ORDER
Vimla Yadav, Member
1. In this order I am considering Company Petition No. 116 of 2005 filed by Shri Kamal Kumar Aggarwal against Shri Ravinder Kumar Aggarwal and the respondent company namely, M/s Prayag Polytech Pvt. Ltd. under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as ‘the Act’) alleging certain act of oppression and mismanagement.
2. The respondent company was incorporated on 16.8.1982 in the name of RBM International Pvt. Ltd. having its Regd. Office at C-587, Phase 1, Industrial Area, Biwadi, Rajasthan. On 27.6.1994 the name of the company was changed to Prayag Polytech Ltd. The authorised share capital of the company is Rs. 3 Crores divided into 30,00,000 equity shares of Rs. 10 each. The main objects of the company are to manufacture, produce, process, assemble, use, buy, sell, import, export and otherwise deal in water meter, CP Bath room fittings and paper conversants etc.
3. Shri Satinder Kapur, Counsel for the petitioner pointed out that the shares of Pawan Kumar Aggaral have been transferred to some other shareholders in an unaccountable and arbitrary manner to Sh. R.K. Aggarwal (HUF), Ms. Manju Aggarwal and Ms. Urmila Aggarwal without the consent of the petitioner. In the Annual Return filed with the ROC on 30.10.2005, such transfer has been shown wherein the signature of the petitioner has been forged without the knowledge of the petitioner. It was further pointed out that there are a total of 31 shareholders in the company and the total value of shares held by them amounts to Rs. 29023500. Out of the total shares value, Rs. 4394500 worth of shares are held by the petitioner. The remaining Rs. 24629000 worth of shares were held by the rest of the shareholders who have all ganged up against the petitioner and are forcing him out of the management of the company.
4. Further, the counsel drew my attention to various instances of gross mismanagement by R-1. Behind the back of the petitioner, R-1 has held various alleged meetings of Board of Directors in which crucial decisions regarding the company were taken. No prior notice was issued to the petitioner regarding any of the alleged Board meetings. Various arbitrary decisions were taken at such Board meeting without consent of the petitioner. The R-1, with malafide intent, forged the signature of the petitioner onto various documents which, it was argued, clearly constitutes fraud upon the petitioner. To fulfill his vested interest, R-1 wrongfully appointed his son Shri. Milan Aggarwal as the Director of the company by a resolution passed in an illegally convened board meeting held on 18.8.2005. The board resolution by virtue of which Shri Milan Aggarwal was appointed as Director was also signed by Shri Milan Aggarwal. It was pointed out that the minutes of such a Board Meeting have not been recorded in the company’s minutes book, nor has there been any presence of the petitioner recorded for attending any meeting for the said purpose or for passing of a Board resolution. Upon receiving the legal notice by the petitioner, the R-1 with the malacious intent filed form 32 on 14.11.2005 with the ROC in which it was shown that Mr. Milan Aggarwal ceased to be the director of the company wef 31.8.05. Further, it was pointed out that in continuation of the nefarious designs of R-1 and pursuant to the removal of Mr. Milan Aggarwal as the director, two more new directors, namely Shri Virender Kumar Aggarwal and Mr. Lalit Kumar Aggarwal were fraudulently and wrongfully appointed in the company on 24.11.05. It was further argued that the Form 32 filed on 28.11.05 with the ROC further revealed that the two new alleged “directors” were appointed by virtue of an EOGM held on 24.11.2005. It is pertinent to mention that the petitioner has no knowledge of such an EGM dated 24.11.2005 being held and neither was any notice issued to the petitioner in this regard nor is he a signatory of the EGM which is being said to have been held. In these circumstances, it was pointed out that no rule, procedure or law as envisaged in Clause IX of the AOA has been followed by R-1. That R-1 is also involved in mismanaging and misappropriating the funds of the company with his malafide intent and motive, which is completely against the interest of the company. The petitioner explained has reasonable and strong apprehensions of misappropriation of the bank account of the company by R-1. The petitioner personally met the representative of the Bank and apprised him with all the relevant facts and factual position and made a request for the ceasing of the bank accounts in the name of the company. However, it was argued by the counsel, it appears that R-1 made several misrepresentations to the bank and the petitioner’s request was turned down by the bank. It was argued that the R-1 have illegal intent and motive which is evident by the mismanagement of the affairs of the company. It was argued that the authority for operation of the bank accounts in various banks had been modified by the R-1 and that the petitioner was no longer authorized to deal with the banks in the capacity of authorised signatory of the bank accounts. This action was taken in a completely arbitrary and unethical manner with no regard to clauses VI and VII of the AOA of the company. It was pointed out that there is no board resolution in any BOD meeting passed regarding this very important aspet This is, it was argued, a very serious nature of fraud being played upon the company by R-1 for fulfilling his malafide intentions, leaving the interest of the company in jeopardy.
5. The Counsel for the petitioner argued that there has been complete violation of statutory provisions and those of Articles of Association, Memorandum of Association, there has been erosion of company’s substratum, there has been abuse of fiduciary duties, preventing directors from functioning which has caused great prejudice to the company. It was argued that complete mismanagement and oppression in the company has been causing harm to the interest of the company.
6. Shri V.P. Goyal, Counsel for the respondents argued that the petition is not maintainable as it does not fulfil the requirements of legal provisions of Sections 397 and 398 of the Companies Act, 1956 because the petitioner has failed to show as a preliminary to the application of the Section 397 that there is just and equitable ground for winding up of the company. Further, the petitioner has failed to prove that there is oppression and mismanagement as held by the courts that the proceedings are not for feeding the private grudges of varying groups of Directors or individual shareholder as is evident from petitioner’s letter addressed to the banks of the company stating “due to some dispute is there between me and another director (Mr. Ravinder Kumar Aggarwal)”. Further, it was argued that a few irrelevant instances mentioned in the petition do not form the basis of ‘mismanagement’ or ‘oppression’ and, therefore, the present petition does not prove ‘mismanagement/oppression” Under Section 397/398 of the Companies Act, 1956. The petitioner has, it was argued, further failed to prove that he is in minority who holds 11.2% in total equity as against 5.96% held by R-1 due to some unspecified disput with the R-1.Reliance was placed on the decision in the case of Hanuman Prasad Bagari and Ors. Petitioners v. Bagress Cereals Pvt. Ltd. and Ors. Respondents the Hon’ble Supreme Court upheld the Calcutta High Court (DB) judgment allowing appeal by the order made on 25.8.2000 holding that one of the conditions precedent for granting relief Under Section 397 of the Act is that the petitioners should prove that winding up of the company could unfairly prejudiced the petitioners who are claiming of oppression that otherwise the facts will justify of winding up on ust and equitable grounds; Kilpest Pvt. Ltd. v. Shekhar Mehra 1996 (Supp. 7) SCR 239, wherein it was held that “Although the Courts…, one primary consideration in view that the ‘general interests of the shareholders should not be readily scarified at the altar of squabbles of directors for power to manage the company; Ram Vasant Kotak V/s Intermodel Transport and Trading System P.Ltd. (2005) 59 SCL 181(CLB) wherein the CLB held that ‘…The question of tampering the documents fraudulently or otherwise had to be decided by the Criminal Court; Rao (VM) Rajeshwari Ramakrishnan (1987) 61 Comp. Cases 20, (MAD-DB).
7. Further, the counsel for the respondents argued that the oppression complained of must affect a person in his capacity or character as a member of the company, harsh or unfair treatment in any other capacity, e.g. as a director or creditor is outside the purview of the section; there must be continuous acts constituting oppression upto the date of the petition; the events have to be considered not in isolation but as a part of a continuous story; it must be shown as a preliminary to the application of Section 397 that there is just and equitable ground for winding of the company; the conduct complained of can be said to be ‘oppression’ only when it could be said that it is burdensome, harsh and wrongful. ‘Oppression’ involves atleast an element of lack of probity and fair dealing to a member in matters of his proprietary rights as a shareholders. Further, the counsel relied on a catena of judgments to support his contentions.
8. I have considered the pleadings and the documents filed therewith as well as the arguments of the counsels. The preliminary objections raised in this case that the petitioner has not come with clean hands and that no case of winding up of the company has been made on just and equitable grounds are not tenable. Further, 1 agree that it is a settled proposition of law that the conduct of the parties is a very relevant factor to be considered in the equitable proceedings under Sections 397/398. In Sri Kanta Datta Narasimharaja Wadiyar v. Venkateshwar Real Estates Private Ltd. (1991) 3 Comp. LJ 336 (Karn) : (1991)72 Comp Cas 211 (Karn), it was held that the petitioner seeking equitable relief must come with clean hands and good conduct, failing which the petitioner would constitute a gross abuse of the process of Court, and the petitioner is not entitled for any relief under Sections 397 and 398. It is true that the conduct of the parties in other proceedings could also be taken into consideration. However, it was held that the conduct of the petitioner before filing of the petition may not be a relevant factor. Regarding the principle of equity in Shrimati Abnash Kaur v. Lord Krishna Sugar Mills Ltd. 44 CC 390 the Division Bench of Delhi High Court has held that while exercising equity jurisdiction, which clothes the Court with discretionary powers “…the discretion cannot be exercised arbitrarily or according to one’s own will or whim. It has to be regulated by law, allay its rigour advance the remedy and to relieve against abuse. The court, therefore, exercising equity jurisdiction, cannot ignore the well known maxims of equity. Two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands.” In the present petition the respondents have failed to prove the unclean hands of the petitioner. As regards making out a case of winding up on just and equitable grounds in this regard the CLB’s decision in the case of Girdhar Gopal Dalmia and Ors. v. Bateli Tea Co. Ltd. and Ors. (2006) 74 CLA 36 (CLB) deserves to be mentioned. “It was forcefully argued by the learned Counsel for the respondents, that in view of the decision of the Supreme Court in Bagree Cereals case that unless the petitioners establish that the company is liable to be wound up on just and equitable grounds and that such winding up would be prejudicial to them and also the company, no relief can be granted in these petitions as the petitioners have not so established. In this connection, it has become necessary to examine the provisions of Section 397(2). It reads “If on any application under Sub-section (1), the Company Law Board is of the opinion -(a) that the company’s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members: and (b) that to wind up the company 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”. A careful analysis of the above would indicate that it is for this Board to form an opinion that the affairs of the company are being conducted in an oppressive (sic) and once it forms such an opinion, the just and equitable grounds for winding up of the company becomes established and this Board has to grant relief in terms of Section 402, if it again forms an opinion that such winding up would prejudicially affect the interest of the members/company. In other words, once this Board gives a finding that acts of oppression have been established, winding up of the company on just and equitable grounds becomes automatic. Shri Sarkar relevantly referred to the unreported judgment of Delhi Court in Prentice Hall case, wherein, the Court has held that once oppression is established, reliefs under Section 402 could be granted”. In the present petition I find that the petitioner who was the promoter director and even though in majority has been oppressed by the majority shareholders. The respondents are right in pointing out that directorial complaints cannot be entertained in a petition under Sections 397 and 398 of the Act. But the present petition is a composite petition containing several acts of oppression and mismanagement besides the directorial complaints. On consideration of the facts and circumstances of the case and the law applicable in this regard I find that this petition cannot be thrown out at the threshold itself on account of preliminary objections which I find are not tenable.
9. As regards, the arguments on merits of the case, I find that the respondents have failed to refute the specific charges of oppression and mismanagement made in this case. Except making bald denials or raising preliminary objections, the respondents have not been able to meet the allegations made in this petition. There is no response to the filing of Annual Return on 30.10.2005 with the ROC with allegedly forged signatures of the petitioner; the Board Meetings having been held without complying with the provisions of the Act and the AOA and without sending proper notices in this regard; appointment of Shri Milan Aggarwal S7o R-1 done in Board of Directors’ Meeting on 18.8.2005 wherein the board resolution by virtue of which Shri Milan Aggarwal was appointed as Director was also signed by him is found to be totally arbitrary and illegal; similar is the case with regard to the appointments of Shri Virender Kumar Aggarwal and Mr. Lalit Kumar Aggarwal as directors in the EOGM allegedly held on 24.11.2005; there is no proper justification given for changing the position of petitioner as a signatory in the bank operations.
10. In view of the foregoing, to do substantial justice between the parties, I hereby order as under: –
i. The Board of Directors Meeting dated 18.8.2005 and EOGM dated 24.11.2005 are hereby declared null and void. Status quo ante is restored setting aside the decisions taken in these meetings.
ii. The appointment of Shri Milan Aggarwal, Shri Virender Kumar Aggarwal and Lalit Kumar Aggarwal as directors is hereby declared as null and void. Status quo ante is restored. Form No. 32 furnished to the ROC in this regard is hereby declared to be null and void.
iii. The petitioner is restored as authorised signatory for the operation of Bank accounts cancelling all communications removing him as authorised signatory.
iv THE respondent No. 2 company is hereby directed to give consequential effect to the directions given in (i) to (iii) above forthwith.
11. With the above directions, I allow this petition vacating all interim orders. All CAs stand disposed off. No order as to cost.