ORDER
K.K. Balu, Vice-Chairman
1. The petitioners together holding in excess of one-tenth of the issued share capital of M/s Devaki Hospital Limited (“the Company”) aggrieved on account of certain alleged acts of oppression and mismanagement, at the instance of the second respondent, in the affairs of the Company, namely, (a) misappropriation of funds by withdrawal of huge amounts by way of loans. I.O.Us (vouchers) and
self cheques in violation of Section 295 of the Act, for discharging personal borrowings; (b) unlawful increase of monthly rent from Rs. 40,000/- to Rs. 4,00,000/- as well as payment of lease deposit of Rs. 100 lakh, in respect of the property bearing door No. 148, Luz Church Road, Chennai-600 004, taken on lease by the Company; (c) unlawful increase of sale consideration of Rs. 145 lakh to Rs,430 lakh in respect of the property bearing 149, Luz Church Road. Chennai-600 004, purchased by the Company; (d) non-payment of (i) salaries to staff; (ii) statutory liabilities, (iii) electricity bills of the hospital; and (iv) non-honouring of a large number of cheques issued on behalf of the Company; (e) unauthorised payment of (i) several lakhs of rupees towards commission; and (ii) interest on account of Multhani and Marvari Loans; (f) failure to discharge huge loan amounts availed by the Company from its bankers and financial institutions; (g) committing various financial irregularities and incurring of huge expenses for expansion of the project as well as personal use, without authority of the board of directors; (h) non-placing of true financial position of the Company before the board of directors; and (i) unlawful surrendering of transplantation licence of human organs and closing of dialysis department, have invoked the equitable jurisdiction of the Company Law Board under Sections 397 and 398 of the Companies Act. 1956 (“the Act”), seeking the following reliefs:
(i) to declare that the second respondent ceased to be director of the Company, on account of violation of Section 295 of the Act and that she vacated her office as director, by virtue of Section 283(1)(h) of the Act;
(ii) to appoint an auditor to conduct an investigation into the conduct of the second respondent, more particularly funds diverted by her to discharge personal borrowings;
(iii) to direct the second respondent to bring back all diverted amounts and surcharge her;
(iv) to cancel the unregistered lease dated 20.11.2002 and direct the respondents 2, 3 and 7 to bring back all the amounts withdrawn by them as lease rent over and above Rs. 40,000/- per month as also lease deposit of Rs. 100 lakh;
(v) to supersede the board of directors of the Company and appoint an Administrator or a Committee of Management to look after the day-to-day affairs of the Company;
(vi) to declare that the second respondent is not a fit and proper person to be in-charge of affairs of the Company;
(vii) to restrain the respondents 1, 2, 3 & 7 from in any manner disturbing possession of the property bearing door No. 148, Luz Church Road, Chennai-600 004, pursuant to the registered lease dated 07.08.1992;
(viii) to direct the second respondent to surrender all the cheque books, original records and licences granted by various authorities to the Company; and
(ix) to direct the second respondent to bring back an amount of Rs. 285 lakh being the difference in sale consideration of the property bearing door No. 149. Luz Church Road, Mylapore, Chennai-600004.
2. Shri A.K. Mylsamy, learned Counsel representing the petitioners, while initiating his arguments submitted:
2.1 The Company was incorporated in August, 1990 with the main object of running of hospitals, dispensaries, clinics, laboratories and health clubs with the respondents 2 to 4 as first directors of the Company. While, the third respondent is the daughter, fourth respondent is the former husband of the second respondent. The fourth respondent was holding the office of managing director from the date of incorporation till 10.03.1997, during which period the second respondent was the joint managing director of the Company. The second respondent was appointed with effect from May. 1997 as the managing director for a period of five years and further came to be re-appointed in May, 2002 for another period of five years.
2.2 The second respondent utilising her position as the managing director has been unlawfully withdrawing huge funds from time to time, amounting to several lakhs of rupees, in terms of her instructions by way of notes to cash counter of the hospital; I.O.Us, self cheques and loans for payments to various parties towards discharge of her personal borrowings. The amounts so drawn by the second respondent are nothing but loans availed from the Company in violation of Section 295 of the Act. By virtue of this section, no loans should be availed by the second respondent, from the Company without obtaining prior permission of the Central Government and therefore, she automatically vacated her office as director pursuant to Section 283(1)(h) of the Act. Consequently, the board of directors at the meeting held on 31.07.2003 revoked the second respondent’s powers as managing director of the Company, upon which she has now disposed of her shares in the Company. The special audit report of Shri V. Chandrasekharan & Associates, Chartered Accountants. Chennai clearly shows that the second respondent owed to the Company as on 31.07.2003 an aggregate sum of Rs. 1.73,47,917/-. The second respondent must be surcharged for diversion of the Company’s funds and she is bound to bring back all the amounts withdrawn by her from the Company for discharging her personal loans.
2.3 The fourth respondent owning the land and building bearing door No. 148. Luz Church Road, Chennai – 600 004 leased out the land to the seventh respondent, in terms of a lease deed dated 27.07.1978, in pursuance of which the seventh respondent made certain additions and put up superstructure therein. Thereafter, the respondents 4 & 7 executed a registered lease deed on 20.10.1992. in respect of the land and building (door No. 148, Luz Church Road, Chennai – 600 004) in favour of the Company for a period of 30 years with effect from 07.08.1992, on a monthly rent of Rs. 40,000/-. The registered lease is renewable for a further period of 10 years at the option of the lessee, on expiry of the lease period of 30 years and does not contemplate any enhancement of rent during currency of the lease period. In the meanwhile, the fourth respondent executed a settlement deed on 24.12.2000 in favour of respondents 2 & 3, settling in their names the property (door No. 148, Luz Church Road, Chennai 600 004.) The expenses regarding stamp duty of Rs. 22.33 lakh incurred in connection with the settlement deed were illegally met by the Company, thereby causing prejudice to its members. While, the registered lease deed dated 20.10.1992 was in force, the second respondent started diverting huge sums of money belonging to the Company to discharge her personal loans availed from third parties. The second respondent gave self cheques to the hospital periodically and withdrew money, as evidenced from copies of the cheques on record, but never sent the cheques for collection and caused huge losses to the Company. The second respondent, after becoming owner of the property, namely, door No. 148, Luz Church Road, Chennai-600 004. with a view to justify her withdrawal of funds, brought into existence an unregistered lease deed on 20.11.2002, without cancelling the registered lease deed dated 20.10.1992, but enhancing the monthly rental from Rs. 40,000/- to Rs. 4 lakh and yet another unregistered lease of the same date. namely, 20.1 1.2002 releasing the lease advance of Rs. 100 lakh, however, without any resolution of the board of directors of the Company, which are detrimental to the Company and its shareholders. The respondents 5 & 6. being directors of the Company have trusted the second respondent and signed only one unregistered lease deed, however, without verifying the true contents. The registered lease deed dated 20.10.1992 cannot be substituted by any unregistered instrument and therefore, the unregistered lease deed was rescinded by the board of directors of the Company and called upon the respondents 2, 3 & 7 to bring back the excess rent and the lease advance of Rs. 100 lakh received by them. In view of Section 68 of the Indian Evidence Act, 1872, the CLB cannot take cognisance of any unregistered lease deed. Section 107 of the Transfer of Property Act, 1882 provides that a lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registered instrument. Section 109 envisages that if the lessor transfers the property, the transferee steps into the shoe of the lessor and shall possess all rights and liabilities of the lessor in respect of the subsisting tenancy, as held by the Kerala High Court in Hajee K. Assainar and Co. v. Chacko Joseph . By virtue of Section 17(1)(d) of the Registration Act. 1908 any lease of immovable property from year to year or for any term exceeding one year, or reserving a yearly rent shall be registered. Section 49 of the Registration Act contemplates that a document, which is compulsorily registrable under Section 17, if not registered, cannot be received as evidence of any transaction affecting such property. As per Section 35 of the Indian Stamp Act, 1899, no instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped. In view of Section 92 of the Indian Evidence Act, unregistered lease deed cannot be looked into for the purpose of contradicting, varying, adding to, or subtracting from, its terms. It was held in Raja Durga Prosad Singh v. Rajendra Narain Bagchi and Ors. ILR (1) Cal. 450 that a letter, addressed to a lessee by a lessor. containing all the essentials of a lease, is inadmissible in evidence, for want of registration. The Supreme Court emphasised in Sunil Kumar Roy v. Bhowra Kankanee Collieries Limited and Ors. that an agreement, which varies the essential terms of an existing registered lease must be registered. The Madras High Court reiterated in (a) Muruga Mudaliar (Deceased) and Ors. v. Subha Reddiar that an agreement of lease in writing is required to be registered and (b) Rangaiya Bagavathur v. Kesava Bagavathar 1971 (11) MLJ 387 that a variation of rate of interest provided for in the original mortgage deed by a subsequent document is compulsorily registerable under the provisions of Registration Act. The registered lease in the instant case has not been cancelled in a manner known to law. Hence, the unregistered lease cannot be acted upon, while there is a registered lease deed and when the registered lease deed is in force, the parties cannot enhance any rent, during its currency, but at the same time, they are at liberty to approach the Rent Controller for fixation of fair rent for the property (Door No. 148, Luz Church Road, Chennai-600 004.) The unregistered lease is detrimental to the interest of the Company and its shareholders. It is only the respondents 2, 3 & 7 are the beneficiaries of the unregistered lease deed. It is therefore, clear that the conduct of the second respondent lacks bonafides.
2.4 The property bearing door No. 149, Luz Church Road, Chennai-600004 originally belonging to Shri K. Shanmugam, brother of the fourth respondent was leased out to seventh respondent, which carried out certain additions and renovations therein. By an agreement of sale dated 27.08.1992, the seventh respondent and Shri K. Shanmugam had agreed to sell this property for a sum of Rs. 145 lakh in favour of the Company, out of which a sum of Rs. 62 lakh was payable to Shri K. Shanmugam and the balance of Rs. 83 lakh to the seventh respondent. The sale shall be completed within six months from the date of sale agreement, namely. 27.08.1992. Though, the entire sale consideration of Rs. 145 lakh was paid as agreed, in terms of a communication dated 02.05.2002 addressed by the Company in favour of the Income Tax Department, yet no sale deed was registered in its name. At the same time, the second respondent had subsequently executed a fresh agreement of sale in favour of the Company for a consideration of Rs. 430 lakh, as a power agent of Shri K. Shanmugam. pursuant to a registered power of attorney dated 10.12.1999, without disclosing the earlier power of attorney dated 27.08.1992 given by Shri K. Shanmugam, in respect of the property, (Door No. 149. Luz Church Road Chennai-600 004), without, however, mentioning the earlier sale agreement dated 27.08.1992 and accordingly a sale deed came to be registered or 13.03.2002 in favour of the Company, without giving any reason as to why the sale consideration was increased from Rs. 145 lakh to Rs. 430 lakh. The sale consideration was increased to Rs. 430 lakh solely to adjust the excessive withdrawal by the second respondent from the Company over a period of time, thereby she was benefited to an extent of Rs. 285 lakh and did not make any further payment to Shri K. Shanmugam, apart from the amount of consideration stated in the sale agreement dated 27.08.1992. as affirmed by him in his affidavit dated 17.06.2004. Therefore, the second respondent is liable to account for Rs. 285 lakh, being the difference between Rs. 430 lakh and Rs. 145 lakh towards sale consideration of the property.
2.5 The second respondent paid an amount of Rs. 33 lakh to M/s Indira Worldwide Finance & Re-finance Corporation. Bangalore (IWF&RC) by way of commission, without authority of the board of directors of the Company, for availing financial facilities, but no amount has ever been lend by IWF & RC. The Company has not been benefited out of the payment made to IWF & RC. The second respondent paid without any authority, more than Rs. 100 lakh towards interest on Marwari and Multhani loans availed by her. The loans availed by the Company from the banks have become highly irregular and came to be classified as non-performing assets on account of mismanagement of funds by the second respondent. A very large number of cheques issued by the Company to various parties including the banks were bounced back on account of diversion of funds by the second respondent for her personal needs, as borne out by the statements of accounts issued by the Company’s bankers and the legal notice dated 22.07.2003 sent to the Company and its directors. Furthermore, the second respondent failed to pay (a) salaries to staff: (b) statutory liabilities including PF, Gratuity & ESI, Sales Tax and Income Tax authorities, and (c) electricity bills, resulting in disconnection of power by the Electricity Board. The Employees’ Provident Fund Organisation by an order dated 23.01.2004, determined an amount of Rs. 83.36 lakh as dues from the Company on account of provident fund, pension fund, insurance fund contributions, etc. The circular communications dated 14.07.2003 and 21.07.2003 issued by the second respondent indicate that staff members of the hospital have been advised to wait for the salaries and further operation theatre could not be utilised for want of electricity. The second respondent surrendered the licence of the Company for organ transplant, as per the communication dated 08.08.2003 of the office of Director of Medical and Rural Health Services, Chennai-600 006. Consequently, dialysis department was closed and kidney transplantation came to be stopped at the hospital, at the instance of the second respondent, gravely affecting a large number of patients undergoing kidney transplantation as well as profitability of the hospital. The second respondent is wholly responsible for all the financial irregularities in the affairs of the Company and thus, her conduct is prejudicial to public interest and oppressive of its members, which would justify the making of a winding up order on the ground that it is just and equitable that the Company should be wound up. However, any such order of winding up against the Company will unfairly prejudice the Company and its members, including the petitioners. This Bench may therefore, in exercise of its powers conferred under Section 402 of the Act may provide alternate reliefs, with a view to bring to an end the various acts complained of in the petition.
2.6 The second respondent having ceased to be director of the Company on account of violation of Section 295 of the Act and the consequent vacation of her office as director by virtue of Section 283(1)(h) of the Act. the prayers made for declaration in para VIII (a) & (f) of company petition that – (i) the second respondent ceased to be director of the Company; (ii) the second respondent vacated her office as director by virtue of Section 283(1)(h) of. the Act; and (iii) the second respondent is not a fit and proper person to be in-charge of affairs of the Company do not survive. The High Court in C.S. No. 562 of 2003 prima facie found that the second respondent violated Section 295 of the Act-and consequently restrained her from (a) acting as managing director of the Company; and (b) discharging her duties as managing director against which an appeal has been preferred by the second respondent and the same is pending. Similarly, the claim made in para VIII (e) & (g) of company petition for (i) superseding the board of directors of the Company; (ii) appointing an Administrator or a Committee of Management to look after the day-to-day affairs of the Company will not arise for consideration by the CLB. The Company has already filed a civil suit in C.S. No. 227 of 2003 before the High Court of Madras for recovery of the amounts misappropriated by the second respondent, which is pending and therefore, the prayer (para VIII(c) of company petition) seeking directions against the second respondent to bring back all the amounts diverted by her and further to surcharge her will no longer hold good, in the present proceedings, However, in view of a large scale diversion of limes, it is necessary to appoint an independent auditor to conduct an investigation into the conduct of the second respondent, more particularly with reference to diversion of funds towards discharge of her personal borrowings. The unregistered lease deeds dated 20.1 1.2002 are liable to be cancelled, upon which the respondents 2, 3, & 7 will have to bring back all the rental amounts drawn by them over and above Rs. 40,000/- per month as well as lease deposit of Rs. 100 lakh. The respondents 1 to 3 and 7 must be restrained from disturbing possession of the Company in any manner pursuant to the registered lease deed dated 20.10.1992. The second respondent having ceased to be director, must be directed to surrender ill cheque books, original records and licences granted by various authorities in favour of the Company. The second respondent must bring back an amount of Rs. 285 lakh, being the difference in sale consideration of the property, bearing door No. 149, Luz Church Road, Chennai-600 004. The Company’s shares are listed in the Chennai and Mumbai Stock Exchanges. There are nearly 11,000 shareholders and therefore, the Bench-may pass appropriate order, as sought by the petitioners in terms of para VIII (b), (d), (h), (i) & (j) of company petition safeguarding the interests of the Company and its shareholders, for grant of which the books of account of the Company are in no way required.
3. Sri Uma Shankar, learned Counsel appearing for the respondents 2, 3 & 7 while opposing the company petition submitted:
3.1 The petitioners are colluding with respondents 4 to 6 while seeking reliefs under Section 397/398, as borne out by the fact that Counsel appearing for the petitioners before the CLB is representing respondents 5 & 6 in the High Court proceedings. The petitioners are in management of the Company and therefore, the petitioners being majority shareholders are not entitled to file any petition under Section 397/398. It is only members fulfilling the requirements of Section 399 who have the right to challenge the acts of oppression and mismanagement and the company can never file a petition for relief against oppression and mismanagement in terms of Section 397/398, as held by this Bench in Uhrafilter (India) Private Limited amd Anr. v. Ultrafiler Gmbh (2002) 3 Comp LJ 393. The second respondent was a major shareholder in the Company along with her daughter. The respondents 4 to 6, through the petitioners were preventing second respondent from exercising her right as a shareholder and member of the board. The second respondent is admittedly not in management of the Company as on the date of company petition, namely 06.08.2003. The Company is being run by the second petitioner who is its executive director. The sixth respondent has been on the board since the year 1992-93 and is now chairman of the Company. The first petitioner, being a corporate body, is constituted by the board of directors, consisting of the second petitioner, herein, C.M. Thyagarajan, Dr. Salim, J. Thomas, who are also on the board of the Company.
3.2 The second respondent after becoming the chairperson and managing director of the Company, effected a series of cost cutting measures and adopted income generating steps, thereby wiping out the entire accumulated losses in the year 2001 and declared a dividend of 5% to the shareholders. The second respondent completely devoted to the welfare of the hospital, bringing its occupancy to 100%. The hospital’s liabilities were repaid, giving a quietus to all the cases pending against the hospital. When the Company was posed with the Debt Recovery Tribunal proceedings, the banks and financial institutions did not lend any money to the Company, forcing the second respondent to raise private loans. All the transactions related to monies borrowed for the Company and the second respondent did not avail any personal loans and thus, never violated the provisions of Section 295 of the Act.
3.3 The first petitioner herein through it doctors was resorting to unethical practices, acted contrary to provisions of the statute in connivance with intermediaries in organ transplant operations and brought a bad name to the hospital, thereby causing serious prejudices to the lives of patients undergoing treatment in the dialysis department, as borne out by several adverse reports which appeared against the hospital in local dailies. In these circumstances, the second respondent, with a view to protect image of the hospital, surrendered the licence to run the renal department, in favour of the Director of Medical Services.
3.4 The second respondent did not raise the monthly rent in respect of the property bearing No. 148, Luz Church Road, Chennai-600 004 from Rs.40.000/- to Rs. 4 lakh, after becoming the managing director and owner of the said property. The monthly rent was never Rs. 40.000/- but there were periodical changes in payment of rent, as borne out by the balance sheet of the Company for the years between 1997-98 and 2004-2005. The registered lease deed dated 20.10.1992 was not at all acted upon by the parties to the lease deed and the rents were never paid as per the registered lease deed When the second respondent became the absolute owner of door No. 148. Luz Church Road. Chennai-600 004, pursuant to the settlement deed executed by the fourth respondent, she made a request to the board of directors of the Company for enhancement of rent, in response to which, two valuers were appointed to determine fair rent of the property, who estimated the rents value at more than Rs. 5 lakh per month. Based upon the valuation reports, the board of directors fixed the monthly rental in respect of door No. I 48 Luz Church Road, Chennai-600 004 as Rs. 4 lakh, which is far less than the fair rent determined by the valuers. The enhancement of rent is borne out by the relevant minutes of the board meeting. Accordingly, the respondents 5 & 6. being directors had signed the lease deed dated 20.1 1.2002 enhancing the rent to Rs. 4 lakh per month. The respondents 5 & 6 were fully aware of the contents and recognised the need to enter into a fresh lease deed on account of the changed circumstances. However, the respondents 5 & 6. have disowned the unregistered lease deed, in the course oi” the present proceedings and therefore, they are not trust worthy persons. The plea of the respondents 5 & 6 herein, that they have signed the unregistered lease deed without verifying the contents and there is forgery cannot be entertained. The lease deed dated 20.1 1.2002 has been validly and legally executed. The Company paid the enhanced rent by way of cheques for more than eight months. The entries in the accounts, which reflected the true state of affairs were illegally reversed after 31.07.2003. By virtue of the rule of estoppel, as envisaged in Section 1 15 of the Indian Evidence Act, the respondents 5 & 6 cannot deny the existence of the lease deed, more so, after executing, signing, and acting upon the lease deed dated 20.1 1.2002. The petitioners have produced only copies of two unregistered lease deeds dated 20.1 1.2002 but the original lease deeds have not been made available before the Bench. The first page of both the deeds contains the same number and date, which are not feasible. In fact, there has been only one unregistered lease deed dated 20.1 1.2002, unlike as contended by the petitioners. The lease deed dated 20.1 1.2002 envisages that a sum of Rs. 100 lakh shall be kept with the lessor for the period of lease by the lessee. Nevertheless, no amount was either paid or kept by the lessee with the lessor in terms of the unregistered lease deed, which has been neither substantiated by any documentary proof This respondent is in agreement with the proposition that any lease above eleven months is compulsorily registerable, in absence of which it is inadmissible in evidence. However, the case laws cited in this behalf on behalf of the petitioners are not applicable to the facts of the present case, especially when, the parties have never acted upon the registered lease deed, but on the other hand paid rents for more than eight months, pursuant to the unregistered lease deed dated 20.11.2002. which however, came to be reversed in the books of account of the Company, after removal of the second respondent from the office of managing director of the Company. When the Company failed to pay rent, the second respondent initiated eviction proceedings before the Rent Control Court, wherein it was clearly indicated that the monthly rent for the property in question is Rs. 4 lakh and therefore, the Company cannot take advantage on account of the lease deed being unregistered one. The Company failed to pay Rs. 68 lakh as directed by the Rent Controller, but preferred an appeal before the High Court of Madras and obtained an order of stay. The Company is in arrears of rent to an extent of more than Rs. 1 50 lakh.
3.5 The petitioners claim from second respondent several lakhs of rupees, under the guise of several I.O.Us and self cheques, cash withdrawals etc., being the amounts allegedly misappropriated by her, whereas, the second respondent borrowed all the monies from private financiers by way of cheques only to meet the day-to-day expenses of the hospital. I.O.Us have been used for raising unsecured loans for making payments towards suppliers and vendors of the Company. The amounts raised by way of I.O.Us have been credited to the second respondent’s account. The board of directors at the meeting held on 08.03.2001 resolved to borrow money from any individual, firm, bank etc. The necessity for raising unsecured loans is borne out by the stipulations of the Company’s banker made while sanctioning term loan facilities of Rs. 220 lakh in favour of the Company. The certificate dated 13.03.2002 issued by the Company’s Chartered Accountant to its banker would show that the Company raised further loans of Rs. 18.88 lakh by way of unsecured loans during the period between 01.11.2001 to 1 3.03.2002 and further that the aggregate amount of unsecured loans raised from 01.07.2001 to 13.03.2002 stood that Rs. 83.40 lakh, which is in compliance with the terms and conditions stipulated by the Company’s banker, while sanctioning the term loan. The investigation audit report dated 27.02.2004 of Shri N.R. Suresh, submitted before the High Court of Madras, pursuant to an order dated 17.12.2003 made in OSA No. 342 of 2003 and CMP No. 15297 of 2003. would show that an amount of only Rs. 21.93 lakh is payable by the second respondent to the Company. The report clearly shows that the books of account are with the Company. At the same time the special audit repon of Shri V. Chandrasekharan and Associates. Chartered Accountants shows that the second respondent owed to the Company as on 31.07.2003 an amount of Rs. 1 73 lakh. Thus, the amount reportedly due from the second respondent to the Company, as reported by both the chartered accountants does not tally with each other. The second respondent does not accept and of the reports of the chartered accountants, in view of the fact that no opportunity of hearing has been afforded by any of them, while verifying the books of account. The petitioners without production of books of account and without any proof cannot seek for reimbursement of the amounts allegedly diverted by the second respondent. The private financiers have filed a number of civil suits against the second respondent for recovery of the outstanding dues, of which more than 50 civil suits involving an aggregate sum of Rs. 70 lakh have been settled by the second respondent and necessary steps have also been taken for recovery of the said sum from the Company. When the second respondent was removed from the office of managing director, the Company owed an amount of Rs. 270 lakh to her. as borne out by the statement of accounts produced before the Bench. At no point of time, the second respondent availed any loan from the Company to discharge her personal loans. The Company was forced to resort to borrowings from money lenders in view of refusal by the banks to lend any money to the Company. All the withdrawals by way of I.O.U’s are not loans taken by the second respondent from the Company. These represent the transactions relating to the Company and not personal transactions and never diverted monies from the Company. The borrowings from the private financiers and major expenditure were made with the approval and concurrence of the board of directors of the Company as seen from the investigation audit report of Shri N.R. Suresh. Every action of the second respondent has been duly approved by the then board of directors of the Company. While the respondents 5 & 6 were parties to those resolutions, second respondent was never a party to any of the board resolutions. The borrowings were utilised for the day-to-day expenses of the hospital, which are reflected in the books of account and they are in custody of the petitioners. Without books of account, the allegations regarding I.0.Us, are not sustainable. The petitioners along with respondents 5 & 6 are in management of the Company after removal of the second respondent from the office of managing director in July 2003.
3.6 Now the management is challenging many of the acts approved by the then board of directors of the Company which cannot be entertained, since past acts cannot be the subject matter of Section 397/398 proceeding. The problem started with closure of the renal department by the second respondent on account of the unethical practices adopted by the first petitioner through its doctors. Hence, the second respondent has been thrown out from the office of managing director in connivance with the fourth respondent. The respondents 2 & 3 were prevented from entering the hospital premises and second respondent was not even allowed to participate in the annual general meeting of the Company. The second respondent has been restrained from acting as managing director and entering the premises of the Company by an order of the High Court in a proceeding initiated by the Company. The second respondent removed her belongings from the Company’s premises, as permitted by the High Court in the presence of an advocate commissioner. The police complaint was given against the second respondent, after one year of filing of the company petition. However, no action has been taken against the second respondent by the police authorities. There are no pleadings in the petition that the second respondent removed the books of account. It is clear from the reports of the chartered accountants that they had verified the books of account, maintained by the Company before submitting their reports. Therefore, there is no possibility on the part of the second respondent for removing any books of account or minutes book of the board meeting maintained by the Company. The second respondent neither has nor can have custody of the books of account and statutory records of the Company. The respondents 2, 3 & 7 through their counsel caused a notice dated 10.02.2006 calling upon the petitioners to produce the original minutes of the board meetings, books of accounts, original least and sale deeds, vouchers, etc. for which Counsel for the petitioners in his communication dated 15.02.2006 simply conveyed that his clients are not in possession of the records sought by the petitioners. The sixth respondent in his affidavit of March, 2006 falsely stated that he is advised to report that the original minutes of the board and general meetings have been removed by the second respondent. The statement of the sixth respondent is not reliable, as it was hearsay and not admissible in evidence. The second petitioner, b} way of counter, in a proceeding initiated by the second respondent in C.S. No. 549 of 2006, before the High Court of Madras specifically averred that the books of accounts are available in their office. The petitioners failed to produce the statutory records and no explanation has been offered for non-production of the records maintained by the Company.
3.7 The sale deed executed in favour of the Company in respect of the property (door No. 149. Luz Church Road, Chennai-600 004) for Rs. 430 lakh, not having been properly drafted, does speak of the increase in sale consideration. The value of the property has gone up when sale deed was executed in favour of the Company. The valuation report dated 06.06.2000 on record would show that value of the said property is of Rs. 518 lakh, whereas, the Company had acquired it only for Rs. 430 lakh. The appropriate authority by an order passed under Section 269UL(1) of the Income Tax Act. 1961 has conveyed no objection to transfer the property namely, 149, Luz Church Road, Chennai-600 004 for a consideration of Rs. 430 lakh. Thus, the sale consideration paid by the Company is fair and there is no irregularity in sale of the property. Furthermore, sale of the property has been duly approved by the board of directors of the Company. But the petitioners are refusing to produce minutes of the relevant board meetings. The balance sheet as at 31.03.2001 shows that Shri K. Shanmugam, owner was paid an amount of Rs. 140 lakh. The seventh respondent, being owner of the superstructure, was paid Rs. 277.78 lakh, byway of adjustment towards capital work in progress. The balance sheet as at 31.03.2002 clearly reflects the payment of sale consideration of Rs. 430 lakh in respect of the building bearing No. 149. Luz Church Road. Chennai-600 004. The second respondent cannot, therefore, be charged with misappropriation of funds of the Company. The payment of consideration of Rs. 430 lakh for the property, bearing door No. 149. Luz Church Road. Chennai – 600 004 having been properly established and accounted for in the books of account, as reflected in the balance sheet for the years 2000-2001 and 2001-2002 the petitioners cannot ask for any refund of Rs. 285 lakh from the second respondent. The charges levelled in connection with 149. Luz Church Road, Chennai-600 004, being baseless are based on surmises and not supported by any concrete evidence. The alleged misappropriation of Rs. 285 lakh being the enhanced sale consideration on account of sale of the property (Door No. 149, Luz Church Road, Chennai-600 004) cannot be sustained on the basis an affidavit from Shri K. Shanmugam, and the petitioners cannot plead the case of Shri K. Shanmugam.
3.8 The unregistered lease deed dated 20.11.2002 has been approved by the board of directors and acted upon by them. The lease deposit of Rs. 100 lakh is a mere book entry and never paid by Company and therefore, there is no question of reimbursement of the lease deposit amount of Rs. 100 lakh. Moreover, the prayer for cancellation of the unregistered lease deed dated 20.11.2002 and refund of Rs. 100 lakh being the lease deposit by the respondent 2, 3 & 7, will not arise, in view of pendency of the appeal proceedings before the High Court, which arose on account of the Rent Control proceedings. The claim of the petitioners for an order of injunction restraining the respondents 1 to 3 & 6 from in any manner disturbing possession of the Company, pursuant to the registered lease deed dated 20.10.1992 cannot be considered unless and until the proceedings before the High Court are finally adjudicated.
3.9 The second respondent neither violated the provisions of Section 295 of the, Act and therefore, nor ceased to be a director under Section 283(1)(h). The second respondent has been removed from the office of director even prior to filing of the company petition and therefore, the prayer for declaration that the second respondent ceased to a director by virtue of Section 283(1)(h) on account of violation of Section 295 has become infructuous. Furthermore, this prayer is not sustainable in view of the civil suit filed by the Company in August 2003 (C.S. No. 562 of 2003) before the High Court of Madras for a declaration that the second respondent ceased to be a director consequent upon violation of Section 295 of the Act. The High Court by an interim order dated 29.04.2004 restrained the second respondent from acting as managing director of the Company which is under challenge in appeal proceedings. The subject matter of the civil suit as well as the company petition herein is one and the same. The reliefs claimed before the High Court are sought in the present proceedings. Similarly, the petitioners are relying upon the documents produced before the High Court, to substantiate their claim before the CLB. If the declaratory suit filed before the High Court is dismissed, the second respondent’s removal will become illegal. The High Court will conduct trail in the civil suit filed be the Company in relation to the very same contentious issues raised before the CLB and no books of account have been produced in the present proceedings and therefore, the petitioners cannot agitate the very same grievances in the present proceedings. The civil suit is still pending and no finality has been reached, in which case, the petitioners will have to wait for outcome of the trial in the civil suit pending before the High Court.
3.10 The claim against the second respondent to surrender cheque books, original records and licences granted by various authorities, without proof of custody of any of these documents with the second respondent will not arise. The prayer for declaration that the second respondent is not a fit and proper person to be in-charge of the Company, has become infructuous, in view of removal of the second respondent from the office of managing director. The second respondent is agreeable for appointment of an independent auditor for verification of the books of account as sought by the petitioners provided she is given an opportunity of personal scrutiny of such records and the second respondent will abide by any findings of the auditor. Similarly, the second respondent has no objection for (i) supersession of the board of directors of the Company; (ii) appointment of an administrator or a committee of management to look after the day to day affairs of the Company; and (iii) appointment of an auditor to conduct an investigation in regard to the purported diversion of funds of the Company to discharge the personal borrowings of the second respondent.
3.11 The object of Section 397 is to bring to an end the acts complained of by the aggrieved shareholders. Any application under Section 397(1) will be only when the Company’s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members. Thee must be both specific pleading and proof by the petitioner regarding the requirement prescribed in Section 397(2)(b) of the Act failing which, no petition can be entertained, as held in Asoka Betelnut Co. Private Limited v. M.K. Chandrakanth (1998) 1 Camp L.J. 325 (Mad). This requirement is missing in the present case. The CLB held in A. Venkataramana amd Anr. v. A.K.R. Minerals Private Limited and Ors. (1999) 4 Camp LJ 551 – that if the petitioners are not able to make out a case for relief under Section 397/398, the petition deserves to be dismissed. If the petitioners fail to establisn that there is either oppression or mismanagement in the affairs of a company, there is no scope under Section 397/398 for grant of any of the reliefs claimed by the aggrieved shareholders, as held by the CLB in Pye Lend Lease Private Limited and Anr. v. Jewel Brushes Private Limited and Ors. (1988) 4 Conip LJ 363. If the CLB finds that there is oppression, it is always open to the CLB to mould its relief on just and equitable grounds, as held in Shankar Sundaram v. Amalgamations Limited and Ors. (2002) 4 Comp LJ 367. The second respondent has been removed on 31.07.2003 from the office of managing director, thereafter which the company petition has been filed on 06.08.2003. All the grievances raised before the CLB are past and concluded transactions. The petitioners, who have subsequently become shareholders, cannot question such past acts of the second respondent. Furthermore, the petitioners being directors, are mismanaging the affairs of the Company in a fraudulent manner and therefore, can neither invoke the jurisdiction of Section 397/398, nor claim any relief, as held in Laxmi Narayan Rawat and Ors. v. RT Udyog Private Limited and Ors. (2005) 3 Comp LJ 342. The Madras High Court held in Gordon Woodrojje & Co. Limited U.K. v. Gordon Woodroffe Limited and Ors. (1999) I Comp LJ 243 that if directors fail to disclose the facts with malafide intention, it would tantamount to breach of trust. The petitioners have not produced any material proving the charges of mis-appropriation levelled against the respondents 2, 3 & 7, by any corroborative evidence, in which case, no relief can be granted in a Section 398 petition, as held in B.V. Thirumalai and Ors. v. Best Vestures Trading Private Limited (2004) 4 Comp LJ 519. Any charges of mismanagement and siphoning of funds, in the absence of full particulars, cannot be adjudicated on the basis of suspicion and surmises and no order of an investigation can either be made, as held in Ravi Shankar Taneja v. Motherson Triplex Tools Private Limited and Ors. (2004) 4 Comp LJ 102. No order for investigation is to be made on the basis of vague allegations since a prima facie conclusion has to be reached based on certain materials before ordering any investigation. In the absence of full particulars, the court will decline to embark upon investigation into charges of fraud and misconduct. The petitioners have neither brought out any facts which would justify the making of a winding up order, on the ground that it was just and equitable that the Company should be wound up nor made out that such a winding up order would unfairly prejudice the petitioners non-existence of which is fatal to the petition, as held in Suhhash Chand Aggarwal and Anr. v. Associated Limestone Limited and Ors. (1998) 2 Comp LJ 329.
312. The second respondent paid an amount of Rs. 33 lakh to R.R. Associates in June, 2002 for availing a loan of Rs. 18 crore from 1WF & RC for the purpose of settling the amount due to the Dhanalakshmi Bank Limited and for improving the hospital. The Company’s bankers, namely, Dhanalakshmi Bank Limited and Punjab National Bank conveyed their no objection in July 2002, in favour of IWF&RC for sanctioning credit facilities to the Company. When the credit facilities were to be extended by IWF&RC to the Company, all problems cropped up, which resulted in removal of the second respondent. Though, credit facilities were sanctioned by IWF&RC, no amount was released to the Company for no fault of the second respondent and therefore, she cannot be held responsible for having given an amount of Rs. 33 lakh to IWF&RC.
4. The respondents 1, 5 & 6 have filed detailed counter affidavits broadly in consonance with the allegations set out in the company petition, but neither advanced any arguments nor made out any of the charges levelled by them against the respondents 2, 3 & 7.
5. Shri S. Soundararajan, learned Counsel, appearing for the fourth respondent submitted:
5.1 The petitioners have not chosen either to make any allegations or claim any relief against the fourth respondent. The Company is brain child of respondents 2 & 4. The second respondent has taken all the initiatives for successful running of the hospital, which ultimately resulted in wiping out the losses suffered by the Company and declaration of dividend. All the deposits have been repaid. The board of directors in appreciation of [he services rendered by the second respondent enhanced her remuneration as borne out by the annual report for the year ended 31.03.2002. But the second respondent is now accused of serious financial irregularities in the affairs of the Company. The fourth respondent must, therefore, necessarily support the second respondent. The second respondent questioned the unethical practices adopted by the second petitioner in conducting the renal care treatment and transplant surgeries, which ultimately Jed to surrendering of the licence by the second respondent to the Government, for which the second respondent cannot be found fault by the petitioners.
5.2 The unregistered lease deeds executed in the year 2002 in respect of door No. 148, Luz Church Road, Chennai-600 004 do not modify the registered lease deed executed in the year 1992. There is no bar in executing a fresh lease deed, which amounts to implied surrender. The surrender may be express or implied. The unregistered document is not admissible in the evidence, which is the only legal bar in the case of unregistered lease deeds. Both parties to the unregistered lease deeds having acted upon the deeds are estopped from questioning the terms of lease, as evidenced by the unregistered lease deeds. By virtue of Section 111(f) of the Transfer of Property Act, 1882 a lease of immovable property determines, by implied surrender. The explanation to Clause (f) of Section 111 reads thus: “A lessee accepts from his lessor a new lease of the property leased to take effect during the continuance of the existing lease. This is an implied surrender of the former lease, and such lease determines thereupon.” The Supreme Court in Shah Mathuradas Maganlal & Co. v. Nagappa Shankarappa Malage and Ors. held that if the lessee accepts a new lease that itself is a surrender under Section 111(f) of the Transfer of Property Act. 1882, which can also be implied from consent of the parties or from such facts as the relinquishment of possession by the lessee and taking over possession by the lessor. Relinquishment of possession operates as an implied surrender. The Calcutta High Court held in Muhammad Ibrahim v. Bani Madhah Mullick and Ors. held that if a lessee accepts a new contract of tenancy, it operates as a surrender of the old tenancy, for a new lease cannot be granted unless the old is surrendered. Such a surrender takes place by operation of law and the intention of the parties is immaterial. The Kerala High Court held in Godasankara Valia Raja v. Tharappan Vareed that (i) the principle of implied surrender is founded on English law. upon the rule of estoppel, which precludes a lessee from disputing the validity of the second lease which he has accepted and which cannot co-exist with the first lease; and (ii) one of the modes in which a lease may be determined, is by surrender, which may be either express or implied.
5.3 The company petition has been filed within 5 days of removal of the second respondent from the office of managing director. The petitioners have deliberately not chosen to produce any primary records establishing the charges levelled against the respondents 2, 3 & 7. By virtue of Section 1 14 of the Evidence Act, if a person does not produce account books which are in his possession an adverse inference can be drawn against them for non-production thereof, which has been re-enforced in (i) Govind Laxman Solapurkar v. Dattatraya Damodar Kelkar ; (ii) Khushalbhai Mahijibhai Patel v. A firm of Mohamadhussain Rahimbux ; (iii) Muthammal (died) and Anr. v. 1. The State of Tamil Nadu, rep. by the Collector of Salem District, Salem; 2. The Revenue Divisional Officer, Namakkal, Salem District 2006-3 L.W.361.
5.4 The respondents 5 & 6, being directors of the Company are party to all the decisions taken by the board of the Company. They have fiduciary duty towards the Company to safeguard its interest. The respondents 5 & 6 are colluding with the petitioners, as borne out by the counter statements filed by them, which however, do not speak of the purported siphoning of sale consideration by the second respondent, on account of sale of the property, bearing door No. 149, Luz Church Road, Chennai – 600 004. The charges levelled against the second respondent are in respect of the past and concluded transactions, which took, place prior to the petitioners becoming shareholders of the Company and are made with the malafide intention to wrest control of the management of the Company. None of such acts is continuing on and after the date of company petition and therefore, the petitioners cannot raise any grievances on account of the past and concluded transactions.
5.5 All withdrawals by the second respondent have been made for administrative reasons and not for her personal benefits. The second respondent never availed loans in violation of Section 295 and therefore, she did not cease to be director. The internal auditor as well as the court appointed auditor never offered any opportunity of hearing to this respondent or second respondent, while verifying the books of account of the Company and finalising the reports on the purported diversion of funds by the second respondent. Hence, none of the reports is binding either the second respondent or fourth respondent. The Company has filed a civil suit before the Madras High Court against the second respondent for the same reliefs claimed in the present proceedings and therefore, this Bench has to await the judgment and decree of the High Court. There cannot be parallel proceedings in respect of the same facts and issues. Moreover, the disputed issues cannot be dealt with, on the strength of affidavits and a detailed oral enquiry and trial are necessary to adjudicate issues.
5.6 The plea of respondents 5 & 6, being directors from the inception raised in regard to the unregistered lease deeds that they did not verify the contents of the deed, but signed on account of their confidence reposed on the second respondent would show that the respondents 5 & 6 are in hand and glove with the petitioners. The rent for the property, bearing door No. 148 Luz Church Road, Chennai-600 004 was originally fixed in the year 1992. The rent was enhanced from Rs. 40,000/- to Rs. 4 lakh, after considering all the
aspects and is reasonable. The entire accounts of the Company reflecting the periodical enhancement of rent were unanimously adopfed by the members.
5.7 The property prices, after the sale agreement dated 27.08.1992 skyrocketed, and therefore, the prices had to be revised in respect of the property bearing door No. 149, Luz Church Road. Chennai-600 004 and this cannot be construed as an act of oppression and mismanagement. It is left to the parties to negotiate and settle the sale price and cannot be questioned in the present proceedings. The purchase transaction was approved by the board of directors and the directors are estopped from challenging the sale transaction. The affidavit of Shri K. Shanmugam, being a third party cannot be accepted. The Supreme Court held in Smt. Sudha Devi v. M.P. Narayanan and Ors. – that affidavits are not included in the definition of “evidence” in Section 3 of the Evidence Act and can be used as evidence only if for sufficient cause, the Court passes an order under Order 19 Rule 1 or 2 of the Civil Procedure Code. The sale price mutually reached between the parties in respect of the property bearing door No. 149, Luz Church Road. Chennai – 600 004 has been approved by the income tax department under Section 269UD of the Income Tax Act. Thus, the sale consideration of Rs. 430 lakh for the property represents the true and fair value and there tore, no allegation can be made against the second respondent. The refund of Rs. 285 lakh being the difference between the sale consideration of Rs. 430 lakh and Rs. 145 lakh claimed against the second respondent must be levelled against the respondents 5 and 6 also, but the petitioners deliberately failed to make any claim against the latter with malafide intention.
6. I have considered the pleadings and arguments of learned Counsel. The issue before me is whether the petitioners are entitled for the reliefs as claimed, by virtue of the provisions of Sections 397 and 398 read with Section 402 of the Act. According to the petitioners, the second respondent has indulged in various financial irregularities, while managing the affairs of the Company, as elaborated elsewhere, leading to huge losses, suffered by the Company. It is observed that the board of directors considered at the meeting held on 31.07.2003, details of series of financial irregularities in the affairs of the Company at the instance of the second respondent and on detailed discussions. unanimously recorded that – (a) all withdrawals by the second respondent are contrary to Section 295 of the Act; and (b) she has consequently vacated her office as a director by virtue of Section 283(1)(h). Thereafter, the Company, through one of its directors, namely, the sixth respondent herein, who is supporting the cause of the petitioners in the present company petition, has filed a civil suit in C.S. No. 562 of 2003 before the High Court of Judicature at Madras in August, 2003, praying for a judgment and decree – (i) to declare that the defendant (second respondent herein) had ceased to be a director of the Company, since she has violated Section 295 of the Companies Act: and (ii) to restrain her from acting as a managing director/director and making any representation that she is a director of the Company. The High Court by an order dated 29.05.2004 made in O.A. No. 675/2003 and A. No. 985/2004 in C.S. No. 562 of 2003 prima facie found that the second respondent violated Section 295 of the Act and further restrained her from acting as the managing director/director of the Company, against which the second respondent preferred an appeal. Both the civil suit and the appeal are pending. All the issues raised in C.S. No. 562 of 2003 are being agitated before the CLB. In view of these subsequent developments, the prayer made in the company petition for declaration – (i) that the second respondent ceased to be a director of the Company on account of her violation of Section 295 of the Act and consequently, vacated her office as a director by virtue of Section 283(1)(h) of the Act; and (ii) that the second respondent is not a fit and proper person to be in-charge of the affairs of the Company, as claimed in para VIII(a) and (f) of the company petition has not been pursued by the petitioners. The second respondent having ceased to be a director is not in the management of the Company as on the date of the company petition. The Company is admittedly managed by the second petitioner, being its executive director and sixth respondent is now the Chairman of the Company. In this background, the claim of the petitioners for (i) superseding the board of directors of the Company; and (ii) appointing an Administrator or a Committee of Management to take charge of the affairs of the Company, made in para VIII (e) and (g) of the company petition, does not any more survive. The Company has already initiated proceedings against the second respondent in C.S. No. 227 of 2003 before the High Court of judicature at Madras for recovery of the amounts allegedly diverted by her and therefore, the petitioners have not pressed the relief claimed in VIII (c) for return of the amounts diverted by the second respondent.
7. The terms and conditions of the registered lease deed 20.10.1992 as contended by the petitioners, have been varied by means of the unregistered lease deeds dated 20.11.2002, at the instance of the second respondent, thereby increasing the monthly rent from Rs. 40,000/- to Rs. 4,00,000/- and further releasing lease advance of Rs. 100 lakh, without any authority of the board of directors and therefore, directions are sought against the respondents 2, 3 & 7 to bring back all the amounts which they have withdrawn as lease rent over and above Rs. 40,000/- per month as well as lease deposit of Rs. 100 lakh. However, according to the second respondent, the Company neither acted upon the registered lease deed nor paid any lease advance, but the increased rent was paid from time to time with approval of the board of directors, which ultimately culminated into the unregistered lease deeds dated 20.1 1.2002. The registered lease deed dated 20.10.1992, which came into effect from 07.08.1992. is admittedly for a period of 30 years and contemplates yearly rent of Rs. 4,80,000/-. The balance sheets of the Company produced for various years disclose, among other things, the expenses incurred towards “lease rent”, as under:
____________________________________________________________________________________
Sl. Balance Sheet for the Lease Rent Remarks
No. year ended per annum
____________________________________________________________________________________
1. 31.03.1993 8,40,000 Balance Sheet signed by
respondents 2, 3 & Dr. A.
Venugopal and Company
Secretary
____________________________________________________________________________________
2. 31.03.1994 10.85,280 Not produced
____________________________________________________________________________________
3. 31.03.1995 8,40,000 Balance Sheet signed by
respondents 2, 3, Dr. A
Venugopal and Company
Secretary.
____________________________________________________________________________________
4. 31.03.1996 10,20,000 Balance Sheed signed by
respondents 2 & d and
Geetha Rajkumar Menon
____________________________________________________________________________________
5. 31.03.1997 9,40,000 Balance Sheet signed by
respondents 2 & 5 and
Geetha Rajkumar Menon
____________________________________________________________________________________
6. 31.03.1998 8,40,000 Balance Sheet signed by
respondents 2 to 5 and
Dr. A. Venugopal
____________________________________________________________________________________
7. 03.03.1991 8,40,000 Balance Sheet signed by
respondents 2.5 and
Dr. A. Venugopal
____________________________________________________________________________________
8. 31.03.2000 18,00,000 Balance Sheet signed by
respondents 2, 5 and
Dr. A Venugopal
____________________________________________________________________________________
9. 31.03.2001 18,00,000 Balance Sheet signed by
respondents 2, 5 and
Dr. A Venugopal
____________________________________________________________________________________
10. 31.03.2002 18,00,000 Balance Sheet signed by
respondents 2, 3 and 5
____________________________________________________________________________________
11. 31.03.2003 4,80,000 Balance Sheet signed by
respondents 5 & 6
____________________________________________________________________________________
8. It is clear from the figures reflected in the balance sheet for the relevant period stated here above that the Company never paid the lease rent for the building, namely, 148, Luz Church Road, Chennai-600 004, at the rate of Rs,40,000/- per month, as stipulated in the registered lease deed dated 20.10.1992, whereas, the Company was paying the lease rent at the rate ranging from Rs. 70,000/- to Rs. 1,50,000/- per month during the period between 1992-93 and 2001 -02. It may be observed that apart from the respondents 2 and 3, the fifth respondent and other directors, namely, Dr. A. Venugopal or Geetha Rajkumar Menon, had signed the balance sheet during the period between 1992-93 and 2001-02. The balance sheet for the year ended 31.03.2003, having been signed or 21.03.2004, subsequent to filing of the present company petition does not assume any relevance. The Company or its directors failed to explain as to why the Company was paying higher rent for the building, instead at the agreed rate, for a decade, without any demur, in terms of the registered lease deed dated 20.10.1992 and therefore, it is clear that the Company and its directors did No. act upon the registered lease deed dated 20.10.1992. It may be observed that at the relevant point of time no rent was paid at the enhanced rate by the Company, namely, Rs. 4,00,000/- per month in pursuance of the unregistered lease deed, especially when the same reportedly came into existence as late as on 20.11.2002. The petitioners cannot, therefore, complain of any oppressive act at the instance of the second respondent on account of payment of higher rent during the period between 1992-93 and 2001-02. The petitioners have produced photostat copies of two unregistered lease deeds both dated 20.11.2002 in respect of the property for a period of five years with effect from 01.12.2002 with monthly rent of Rs. 4,00,000/- and lease deposit of Rs. 100 lakh, as stipulated therein. These unregistered lease deeds are found to be executed and signed on behalf of the Company-lessee, by the respondents 5 and 6, according to whom, only one lease deed was’ signed, however, without verifying the true contents therein. The respondents 5 and 6 being doctors with high degree of literacy, such a plea shall not be at their instance. The unregistered lease deeds with all the discrepancies, as rightly pointed out by Shri Uma Shankar, learned Counsel, are not forthcoming inspite of the notice dated 10.02.2006, given on behalf of the respondents 2, 3, and 7. While the enhanced rent at the rate of Rs. 4,00,000/- per month was reportedly paid by the Company, in terms of the unregistered lease deed dated 20.11.2002, the amount of rent paid over and above Rs. 40,000/- per month came to be reversed in the books of account of the Company, immediately after removal of the second respondent from the office of managing director, as borne out by the ledger extracts (lease rent payable – the respondents 3 & 7) maintained by the Company. The balance sheet for the period ended 31.03.2002 discloses the rent for the property only at the rate of Rs.40.000/- per month. In view of the foregoing, namely, payment of periodical rents at the rate of over and above Rs. 40,000/- per month during the period between 1992-93 and 2001-02. with knowledge of the board of directors, as borne out by the balance sheets of the Company for the relevant period and recovery of the amount of rent paid by the Company over and above Rs. 40,000/- in pursuance of the unregistered lease deed dated 20.11.2002, (i) the question of directing the respondents 2, 3 & 7 to bring back all the monies reportedly withdrawn as lease rent over and above Rs. 40,000/- as claimed by the petitioners does not arise and (ii) it. will be a futile exercise to go into either the legal disabilities attached to the unregistered lease deeds dated 20.1 1.2002 or several of the case laws cited in respect of the consequences of non-registration of lease of immovable property for any term exceeding one year under the Transfer of Property Act, Registration Act. Evidence Act, etc, or implied surrender of any lease. However, the dispute regarding quantum of rent in respect of the property forming part of the Rent Control Proceedings are presently pending in C.R.P. No. 1627 of 2005 before the High Court of Judicature at Madras and therefore, the same is not being adjudicated in the present proceedings.
The petitioners are at liberty to enforce the lease hold rights on behalf of the Company as envisaged in the registered lease deed dated 20.10.1992 in the pending Rent Control Proceedings and therefore, the prayer made in (para VIII(h)) for an order of injunction restraining the respondents 2, 3 and 6 from disturbing the possession of the Company in pursuance of the registered lease deed dated 20.10.1992 is not considered in the present proceedings. The respondents, though, deny receipt of any lease deposit from the Company, the balance sheets for the year ended from 31.03.1996 to 31.03.2001 and para 2 of the notes on accounts forming part of the balance for the year ended 3 1.03,2001 disprove such a denial by the respondents, it may be observed that these balance sheets save the balance sheet as at 31.03.1996 are found to be signed by the second respondent. Furthermore, the lease deposit amount came to be adjusted towards sale consideration of the property, namely door No. 149, Luz Church Road, Chennai-600 004, as reflected in the balance sheet for the year ended 3 1.03.2002. The respondents cannot disown the balance sheet figures, as mere book entries. In view of this, the petitioners cannot make any demand for repayment of the lease deposit of Rs. 100 lakh from the respondents 2, 3 & 7.
9. By virtue of an agreement dated 27.8.1992 the seventh respondent and K. Shanmugham being owners had agreed to sell the property, namely, bearing door No. 149, Luz Church Road, Chennai-600 004 in favour of the Company for an amount of Rs. 145 lakh and the entire sale consideration was admittedly paid as stipulated therein. Nevertheless, no sale deed was registered in favour of the Company by the second respondent as a power agent of K. Shanmugham. At the same time, the second respondent had executed a fresh agreement of sale on behalf of her principal, namely, K. Shanmugham in favour of the Company in respect of the same property for Rs. 430 lakh, upon which a sale deed came to be registered on 13.03.2002 in favour of the Company. There has been no proper explanation for having registered the property for an amount of Rs. 430 lakh, despite the fact that the owners had agreed by an agreement of sale dated 27.08.1992 to sell the property in favour of the Company and further that the entire consideration of Rs. 145 lakh stood paid well within the agreed time. Against this background, the claim of the petitioners that the second respondent is accountable for Rs. 285 lakh, being the difference between Rs. 430 lakh and Rs. 145 lakh towards sale consideration of the property is being examined. The balance sheets for the year ended 31.03.2001 discloses the payment of sale consideration for the property by the Company under capital work in progress amounting to Rs. 277.98 lakh. Schedule-16 containing notes on accounts, which form part of the balance sheet for the year ended 31.03.2001 specifically reports that “Capital Work in Progress represents amount paid towards purchase of property at Door No. 149, Luz Church Road, Chennai-600 004”. The balance sheet for the year ended 31.03.2001 has been signed by. among others, the fifth respondent and Dr. A. Venugopal. As per the balance sheet as at 31.03.2002, the lease deposit amount of Rs. 140 lakh and capital work in progress of Rs. 277.98 lakh are found to be appropriated towards the sale consideration of the property. Furthermore, the schedule of fixed assets forming part of the balance sheet for the year ended 31.03.2002 discloses the acquisition of the land and building by the Company. The cash flow statement for the year ended 31.03.2002 reveals cash out flow of an amount of Rs. 44l lakh on account of purchase of the fixed assets. The directors report dated 14.1 1.2002 forming part of the annual report for the year ended 31.03.2002 records the acquisition of the property by the Company. The balance sheet for the year ended 31.03.2002 has been signed by the fifth respondent, apart from the respondents 2 and 3. The purchase of the property on 13.03.2002 for an amount of Rs. 430 lakh having been acknowledged by the other directors, it is not open to the petitioners to challenge the sale transaction belatedly. Though K. Shanmugham has affirmed an affidavit dated 17.06.2004 that he has not received any amount apart from Rs. 62 lakh from the second respondent, he is free to agitate his claim in a competent court of law. The valuation report dated 06.06.2000 and permission of appropriate authority under Section 269 UL(1) of the Income Tax Act conveying no objection to transfer the property for a consideration of Rs. 430 lakh would show that the sale consideration paid by the Company was fair and therefore, the charges of oppression made on account of sale of the property do not merit any consideration.
10. The petitioners are making claim against the second respondent for huge sums of money by way of I.O.Us, self cheques, cash withdrawals, payment of interest to banks, Marwaris and Muthanis, etc. without any authority of the board of directors of the Company. The second respondent owed to the Company as on 31.07.2003 an amount of Rs. 1.73 crore in terms of the special audit report of Shri B. Chandrasekharan & Associates. Chartered Accountants, Chennai, whereas, the investigation audit report of Shri N.R. Suresh, appointed pursuant to the order dated 17.12.2003 of the High Court of Madras made in O.S.A. No. 342 of 2003 and CMP No. 15297 of 2003 indicates that the second respondent indebted to the Company to the extent of only Rs. 21.93 lakh. Thus, there is a vast difference in the quantum of amount which is said to be payable by the second respondent in favour of the Company. However, it is on record that the. Company has already initiated proceedings against the second respondent for recovery of the outstanding amount due from the second respondent. It is observed from the investigation audit report of Shri N.R. Suresh that specific resolutions have been passed by the board of directors of the Company to borrow money from the lendors specified therein. It is also observed from the report of Shri N.R. Suresh that the board of directors have passed resolutions from time to time authorising the second respondent to borrow monies from among others, financiers, which include IWF&RC. without, however, specifying the amount, rate of interest and repayment terms. The reports of Chartered Accountants clearly indicate that the books of account of the Company for the period between 01.04.2001 and 31.07.2003 were verified by them before finalising the reports. The second respondent has produced a copy of minutes of the extra ordinary genera meeting of the members of the Company held on 08.03.2001 which contains, inter alia, a resolution altering the objects clause of memorandum of association, thereby empowering the Company to borrow money from any individual, firm, bank etc. with or without any security for any of its purposes. The Company raised unsecured loans to a tune of Rs. 83.40 lakh during the period between 01.07.2001 and 13.03.2002. as evidenced from the certificate issued in favour of the Company’s banker by Shri R. Sridhar, Chartered Accountant. It is on record that both the Dhanalakshmi Bank Ltd. and Punjab National Bank issued no objection favouring IWF&RC for extending credit facilities in favour of the Company subject to the condition that all the dues due to the banks, namely, the Dhanalakshmi Bank Ltd. and Punjab National Bank are cleared, on availing the facilities from the banks. IWF&RC by its communication dated 10.07.2002 sanctioned the credit facilities, as sought by the Company. The payment of Rs. 33 lakh in the form of DD to R.R. Associates in June 2002 towards registration fee for availing an amount of Rs. 15 crore by way of a loan from IWF&RC has been questioned only in the present proceedings even though initiatives are found to have been taken for availing the loan from IWF&RC as early as in July, 2002 with concurrence of the bankers. The petitioners have not choosen to cause production of any primary records including the original minutes of the board meeting and books of account to substantiate the serious charges of unauthorised raising of loans and misappropriation of funds by the second respondent, despite the fact that Sri V. Chandrasekharan & Associates, and Shri N.R. Suresh, Chartered Acountant, verified the relevant records while determining the outstanding amount due from the second respondent. The second respondent was prohibited from functioning as managing director, by virtue of an order of the High Court in the suit (C.S. No. 562 of 2003) filed by the Company. The second respondent was admittedly allowed to take away her personal belongings from the Company’s premises in the presence of an advocate commissioner appointed by the High Court. Furthermore, the second petitioner categorically pleaded in C.S. No. 549 of 2006 on the file of the High Court of Madras initiated by the second respondent that the books of accounts are available in their office.
11. In these circumstances, the Bench is bound to draw adverse inference against the petitioners and respondents 5 to 6 for non-production of books of account and the minutes of various board meetings, substantiating their charges as held in (i) Govind Laxman Solapurkar v. Dattatraya Damodar Kelkar (ii) Khushalbhai Mahijibhai Patel v. A firm of Mohamudhussain Rahimbux (iii) Muthammal (died) and Anr. v. 1. The State of Tamil Nadu, rep. by the Collector of Salem District, Salem; 2. The Revenue Divisional Officer, Namakkal, Salem District (supra). There is no material to show that the second respondent retained custody of the cheque books, various licences or any other original record belonging to the Company at the time when the board of directors at the meeting held on 31.07.2003 recorded that: (a) all withdrawals by the respondent are contrary to Section 295 of the Act; and (b) she vacated her office as a director by virtue of Section 283(1)(h). Furthermore, the second respondent having ceased to be a director as early as in July, 2003, the question of making use of the Company’s cheques at this stage does not arise, in which case no purpose would be served in directing the second respondent to surrender the cheque books and other records as sought by the petitioners. The charges in relation to non-payment of salaries, electricity dues and statutory liabilities as well as unauthorised payment of stamp duty while acquiring the property for the Company., being past and concluded acts are not amenable to the jurisdiction of Section 397/398 of the Act.
12. The suit filed by the Company in C.S. No. 562 of 2003 for declaration that the second respondent herein ceased to be a director of the Company on account of violation of the provisions of Section 295 of the Act, which covers the issues relating to various amounts diverted by her and the suit filed by the Company against the second respondent for recovery of the outstanding amounts due from her are pending. The special audit report of B. Chandrasekharan &. Associates, Chartered Accountants, and the investigation audit report of Shri N.R. Suresh are already forming part of the records in C.S. No. 562 of 2003. The alleged unauthorised withdrawals of money and diversion of funds by tin-second respondent will be gone into in these proceedings. At the same tune, the petitioners have not produced any corroborative evidence in the present proceedings before the CLB to substantiate the charges of diversion of funds by the second respondent, in which case no relief can be granted as held in B.V. Thirumulai and Ors. v. Best Vestures Trading Private Limited (Supra). In this context, the appreciation of the board of directors of the Company on account of the services rendered by the second respondent, as reflected in the directors’ report forming part of the annual report for the year ended 31.03.2002 assumes relevance, which reads thus:… “During the year under review, the Company has achieved the total collection of Rs. 907.14 lakhs, registering an increase of 17% compared to the previous year. Further, the Company, as promised earlier, has purchased in is name the, immovable property hearing Door No. 149. Luz Church Road, Chennat-600 004, thereby fulfilling its long term wish. Also the Company under the stewardship of the Chairperson and Managing Director. Mrs. Chitra Chokalingam has declared and paid for the first time in the Company’s history, a modest dividend of 5% on its paid up capital for the year 2001-02 after fully wiping out all its accumulated losses.” …Any charges of mismanagement and siphoning of funds cannot be adjudicated in the absence of full facts and no order of any investigation can be made as held in Ravi Shankar Taneja v. Motherson Triplex Tools Private Limited and Ors. (Surra). There is no proper material to enable this Bench to form an opinion that an investigation into conduct of the second respondent required to be made and furthermore, the prayer [VIII(b)] for appointment of an auditor to conduct an investigation into the conduct of the second respondent may result in a conflict of decision.
13. In view of the foregoing conclusions, I am of opinion that the petitioners are unable to make out a case under Section 397/398 and therefore they are not entitled for any relief as held in A. Venkataramana and Anr. v. A.K.R. Minerals Private Limited and Ors. (Supra). The petitioners having failed to meet the requirements prescribed in Section 397(2)(b) the petition cannot be entertained as enunciated in Asoka Betelnut Co. Private Limited v. M.K. Chandrakanth (Supra). Ordered accordingly. No order as to costs.