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Kumar Exporters P. Ltd. and ors. Vs. Naini Oxygen and Acetylene Gas Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad High Court
Decided On
Case NumberCompany Petition No. 23 of 1981
Judge
Reported in[1986]60CompCas984(All)
ActsCompanies Act, 1956 - Sections 397 and 398
AppellantKumar Exporters P. Ltd. and ors.
RespondentNaini Oxygen and Acetylene Gas Ltd. and ors.
Excerpt:
- - agarwal group and the two other groups, namely, basheshar nath group and anil saran group, the entire companycould be completely ruined resulting in colossal losses, not only to the shareholders, but to the public as well. state financial corporation, the compromise will benefit both the bank as well as the u......on october 29, 1974. initially, the promoters of the company were four groups, namely, p. l. gupta group, d. p. agarwal group, basheshar nath group and anil saran group. p. l. gupta was appointed the managing director of the company for a period of five years. thereafter, in the year 1978, the board of directors removed him from the said position. it appears, subsequently, disputes took place between the parties and, ultimately, the management of the company went into the hands of basheshar nath group and anil saran group. this petition consequently, has been filed by d. p. agarwal group seeking relief from this court against the basheshar nath group and anil saran group. p. l. gupta has been impleaded as respondent no. 9 in this petition. according to the petitioners, basheshar.....
Judgment:

S.D. Agarwala, J.

1. This is a petition under Sections 397 and 398 of the Companies Act, 1956, in the matter of Naini Oxygen and Acetylene Gas Ltd., having its registered office at Allahabad (hereinafter referred to as 'the company'). The petition has been filed by M/s Kumar Exporters P. Ltd., Ashoka Agarwala and others, who belonged to the same group, for relief under these sections, as, according to them, the affairs of the company are being conducted in a manner oppressive to them.

2. This company was incorporated on October 29, 1974. Initially, the promoters of the company were four groups, namely, P. L. Gupta group, D. P. Agarwal group, Basheshar Nath group and Anil Saran group. P. L. Gupta was appointed the managing director of the company for a period of five years. Thereafter, in the year 1978, the board of directors removed him from the said position. It appears, subsequently, disputes took place between the parties and, ultimately, the management of the company went into the hands of Basheshar Nath group and Anil Saran group. This petition consequently, has been filed by D. P. Agarwal group seeking relief from this court against the Basheshar Nath group and Anil Saran group. P. L. Gupta has been impleaded as respondent No. 9 in this petition. According to the petitioners, Basheshar Nath group and Anil Saran group are managing the affairs of the company. Learned counsel for the petitioners, consequently, stated that they do not want any relief against P. L. Gupta.

3. This petition was filed on November 30, 1981, and, thereafter, notices were issued to the opposite parties. The opposite parties contested the petition. I heard the parties on merits of the petition for some time. Thereafter, the parties took time to explore the possibility of a compromise. This procedure was adopted as it was felt that in case the dispute continued between the D. P. Agarwal group and the two other groups, namely, Basheshar Nath group and Anil Saran group, the entire companycould be completely ruined resulting in colossal losses, not only to the shareholders, but to the public as well. The petitioners and respondent Nos. 1 to 8, 11 and 12, consequently, came to terms out of court. They have now filed a joint affidavit annexing a copy of the terms agreed upon between them. The substratum of the compromise is that the D. P. Agarwal group has agreed to purchase the shares of the Basheshar Nath group and Anil Saran group resulting in the D. P. Agarwal group acquiring the majority shares in the company. Since D. P. Agarwal group would become the majority shareholders, the Basheshar Nath group and Anil Saran group, who are in the management of the company, have agreed to hand over the management to the D. P. Agarwal group thus terminating the dispute between the D. P. Agarwal group on the one hand and the Basheshar Nath group and Anil Saran group on the other.

4. P. L. Gupta, respondent No. 9, appeared to contest this petition in spite of the fact that learned counsel for the petitioners stated before this court that the petitioners do no want to claim any relief against P. L. Gupta.

5. It is necessary here to state certain facts in regard to the status of P. L. Gupta in the company. P. L. Gupta was appointed as managing director of the company on August 14, 1975, for a period of five years after necessary approval had been taken from the Central Government. On July 1, 1978, differences arose between the managing director and the other directors of the company. On that date, a resolution was passed by the board of directors of the company removing Pyare Lal Gupta as the managing director of the company. Thereafter, P. L. Gupta, filed a suit in the court of the Munsif, Allahabad, for a permanent injunction restraining the three groups from interfering with the right of Pyare Lal Gupta to function as managing director of the company. In the said suit, an application was made for an ad interim injunction to the same effect. This application was dismissed by the trial court on April 8, 1979. Against the said order, an appeal was filed, which was also dismissed by the appellate court. P. L. Gupta, thereafter, filed Writ Petition No. 6991 of 1979 in this court. This petition was finally dismissed by brother, A. N. Verma J., on July 23, 1980. The finding recorded by the trial court and the lower appellate court were affirmed by this court and it was held that P. L. Gupta had no prima facie ground to continue as the managing director of this company. It was further held by this court that the defendants in the said suit, namely, Basheshar Nath group and Anil Saran group, were in effective control of the management and affairs of the company. It, consequently, emerges that neither is Pyare Lal Gupta the managing director of the company nor is he in effective control of the management and affairs of the company.

6. This is a petition under sections 397 and 398 of the Companies Act seeking relief in respect of the oppression sought to be caused to the petitioners because of the mismanagement of the company. Sri P. L. Gupta, not having control over the management of the company, is not at all affected by any compromise which may have been arrived at between the petitioners and the other two groups. In any case, I am considering the arguments raised by counsel for P. L. Gupta in this regard.

7. The first contention raised by learned counsel for P. L. Gupta is that this petition is not maintainable and, as such, the terms of the compromise cannot be accepted in this petition. His submission is that the petitioners do not have the requisite number of shares as provided by Section 399 of the Act.

8. It is not disputed that the total issued capital of the company is Rs. 22,00,000 consisting of 2,20,000 equity shares of Rs. 10 each. Some of the shares are, however, partly paid up. In paras 11 and 12 of the petition, the shareholdings of the various groups have been stated. In particular, in para 12, it has been categorically stated that the petitioners are the holders of 23,600 fully paid up shares of Rs. 10 each and their names are entered in the register of members of the company. In annexure 2, the details of the holding of the petitioners have been specified.

9. P. L. Gupta has filed a counter-affidavit. In para 26 of the counter-affidavit filed by P. L. Gupta, there is no specific denial of the fact that the petitioners are not the shareholders to the extent mentioned in para 12 of the petition. On the other hand, in the counter-affidavit of Anil Saran, filed on behalf of the company, it has not been denied that the total shareholding of the petitioners is 23,600 sharesof Rs. 10 each. It has consequently to be accepted that the shareholdings of the petitioners is 23,600 shares of Rs. 10 each. Section 399 of the Act entitles any member or members to apply under Sections 397 and 398 of the Act if their holding is not less than one-tenth of the issued share capital of the company. In the instant case, as I have already indicated above, the issued share capital of the company is Rs. 22,00,000, 10% of 22,00,000 would be Rs. 2,20,000. The petitioners have a shareholding of the value of Rs. 2,36,000. As such, it cannot be said that the petition is not maintainable because of the provisions of section 399 of the Act.

10. The second submission made by the learned counsel for P. L. Gupta is that the petition does not disclose any cause of action for grant of a relief under sections 397 and 398 of the Act.

11. It is not necessary for me to go into the details of the various allegations made in the petition. It would be sufficient to consider only one set of allegations, namely, in regard to the non-registration of the shares ofthe petitioners, which they have purchased from time to time. P. L. Gupta group had to file Company Petitions Nos. 3, 4, 18, 19 and 21 of 1981 and No. 1 of 1982 for rectification of the register of members of the company. I had already allowed Company Petitions Nos. 3 and 4 of 1981, holding that the company was not justified in refusing to register the shares of the applicants in those cases. So far as the other four petitions are concerned, they are still pending. The allegations are that the company had unjustifiably refused to register the shares with the mala fide object of keeping control over the affairs of the company in its own hands.

12. In Gajarabai M. Patny v. Patny Transport (P.) Ltd., Secumderabad [1966] 36 Comp Cas 745 (AP), it had been held that in case the directors act unjustly, harshly and in a high-handed manner in refusing to register the shares, it would amount to oppression. 1 am also of the view that in case it is shown by the petitioners under sections 397 and 398 of the Companies Act that the persons, who are in the management of the company, consistently refused to register shares with the mala fide object of retaining control over the affairs of the company and thereby not permitting the other shareholders to have voting rights in the company, it would be a case where a court would have power to interfere and grant relief under Sections 397 and 398 of the Act. This depends upon the facts and circumstances of each case. Refusal once by the company may not be oppressive, but a continuous refusal by the company to register the shares with an ulterior motive of retaining the control over the affairs of the company may be a case where the court is obliged to interfere and grant relief under these sections.

13. The main case of the petitioners, in the instant case, is that the company has unjustifiably refused to register their shares with the motive to retain control over the affairs of the company. In my opinion, on this ground, the petition is maintainable. In the circumstances, it cannot be said that there is no cause of action for the petitioners to file the present petition and, as such, this court has no jurisdiction to record the terms of the compromise.

14. In regard to the terms of the compromise, counsel for P. L. Gupta has particularly objected to Clause 5 whereunder Sri Ashok Kumar Agar-wal has been authorised to take possession of the books, records and documents, and papers of the company, which are lying with the Cannington Police Station, Allahabad. In Case No. 217/X10/73, his argument is that this court in Criminal Revision No. 1013 of 1979, decided on December 21, 1979, has directed that Sri Ashok Kumar Agarwal shall hand over the documents and other articles, which were in his possession as superdar and the terms of clause 5 will be contrary to the High Court's order.Clause 5 of the terms of the compromise is subject to the legal proceedings pending before the criminal courts. I do not find any conflict in Clause 5 with the order of this court, mentioned above, The question of taking possession will arise only after the proceedings in the criminal case have terminated. In view of the above, I am of the opinion that so far as the objections raised by P. L. Gupta are concerned, they are without any merits.

15. I have examined the terms of the compromise. The terms of the compromise contemplate the transfer of the shares of the Basheshar Nath group and Anil Saran group to D. P. Agarwal group who are the petitioners. This, in my opinion, would be in the interest of the company, as, after the transfer, D. P. Agarwal group will become the majority shareholders and all the disputes between the three groups shall come to an end. The company has been involved in a series of litigation for the past few years. They have not been able to achieve full production or earn profits. The company has not declared any dividends on its shares, as stated at the Bar. It would, consequently, be in the interest of the company that the two groups transfer their shares to the petitioner's group so that all these litigations come to an end, the relations between the three groups may become normal and the company may start functioning. Petitions Nos. 18 19 and 21 of 1981 and No. 1 of 1982 in regard to the registration of the shares of the company would also be finally disposed of, thereby terminating the dispute between the parties in regard to the registration of the shares.

16. It has been stated that the company has borrowed money from Lakshmi Commercial Bank Ltd. and the U. P. State Financial Corporation, The compromise will benefit both the bank as well as the U. P. State Financial Corporation, as these authorities will be able now to realise their amounts due against the company.

17. One of the main contests in this petition was in regard to the act of the company in forfeiting certain shares. This compromise seeks to annul the forfeiture. The allottees of the forfeiture shares have consented for the annulment of the forfeiture. This would automatically restore the status quo ante with regard to the shares which have been forfeited. This compromise, therefore, will also be in the interest of those shareholders whose shares have been forfeited by the company and the disputes in regard to forfeiture shall also terminate. Having regard to all the above circumstances, I am of the opinion that it is in the interest of company that I permit the parties to enter into the terms of the compromise which have been annexed to the joint affidavit which has been filed.

18. I, accordingly, decide the petition in terms of the compromise which are attached to the joint affidavit filed in this court. The terms of the compromise shall form part of this order. I, however, further direct that

(i) Durga Prasad Agarwal, Ajay Agarwal and Ashok Agarwal shall be appointed as directors of the company in terms of the compromise with effect from the date mentioned in the compromise and they shall continue in office until the holding of the next general meeting of the company or for six months from the date of assumption of the office, whichever is earlier. Sri Lakshmi Chandra, the nominee of the financial institution, shall continue as a director unless changed by the financial institution in accordance with law ;

(ii) the directors, mentioned in Clauses 4.1 (b) of the terms of the compromise shall cease to be the directors as soon as Sarvasri Durga Prasad Agarwal, Ajay Agarwal and Ashok Agarwal assume office as directors of the company, and ;

(iii) an injunction is issued restraining the present board from transferring any assets of the company or creating any fresh encumbrance or incurring any fresh liabilities of the company except for wages, salary, electricity charges or any incidental expenses.

19. The parties are directed to bear their own costs of this petition.


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