1. The present petition is filed under sections 397 and 398 read with section 402 and 403 of the Companies Act, 1956 alleging certain acts of oppression and mismanagement in the affairs of the company and sought various main and interim reliefs as prayed in the petition.
2. Arguments led by Shri R. Murari, learned senior counsel on behalf of the petitioner. The learned senior counsel narrated the brief facts of the case. He submitted that the first respondent company was initially started as a partnership firm in the name of Devi Reinforced Plastics Products by late K.N. Gnanaprakasam and 9 others as partners with equal shareholding/share capital with modest capital of less than Rs. 10 lakhs. The petitioner, the 4 respondent and the 8 respondent herein were initially in charge of the said unit. It is submitted that the petitioner had visited UK in 1973/1974 and finalized the purchase of a sheet moulding compound (SMC) plant, with technical know how for sheet moulding compound and Dough moulding compound from Fothergill and Harvey Ltd. UK. Accordingly, the said plant was imported and installed in the said unit. It is submitted that in the year 1983 the said partners of the firm, had formed the first respondent company with the objects clauses as stated therein. The first respondent company started manufacturing sheet moulding compound (SMC), dough moulding compound in the above said premises. The first respondent has also diversified into moulding of components using Hydraulic Presses ranging capacity from 100 Ions to 250 Tons and started supplying finished switch gear parts to the various electrical industries. A tool room was also developed at Unit ‘A’ by the 8 respondent and later it was moved to Unit ‘B’ at Guindy while the petitioner and the 4 respondent run the Unit ‘A’ for compound manufacturing and moulding.
3. He submitted that in the late 80's as the original equipment manufacturer moulding market was not growing and hence, the petitioner visited UK and other countries and came up with developing Water Tank Panels in India to be captive user of SMC in order to develop the business of the 1 respondent company. During this period, a 1000 T press was ordered and large tools were made up by the first petitioner at Unit ‘C’. The petitioner was independently handling this unit in all aspects. Also, 2 injection moulding presses were brought from HMT modified to suit injection moulding of SMC/DMC for the 1 time in India. All these efforts were headed by the petitioner. The water tank business has grown from strength to strength. New presses were constantly added and the tool room was expanded to manufacture large moulds as well as new products.
4. It is submitted that the petitioner visited USA and built a CNC foam-in-place gasketing machine similar to the German machine all Stahlin. This machine was developed and built at the fraction of the cost of an equivalent imported German FIP gasketing machine, but with very high quality. With the expanded tool room at Unit ‘C’ several machines including several drilling machines, moulds for the water tank were built in Unit ‘C’. Sales have grown from 1 to 2 crores to 29.56 crores in 2008-2009. The first respondent company has grown in this period as one of most integrated manufacturer of panel type water tanks in the world.
5. It is submitted that the quality of SMC door skin manufactured is comparable to best in the world and these developments done at the fraction of cost, even lower from China and at high quality with the use of the petitioner's experience and knowledge. Presently a 2000 T press is designed and being built (in-house) by the first respondent in the said unit for doors and large laminates and expected to complete by September 2009. Several Door Skin Moulds are being developed so that the door product can be launched in the market in the next few months. The petitioner also got approval from the Board of the 1 respondent in the earlier Board meeting for a capital budget of 4.5 crores for the door and other expansion projects as Unit ‘C’. The team of experts and expertise built over the last few years in sufficient to execute this project to world class standards. The project approvals from different bodies, is expected and the project should commence in next 2 to 3 months. The building plans and other structure, civil work offers are kept ready and the project can be implemented as soon as the approvals is in hand. The following are the sales figure for the last 2 years.2007-2008
2008-2009
Unit ‘A’
64.17
57.55
Unit ‘B’
10.20
10.19
Unit ‘C’
26.17
29.56
Approximately profit figures is also attached herewith for the year March 2008 and March 2009 and also a sales review for Unit ‘C’ and profitability statement (Unit ‘C’) presented to Board by the petitioner. In additions to the above several new developments are being made at Unit ‘C’ by the petitioner. These projects when implemented will be in first of it kind in India and it can be offered to the local as well as the world market, for which there is a great potential, as such equivalent products available are very expensive, the petitioner is one of the founder members and was President of FRP Institute, India in the year 2006-2008. He is the well known and respected business leader in the Composites Fibreglass Industry in India.
6. While so, when the petitioner had gone to USA to visit his children, the petitioner has received a show cause notice dated 17.06.2009 through email from the 1 respondent office to show cause the matter of setting up of consultancy service in USA and the registration of certain patents in the name of his family members. In response to the same, the petitioner has immediately sent a detailed reply dated 18.06.2009 from USA. In the said notice it was stated that the petitioner has started a parallel business and floated a concern by name Devi Consultancy Services without the knowledge and authority of the 1 respondent. The said consultancy service was started by the petitioner with good intention to promote the business of the 1 respondent company. This was started to promote its existing business in the field of engineering and design services of Devi Polymers and to satisfy the needs of the USA customers. Only to have an identity to the services, it was called as a division of the 1 respondent and name as Devi Consultancy Services.
7. It is submitted that the petitioner in his Annual Review Report related to Unit ‘C’ submitted to the Board of the 1 respondent, has stated that the 1 respondent company is promoting the sale of design, engineering services and supply there from for the export market and intimated that steps have been taken in this regard. Therefore, all the respondents are very much aware about the promotion of the sale of design and engineering services in USA market. In order to promote the same, the petitioner in the capacity as executive director of the 1 respondent company had entered into a Memorandum of Understanding dated 02.03.2009 with one Michel Jackson USA to market the services related to designing machinery and other products for customers mainly in the USA and the said MOU would valid only for a period of one year. There was no financial out flow from the first respondent company against the MOU to the said Michael T. Jackson till date. He was only paid for the preliminary projects reports for market study and advertisement eharties by the 1 respondent.
8. It is submitted that the petitioner has no intention to start any rival business. If that is a case, the petitioner would started a separate private limited company and would not have termed it as a division of the 1 respondent. In fact earlier to this arrangement, the 1 respondent company was doing such consultancy services to two US customers viz. Stahlin Enclosures and New Basis and by such services the company had earned approximately 3,46,000 US dollars for the years 2006-2008. There was no objection by the directors till date. It is submitted that in support of his reply, the said Michel Jackson has also submitted a detailed letter stated 18.06.2006 stating the circumstances under which the consultancy services was started. Inspite of quick response from the petitioner, to the show cause notice from USA. the 1 respondent company had issued a public notice in various major newspapers with an intention to tarnish the image of the petitioner. After seeing the public notice, the petitioner has returned to India to take stock of the situation.
9. It is submitted that the petitioner has received a notice dated 17.06.2009 for Extra Ordinary General Meeting on 27.06.2009. As per the said notice, the main agenda is to consider the said reply of the petitioner to the show cause notice and pass necessary resolution in this regard. There is no necessity to call for the HGM to consider the reply. The proposed EGM is with the purpose to exclude the petitioner from the management. The 1 respondent company is a family company and the 7 respondent is the petitioner's brother, who was earlier one of the directors of the 1 respondent. The respondents 2 to 10 are having 10% shareholding in the 1 respondent company. Meanwhile the petitioner came to know that the 1 respondent company has terminated the service of his Personal Secretary. Mr. P. Immanuel Jebasingh vide letter dated 17.06.2009. From the said letter it is evident that no show cause was given and the termination of his service is total violation of the principles of natural justice and the terms of appointment. Similar termination letters were given to Mr. Jose K. Varghese, Manager Accounts and Mr. V.V. Raja, Asst. Manager-Accounts. The petitioner was also informed that his office rom in the Unit ‘C’ was locked and sealed and no one was allowed to enter the same. Further two security personals were deployed in front of the said room. All the original documents related to the Devi Consultancy Services were collected from the personal assistant of the petitioner in his absence by the 4 respondent. From the above acts, it is clear that their intention of the 1 respondent acting through its Board is only to remove the petitioner from the Board and cause prejudice to him. The attempt to exclude the petitioner from the management is culminated as oppression. The petitioner has not acted in any manner which is in violation of the provisions of the Companies Act or in violation of the articles of the company. Without prejudice to the above contention to the show cause notice, the petitioner is relying on the Article 8 of the 1 respondent company.
10. It is submitted that, even assuming without admitting that the petitioner had signed the MOU not in the interest of the company, on the ground of signing the MOU itself the petitioner cannot be qualified in lieu of the above article. In respect of the allegations with regards to patents it is submitted that the petitioner had applied so far patent applications in respect of designs developed by him. In the earlier Hoard meetings, this issue was raised and the petitioner to have smooth sailing and in the interest of the 1 respondent, had assured to assign the patent right in favour of the 1 respondent company. The minutes in this regard had been recorded and are in the custody of the 1 respondent. Since many of the applications are still pending, the petitioner could not assign the patent right. As and when the petitioner gets the right from the patent registry, all the patent rights will be assigned in favour of the 1 respondent. In fact the draft assignment has already forwarded to the company's auditor for his approval and it was also discussed in various Hoard meetings and issue was resolved. The above acts cannot be termed as fraud committed on the company with improper and ulterior motive to siphon off the funds of the 1 respondent company and such allegations are made without any basis and there is no documentary proof for such frivolous allegations.
11. It is further submitted that when the petitioners father namely Sri K. Rajagobal Chatty was acting as chairman, the other directors had removed him on the ground that he had long list of ailments vide resolution dated 14.03.2008. On the other hand the respondents had chosen to appoint one Mr. V. Mari Chettiar (11 respondent) as a whole time director w.e.f. 01.04.2008 vide resolution dated 28.03.2008 and later he was also elected as Vice Chairman of the company. It is to be noted that the said V. Mari Chettiar is aged about 94 years and he cannot read or write on his own and also he is falling in his sensorium. This is only to show the other directors' altitude towards the petitioner and his family. It is submitted that the petitioner is prevented from managing the affairs of the company by the other directors of the company, which is totally against the interest of the 1 respondent and which amounts to oppression. The petitioner should be allowed to continue as executive director in the interest of the company and to manage the Unit ‘C’ as the new project is likely to lake off Being a family company and closely held company, the company is more or less a quasi-partnership. In view of the irreconcilable, differences between the petitioner and the Board of directors of the 1 respondent company at present. There has been a total loss of confidence between them, rendering it enviable for the quasi partnership between the two groups to continue. Under the circumstances, it would be just and equitable that 1 respondent company be wound up, but such winding up will be prejudicial to the interests of the petitioner. The learned senior counsel requested the Bench to allow the petition. In support of the case he relied upon the following citations on various points:
1. In the matter of S. Varadharajan & P. Logusundaram v. Udhayem Leasings & Investments Pvt. Ltd.
2. In the matter of Dipak G. Mehta v. Anupar Chemicals (India) Pvt. Ltd.
3. In the matter of Queens Kuries & Loans (P) Ltd. v. Sheenu Jose
4. (2011) 166 CC 555 (Madras) in the matter of A. Ram v. N. Ravi
5. (2011) 166 CC 373 (SC) in the matter of Chatterjee Petrochem (I) Pvt. Ltd. v. Haidia Petrochemicals Ltd.
6. (2005) 11 SCC 314 : AIR 2005 SC 809 in the matter of Sangramsinh P. Gaekwad v. Shttntadevi P. Gaekwad.
7. (2008) 6 SCC 750 : AIR 2008 SC 1738 in the matter of M.S.D.C. Radharamanan v. M.S.D. Chhandrasekara Raja.
8. (2004) 4 Comp LJ 519 (CLB) in the matter of B.V. Thirumalai v. Best Ventures Trading Pvt. Ltd.
9. In the matter of V. Natarajan v. Nilesh Industrial Product Pit Ltd.
10. (2007) 139 CC 618 (CLB) in the matter of Schotastka Antony v. Azhiniala Beach Resorts Pvt. Ltd.
11. (2007) 139 CC 246 (CLB) in the matter of Naginder Singh Shiena v. R.S. Infrastructures Ltd.
12. (1999) 4 Comp LJ 369 (CLB) in the matter of Naresh Trehan v. Hymafic Agro Equipment Pvt. Ltd.
13. (2007) 73 SCL 338 (CLB) in the matter of Dinesh Sharma v. Vardaan Agrotech Pvt. Lts.
14. (2006) 134 CC 500 (CLB) in the matter of Arunkumur Mohtu v. Ganesh Continental Company Ltd.
12. The respondents 1 to 6 and 8 to 11 filed common counter to the main petition, Shri R. Venkatavaradan, learned counsel appeared for the respondents submitted that the present company petition is a gross abuse of the process of his Hon'ble Board and the petitioner is disentitled to any relief claimed in the petition. The petitioner is guilty of suppressing material facts and is trying to mislead this Hon'ble Board by tiling this petition. The reliefs sought for in the petition are neither maintainable in law nor on facts and the petitioner has tried to justify his gross breach of fiduciary duty as an Executive Director of the 1 respondent company. Even a cursory look at the prayers of the petitioner, would reveal that the petitioner has obviously approached this Hon'ble Board for continuing his position as an Executive Director despite being fully guilty of the gross breach of fiduciary duty as a director, especially when the 1 respondent company is a company which is owned and controlled by the family members. The respondents are advised to submit that a petition under sections 397 and 398 cannot be filed for the kind of reliefs prayed for by the petitioner, especially when the only prayer is to secure his position as a director of the company as well as restraining the shareholders from exercising their lawful rights under the provisions of the Companies Act, 1956, when the director is in gross breach of fiduciary duty and has been guilty of diverting the business of the company. The petitioner has deliberately withheld the important facts relating to the starting of a concern by name “Devi Consultancy Services” (DCS). The petitioner has sought to justify the same by alleging that it was done to promote the existing business of the 1 respondent company and to satisfy the needs of customers in USA. The petitioner has further alleged that it has been done to have an identity for the services. This reasoning is thoroughly false and is projected by the petitioner to cover up his guilt. The petitioner has failed to clarify as to—
a) Why a separate division had been formed for Consultancy and Design Engineering Services when the 1 respondent company was already making good profits in the said area as admitted by the petitioner in paragraph 11 of the petition?
b) Why did the petitioner not take the approval of the Board of directors or at the least keep the board informed about starting a separate concern by name “Devi Consultant Services”?
c) How did the petitioner authorise payments to Mr. Michael T. Jackson for the alleged sales promotion of the said concern?
d) Under what authority did the petitioner sign the MOU with the said Mr. Michael T. Jackson apparently on behalf of Devi Polymers but actually signing it as an authority for DCS?
e) What is the link/role played by Mr. Padmasubramanian with e-mail id: padmasubramanian@yahoo.com. Skinnercreative, AMBE Engineering, in DCS USA?
A website www.devices.com which has also been created by the petitioner giving two e-mail ids as: Ramesh@devides.com and mikeiackson@devidcs.com. In the said website under the title “ABOUT US” page a link ‘VIEW OUR PARENT WEBSITE’ at www.devipolymers.com has been provided. During the period of March, 2009/1 week of April, 2009 the webpage of www.devipolymers.com was updated by one Mr. Santosh of Easylinkindia who has designed and maintained both the sites referred to above with a link “VISIT OUT SISTER CONCERN AT www.devides.com” under the instruction of Mr. R. Ramesh through his P.A. Mr. P. Immanuel. This autocratic act of Mr. R. Ramesh setting up the webpages with misleading links and information to the clients/customers who visit the said websites is yet another prof of his fraudulent intentions and character. The creation and launching of website and attaching a link without authority and knowledge of DPPL would attract the penal provisions of sections 463 & 464 of IPC. The petitioner is fully aware that proper answers to the questions raised above would prove his guilt beyond all reasonable doubt. Therefore, the petitioner has tried to gloss over the entire issue in his petition. The petitioner is guilty of suppressing the factual details which would be a complete answer for the question raised above.
13. It is submitted that the respondents have fully complied with the Principles of Natural Justice and have given adequate opportunity to the petitioner to submit his response by issuing the show cause notice but what is deliberately not mentioned in this paragraph is that though the show cause notice was sent to the petitioner at his residence and his office, the employees who have colluded with the petitioner, appear to have forwarded the show cause notice to the petitioner by email. On coming to know of this, it became clear to the respondents that the whole idea of a parallel business has been conceived and mooted by the petitioner long, before it came to be knowledge of the respondents and the petitioner has been using certain employees for committing this diversion of business. When the respondents first came to know of this whole sale fraud committed by the petitioner, it was not just a shock but an utter disbelief to know that the petitioner would stoop upto such levels by diverting the business of the company and grab the patents belonging to the company at the cost of all the other shareholders who are his close relations. This is especially when the petitioner has been an executive director of the 1 respondent company for near a decade and had been associated for over thirty years with the 1 respondent company. When the respondents were struggling to find out the magnitude of the fraud, it became clear that the petitioner has completely misused/exploited his position as an executive director while taking care of Unit ‘C’.
14. It is pertinent to mention at this juncture that apart from the 1 respondent company, there are several other family businesses which have been so far carried on by the parties without any one being guilty of any breach of trust or loss of confidence and the persons in the management of the companies firms have been absolutely transparent and faithful. The allegation of the petitioner, that DCS was started to promote the business of the 1 respondent company or that it was done to promote the existing business in the field of engineering and design services is completely false. There was no need for a separate identity for the existing services of the respondent company. The allegations regarding the Annual Review Report supposed to have been submitted to the Board of the respondent is completely misleading and false. At the Board meeting held on 25.04.2009, the petitioner, who also attended the said meeting, enquired as to whether a copy of the Annual Review Report dated 03.04.2009 had been circulated to the Board. The members of the Board informed the petitioner that no such report was circulated. There was no submission of any Annual Review-Report relating to Unit-C as alleged. The respondents submit that the Annexure-11 to the petition contains review of Unit-C for the period April ‘08 to March ‘09. This report as mentioned above does not even bear the signature of the Executive Director Mr. R. Ramesh. This has not been placed before the Board of directors and is shown to be dated 03.04.2009. It is important to mention here that prior to this report, the petitioner had already executed a Memorandum of Understanding (MOU) with Mr. Michael Jackson on 02.03.2009. The parallel concern by name DCS therefore had been launched long before the alleged review. The alleged review of Unit-C in Annexure-11 does not even contain a whisper about the starting of the parallel concern by name DCS. The petitioner is clearly guilty of suppressing the fact that the petitioner had not taken any approval or consent from the board not did he have the authority to start the concern by name DCS. The allegation by the petitioner that the respondents were aware of the promotion of sale of design and engineering services in USA is an attempt to hide the fact that the petitioner had deliberately and intentionally kept the Board of directors completely in the dark regarding the starling of parallel concern by name DCS. Therefore, on the petitioner's own showing the petitioner is guilty of breaching fiduciary duty and diversion of business of the 1 respondent company. The admission regarding the MOU entered into with Mr. Michael Jackson is a clear proof of the petitioner acting without any authority and failing to inform the board regarding such MOU, The payment made by Mr. Michael Jackson amounting to US $ 39357.50 equivalent to Rs. 19,75,015 is clearly an attempt to siphon the amounts from the company as it has been done without even informing the Board and for the purpose of carrying on the parallel business by name DCS.
15. It is submitted that the DCS has been started only with a view to carry on a parallel business which would not only be competing with the existing business but also an attempt to divert all the client to the parallel business under the name DCS. The fact that DCS has been started by the petitioner is complete secrecy and is an attempt to hoodwink the Board of directors by calling it as a service for promoting the sale of Design and Engineering Services of 1 respondent company cannot be over-emphasized, there was no way that the petitioner could have started this business under a separate company and the very fact that the DCS has been started behind the back of the respondents, as categorically established above, would or time the fraud committed by the petitioner against the company and other shareholders. It has been categorically established as to how the petitioner has kept the Board of directors completely in dark in this parallel business and on the contrary has deliberately withheld the starting of the parallel concern by name DCS.
16. The address of DCS in North America is given as Mr. Michael Jacksom Devi Consultancy Services, 1414, 6 Street. Belding. M.I. 48809 and in India is given as Ramesh Rajagopal, Executive Director, Devi Consultancy services, a division of Devi Polymers Pvt. Ltd. NP-23 & 24 Developed Plot, Ekkattuthangal, Chennai-97. Further, a perusal of the website would prove that DCS does not stop with consultancy services along but also provides manufacturing. R & D, Design Engineering, Testing and Commissioning. Installing, Components and Assembly supply with their customers being Siemens, Areva, Socomac, Stahl. Stahlin. New Basis. Larsen & Toubro and Alsthom. Some of these are already existing customers of the 1 respondent company and there lore this is clear proof of diversion of business by the petitioner. It is clear that the roles played by DCS, as mentioned in the website pertaining to the services offered, are similar to the ones offered by the 1 respondent company to its existing customers. The petitioner has published photographs of machineries and buildings at Unit-C belonging to the 1 respondent company to mislead the customers and make it appear as if it belongs to DCS. The petitioner has also given wide publicity in various trade journals portraying DCS as a one slop solution for customers worldwide which include the customers of 1 respondent company. The petitioner has given press releases to various, trade journals including a journal by name Reinforced Plastics dated 05.04.2009, Nasscom dated 01.04.2009, Composite World Article dated 14.04.2009. These press releases mentions about the launch of Devi Consultancy Services having similar activity as that of the 1 respondent company. The allegation that doing consultancy services for designing is for the benefit of the 1 respondent company and that there is no personal gain for the petitioner or to his family members is again a self-serving allegation in which the petitioner has once again tried to mislead by referring to the consultancy services done by the 1 respondent company and the same kind of service that is sought to be done by DCS. The attempt to rely on the letter dated 18.06.2009 stated to be sent by Mr. Michael Jackson is only a cover up action by the petitioner to offer a justification through the alleged letter of Mr. Michael Jackson, who is obviously been colluding with the petitioner.
17. The justification offer for starting DCS as a division of 1 respondent with the use of the same “Devi” is really absurd and meaningless, even for the other brands promoted by the 1 respondent company like FLOSTO, DURO-BOX, DUROSTOR, no separate division had been created by the 1 respondent company. When the 1 respondent company was already having a huge business potential and had established its brand name overseas as “Devi” there was no need for any separate brand name to be generated in this regard. Even otherwise setting up a separate division has to be the decision of the Board of directors of the company. It is the prerogative of the Board and cannot be that of the petitioner as an executive director by taking unilateral decisions.
18. It is submitted that the EGM had been called for by the 1 respondent in order to discuss the crisis that had arisen on account of parallel business carried on by the petitioner. It would go to prove the transparency adopted by the respondents in dealing with the situation and allowing the shareholders to discuss the issue in detail at the EGM. It is not open to the petitioner to question the necessity for calling an EGM. when the Board of directors had clearly decided that the SCN and the reply had to be discussed only at an EGM. The petitioner was fully aware about the purpose of the EGM. In anticipation of his removal from the Board, even before receiving a notice dated 23.06.2009 from the company, the petitioner has alleged that the EGM has been convened only to remove the petitioner from the Board. The petitioner has unnecessarily-dragged the issue regarding the 7 respondent and the fact that he was one of the directors earlier. This as well as the false averment regarding the alleged removal of Mr. Rajagopal Chatty as the chairman has been deliberately distorted to present a picture as if the petitioner and his family are sidelined. It is necessary to mention here that the 7 respondent as a director had been involved in surreptitious sale of land belong to another group company by Glenrock Estates Pvt. Ltd. The 7 respondent had entered into a secret agreement which strangers for parting with valuable lands belonging to the said Glenrock Estates Pvt. Ltd. and had handed over possession of these lands without any authority. This has been done by the 7 respondent knowing fully well that the estate lands were the subject matter of dispute before the Hon'ble Supreme Court and that the company had given an undertaking before the Hon'ble Supreme Court that it would not deal with the said estate lands in any maimer whatsoever until the pendency of the same before the Hon'ble Supreme Court. When the Board of directors came to know of this clandestine action by the 7 respondent, in order to safeguard the interests of other directors on the board, the 7 respondent was removed as a director on 28.02.2005 at a meeting which was chaired by the father of the 7 respondent. Mr. Rajagopal Chetty. When the 7 respondent had been removed as director from the said Glenrock Estates Pvt. Ltd. in view of the serious fraudulent acts committed by him and on his admission of guilt, he requested for allowing him to resign from the Board of directors of all the other group companies instead of being removed from the Board. This included the resignation from the 1 respondent company. The petitioner now appears to be holding a brief for these employees since he is keen on retaining them so that they would act as per the wishes of the petitioner in all his fraudulent activities. As regards the office room belonging to the petitioner which was locked and sealed, the respondent submits that since the petitioner had been suppressing all the facts from the Board of directors and had been acting clandestinely in starting the parallel concern, the responders were keen on getting to know the actual facts and also to ensure that the records in respect of these clandestine acts are available to the company, the respondent had to initiate stringent action to preserve the records relating to the parallel concern which was in the sole custody of the petitioner. Further the respondents had locked and sealed the office room of the petitioner only to ensure that the records lying in his room are not tampered since the petitioner had been guilty of starting his parallel business and the records relating to the same were not even made available to the respondents. It is submitted that excluding the petitioner from the management cannot be remotely termed as “Oppression”. The magnitude of the fraud and the extent to which the business of the 1 respondent has been affected is such that the respondents had to necessarily convene an EGM at which the resolution for removal of the petitioner as a director had been duly passed after receipt of the notice for his removal from one of the important shareholders in the company. The allegation by the petitioner that he has not acted in and manner which is in violation of the provisions of Companies Act or the Articles of the company is a self-serving allegation. The respondents submit that there cannot be a better case on hand for removal of a director by the shareholders in the General Meeting. The reliance placed on Article 8 is of no consequence in the present case as the fraudulent actions on the petitioner do not come within the purview of Article 8.
19. It is submitted that as regards the patents, the petitioner has averred stating the he is ready to assign the patents in favour of the 1 respondent company. It is pertinent to mention here that the petitioner, his son and daughter have registered various patents in their names. These patents are actual products and designs which have been designed by the 1 respondent company. Further, the patent for the same product in the US is in the joint names of the petitioner, his son Mr. Roahan Ramesh and one Mr. Martin Fitzer having International Patent No. PCT/IN/2002/00025. This is available in the World Intellectual Property Organisation Webpage which has been published on 21.08.2003. The respondents submit that the expenses for the registration of these patents have been debited to the 1 respondent company and hence these rightfully belong to the 1 respondent company. The petitioner cannot escape his liability or guilt in this regard by merely contending that he will assign the patents in favour of the 1 respondent company. The allegation that the model assignment deed had been forwarded to the company's auditors for his approval or that it was discussed during the various Board meetings is false. This model assignment deed has been witnessed by the terminated employee Mr. Imanuel on 30.10.2008. The petitioner is yet to account for the consideration which ought to have been received by the 1 respondent company for this assignment. Therefore, it is submitted that even the draft or the model assignment deed which was handed over to the statutory auditors only shows the insincerity of the claim made by the petitioner. It is submitted that the averment made by the petitioner regarding removal of his father is completely false. The petitioner's father Mr. Rajagopal Chatty was removed by the Board resolution dated 14.03.2008. The facts in this regard are as follows. Mr. Rajagopal Chatty had sent a letter dated 26.02.2008 addressed to the Board of director of TNK group of companies stating inter alia that it had become increasingly difficult for him to attend the meeting without an aid and also listing out the brief summary of his ailments with the details of hospitalization and the treatments undergone. At the Board meeting held on 03.03.2008, a reply letter signed by all the directors excepting the petitioner was circulated. However, the petitioner denied receiving both the letters. Other directors therefore handed over a copy of the letters at the meeting to the petitioner. Mr. Rajagopal Chatty there after expressed that it is open to the directors to take necessary action in the matter and that he may not be acting as a chairman but only as an ordinary director. The other directors discussed this issue and decided to elect the chairman from the younger family members according to alphabetical names. Based on the above, Mr. G. Chandrasekaran was elected as the chairman of the meeting on 03.03.2008. The respondents are herewith enclosing the letter addressed by Mr. Rajagopal Chetty and reply by the Board as well as minutes of the board meeting dated 23.03.2008. The respondents are advised to submit that the petitioner cannot have any right in law or in equity to raise the plea of oppression when he has been removed as a director for an absolutely just cause. The prayer of the petitioner if granted would amount to rendering the provisions of section 284 redundant. The removal of the petitioner as a director is all the more justified since the 1 respondent company is admittedly a company in which the family members are shareholders and there could be no room for any breach of fiduciary duty or acts of fraud. The learned counsel submitted that the petitioner has not made out any case and prayed this Bench to dismiss the petition. In support of his contention he relied upon the following decisions:
1. AIR 1965 SC pg 1535 in the matter of Shantiprasad Jain v. Kalinga Tubes.
2. (2000) CC Vol 100 pg 66 (CLB) in the matter of Vinodkumar Mittal v. Kaveri Lime Industries Ltd.
3. (1996) 10 SCC 696 in the matter of Kilpest Pvt. Ltd. v. Shekhar Mehra.
4. (1987) Vol 61 CC 20 (Madras High Court) in the matter of V.M. Rao v. Rajeswari Ramakrishnan.
20. Heard the learned counsel appeared for the respective parties, perused the pleadings, documents and citations relied upon by them. After analysing the pleadings the following issues are felt for consideration and need to be addressed.
1. Whether the petitioner has made out any case seeking injunction restraining the respondents from removing the petitioner from the post of director of the R1 Company.?
2. Whether the petitioner is entitled to seek a permanent injunction restraining the respondents from interfering with the carrying on duties enjoined on the petitioner in relation of Unit ‘C’ of the R1 Company.?
3. To what relief.?
21. Now I deal with the issue No. 1: The present petition is filed under section 397 and 398 read with section 402 and 403 of the Companies Act, 1956 before this Bench. The petition was filed before this Bench on 26.06.2009. At the time of mentioning of the petition the petitioner apart from other interim reliefs requested the Bench to grant injunction restraining the respondents from holding EOGM on 27.06.2009 removing the petitioner from the post of director of the R1 Company. This Bench after hearing the counsels permitted the company to go ahead with conducting the EOGM as per its schedule however directed the respondents not to implement the resolutions passed in the said HGM without leave of this Bench. The main cause for filing the present petition is to seek directions from this Bench restraining the respondents from removing the petitioner from the post of director of the R1 Company. Chapter VI of the Companies Act, 1956 deals with the prevention of oppression and mismanagement in the affairs of the company. Accordingly, any member of the company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members, may apply to the Company Law Board under section 397 and in the case of mismanagement apply to the Company Law Board under section 398 provided the member shall have the right to apply under the above sections. From the plain reading of the provisions the said right to apply under the above provisions is primarily vest with the members of the company. There is no such provision enumerated under the Companies Act regarding the directorial complaints. In the present case though the petitioner is a member and shareholder of the R1 Company and entitled to invoke the jurisdiction of this Bench under the above provisions of law and qualified to file the present petition since the petitioner is admittedly holding 10% of the paid up share capital of the R1 Company as on the date of filing of the petition. However from the perusal of averments made in the petition, and the reliefs sought therein it is evident that the petitioner is ventilating the grievances in respect of directorial complaints. Coming to the main issue the main grievance the petitioner is that he has received a show cause notice dated 17.06.2009 through email from the R1 Company to show cause the matter of
(i) Setting up of consultancy service in USA and
(ii) the registration of certain patents in the name of his family members.
22. It is stated in the said notice “hence you are hereby given an opportunity to offer your explanation to the above stated acts of yours in the matter of setting up of DCS (Devi Consultancy Services) in USA and in India and the registration of patents in the names of your family members and outsiders and the failure to assign the said patents in the name of the company within 5 days from the receipt of this letter or failing which to present your case at the time of EOGM of R1 Company to be convened on 27.06.2009 at the corporate office of R1 Company at 10.30 AM for which due notices has been given to all the shareholders of the company. The petitioner in his reply dated 18.06.2009 to the above show cause notice stated that the purpose of DCS was to expand these services to other industries which could help the R1 to generate additional business. Mr. Jackson who knew capabilities got laid off from Stahlin due to the recession in early January 2009 and who had worked with him for the last 10 years and had a full understanding the capabilities requested him to help the unit to expand the business. The need for using DCS is a tool for marketing, a common practice in US. It is stated in the reply that he has not violated any rules and regulations in this process. With respect to the patents, the petitioner stated that all the patents the on behalf of R1 are the property of R1 and his kin will assign all the patents to R1. One Mr. Michael Jackson vide his letter dated 18.06.2009 addressed to the petitioner stated that the creation of DCS logo and brand name falls into that category in defining this as a new service product as opposed to a physical part or assembly. Ultimately the goal was to trademark the logo as a brand name to protect it from copying in the US. The company has issued B notice dated 17.06.2009 calling EOGM of the R1 Company on 27.06.2009 at 10.30 AM at its registered of the to discuss the following, which is reproduced hereunder:
The Board of directors has occasion to consider in their meeting held on 17.00.2009 the following acts committed by Mr. R. Ramesh, a director of the company:
1) Mr. R. Ramesh had on his own set up a division of the company by name “Devi Consultancy Services” (DCS) along with one Mr. Michael Jackson stationed in Belding. M1, USA to offer consultancy services to various customers in all the processes and products in which the company is at present engaged in. A perusal of the Memorandum of Association indicated that such consultancy services are not the stated objects in which the company can pursue its business activities.
Hence the setting up of the Division of DCS is clearly an illegal act of Mr. R. Ramesh. Further, the setting up of the said DCS has been done by Mr. R. Ramesh without disclosing the said fact and without obtaining the prior permission of the Board.
2) Mr. R. Ramesh had in the last few years got registered certain patents at the cost and expense of the company in the names of his family members (viz., daughter Ms. Jyothsna Ramesh and son Mr. Roahan Ramesh) and further registered a patent in the joint names of Mr. R. Ramesh, and his son Mr. Roahan Ramesh and one Mr. Martin Fitzer. When confronted repeatedly about this Mr. R. Ramesh finally promised to assign the said patents in the name of the company. But unfortunately Mr. R. Ramesh had failed to assign the said patents in the name of the company to this date.
3) The company by its letter dated 17.06.2009 had given an opportunity to Mr. R. Ramesh to explain his conduct in the above stated matters in writing before the presently convened Extra Ordinary General Meeting of the company on 27.06.2009.
4) Members are therefore requested to attend this important Extra Ordinary General Meeting of the company to discuss the above stated issue and consider the written reply of Mr. R. Ramesh, if any given, to the show cause notice, or in the absence of any such written submission, consider the said acts of Mr. R. Ramesh in the above stated matter and pass necessary resolutions in this regard.
23. The petitioner has given a detailed reply on 27.06.2009 for the notice of intended resolution for his removal as director by the shareholders. It is stated that the petitioner has received notice along with the proposed resolution to remove him from the office of director on 24.06.2009. It is stated that as per sub-section 2 of section 284 read with section 190 of the Companies Act, a special notice is required for the said proposed resolution. It is also stated that against the notice calling the EGM. he filed the present CP before this Bench. Apart from the above he also stated that he has no intention to cheat the company and with a good intention entered an MOU with Mr. Michael Jackson. It is also stated that the setting up DCS is to create a new avenues of business growth not only in design but also in prototype moulding, pilot production and bulk production. It is also stated that in his review activities of Unit ‘C’ dated 03.04.2009 circulated to all directors clearly states in the future growth paragraph “we are promoting the sale of design, engineering services and supply therefrom from the export market. Steps have been taken to promote these activities”. With regard to die Memorandum of Understanding entered with Mr. Michael Jackson, the petitioner states that the commission will be paid to Mr. Jackson only on case to case basis and it is no permanent commitment. While so the EGM of the company was held on 27.06.2009 at 10.30 AM and the petitioner was present in the meeting. A detailed deliberations were recorded in the minutes of the EGM and finally it was “resolved that pursuant to the provisions of section 284 of the Companies Act, 1956 and other applicable provisions, if any, Mr. R. Ramesh be and is hereby removed from the office of director of the company for his malafide acts and deeds which is detrimental to the interest of the company. It is stated that the resolution was approved by 7 members present in person by show of hands except the petitioner who voted against it. It is unequivocal that the resolutions were passed with majority in the EGM in which the petitioner himself participated. Having participated in the meeting the petitioner has raised legal point that the R1 Company has not complied with the provisions of the Companies Act, 1956. It is contended that the main cause for removal of petitioner from the post of director is starting up a division called Devi Consultancy Services (DCS) a division of R1 Company i.e. Devi Polymers Pvt. Ltd. In the show cause notice it has been specifically mentioned that the petitioner has started the Devi Consultancy Services without the approval of the Hoard of the R1 Company. To my view the removal of the petitioner is on two counts i.e. starting a division in the name of DCS and not assigning the patents to the R1 Company. However the petitioner contended that the forming of DCS is not a separate unit but a marketing tool for obtaining further business. On the other hand the respondents contended that the DCS is not a marketing division nor an extension of R1 Company but a separate unit. Further it is contended that the petitioner committed breach of fiduciary duly by starling a parallel business in the name of DCS. The annual report which the petitioner strongly relied upon that the respondents are aware regarding the starting of DCS. From the perusal of annual review report of Unit ‘C’ for the year April 2008 to March 2009 there is a mention regarding future growth. At sub-clause 2 of the future growth it states that “we are promoting the sale of design, engineering services and supply therefrom from the export market. Steps have been taken to promote these services”. From the said statement it is a fact that there is no mention of DCS. Further the petitioner entered an MOU with one Mr. Michael T. Jackson on 02.03.2009. In the preamble of the MOU it is stated that “this Memorandum of Understanding made at Chennai on 02.03.2009 between Devi Consultancy Services, a division of Devi Polymers Pvt. Ltd. a company registered under the Companies Act, 1956 hereinafter referred to as ‘the supplier’. AND Mr. Michael T. Jackson, 1414, 6 Street. Belding. MI-48809. USA hereinafter referred to as ‘the representative’. The said MOU was entered for the appointment of representative for the following services (i) marketing the services of Devi Consultancy Services for designing machinery and products for customers mainly in the USA (ii) selling of products like cure/process control in USA (iii) identifying any other potential new business opportunities that may arise from time to time during the period when the agreement is in effect. From the above MOU it is clear that the petitioner has appointed the representative for the services as mentioned in the MOU. When the petitioner takes such a major decisions on behalf of the R1 Company, the petitioner should have taken the approval of the Board of the R1 Company. Though the petitioner may be continuing as an executive director for Unit ‘C’ but any decisions on behalf of that unit need to be taken in consultation and with the approval of the Board of directors of the R1 Company. Starting a parallel business in the name of DCS without the approval of the Board and the consequences thereto in my view is a breach of fiduciary duty. The petitioner has made several correspondences with Mr. Michael Jackson in the name of DCS naming that the DCS is a division of R1 Company. The Board of R1 Company has not given any permission to start a division to take care of marketing of Unit ‘C’ products. Further certain remittances have been made, to Mr. Michael Jackson from the account of the R1 Company. With regard to the patents it is an admitted fact that the petitioner has obtained certain patents in the name of the R1 Company and at the cost of R1 Company however the patents have not been assigned to the R1 Company. The learned counsel for the petitioner contended that the DCS had been created as a marketing tool for obtaining further business in the company's range of expertise. It is also contended that tremendous amount of consultancy work done by the company for various clients in USA in the design of new products, which had also generated substantial business for the company. I do not accept the contentions made by the learned counsel for the petitioner. With regard to the compliance of the provisions of section 190 is concerned, the learned counsel for the respondents submitted that under article 15 of AOA, the company can hold an EGM by giving 7 days' notice its writing, Accordingly the EGM of the company was convened on 27.06.2009 and complied with the articles by giving 7 days' notice as required under article 15. Article 15 of the Articles of Association reads thus:
“A general meeting other than the AGM of the company may be called by giving not less than 7 days' notice in writing and the provisions of section 173 of the Companies Act, 1956 shall not apply to the company”.
Even before dealing the said article and the provisions of the Companies Act it is to state that the articles of the company are binding on the company and its shareholders. Under Section 170(1) of the Companies Act, the provisions of section 173 to 186 applies to public company or a private company, which is a subsidiary public company and to a private company, unless the articles otherwise provide. In other words the private limited company can provide for a shorter period of notice for a general meeting under the articles. Since the articles specifically provide a 7 days' notice and the company has complied with the requirement as contemplated under its articles. The petitioner has received notice for the EGM as well as the special notice and has also given proper opportunity to submit his representation before the shareholders at the EGM held on 27.06.2009. The petitioner participated in the meeting. Thus the respondents have complied with the provisions of the Act and the Articles. Therefore, I am of the view that there is no violation of any provisions of the Companies Act or the Articles. The learned counsel for the petitioner relied upon the judgment (3) supra in the matter of Queens Kuries on the point of removal of a director. The Kerala High Court had held that though the meeting has validly convened, the resolution passed was illegal in as much as there was no special notice at all under section 190 of the Companies Act. In the present case the EGM was convened in a validly manner and a special notice was also been served on the company, in turn the company has served on all the members including the petitioner and the petitioner was present at the EGM. Accordingly, the said decision is not applicable to the facts of the present case. The learned counsel for the petitioner also relied upon the citation of CLB (2) supra in the matter of Deepak G. Mehta whereby this Bench held that the removal of the director was declared as bad in law on the ground that a special notice for the removal of the director had not been served on the company and there had been no proper notices for the Board meeting calling for the EGM. The said judgment is not applicable for the reason as stated supra that a special notice and the notice for the board and EGM were served on the petitioner. The learned counsel for the petitioner also raised the legal issue on the point that the principles of quasi partnership will apply in the present case. It is heavily contended by the learned counsel for the petitioner that the R1 Company is in the nature of quasi partnership and therefore the removal of the petitioner as a director would amount to an act of oppression. The learned counsel for the respondents submitted that principles of quasi partnership can be invoked in a petition for relief against oppression where the shareholding between the contesting parties more or less equal, there is a dead lock in the management of the company on account of an equal division in the shareholding and directorship, lack of probity in the conduct of the affairs of the company. It is an admitted fact that the petitioner is holding only 10% shareholding, therefore the first criteria that the shareholding between the contesting parties is more or less equal is ruled out. Admittedly there is no deadlock in the management of the company on account of an equal division in the shareholding and directorship. With regard to lack of probity I am of the view that there is no force in the said argument on the ground that the petitioner himself committed breach of fiduciary duty as stated supra by starting a parallel business by name DCS. Therefore the principles of quasi partnership will not apply to the present case. The learned counsel for the petitioner contended that the R1 Company is a family company in the form of a partnership firm and the branches of a family who have been accustomed to participating in the management will have inherent right to continue to do so. On the other hand the learned counsel for the respondents contended that the members of the R1 Company are closely related to each other can only make the R1 Company a family company and having chosen to take the corporate form for the business, the quasi partnership principle cannot be readily invoke. It is submitted that the petitioner relied upon the family arrangement before the High Court of Madras in OS No. 701 of 2010 for obtaining interim orders for securing his participation in the management, remuneration as ED, however there is no plea taken in this petition. The learned counsel for the respondents relied upon the judgment of Hon'ble Supreme Court in the matter of Kilpest Pvt. Ltd. (3) supra. The Hon'ble Supreme Court held that “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. The principles of the said judgment will apply to the facts of the present case. Moreover the learned counsel for the petitioner relied upon the judgments on the point of quasi-partnership, deadlock etc., which I deal with here at. In the matter of Sangramsinh Gaekwad (6) supra the Hon'ble Supreme Court had discussed the law on quasi-partnership companies. The Hon'ble Supreme Court held that the two characters of the company and other relevant factors shall be considered for the purpose of grant of relief having regard to the concept of quasi-partnership. It is to state that in the said case there were illegal allotments and transfers which were in question and the facts are completely different from the facts of the present case. In the present case there is no illegal allotment of shares and the only issue is regarding the removal of the petitioner as a director. Therefore on facts the said judgment is not applicable to the present case. In the matter of MSDC Radharaman (7) supra relied upon by the learned counsel for the petitioner is to state that the ratio in the said judgment is not applicable to the facts of the present case as there is no deadlock in the management of the company. On the point of legitimate expectation the learned counsel relied upon the judgment in the matter of N. Ram (4) supra. The question of legitimate expectation does not arise in the present case on the ground that the facts are completely different to the facts of that case.
24. The learned counsel for the petitioner contended that the removal of the petitioner is an act of oppression. On the other hand the learned counsel for the respondents submitted that the removal of the petitioner is an isolated act and not an act of oppression. To contend it is an act of oppression it is stated that the petitioner has been the executive director of the company for a long period of time and therefore his removal as a director constitutes an act of oppression. It is a well settled legal preposition that the position of director in a company is that of a trustee. The trust and confidence that is to be discharged by a director in a closed held family company is much higher and much more stringent than that in the case of a public limited company. As stated supra the petitioner started a parallel concern without the approval of the Board therefore it is an act of breach of trust reposed by the shareholders in him. Accordingly the petitioner cannot take the stand on the point of oppression. On the other hand the learned counsel for the respondents relied upon a judgment of the Hon'ble Supreme Court in the matter of Shantiprasad Jain (1) supra wherein the Hon'ble Supreme Court held that an isolated act cannot be a ground for filing a petition under section 397 and 398 of the Companies Act. There must be continuous acts on the part of the majority shareholders continuing upto the date of the petition. Such acts must be burdensome, harsh, wrongful and mere lack of confidence in the majority shareholders could not amount to oppression. In the present case there is no element of lack of probity or fair dealing by the respondents. Further the learned counsel for respondents relied upon judgment of the Madras High Court in the matter of V.M. Rao (4) supra. The Hon'ble High Court held that for maintaining a petition under section 391 and 398 it must be established that (i) the oppression complained of affects the person in his capacity as a member and not in any other capacity such as director, creditor or otherwise (ii) there must be continuous acts of oppression leading to tiling of the petition (iii) the events complained of must not be taken in isolation, but as a part of the continuous story (iv) there are just and equitable causes to wind up the company (v) the conduct complained of is oppression only if it is burdensome, harsh and ransom and involves an element of lack of probity and fact dealing to a member in his rights as a shareholder. As stated supra the petition has been filed by the petitioner in the capacity as director aggrieved by the action of the respondents in removing him from the position as director, except the said grievance there are no other acts of oppression or mismanagement in the affairs of the company as contended by the petitioner. The learned counsel for the petitioner relied upon various judgments on the point of removal. In the matter of B.V. Thirumalai (8) supra. In the said case the petitioner was removed as a director from a family company without a notice for the removal of the petitioner as director and a blank paper was sent in registered post to the petitioner and the petitioner had been removed by the respondents in the alleged meeting convened based on the notice. In the matter of B. Natarajan (9) supra the respondents in that case removed the petitioner as director and had made further allotments to themselves in a family company. The facts of the said judgments are different to the facts of the present case. The citations relied upon by the learned counsel for the petitioner at 10, 11, 12, 13 & 14 supra are not at all applicable to the facts of the present case. In view of the reasons as stated supra the petitioner has not made out any case seeking injunction restraining the respondents from removing the petitioner from the post of director of the R1 Company. The EGM was held in a democratic manner and duly complied with the articles and law. Not but the least the position of the director in the company is one of the utmost good faith and the person can continue his position of the director only so long as he enjoys the confidence and trust reposed in him by the shareholders. In the present case the decision of the shareholders in the EGM held on 27.06.2009 is supreme. Accordingly, the issue is answered against the petitioner. With regard to concept of family companies, I am of the view that invariably in settlement of disputes, the interest of the company is paramount. As regards the removal of Director is concerned the decision of the shareholders is sovereign. A decision taken by the majority of shareholders is final and binding on the shareholders of the company. A director cannot claim any right to continue in the office against the collective decision of the shareholders under the garb of family company. Though the members of the family may start a business in the name of the company, due to its growth over a period of time it may lose its sheen as a family in the long run. As the business and family grows simultaneously, it is quite probable and inevitable that differences also arise among members of family in control of the business due to varied opinions. In a family run business such differences arise not due to any business/commercial decision but rather giving importance or nurturing the growth of their own kin. Thus as long as the thread of goodwill runs through the family any decision taken for the sustenance of the family bond would survive the test of time. The nation of family company may be lost, if members of the family start fighting among themselves to further their self-interest rather than the interest of the company. It is not uncommon, that we find that fully grown family companies of yester years have of late been in news about feud between members of family as every members of the family wanted to independently run a business. Once a bond is broken or severed, it is difficult to unite. In such a scenario, it cannot be called a family company, as the underlying principle of ‘give and take’ does not subsist.
25. Now I deal with the issue No. 2: Since I have decided the issue regarding removal of the petitioner in EGM dated 27.06.2009 as legal and valid in issue No. 1 supra, the relief which is sought seeking permanent injunction restraining the respondents from interfering with the carrying on duties enjoined on the petitioner in relation of Unit ‘C’ of the R1 Company, the petitioner cannot continue to any on the duties in view of the reason that the petitioner is no more a director of the company. The company entrusted carrying on the duties of Unit ‘C’ of the R1 Company to the petitioner in the capacity as executive director. The Articles of the company empower the Board to appoint one or more of its members as managing executive director or directors of the company for such a period and on such terms and conditions as the Board may think tit. In view of the articles the Board only has the power to appoint one of its members (directors) as managing/executive director. Since the petitioner is ceased to be a director by virtue of this order he has no locus standi to continue as executive director more particularly to look after the duties in relation to Unit ‘C’ of the R1 Company. The relevant article 7 of the AOA is reproduced hereunder for better appreciation:
“AT THE EGM held on 27.02.1989 clause (7) be deleted and incorporated the following in its place:
The Board shall have power to appoint from time to time any one or more of its members as Managing/Executive Director or Director(s) of the company for such period and on such terms and conditions as the Board may think fit. The remuneration of the monthly remuneration, fees for attending meetings or participation in pro tits or all of these modes or any other mode not expressly prohibited by the Act. The Managing/Executive Director or Directors so appointed shall be liable to retire by rotation from the Board but shall cease to be a Managing/Executive Director on the termination of their office as directors.
The nominee directors so appointed shall hold the office so long as the principal monies remain owing by the company to the corporations and the nominee directors so appointed in the exercise of the said power shall ipso facto vacate such office immediately on the principal monies owing by the company to the corporation being paid off.”
As stated supra the Articles of Association is a binding contract between the members of the company as well as member inter se. Section 36 of the Companies Act specifically provides the effect of Memorandum and Articles. The said section reads thus:
“Section 36(1) Subject to the provisions of this Act, the Memorandum and Articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles.”
In view of the aforesaid the petitioner cannot seek any relief against the Articles of Association of the company. Hence the petitioner is not entitled to seek a permanent injunction restraining the respondents from interfering with the earning on duties enjoined on the petitioner in relation or Unit ‘C’ of the R1 Company. Accordingly the issue is answered against the petitioner.
26. Now I deal with the issue No. 3: The petitioner has not made out any case either on oppression or on mismanagement and the petition is miserably failed and liable to be dismissed. Accordingly, the CP No. 40/2009 is dismissed. No order as to costs. All interim orders stand vacated. All applications pending if any stand disposed of.