ORDER
Vimla Yadav, Member
1. In this order I am considering Company Petition No. 18 of 2006 filed by Shri Surendra Goyal under Sections 397 and 398, of the Companies Act, 1956 (hereinafter referred to as ‘the Act’) alleging certain acts of oppression and mismanagement in the affairs of the R-1 by the respondents. It has been alleged that the respondents stopped production, sold the plant and machinery worth Rs. 20 lakhs for Rs. 5 lakhs and further siphoned off funds from the R-l’s account.
2. The undisputed facts of the case are: The respondent company, namely M/s. Nile Acqa Faucets P. Ltd. was incorporated on 14.2.2003. The Regd. Office of the company is situated at D-41, S.M.A. Co-op Industrial Estate, G.T. Karnal Road, Delhi-110 033. The authorised share capital of the company is Rs. 30,00,000/- comprising of 3 lakhs equity shares of Rs. 10/- each. The issued, subscribed and paid up share capital of the Respondent No. 1 company is Rs. 30,00,000/- divided into 3 lakhs equity shares of Rs. 10/- each. The main objects of the R-1 company is to produce, manufacture, refine, treat, cure, process, prepare, import, export, purchase, sell and deal in all kinds of sanitary fittings and bathroom fittings, such as brass fittings, steel fittings, tiles and ceramic ware and also to carry on the business as buyers, sellers, exporters, importers, manufacturer, distributors, etc.
3. Shri Rajeev Kumar, Counsel for the petitioner pointed out that petitioner and respondent Nos. 2 and 3 are promoters of the respondent company. The petitioner being a commerce graduate and a diploma holder in sales and marketing was looking after production and marketing of the company. He was appointed CMD of the company on 15/01/2005. Respondent Nos. 2 to 4 on the other hand were responsible for day to day affairs i.e. corporate compliance, taxation, administration etc. In July 2005 respondent Nos. 2 and 3 approached the petitioner and proposed that they would look after the production of the company. The petitioner being a marketing person handed over the production of the company to the respondents. Respondents however, stopped the production of the company in September 2005 of which the petitioner came to know from the market. On enquiry the respondents gave evasive replies and promised the petitioner that they would start the production soon. However, admittedly the production has not yet been started. The problem started in Dec. 2004 when the respondents started to unravel their ulterior motive. It was at this stage that the petitioner resigned for the first time. However, the petitioner was persuaded by the respondents to continue. Meanwhile, the respondents started selling the plant and machinery of the company to the debtors of the company well below the market price and started siphoning away assets of the company, which has been explained in detail below. At this stage the petitioner resigned on 11.11.2005 and sent a legal notice dated 25.11.2005 elaborating the misdeeds of the respondents, which was duly received, but there is no reply to the same. Hence the present petition.
4. Further, it was pointed out by the counsel that the petitioner owns 45% of the share capital of the company. No share certificate has been issued till date in contravention of the Act. Plant of the respondent company was located at the premises owned by the respondent Nos. 2 and 3 who were also authorized signatory to the bank accounts of the respondent co. and have signed balance sheets and other documents of the company. There is no address for the registered office of the company at present as the premises where it was located has been handed over to the landlord which landlord are the respondents themselves. Company at present is under the control and management of the respondents. Factory of the company is closed since Sep. 2005 and the respondents have no intention to reopen it.
5. The counsel for the petitioner pointed out that even after the petition was filed, the respondents despite the CLB’s interim order dated 19.3.2006 held a Board Meeting on 2.1.2006 and an EGM on 24.2.2006 and taken the decision to sell the plant and machinery of the Company. Holding of both the Board meeting and the EGM are illegal and non-est and is a concocted story to counter the submissions made in the petition and an attempt to overreach the order dated 9.3.2006 of this Hon’ble Board. No notice of the Board meeting or the EGM was ever received by the petitioner; Notices purportedly sent by UPC (Reliance was placed on the judgment of this Hon’ble Court in Re: Bombay Dyeing and Mfg. Co. Ltd. V. Arun Kumar Bajoria and Ors. (2001) 4 Comp LJ 115 (CLB); Notice for the Board meeting was a letter and not a notice and even this was without any agenda; Respondent No. 2 was present on 9.3.2006 at the hearing; Consideration was paid on 25.3.2006, much after the order of the Hon’ble Court; Address of the Respondent No. 5 and the ultimate buyer is the same, which cannot be a coincidence, the name of the ultimate buyer was deliberately changed to protect respondent No. 5. Further, it was pointed out that the machinery, which was claimed to have been sold for Rs. 5 lacs, was worth Rs. 20 lacs and the respondents have pocketed the balance amount. The machinery which the respondent is claiming to nave sold have been sold to debtors of the company who owes around Rs. 32 lacs to the company. It is an admitted position that the Company (Nile impex) which bought the machinery are owned by Mr. Sunil Arora and Mr. Jagdish Khurana whose firms are the debtors of the company. It was on this ground that the petitioner moved CA No. 172/2006 under Section 12 of the Contempt Act, 1971 read with Sections 402, 403 and 634 of the Act. It was further pointed out that this is only one instance of sale of asset and siphoning of funds of the company. My attention was drawn to the CLB’s order dated 14.3.2006 for authentication of statutory records and for preparation of an inventory of machinery, equipment, raw materials and finished goods of the company. The CLB’s Bench Officer visited the factory premises of the Company on 16.3.2006 on which date only statutory records were presented for authentication and no inventory was offered to be prepared. Authentication was done at D-41, S.M.A. Cooperative Industrial Estate G.T. Karnal Road, New Delhi which premises according to the respondents has already been handed over to the owner M/s R.N.B. Alloyes Pvt. Ltd. and which company is admittedly owned by the respondents It was only on 20.3.2006 that the R-2 informed the Bench Officer that the inventory could be prepared at 72/20 Bawana Road, Narela New Delhi, which is two room tenanted premises The goods were actually lying at A-96/8A, Wazirpur Industrial Area, Delhi, to which premises it was shifted between 24-26 October, 2005, which is evident from the respondents’ Declaration at pg. 68-70 of their reply. Inventories at the time of the shifting were prepared which are countersigned by the R-3 My attention was drawn to a summary of the goods shifted to A-96/8A, Wazirpur Industrial Area, Delhi allegedly worth over Rs. 95 lacs at present market value. It is an admitted position that the premises located at A-96/8A, Wazirpur Industrial Area, Delhi belong to the respondents. From the inventory prepared by the Bench Officer it is evident that the goods are worth only few lacs, which is not denied by the respondent. However, as per the Balance sheet of the year ending 31.3.2005 the company had an inventory, fixed assets, and finished goods worth Rs. 39.99, Rs. 20.03 and Rs. 9.69 lacs respectively but in the inventory many of the items are missing. For instance, the company had seven air-conditioners, however, not a single AC finds mention in the inventory. It was contended that it cannot be that goods worth over 95 lacs would be reduced to few lacs. Due to the misfeasance and misappropriation of assets of the company by the respondents that the petitioner was forced to move CA 196/2006.
6. Further, the counsel for the petitioner argued that the entire defence of the respondents is that the petitioner was responsible for every activity of the company and they were just silent spectators. However, it is on record that respondent No. 2 has signed the balance sheets of the company and has signed agreements for appointment of the Sole Selling Agents and was also authorized signatory to the bank accounts. Respondents also own two companies and are doing business in it. It was contended that the actual motives of the respondents had been to take control of the company and start a new venture with a new partner. The counsel for the petitioner pointed out that respondents have earlier had several partnerships with other individuals and with all of them they have created disputes and have misappropriated the assets. The fact that respondents own an industrial plot in the hub of the city of Delhi acts as big luring agent to if many unsuspecting businessmen, which is what happened with the petitioner.
7. Further, the counsel pointed out that the respondents have claimed to have paid Rs. 6.31 lacs as statutory dues of the company. The fact is that Rs. 5 lacs had come from the sale of the machinery of the company itself. Further hollowness of their claim becomes apparent from the fact that on 30.5.2005 respondents paid an amount of Rs. 11.69 lacs to themselves against the loan given by them to the company. Contrary to the fact that the respondents have siphoned away the assets of the company the petitioner have protected the property of the company. He has paid Rs. 1.8 lacs in EMIs to the finance company and has protected the car of the company from being taken away by them for non payment of EMIs. Pointing towards the conduct of the respondents, the counsel submitted that petitioner brought one Mr.Iqbal Singh a professional person who became director of the respondent company w.e.f. 19.7.2005. However, he resigned w.e.f 20.9.2005 as the respondents would not let him work.
8. Shri Rajeev Kumar, Counsel for the petitioner contended that the resignation of respondent No. 4 is baseless as the Form 32 produced was signed on 20.7.2005 but actually filed on 28.12.2005 without any late fine. As regards the allegation that the petitioner started a competitive business at Rudrapur, it was pointed out that it was to be a joint venture between the petitioners and the respondents. However, it did not materialize because of the ulterior motive of the respondents. Moreover, the petitioner was doing a job before having the joint venture with the respondents and even now is doing a job after resigning from the company.
9. Shri U.P. Mathur, Counsel for the respondent raised preliminary objections and contended that the petitioner has not come with clean hands and has acted against the interest of the company and the petition deserves to be dismissed in limini, because (a) it was the personal responsibility of the petitioner to recover the dues from the customers and the value of these debts which were not recovered by him or recovered by him but not deposited with the company, were in the region of about Rs. 60 lacs. He has also not collected Forms ‘C7 SET-35 from various customers as a result of which the company will have to pay extra tax (VAT) of about Rs. 10 lacs. In view of losses in the company and conduct of the petitioner, company could not pay its statutory liabilities towards sales tax/VAT amounting to Rs. 22 lacs, electricity dues of Rs. 5,24,227 and water charges of Rs. 6614; (b) faced with financial stringency, petitioner adopted the modus-operandi of resigning from the company as CMD time and again on 10-12-2004, that on 26.9.2005 and again on 11.11.2005; As per letters of resignation, the petitioner resigned as CMD due ‘to personal reasons’. The petitioner has deliberately not disclosed his resignations dated 10.12.04 and 26.9.05 in his petition and has only mentioned about his resignation letter dated 11.11.05. Every time any creditor approached him for payment of his dues, petitioner would show his resignation letter and prevail upon him to approach R-2 for payment. Instead of recovering the dues from the customers or depositing the dues recovered by him with the company, petitioner preferred to run away from the company. It was argued that apparently, he left the company as – (i) he failed to recover the dues of the company amounting to about Rs. 60 lacs or he failed to deposit the same, if recovered by him with the company; (ii) he failed to collect ‘C’ forms from the customers as a result of which the company has been burdened with extra tax liability of about Rs. 10 lacs; (iii) he wanted to avoid the creditors of the company; (iv) he set up his own concern under the name and style of ‘Niyle Aqua Faucets Co.’; (v) he removed the stock and assets of the company during Oct.05. It was argued that in such circumstances, the resignation of the petitioner could not be accepted by the board of directors of the company. He has also not surrendered the company’s car and computer, as yet. He has not yet rendered account of his acts and dealings. Reliance was placed on the Kerala High Court judgment in the case of Achutha Pai v. ROC (1966) Comp Cases 598 wherein it was held that a governing or managing director had two capacities combined in him, one, that of a director and the other, that of a manager or officer. His capacity as manager cannot be terminated by mere sending of the resignation but it must be duly accepted by the company and he should be relieved of his duties and responsibilities. The position of a managing director is in this respect different from that of an ordinary director.
10. Shri U.P. Mathur, Counsel for the respondents further argued that no allegation whatsoever has been made by the petitioner against the respondents in the three letters of resignation dated 10.12.04, 26.9.05 and 11.11.05 and the allegations made in the petition are an after thought and based on surmises and concocted stories. In answer to this, petitioner has stated in the rejoinder that he is a peace loving individual and wanted a peaceful exit. However, his conduct after his exit show otherwise.
11. Further, giving instance of the petitioner collecting company’s dues and not depositing in the company’s account, my attention was drawn to an amount of Rs. 1,10,553 recovered from some J&K party, demand draft dated 28.6.05 of the said amount was deposited in petitioner’s bank account No. 016001502474 with ICICI Bank, Model Town Branch. In reply, petitioner has alleged that the same represents the payment received by the petitioner against purchases made by the petitioner for J & K party, alleged to be his personal friend. It was argued that the contention of the petitioner is false and misleading; he has not disclosed the name and other particulars of the said J&K party or particulars of items purchased for the party. He was confronted to produce his bank statement of account but the same has not been produced.
12. Further, the counsel for the respondents pointed out that the petitioner had set up his own concern under the name and style of ‘Niyle Aqua Faucets Co’ with marketing office at Rohini and works at Rudrapur. He has misused the name of respondent company with exactly the same name and has also misused the E-mail and website of respondent company. He has also used the brand name of the respondent company. ‘Nile’ with a small change as ‘Niyle’ for his own concern. My attention was drawn to the brochure of petitioner’s new concern and comparison was made with the letter head of the respondent company. The petitioner lost interest in the respondent company with the sole objective to “promote his own concern. He has also diverted the business and customers of the respondent company to his own concern for starting parallel business to the detriment of the interest of the respondents. It was argued that in fact, petitioner left the company to carry on his own parallel business which itself is an act of oppression and mismanagement on the part of the petitioner against the respondents.
13. Regarding the petitioner’s allegations of non-issue of share certificate, non maintenance of register of members, minute book, fixed assets, register of directors and charges, it was pointed out that the company has complied with the provisions of the Act. The allegations made are false on the face of it. Further, even assuming that the allegations are correct, in that case the petitioner being the Chairman and Managing Director of the company is himself liable for ensuring compliance of the said provisions of law and is answerable for the same.
14. Further, responding to the petitioner’s allegation that the respondents sold the plant and machinery to respondent No. 5 company which is owned by Mr. Vijay Gupta who is a friend of respondents and they have shifted material to A-96/8, Wazirpur Industrial Area owned by respondents, and that R-5 company has till date not paid any single penny as consideration for purchase of machinery, and that petitioner feels that respondents may have received consideration and misappropriated the same, the counsel contended that petitioner was well aware of the sale of machinery. However, to confuse the issues it has been alleged by him that the same was sold to R-5. The machinery was actually sold to M/s Nile Impex (I) Pvt. Ltd. A-83/4, Wazirpur Industrial Area on 28.2.06 with the consent and knowledge of the petitioner. Machinery was also handed over by the petitioner to the said buyer company vide declaration dated 26.10.05 signed by him according to which material was shifted to the said location. The said buyer company is not a stranger to the parties. This company earlier belonged to petitioner and respondent No. 2 and its shares were sold by them and transferred to Mr. Sunil Arora and Jagdish Khanna, the present owners, on 19.1.2006. It was pointed out that the respondents have nothing to do with respondent No. 5 (Delhi Metal Corporation) located at the same address (A-8/4, Wazirpur Industrial Area) as falsely alleged by the petitioner. R-5 is a tenant of M/s Nile Impex (I) P. Ltd. Mr. Vijay Gupta of R-5 is not known to respondents but is known to the petitioner. The machinery was sold to M/s Nile Impex (I) P. Ltd. vide sale note dated 28.2.2006 issued by R-1. The buyer company was requested on 2.2.06 to pay the sale consideration of Rs. 5,00,000 by pay order directly in favour of Commissioner, DVAT. The Bank draft dated 25.3.06 given by the buyer company was duly deposited with the Sales Tax authorities. Petitioner preferred not to reply to the detailed letter dated 25.1.06 of R-2 nor he attended the board meeting held on 27.1.06 nor attended the EGM held on 24.2.06 apparently because he had no objection to the proposed resolutions. It was pointed out that although the provisions of Section 293(1)(a) of the Companies Act, 1956 do not apply to the respondent company, being a private company, still the respondents thought it fit to seek approval of the shareholders in the EGM convened on 24.2.06. Petitioner has alleged that the machinery was sold in violation of order dated 9.3,06 of this Hon’ble Board whereby respondents were restrained from selling the properties of the company. It was clarified that the machinery was sold on 2.2.06 with the consent and knowledge of the petitioner much before the impugned order was passed. The petitioner was already aware of the sale of machinery as is evident from the petition filed by him. The machinery in question was also delivered by the petitioner to the buyer company as per declaration dated 26.10.05 signed by the petitioner. The sale price was not used in the company or used by the respondents but was directly deposited with VAT authorities in payment of statutory dues. It has been wrongly alleged by the petitioner that the buyer company owes Rs. 17 lac to the respondent company. It is also wrongly alleged by the petitioner that the buyer company is distributor of the company’s goods. Only Rs. 11.31 lacs is payable by the customers, the petitioner is well aware of the said outstanding dues from these customers, and it was the responsibility of the petitioner to recover these dues from them.
15. Further, the counsel for the respondents replying to the allegation of shifting of assets from the company’s factory premises, explained that the company occupied part of the space at D-41, S.M.A. Coop Industrial Estate, GT Karnal Road on the understanding with the landlord M/s R.N.B. Alloys P. Ltd. that the respondent company will make payment of all dues arising on account of electricity, water charges and house tax on actual basis; respondent company will pay commission on its sales @ 5% only after the company starts earning profits. The respondent company has not made any payment of commission to the landlord and has not been able to pay electricity charges, water charges and house tax. It was accordingly decided to vacate the said space. The Electricity Dept. has served revised bill for Rs. 5,24,227 as also disconnection notice dated 17.8.06 and the bill has not been paid. Water charges bill of Rs. 6614 has also not been paid by the respondent company. In case the said premises were retained, the company will be saddled with additional minimum charges towards electricity, water and for providing security every month. It was argued that there is no question of revival of the company in view of the losses and statutory and other liabilities remaining unpaid for which petitioner alone is responsible as he deserted the company without taking any care of payment of liabilities of the company.
16. As regards the misappropriation of stock of finished and unfinished goods, the counsel contended that the allegation made is not only false but concocted on its own showing. The same declarations were produced by the respondents alongwith their reply to the main petition to assert that particulars thereof are known only to the petitioner and the same have not been recorded in the books of the company. No such allegation was made by the petitioner in its petition. Evidently, it is for the petitioner to explain the stock misappropriated by him through these declarations signed by him as per stand taken by the respondents. It appears that since it was not possible for the petitioner to explain his conduct in the face of the declarations produced by respondents, he retorted back against the respondents on the basis of the same declarations. It was reiterated that the allegations made by the petitioner are false, mischievous and fraud practiced on this Hon’ble Board because: (a) these declarations have been signed by the petitioner without any detail/particulars of the material or stock removed by him from the factory premises of the company; (b) these declarations have not been signed by the alleged recipient of the goods and apparently the same were misappropriated by the petitioner himself; (c) the petitioner has not accounted for the said material removed by him in the books and records of the company; (d) The petitioner has estimated the value of raw material and finished goods removed by him from the factory at Rs. 95,46,510 to A-96/8A, Wazirpur Industrial Area. The said premises are owned by M/s Northern India Alloys Industries P. Ltd. in which R-2 and 4 are directors. The said company is closed and the premises have been given on rent and there is no question of the material being sent there. Further, this astronomical figure of Rs. 95.46 lacs is imaginary and concocted as the entire assets of the company were never more than Rs. 53 lacs. As per latest balance sheet as at 31.3.05, finished goods of the company were of the order of Rs. 9.69 lac and raw material was to the tune of Rs. 29.71 lacs, which comes to Rs. 39.40 lacs only. Thereafter, the company closed its operations in Oct. 05.
17. Shri U.P. Mathur, Counsel for the respondents referring to the allegation of shifting of material as mentioned in CA No. 196/06 reiterated that the petitioner has not come with clean hands and has fabricated the record and has also practiced fraud not only on the respondents but this Hon’ble Board because: (i) these statements and the particulars given therein do not relate to the respondent company in any manner whatsoever; (ii) first 4 statements at pages 11-14 of CA No. 196/06 have been doctored by the petitioner if compared with copies thereof in the custody of respondent No. 3 and produced by him, the word ‘stock’ has been interpolated by the petitioner in all the 4 sheets which is not there in the papers with respondent No. 3, the sheets with R-3 bear the signature of R-3 only while those produced by the petitioner also bears his signature, these 4 statements were prepared at the instance of the petitioner who suggested to R-3 that material is available if the same is financed by R-3, this was not finally agreed upon and the matter ended thereat, surprisingly, these sheets of papers have been used by the petitioner knowing fully well that the same do relate to the respondent company in any manner but the petitioner has tried to take advantage of the signatures of respondent No. 3 in these 4 sheets; (iii) the portion written at the bottom of page 14 of the reply to CA No. 196/06 and page 14 of CA No. 196/06 is different; (iv) the other sheets of papers at pages 15-53 of CA No. 196/06 produced by the petitioner are all trash with scribbling signed by the petitioner having no connection with the respondent company in any manner whatsoever. It was argued that the petitioner has made mockery by producing false documents and has not explained as to how these sheets of paper are co-related to the statement of stock valued at Rs. 95.46 lacs.
18. Further, the counsel for the respondents emphasised to take judicial notice of the conduct of the petitioner who by making false allegations and by filing fabricated documents in the judicial proceedings and thereby the petitioner has made himself liable for perjury. Reliance was placed on the judgment of Hon’ble Supreme Court in the case of Sangramsinh P. Gaekward v. Shantidevi P. Gaekwad (D) through LR’s 2005 (1) RCR (Civil) 56 (SC) wherein it was held that the court may refuse to grant relief where the petitioner does not come with clean hands and burden of proof of oppression or management is upon the petitioner.
19. I have considered the pleadings and the documents filed therewith as well as the arguments of the parties. The respondents preliminary objections that the petitioners not come with clean hands, he had failed to collect ‘C’ Forms from the customers and failed to recover huge sum amounting to approximately Rs. 60 lakhs resultantly burdening the company with extra liability during the time when the R-1 was already facing financial crunch, the petitioner wanted to avoid the creditors and had also set up his own concern under the almost similar name and style of the R-1 and under these circumstances had resigned thrice to get away from the responsibilities of the director, all go to show that petitioner has not taken due care of the interest of the R-1. The petitioner has not been able to refute the respondents’ contentions in this regard. The acts of oppression and mismanagement pointed out by the petitioner are also in the nature of relief sought to get away from the liabilities and responsibilities of R-1. In these circumstances the petition, as contended by the respondents, deserves to be dismissed in limini. However, the petitioner has also contended that the respondents have not come with clean hands. It has been alleged that the respondents stopped production, sold the plant and machinery worth Rs. 20 lakhs for Rs. 5 lakhs and further siphoned off funds from the R-l’s accounts. The respondents have returned loan amounting to Rs. 11.69 lakhs to R-4 whereas loan amount of Rs. 56 lakhs due to other directors has not been paid. No notice of AGM and other meetings is given to the petitioner, only copies of UPC have been produced in support of their contention that notices were sent. The respondents have not been able to refute these charges levelled against them.
20. Further, it is noticed that despite CLB’s order dated 9.3.2006, (i) restraining the Respondent Nos. 2,3 and 4 from selling, encumbering, transferring or mortgaging movable ,and immovable of the properties of the company, or creating any third party interest therein till the disposal of the present petition; (ii) restraining the respondent Nos.2 to 4 from selling, encumbering, transferring or mortgaging land and other assets of the Respondent No. 1 company or creating any third party interest therein till the disposal of the present petition; and (iii) directing that no new bank account should be opened in the name of Respondent No. 1 company without the consent of the petitioner or without the permission from this Hon’ble Board, the respondents have sold plant and machinery subsequent to the CLB’s orders and consideration in that regard was received by the respondents on 25.3.2006. It is admitted position that the factory of the R-1 company is lying closed. In these circumstances, even while dismissing the petition under Sections 397 and 398 of the Act resorting to Section 402 of the Act to pass an order which is just and equitable since objects and purpose of Sections 397, 398, 402 and 408 of the Act are two fold to set right the wrongs and take remedial action to prevent occurrence of wrongs in future, which is both preventive and curative action to regulate the conduct of the company’s affairs in future and to bring to an end the matters complained of and moreover, to do substantial justice between the parties, I hereby order that the petitioner be paid value of his shares and allowed to go out of the company. The valuation of shares is to be arrived at as on the date before the alleged sale of the plant and machinery of the company. The valuer for the purpose is to be appointed with the consensus of the parties or in the alternative a lumsum amount acceptable to the petitioner may be paid by the respondents to the petitioner with the direction to the petitioner to go out of the company.
21. With the above directions, I dispose of this petition. All CAs stand disposed. All interim orders stand vacated. No order as to cost.