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Dr. Baldeo Sharma and anr. Vs. Amritdhara Pharmacy (P.) Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAllahabad High Court
Decided On
Case NumberSpecial Appeal No. 439 of 1970
Judge
Reported in[1975]45CompCas268(All)
ActsCompanies Act, 1956 - Sections 397 and 398
AppellantDr. Baldeo Sharma and anr.
RespondentAmritdhara Pharmacy (P.) Ltd. and ors.
Appellant AdvocateK.L. Misra, ;N.C. Rajvanshi and ;Gyan Prakash, Advs.
Respondent AdvocateS.N. Kacker and ;K.M. Sinha, Advs.
Excerpt:
- - after hearing the parties the learned company judge found that the petitioners had failed to prove any of the allegations made by them and dismissed the company petition by his judgment dated 17th april, 1970. in his judgment the learned company judge also made directions for the holding of an extraordinary general meeting of the shareholders of the company to elect a third director because the existing directors, namely, the appellant. at best a few days' adjournment would have met the ends of the moment so as to enable the respondents to prepare the case after studying the rejoinder-affidavit.satish chandra, j.1. this special appeal is directed against the judgment of the learned company judge dismissing a petition under sections 397 and 398 of the companies act.2. the petition related to the amritdhara pharmacy private ltd. this company is essentially a family concern, nine out of 12 shareholders (holding 2,988 out of 3,000 shares) being members of the same family, while the other three (holding only 12 shares) are friends to whom a few shares were allotted as a special favour. vimaldeo sharma, the respondent no. 2, holds 1,360 shares. he also commands the support of his wife, shrimati kusum sharma (125 shares), and his mother, shrimati subhadra rani sharma (100 shares). thus he is in a position to exercise control over the affairs of the company. he was the managing director.....
Judgment:

Satish Chandra, J.

1. This special appeal is directed against the judgment of the learned company judge dismissing a petition under Sections 397 and 398 of the Companies Act.

2. The petition related to the Amritdhara Pharmacy Private Ltd. This company is essentially a family concern, nine out of 12 shareholders (holding 2,988 out of 3,000 shares) being members of the same family, while the other three (holding only 12 shares) are friends to whom a few shares were allotted as a special favour. Vimaldeo Sharma, the respondent No. 2, holds 1,360 shares. He also commands the support of his wife, Shrimati Kusum Sharma (125 shares), and his mother, Shrimati Subhadra Rani Sharma (100 shares). Thus he is in a position to exercise control over the affairs of the company. He was the managing director of the company. The appellant, Dr. Baldeo Sharma, holds 25 shares. He was, under the articles of association of the company, permanent chairman of the board of directors. He is the first appellant before us. Appellant No. 2, Vijai Pratap Gambhir, holds six shares in the company.

3. The two appellants instituted a company petition, principally on the ground that the affairs of the Amritdhara Pharmacy Private Ltd. were being conducted in a manner which is contrary to public interest and which is prejudicial to the interest of the petitioners. It is also claimed that the affairs of the company were being conducted in a manner which is oppressive to its members, The parties had agreed that the company petition be decided on affidavit evidence coupled with documentary evidence. After hearing the parties the learned company judge found that the petitioners had failed to prove any of the allegations made by them and dismissed the company petition by his judgment dated 17th April, 1970. In his judgment the learned company judge also made directions for the holding of an extraordinary general meeting of the shareholders of the company to elect a third director because the existing directors, namely, the appellant. Dr. Baldev Sharma, and the respondent, Vimaldeo Sharma, were at loggerheads and there was a great danger of a deadlock arising in the conduct of the affairs of the company. The learned company judge fixed 16th May, 1970, for the holding of the aforesaid meeting. We are informed by the learned counsel that at the meeting held on 16th May, 1970, Shri Hiranand Sharma was elected as the third director of the company and he is still continuing as such.

4. Learned counsel for the appellants raised two preliminary points in support of his submission that the appellants have not had a fair trial. He has urged that the learned company judge was in error in refusing to accept his rejoinder-affidavit (which has been filed along with the application for adducing additional evidence in this special appeal). In the next place, his grievance is that his application for calling the deponents of the affidavits filed on behalf of the respondents for cross-examination was erroneously rejected.

5. The petition under Sections 397 and 398 of the Companies Act was transferred to this court by the Company Tribunal on 25th July, 1967. Issues were framed on 11th April, 1968. On 21st May, 1968, the learned company judge framed an additional issue. The petitioner was granted time till 1st February, 1968, to file his affidavit and evidence. On 24th September, 1968, the learned company judge observed that the documents which have not been admitted by the respondents' learned counsel may be proved by the petitioner by affidavit. The order sheet of that date shows that it was agreed upon between the parties that the evidence will be led by means of affidavits only. On 16th September, 1969, the learned company judge granted a month's time to the respondents to file a counter-affidavit and three weeks' time thereafter to the petitioner to file the rejoinder-affidavit. The respondents, however, did not file their counter-affidavit within the time allowed and on 18th December, 1969, the learned company judge granted two weeks further time to the respondents to file a counter-affidavit. The petitioner was granted 10 days' time thereafter to file his rejoinder. A counter-affidavit was filed on 30th January, 1970, on which date 16th March, 1970, was fixed for arguments.

6. On 25th February, 1970, the appellants filed an application praying that the deponents of the affidavits filed on behalf of the respondents be called up for cross-examination. The learned company judge on 4th March, 1970, directed that this application will be decided after arguments are heard on the main petition. On 2nd April, 1970, the arguments on the main petition were concluded, and on that date the learned company judge rejected the application for cross-examination by the following order:

' Having heard the arguments on the main petition which were concluded today, I find no necessity for cross-examining the deponents of the affidavits. Refused.'

7. The learned counsel for the appellants stated that because of the pendency of the application for calling the deponents of the affidavits for cross-examination, the rejoinder-affidavit could not be prepared in time but it was ready to be filed on 16th March, 1970, when the case was taken up for hearing. The learned company judge refused to take the rejoinder-affidavit on the record.

8. This company petition was tried on affidavit evidence only. The respondents had taken sufficiently long time to file the counter-affidavit. The counter-affidavit was pretty bulky. The petitioner had been granted time to file the rejoinder-affidavit. In our opinion, the appellants could not be held guilty of any undue delay in preparing and filing the rejoinder affidavit. Since the appellants had been granted time to file the rejoinder they were entitled to file it even later. The fact that his rejoinder-affidavit was ready on 16th March, 1970, shows that the hearing of the case was not liable to be unduly delayed, because the respondents could not ask for any time to file any further affidavit. At best a few days' adjournment would have met the ends of the moment so as to enable the respondents to prepare the case after studying the rejoinder-affidavit. Since the evidence was confined to the affidavits, the existence of rejoinder was, in the interest of justice, necessary.

9. In the application dated 25th February, 1970, it was stated that the counter-affidavit was filed by the respondents on 30th January, 1970. That in order to test the correctness of the statements made in the affidavit it was necessary that the deponents of the affidavits may be allowed to be cross-examined. It was also stated that the application is being filed without any delay because on 30th January, 1970, when the case was last taken up the counter-affidavit was filed in the court. The petitioner had no time to study the affidavits and to apply for cross-examination of the deponents of the affidavits for elucidating true facts, earlier.

10. It is true that from the order sheet of 16th September, 1969, it appears that the parties had agreed that the evidence will be confined to affidavits only but that order does not indicate that the parties had either given up their right to cross-examine the deponents of the affidavits or that the court had made any direction in that behalf. It was an open question. If after studying the affidavits filed the party feels that in order to elucidate the true facts and the truthfulness of the deponents of the affidavits it was necessary to cross-examine them, the matter ought to have been considered by the court at that stage. The learned company judge was, in our opinion, in error in postponing the decision of this application to the date of the hearing of the arguments on the main petition. The learned company judge, in our opinion, was also in error in rejecting the application after having heard the arguments on the main petition on the ground that it was unnecessary to call any of the deponents for cross-examination. For instance, while dealing with the question of surreptitious manufacture and sale of Amritdhara, the learned company judge rejected the affidavits of some of the employees of the company, which were filed by the appellants, inter alia, on the ground that the deponents may have some personal animus against the management. For this there was really no evidence. This was an inference drawn by the learned company judge on the other evidence on the record. If these deponents would have been cross-examined the fact whether they had any personal animus against the management would have become clear and the court would not have had to take recourse to conjectural inferences. So, it could not off-hand say that cross-examination of the deponents of the affidavits would not have been useful. The company petition was being tried as an original suit. Parties had a right to lead all evidence that they considered relevant to the issues in the case. We are unable to uphold the view of the learned company judge that it was unnecessary to call up the deponents of the affidavits for cross-examination for a proper disposal of the petition. In our opinion, the application should have been allowed and the parties granted an opportunity to cross-examine the deponents of the affidavits filed by either party. In our opinion, the appellant has established that he has had no fair trial. In this context the case has to go back for recording the cross-examination of the deponents of the affidavits for taking the rejoinder-affidavit on record as evidence and thereafter trying it in accordance with law.

11. During the pendency of the petition before the Company Tribunal, the appellant, Dr. Baldeo Sharma, had moved another application in May, 1967, for the removal of Hiranand Sharma as the Tribunal's director and for a declaration that Vimal Deo Sharma had ceased to be the managing director of the company. On 29th June, 1967, the Company Tribunal directed that a meeting of the board of directors should be held within a week to consider whether Dr. Baldeo Sharma should be appointed technical adviser of the company and whether Vimal Deo Sharma should be appointed as managing director. The Company Tribunal appointed the Regional Director of the Company Law Administration at Kanpur as the director of the company with the direction that, in case there was no unanimity, the decision of the Regional Director, would be binding on the board of directors. Pursuant to that order, a meeting of the board of directors was held on 6th July, 1967. Dr. Baldeo Sharma and Vimal Deo Sharma could not arrive at any agreement in the meeting. Consequently, Sri C.P. Yadav, the Regional Director gave his decision to the effect that Dr. Baldeo Sharma should continue as the company's technical adviser and Vimal Deo Sharma should continue as the managing director.

12. On 14th August, 1967, Dr. Baldeo Sharma filed in this court an application complaining that, in spite of the decision dated 6th July, 1967, the managing director was not permitting the complainant to function as the technical adviser and he was not being paid his arrears of salary. Mr. Justice Takru, the then company judge on 27th October, 1967, directed that the managing director must pay Dr. Baldeo Sharma arrears of salary due to him as technical adviser. The managing director was further ordered to assist Dr. Baldeo Sharma in performing his duties as technical adviser. Against this order dated 27th October, 1967, the managing director filed a special appeal. The appeal came up for hearing on 30th April, 1970, after the dismissal of the main company petition on 17th April, 1970. A Division Bench held that the order dated 27th October, 1967, was in the nature of an interim order and that it operated only during the pendency of the company petition. With the dismissal of the company petition the order automatically came to an end. It was also held that since the order under appeal stands vacated, it was unnecessary to discuss the merits of the order on the ground that the appeal had become infructuous.

13. The learned counsel for the respondents invited our attention to the consequences that would arise on the remand of the case, namely, that the interim order dated 27th October, 1967, would revive with all its force. In our opinion, the submission is justified. But having heard the learned counsel for the parties and having considered the facts of this case including the fact that the managing director, who controls the majority of the shares feels that he is not in need of a technical adviser, we feel that he should be left free to take the advice of a technical nature from the appellant if and when he thinks fit to do so. The appellant should not inflict his technical advice upon the managing director or upon the affairs of the company.

14. In the result, the appeal succeeds and is allowed. The judgment of the learned single judge dated 17th April, 1970, is set aside. The case is sent back to him for deciding the petition afresh in accordance with law and in the light of the observations made above. The interim order dated 27th October, 1967, will continue subject to the modification that the appellant will be paid his arrears of salary due from 17th April, 1970, till today at the rate of Rs. 1,500 per month. The managing director will continue to pay the salary to the appellant at the same rate of Rs. 1,500 per month thereafter. The appellant will retain his position of technical adviser but will not inflict his technical advice upon the managing director or upon the affairs of the company. The managing director will have discretion to ask for the technical advice of the appellant and then alone he will give his technical advice. Mr. Hiranand Sharma, who was elected as the third director of the company in pursuance of the orders of the learned company judge under appeal before us, will continue. It will be desirable if the company petition is disposed of expeditiously. There will be no order as to costs.


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