that the R3 promoted a company called Man Global Limited but the business of the said company is not competitive to the business carried out by the R1 company. It is reiterated that R1 is a Public Limited Company whose shares are listed on Stock Exchanges as a listed company. R1 Company is required to conduct its business and affairs in accordance with the relevant statutes and also is required to comply with various requirements as a public limited listed company and the question of R1 being run as a glorified partnership between the petitioner No. 1 and R3 does not arise at all. While denying the allegations of the petitioners the Learned Counsel made his oral submissions on the point that the petitioners are not part of minority group. It is an admitted fact that the petitioners hold 26.76% and whereas the respondents hold 26.75% which is almost all equal, therefore, the question of minority group by the petitioners does not arise. The contention of the petitioners that the R1 Company is not having independent directors hence it is violative of listing agreement is not correct and it is after thought the petitioner No. 1 is the director from inception of the Company and Shri Damania appointed as an independent director in 1988 and Vijay Kaiantri appointed as nominee director of IDBI and Sudhata Mandal was appointed as director. It is further contended that reliance of Sec. 269 of the Act by the Learned Senior Counsel for petitioner is wholly misplaced on the ground that the petitioner was not removed from the director but only the powers were withdrawn. On the submissions of the dividend the Learned Counsel stated that the R1 Company was incorporated in 1988 and as on 31.3.2010 the R1 declared 31% dividend and also 40% dividend declared subsequently. The R1 company is having reserves more than Rs. 600 crores. On the point of mismanagement the Learned Counsel submitted that the petitioner No. 1 signed all the balance sheets from the year 1988 to 2010 and he was in the audit committee and managed the affairs of the Company and alleges that the Company was mismanaged, is completely unbelievable. The entire petition speaks that the petitioner No. 1 was illegally suspended and on that basis the petitioner approached this Bench. It is submitted that as per Article 138 of AOA of the Company the Board has power to withdraw the managerial powers.
In support of his arguments the Learned Counsel relied upon the following judgments:
(1) (1983) 54 Comp. Cases 235 (Delhi) In the matter of Suresh Kumar Sanghi v. Supreme Motors Ltd. It is of the view “In Kalinga Tube's case, (1965) 35 Comp. Cases 351 also it was held by the Supreme Court that in order to constitute oppression within the meaning of Sec. 397 there must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the Company were being conducted in a manner oppressive to some part of the members. From the aforesaid judgment it clearly follows that (i) past acts which have come to an end cannot be challenged under Sec. 397 or Sec. 398. (2) The reliefs under Sec. 397-398 would be available only if there are continuous acts of oppression by the majority shareholders. Illegal acts committed by the directors unless they are oppressive on the minority shareholders cannot be challenged in a petition under Sec. 397 of the Act,”
(2) (2007) 140 Comp. Cas Page 180 (CLB) In the matter of D. Ramkishore v. Vijayawada Share Brokers Ltd. To show “Any directorial complaints in respect of a public limited company will not be entertained. The Supreme Court in Hanuman Prasad Bagri v. Bagress Cereals Private Limited (2001) 105 Comp. Cases 493. any grievance concerning illegal termination of directorship cannot be brought under Section 397-398 proceedings.”
In view of the factual and legal submissions the Learned Counsel prayed this Bench to dismiss the petition.
13. Heard the Learned Senior Counsel and Counsel appeared for the respective parties, perused the pleadings, documents and citations relied upon by them. After hearing the Counsel the following issues are felt for consideration and the same are need to be addressed.
1. Whether the Company is run on the basis of a glorified partnership and whether it is a family run Company?
2. Whether the Respondents siphoned off the amounts of the Company as alleged by the petitioners?
3. Whether any acts of oppression and mismanagement committed by the respondents or is there any directorial or managerial complaints as contended?
4. Whether the petitioners are entitled to the reliefs?
Now I deal with the issue No. 1:
The R1 Company was incorporated on 19 May, 1988 and its name was changed to Man Industries (India) Limited w.e.f 21.6.1995 It is contended that the R1 Company is a corporation and a glorified partnership and closely held family Company. From the array of parties most of them belong to Mansukhani family. It is also an admitted fact that the petitioners put together hold 26.76% of the issued, subscribed and paid up capital of R1 Company. The respondents put together hold 26.75% admittedly. It is also contended that the disputes primarily pertain to the Mansukhani family. On the other hand the respondents contend that the Rt Company shares are listed on Stock Exchange and is a public limited company and not a close corporation or a glorified partnership as alleged by the petitioners. It is also a fact that 43% of the total paid up share capital of the R1 Company is held by public consisting of 26,500 shares. Except the averments there is no material to show that the Company is run on the equations of glorified partnership or is a family run company. Admittedly the Company is a public and listed company. The petitioners have given the shareholding of themselves and the respondents only. Basing on this it is not correct to come to a conclusion that it is a family run company. The petitioners and respondents may be family members but there is no evidence that the R1 Company run on the basis of agreements or understandings. Further there is no evidence that the agreements or understandings in respect of the management and the affairs of the company are to be run on the basis of either glorified partnership or corporation or by the family members. Further there is no such provision/clause in respect that the company should run on the basis of principles of partnership or family understanding in Articles of Association. The shareholding of the petitioners group and the respondents group are almost all equal, therefore, the petitioners cannot allege that they are minority group. Therefore, the contention of the petitioners that the R1 Company is a glorified partnership and family run company cannot be accepted. Hence the issue is answered.
Now I deal with the issue No. 2
The petitioners contended that the respondents have siphoned off the amount of the company thereby the Company is put to loss. The petitioners at para 7.5 of the petition averred that the 3 respondent has resorted to practices involving serious oppression of the petitioners and has indulged in gross mismanagement. It is also contended that the 3 respondent has usurped complete control and management of the 1st respondent to the exclusion of the petitioner group. The affairs of the Company are being run in an autocratic manner and resorted to keeping the petitioners in the complete dark. Except these averments there are no particulars of the siphoning of the funds and no details have been given to that effect however, the petitioners in their rejoinder at para 49 stated that the R1 Company is suffering financial losses due to illegal actions and misconduct of R3 and given some instances such as that the petitioner received an e-mail from the R1's dealer in Iran informing that bank guarantee amount of 7 million USD given by R1 to IGEDC Iran are likely to be invoked due to delay in delivery of pipes. At para 50 of rejoinder, it is averred that the Company has spent Rs. 110 crores on litigations against a company in USA. At para 51 of rejoinder, it is stated that the R3 siphoned off moneys purportedly paying commission to JKN International FZC by transferring Rs. 43 crores. Further in para 52 to 54 of the rejoinder, it is averred that the R3 had transferred a sum of Rs. 20 crores from R1 to a subsidiary of R1 i.e Man Overseas DMCC Dubai and also resolved to grant a loan of Rs. 50 crores to Man Infra Projects in a Board Meeting held on 24 May, 2011. The Counsel appearing for the respondents submitted that the facts regarding siphoning off moneys for the first time brought to the notice of the Bench in a rejoinder only. Therefore as on the date of filing of the petition the petitioners have not made out any case on any acts including the siphoning off the amounts except the averments in the rejoinder and the same must be treated as subsequent events to filing of the petition and they do not have any substance and cannot be taken cognizance. In answer, the Learned Senior Counsel for the petitioners relied upon a judgment (8) supra wherein the Bombay High Court held “that in a petition for relief under Sec. 397 of the Companies Act. It is permissible to bring on record by an amendment not only the facts pertaining to the events up to the filing of the petition but also subsequent events.” It is relevant to mention that the petition was filed on 11 October, 2010 and the respondents have filed their counter on 17 March, 2011 and the petitioners have filed their rejoinder to the counter on 29 July, 2011 and made the averments with regard to siphoning off amounts by the third respondent. The respondents in their sur-rejoinder have dealt with the said averments of the petitioners and stated that for the year ended 31 March, 2011 the Company made net profit of Rs. 91.97 crores and the audited accounts have been approved by the Board of Directors and the extract whereof was published by the Company in Economic Times and Maharashtra Times issue dated 26 May, 2011 in compliance with the relevant requirement of the listing agreement. It is stated that the Company spent Rs. 110 crores on litigation against the company in USA. The said amount represents the amount awarded against the Company by the Court in USA and in respect whereof the Company preferring an appeal. It is admitted that the company has paid commission to the person and entity who had rendered services to the Company and in respect whereof the company was duty bound to pay the commission. It is stated that the Man Overseas DMCC Dubai is a wholly owned subsidiary company and the company had given loan to the said Man Overseas DMCC Dubai as per the authority given by the Board of directors of the Company at its meeting held on 5 Feb., 2010. It is also stated that the Company had given loan of Rs. 50 crores to Man Infra Projects Limited and the loan was utilized by the said Company to purchase 411 irreversible fully convertible debentures. From the documents enclosed to the rejoinder by the petitioners it is evident that the 1 petitioner made complaint to the Santacruz Police Station Mumbai on 13 May, 2011 wherefrom it is clear that the said complaint was lodged after filing of the petition before this Bench and made a reference of filing of this petition before this Bench. The averments made in the rejoinder in respect of siphoning off moneys are the same as made to the Inspector in-charge Santacruz Police Station, Mumbai. It is clear that the averments made in respect of siphoning off moneys already complained to the Santacruz Police Station on 13 May, 2011 and the same is reiterated in the rejoinder verbatim. Therefore, this Bench is of the view that the allegations in respect of siphoning off moneys are after thought. Moreover, it is contended by the petitioner that the said acts are criminal offences and the complaint made to the police prior to bringing out the same before this Bench and the Law will takes its own course. Even otherwise taking into consideration the judgment of the Bombay High Court with regard to the subsequent events, I find that there is no substance in the averments made by the petitioner. The respondents have categorically replied in their surrejoinder to the each and every averment. The moneys which the petitioner alleged to be siphoned off was not utilized by the 3 respondent individually for his sole benefit or to his family members, but spent for the benefit of the Company and its business affairs. Hence, I do not find any substance in the allegations and the same are after thought and completely base less. Accordingly the issue is answered.
Now 1 deal with the Issue No. 3:
The Learned Senior Counsel vehemently contended that the respondents more particularly respondent No. 3 committed the acts of oppression against the petitioner No. 1 by withdrawing the powers as Managing Director and thereafter restored back. He contended that it is a listed company and the capital is more than Rs. 5 crores, hence Managing Director is necessary as per law. He submitted that the directorial complaints are not in fructuous in family companies. The respondents have denied the same in their reply. I have already decided that the R1 Company is not a family run company and it is not a glorified partnership. The petition filed by the petitioners and the allegations therein in entirety are attributed against the 3 respondent by the 1 petitioner only. The main grievance of the 1 petitioner that even though he being the Vice Chairman and Managing Director, he was not permitted to have access to relevant information or documents with regard to R1 Company to enable him to have say in the management and affairs thereof or to enable him to take decisions in respect of matters laid before the directors for their consideration. Various averments have been made in the petition. It is an admitted fact that the 1st petitioner is a director of the Company from its inception. He was continuing as Vice Chairman and Managing director till his powers have been withdrawn on 27.9.2010, however, in a Board Meeting dated 16 October, 2010 the powers have been revoked. Therefore, except during the period from 27 Sept., 2010 till 16 Oct., 2010 the 1 petitioner continued as Vice Chairman and Managing Director with all powers. The petitioner being in the helm of affairs of the company cannot say that he is not having any access of relevant information or documents to the R1 Company. There is no specific averment that the respondent No. 3 had not provided the information or the document to him. The petitioner himself stated that the differences started/cropped up between the 1 petitioner and the 3 respondent and it is evident that entire petition revolves around the allegations against the 3 respondent by the 1 petitioner alone. From the documents annexed to the petition it is clear that the petitioner participated in all the Board Meetings and took active participation in the affairs of the company. The 1 petitioner addressed various letters to the Company and the directors. In one of the letters dated 31.3.2010 the petitioner referred to the Board Meeting dated 18.5.2010 and raised concerns on the composition of the Board and independent directors. He also raised objection with regard to confidential report placed by the 3 respondent before the Board in his letter dated 31.5.2010 The 1 petitioner might have antagonized with the confidential report placed by the 3 respondent before the Board. The instances mentioned in the Confidential report are regarding the land purchased in Indore, dead investment of approximately Rs. 7 crores, new company formed by the 1 petitioner, big forex transaction by 1 petitioner, sale of Indore property court cases etc. It is stated by the 3 respondent that he advised the 1 petitioner not to do the acts as mentioned above. The 3 respondent vide his reply dated 5 June, 2010 stated that he has gone through all the mails sent by the petitioner and answer to all the issues viz. independent directors on the Board of R1 company, issue of code of conduct (COC) and observers on the Board. It has been clarified in the letter that the board of R1 Company consists of optimum number of independent directors in accordance with the SEBI Guide lines and clause 49 of the Listing Agreement and there is no further requirement of independent directors. In response to the code of conduct it is stated that the 1 petitioner spent many hours giving shape to COC which was approved by the Board of Directors and not by any single director. The 3 respondent also made clear that there is no need for outside observer for Board meetings. While so the powers as Vice Chairman and Managing Director have been withdrawn in a Board meeting dated 27 Sept., 2010. The petitioner vide his letter dated 29.9.2010 requested the Company for inspection of documents of R1 company. The company replied by their letter dates 4.10.2010 It is also true that the Board of Directors have constituted a committee to enquire into the commission and omissions and irregularities committed by the petitioner No. 1. The committee submitted its report. The petitioner was given opportunity to explain. The Company issued show cause notice to the petitioner dated 29.9.2010 calling upon to explain on various irregularities committed by him. The petitioner replied to the show cause notice on 6.10.2010 The Company in its Board Meeting held on 16 Oct., 2010 discussed various issues in its meeting and one of the issues is to consider and discuss the reply submitted by 1 petitioner to the show cause notice issued by the Company. After discussion, the Board resolved thus “Resolved that in view of the reply to the show cause notice received from J.C Mansukhani and his representatives at the meeting, the suspension of J.C Mansukhani as the Managing Director of the company as per the resolution passed at the meeting of the Board of Directors held on 27 Sept., 2010 be and is hereby revoked with immediate effect.” Further it is also resolved and recorded in the said meeting and the relevant portion is extracted herein:
“Thereafter, Mr. J.C Mansukhani and Mr. R.C Mansukhani, both informed the Board that they are withdrawing all the allegations made by them against each other and that they will not pursue any further confidential reports submitted by them to the Board. Mr. J.C Mansukhani and Mr. R.C Mansukhani, both further informed the Board that they will act as per the Code of Conduct (COC) and cooperate with each other in respect thereof. Mr. J.C Mansukhani further informed the Board that he has withdrawn his earlier demand for review of the COC. The Board noted the same.” The petitioner attended and participated in the meeting. It is clear from the minutes of the meeting that there are differences only between the 1 petitioner and the 3 respondent and they withdrawn the allegations made by them against each other as noted in the Board Meeting dated 16.10.2010 There after, it is presumed that there are no allegations against each other and I do not find any oppressive acts committed by the 3 respondent against the 1 petitioner as alleged. On the issue of directorial complaints, the Learned Senior Counsel for the petitioners contended that the R1 being a listed company requires Managing Director as per section 269 of the Act. The provision envisages on and from the commencement of the Companies (amendment) Act, 1988 every public company, or a private company which is a subsidiary of a public company having a paid up share capital of such sum as may be prescribed (Rs. 5 crore) shall have a Managing or Whole time Director or a Manager.” The R1 Company fulfilled the required criteria as envisaged under law. In any case, if the Company failed to fulfill the required condition it is a statutory violation of law but the same cannot be treated as an act of oppression. The petitioner No. 1 continuing as director of the Company and he was not removed nor dismissed from the post of director. However, the powers have been withdrawn. It is not out of place to mention that subsequent to the filing of the petition the petitioner filed an application being CA 73 of 2011 challenging the Board Meeting dated 19 May, 2011. The show cause notice for the said Board Meeting was issued on 18 May, 2011. One of its Agenda is to withdraw all the powers of management exercised by the 1 petitioner. The meeting was convened and held as per the schedule. I heard the CA on merits and dismissed the same. During the course of hearing of CA the respondents produced the minutes of the Board Meeting dated 19 May, 2011. The Board has discussed various issues finally it was resolved and passed the resolution which is extracted herein “Resolved that considering the various acts and deeds committed by Mr. J.C Mansukhani against the interest of the Company while occupying the position of the Managing Director of the Company as explained by R.C Mansukhani to the Board, all the powers of management exercisable by Mr. J.C Mansukhani, be and the same are withdrawn with immediate effect and Mr. J.C Mansukhani be informed forthwith about this decision”. The Learned Counsel for the respondents submitted that the Board has the power to withdraw the managerial powers and in exercise of the articles of the company the Board has taken the decision. Irrespective of the fact, the members of the Company are governed by the Articles of the Company unless and otherwise it is repugnant to the law. The petitioner never challenged the Articles and they are in vogue. Article 138 is reproduced for better appreciation. “The directors may from time to time entrust to and confer upon the Managing Director or Whole Time director for the lime being save as prohibited in the Act, such of the powers exercisable under these presents by the directors as they may think fit and may confer such objects and purposes and upon such terms and conditions and with such restrictions as they think expedient and they may subject to the provisions of the Act and these Articles confer such powers, either collaterally with or to the exclusion of and in substitution for, all or any of the powers of the directors in that behalf and may from time to time revoke, withdraw, alter or vary all of any such powers.” Prom the Articles it is clear that the Board of Directors of the company has power either to confer the managerial powers or withdraw the same. Since the Learned Senior Counsel made this point i.e taking out managerial powers is an act of oppression is concerned, when the Articles clearly provides either to confer or withdraw the managerial powers, I do not find any act of oppression when it is done in accordance with Articles. Moreover the Learned Counsel for the respondents submitted that the petitioner No. 1 being Managing Director signed all the balance sheets of the company and he cannot say that he has no access to the records on the Company and he is a party to all the decisions of the Company. I hold that there is no act of oppression against the petitioner as alleged and the Company acted in accordance with Articles. Accordingly, the issue is answered.
The Learned Senior Counsel for the petitioners relied upon the judgements and now I deal with the same. In re (1) supra, the Hon'ble Apex Court held that when a material change is brought about in the management to the detriment of the interest of the main promoter it is fairly covered under Sec. 398(1)(b) of the Act. In the present case the petitioner No. 1 and the Respondent No. 3 are the directors from the inception. Moreover the R1 Company is not a family company. The petitioner No. 1 is continuing as director, however, the managerial powers have been withdrawn in accordance with articles and the same cannot be said to be an act of oppression. Hence the judgment is not applicable to the facts of the present case. The Learned Senior counsel cited the judgments of the Company Law Board in (2) and (3) supra are concerned, the CLB is of the view that the nature of the company in those cases being family companies and the directorial complaints cannot be ignored and it was considered as act of oppression. However, in the present case as I already hold that the R1 Company is a listed company not a family company and the judgments are not applicable to the facts of this case.
Now I deal with the Issue No. 4
Since all the issues are answered against the petitioners, the petitioners are not entitled to any reliefs as prayed for. The petition is miserably failed and liable to be dismissed. Hence the CP is dismissed. No orders as to cost. The Hon'ble High Court of Bombay directed this Bench to disposed off the CP. on or before 15 September, 2011. In pursuance of directions, the CP. is disposed off hence complied with.