ORDER
1. This is a petition filed under Section 397/398 of the Companies Act, 1956 (hereinafter referred to as “the Act”), by Shri Thomas George and others alleging acts of oppression and mismanagement by Shri K. C. G. Verghese, chairman and managing director, and others in the matter of Air Asiatic Limited (hereinafter referred to as “the company”). This company was incorporated in January, 1990, with the main object of providing air transport for passengers, baggage, postal parcels, etc., and the authorised capital of the company is Rs. 5 crores divided into 50 lakhs equity shares of Rs. 10 each. It is alleged in the petition that all the four petitioners are shareholders and directors on the board of the company, the first petitioner being the vice-chairman of the hoard and these four petitioners put together hold among themselves 43.61 per cent. of the authorised capital of the company. The various allegations made in the petition, in a nutshell, are as follows :
(1) There has been discrepancy in the amount of issued share capital and as a matter of fact none knew what was the exact amount of the capital issued.
(2) The company has failed to comply with the requirements of Section 269 of the Act, in the appointment of the managing director.
(3) Shares have been issued to non-resident Indians without the approval of the Reserve Bank of India.
(4) The managing director, respondent No. 1, has collected funds in foreign exchange both from shareholders and travel agents and credited the same in his personal account in violation of the provisions of the FERA.
(5) There has been a large number of instances of mismanagement of financial affairs of the company like non-payment of lease money for the only aircraft leased by the company, non-insurance of the said aircraft, etc. An amount of Rs. 28 lakhs due for the shares held by the managing director and his family has not been received by the company.
(6) The agreements with the travel agents are in violation of Section 294 of the Act. In the appointment of the managing, director, provisions of Sections 269, 198 and 309 of the Act have been violated.
(7) There have been enquiries against the company by the directorate of enforcement.
(8) Some of the board meetings have to be declared as null and void for reasons stated in the petition.
(9) The company has not been maintaining proper books of account and in view of this no annual accounts of the company were placed before the annual general meeting.
(10) In view of non-payment of the lease amount to the American company, the only aircraft available with the company has been repossessed by that company and the Director-General of Civil Aviation has also cancelled the registration of the aircraft.
(11) There have been violations of various provisions of the Companies Act.
2. In view of the aforesaid allegations, the petitioners have asked for various reliefs including the appointment of inspector for investigating into the membership of the company as also into the affairs of the company, permanently restraining respondent No. 1 from functioning as chairman and managing director, etc.
3. The respondents, in their reply, denied the allegations made in the petition.
4. This case was heard on different dates and finally on January 13, 1994. Shri Joseph Vellapally, counsel for the petitioners while initiating his arguments submitted that during the month of January, 1990, respondent No. 1 approached the petitioners and by painting a rosy picture of the growth of the company lured the petitioners to invest a huge amount of money as share capital. Accordingly, the first petitioner agreed to invest 10,00,000 US dollars on the assurance that he would be made the vice-chairman of the company and also a director on the board. Petitioner No. 1 was also assured that at all times to come, he would hold 45 per cent. of the equity in the company. Accordingly, a MOU was entered into between petitioner No. 1 and respondent No. 1. On the basis of this MOU, the first petitioner invested 1 million US dollars. But only after a great difficulty and over a period of time the company issued share certificates for 20 lakh shares. While collecting this huge amount of share capital, the first respondent had permission from the Reserve Bank of India for collection of only Rs. 90 lakh as investment by NRI and as per RBI’s approval, the entire amount collected was to be collected through an account in the State Bank of India, London branch. Respondent No. 1 collected all the NRI contributions either by way of cash or by way of cheques drawn in his own name and deposited the same in his own individual foreign exchange account in violation of the RBI permit, This collection of amount was from various companies and firms especially in relation to agreement entered into with travel agencies. Counsel pointed out that certain amounts were, received from foreign travel agents as stated in the petition.
5. Counsel further pointed out that while the permission given by RBI specifically stipulated that neither capital nor income by way of dividend accruing thereon shall be allowed to be repatriated, yet respondent No. 1, in the NRI share application forms, printed a clause specifically stating that the equity share allotted may carry the right of repatriation of dividend and the sale proceeds. This is not only in violation of the RBI permit but also a false and misleading statement made to the prospective shareholders as a sort of inducement.
6. He further stated that there were no regular board meetings in the company. Therefore, when the petitioners sought for holding a board meeting to be held on April 19, 1991, for discussing the company’s operations, the first respondent refused to hold the board meeting. Not only that, when they sought for issue of certificates urgently, respondent No. 1 refused to do so, The first respondent also refused to include, in the agenda for the board meeting held on June 6, 1991, an item relating to the appointment of one of the nominees of petitioner No. 1 as a director of the board as per stipulation in the MOU. Even the notice issued for the annual general meeting to be held on July 15, 1991, was defective, it was complained.
7. Shri Vellapally, counsel for the petitioners, pointed out the observations of Shri M. S. Ramachandran and Company, chartered accountants, internal auditors of the company in their letter dated February 14, 1991, wherein the auditors had observed that there were not even minimum records kept in the company such as cash books, etc. In other words, he contended that an airlines company, dealing with millions of rupees, did not even maintain proper books of account. Because of this even in the, annual general meeting held on July 15, 1991, the audited annual accounts could not be placed. This has resulted in the directors becoming liable for action under Section 210(5) of the Companies Act, he apprehended.
8. He further stated that the mismanagement of the financial affairs of the company was such that the company could not pay the lease amount to International Air Leasing Company Inc., from which the company had taken the aircraft on lease and consequently the American company had repossessed the aircraft and the Director-General, Civil Aviation had cancelled the registration of the aircraft.
9. Counsel also questioned the validity of the appointment of respondent No. 1 as the managing director of the company as the provisions of Section 269 had not been followed nor the provisions of sections 198 and 309 in respect of remuneration drawn by him. He also pointed out that the Directorate of Enforcement had initiated an investigation into the violation of the provisions of the FERA against the first respondent and most of the records of the company have been seized by the said authorities, In view of this, the first respondent had to seek anticipatory bail from the High Court of Madras.
10. He further alleged that the general sales agents had been appointed in various places both within and outside the country and the terms of such appointment make them sole selling agents of the company and the same is, therefore, against the provisions of sections 294 and 294AA(3) of the Companies Act. None of the formalities for appointment of sole selling agents has been completed and all the appointments were done at the sole discretion of the first respondent.
11. Counsel drew our attention to the allegation in the petition that the only aircraft being operated by the company was not insured which “is in violation of the conditions imposed by the DGCA and the American company and under these circumstances if any accident were to occur to the aircraft, the financial liabilities of the company would be enormous. He further pointed out that with effect from June 4, 1991, the aircraft had developed some problem and had to be grounded and as such no income is being generated by the company.
12. Another allegation advanced by counsel was that in the ensuing board meeting to be held on July 15, 1991, the petitioners have been told that they would be allowed to vote only in respect of 2.18 lakh shares as against 2.18 million shares, for which they were in possession of share certificates. He also expressed his apprehension that on repossession of the aircraft by the lessor, a sum of Rs. 65 lakhs deposited with the customs department would become refundable and respondent No. 1 would fritter away the same which would be against the interest of the company and the petitioners who have invested a large sum of money.
13. As the company was proposing further issue of shares, counsel stated that petitioner No. 1 has filed a suit against the company seeking permanent injunction restraining the company from increasing the paid up capital from the present limit and accordingly the High Court of Madras has passed interim injunction on April 23, 1991. He further submitted that in view of what has been stated above, it is clear and apparent that the respondents have been committing grave acts of oppression and mismanagement in the affairs of the company and the petitioners are, therefore, entitled to the various reliefs sought for in the petition.
14. In view of the prima facie case of oppression and mismanagement, Shri Vellapally sought for an ex parte order restraining the company from holding the annual general meeting to be held on July 15, 1991, and reconstitution of the board of directors. In view of the disputes on the share capital issued, we ordered the appointment of an independent observer to report on the proceedings of the annual general meeting to be held on July 15, 1991, and also for not giving effect to the resolution, if any, passed in the annual general meeting until further orders. We also gave directions for filing of replies, etc. Replies/rejoinders were filed and regular hearing commenced from August 21, 1991. In the meanwhile the independent observer, Mrs, Saraswathy Achyuthan, filed a report indicating therein that there was a dispute in the annual general meeting regarding the shareholding of the petitioner inasmuch as even though petitioner No. 1 held the share certificates worth Rs. 2 crores, the chairman informed that petitioner No. 1 was holding only 3,48,800 shares as per the register of members out of the paid up capital of Rs. 1 crore. According to the independent observer, there was a lot of arguments on the voting entitlement of various shareholders inasmuch as some of them even on possessing share certificates were not shown as members in the register of members. However, the voting on the appointment of directors was done on the basis of the shareholding pattern as indicated in the share register and none from the petitioners’ group was elected as a director in the meeting.
15. The petition was heard for a number of days during the years 1991 and 1992. Shri K. K. Jain, senior advocate, appearing for respondent No. 2 and Shri A. K. Jain, advocate, appearing on behalf of respondents Nos. 1 and 2, refuted all the allegations made in the petition. Shri K. K. Jain submitted that there was misjoinder of parties as respondents Nos. 3 and 7 were not at all in any way connected with the affairs of the company and also questioned the share entitlement of all the petitioners inasmuch as petitioners Nos. 2 and 4 did not hold any shares in the company and petitioners Nos. 1 and 2 do not hold the shares as claimed by them and as such the claim that the petitioners together hold 43.61 per cent. of the share capital of the company is not correct. He further stated that respondent No. 2 was a pioneer in introduction of private air services in the country and, being only a technocrat there were certain teething problems in conducting the affairs of the business of the company. After the company was incorporated in January, 1990, the petitioners showed interest in the business and it is they who invited respondent No. 1 to the Gulf countries and the USA for mobilising funds from prospective investors. Respondent No. 1 entered into a memorandum of understanding with petitioner No. 1 in August, 1990, but the same was subject to the approval by the board of directors and such other authorities that are required to approve and, therefore, the MOU was a conditional one. As against 1 million US dollars as agreed to be invested by petitioner No. 1 as per MOU, he invested only 0.5 million US dollars and he was appointed as vice-chairman of the company. The issue of shares to NRI was subject to the approval of the RBI and RBI approval was only to the tune of Rs. 1 crore and it is inconceivable that the petitioner who had paid only Rs. 1.35 crores claims to be in possession of share certificates worth Rs. 2 crores. No doubt the company issued share certificates to this extent but it was done only due to coercion by the petitioner and the same, in fact, was not entered in the register of members as neither the petitioner had paid Rs. 2 crores nor the RBI’s approval was available for the same. The issue of share certificates to this extent only represents the intention of the company to issue shares and the petitioner cannot take advantage of the possession of the share certificates for exercising his voting rights, etc., on the strength of these shares which clearly shows the mala fide intention of the petitioner. When we examined the share certificates produced by the petitioners, we pointed out to the parties that these share certificates appeared to be defective as they contained only two signatures as against three as per the Companies Act. As far as the allegation regarding collection of money in foreign exchange and keeping the same in the name of the respondent is concerned, it was stated, that no doubt the moneys were collected in the name of respondent No. 1, but the entire amount had been credited into the company and there was no allegation of either misappropriation of these amounts or non-utilisation of the same. As far as the allegation regarding misrepresentation in the application for shares that repatriation would be permitted, it was stated that since then the Government has permitted repatriation and as such the same cannot be construed as misrepresentation. It was stated that even though the foreign exchange was collected and some payments were made by respondent No. 1 in the name of the company, these transactions have in fact been approved by the RBI later on and all the remittances were made through banking channels even though not through the London branch of SBI as stipulated by the RBI. It was further stated that even the petitioner used to make cheques/drafts only in the name of respondent No. 1 on behalf of the company and now that a dispute has arisen, the petitioner cannot allege mismanagement on this account.
16. In regard to the allegation of non-maintenance of proper accounts and reference to the report of M. S. Ramachandran, internal auditor of the company, it was submitted that there was no financial irregularity as pointed out by the internal auditor and as a matter of fact the report itself was made at the behest of petitioner No. 1. The company was maintaining proper books of account and there was no question of improper maintenance as alleged, he asserted.
17. Shri Jain drew our attention to the performance of the company to show, that within a short period of eight months, the company had a turnover of about Rs. 5 crores with a single aircraft. In the long run, the company would have definitely made handsome profit but for the complaints made by certain interested parties which led to a raid by FERA officials who had taken away the records of the company. In spite of this, the company was in the process of securing two more aircrafts, all at the instance of respondent No. 1. The business of the company was affected due to the Gulf war and the company refused to make payment to the American company only when it failed to supply the spare parts. Even the non-insurance of the aircraft was on account of the lessor company instructing the insurance company not to effect the insurance and the company, therefore, cannot be held responsible in this regard. The aircraft which was grounded could not be put into operation only because of petitioner No. 1 who in collusion with the American company, prevented the company from putting the aircraft back into operation. In view of these difficulties, respondent No. 1 had pumped in Rs. 25 lakhs to keep the company going and the aircraft was surrendered only to avoid further payment of lease money when the aircraft was not in operation. The mala fide intention of the petitioner is clear, Shri Jain asserted, from the action of the petitioner in filing a civil suit in Madras restraining the company from mobilizing additional funds which has, as a matter of fact, hampered the introduction of further aircraft into the company. Under these circumstances, Shri Jain prayed that the petition should be dismissed as none of the allegations is even worth looking at.
18. During the hearing on August 21 and 22, 1991, by which time the report of the observer was also available, we found that while petitioner No. 1 had in his possession share certificates for Rs. 2 crores but the same have not been recorded in the register of members and his voting rights were restricted only to the extent shown in the register of members. We also noticed that the share certificates had not been signed by two directors and the secretary. It was also noticed that no final accounts for the year ended March 31, 1991, were available with the company. In view of these facts, we directed the company to produce the following documents :
(a) share application form submitted by the petitioners ;
(b) reports submitted by the company to CCI ;
(c) statement in lieu of prospectus filed with the ROC ; and
(d) unaudited accounts for the first financial year.
19. In the hearing we also directed the company to keep, in a separate bank account, the amount of Rs. 65 lakhs paid as countervailing duty whenever the same was returned by the customs authorities. At the request of the advocate for the petitioner and as agreed to by the advocate for respondent No. 2, we directed that Shri T. Srinivasan, retired accountant-general, Tamil Nadu, would act as a special officer of the company for a period of three months to oversee the functioning of the company and we also appointed a chartered accountant to conduct an inspection of the books of account of the company and all other statutory records maintained by the company. The inspector Was to submit his report within a month. As we were of the prima facie view that the affairs of the company were not being managed properly, we asked petitioner No. 1, one of the largest shareholder, whether he would be in a position to take over the management of the company but he declined to do so on the plea of his inability to spare time to manage the affairs of the company, he being an NRI residing abroad.
20. In the hearing on October 22, 1991, none of the documents as we had directed to be filed with us was filed on the plea that all the documents were with the FERA authorities and even the inspector informed us that the company was not in a position to furnish all the particulars and information needed by him and even the company secretary had by then resigned.
21. In view of these, we directed Shri Verghese, the managing director of the company, to remain present on the date of next hearing. We also directed that the FERA authorities should be requested to make available all the documents seized by them for inspection/perusal by the inspector appointed by us.
22. In the hearing on January 16, 1992, petitioner No. 1 expressed his willingness to take over the management of the company. The advocate for respondents sought time to consult his clients on the proposal of petitioner No. 1.
23. In the hearing held on January 21, 1992, respondent No. 1 was present in person and he gave an account of how the company was started and being the first airline in the private sector how it had to face teething problems and how in spite of that they were able to operate the services for about eight months. He also stated that the stoppage of services and return of aircraft were completely beyond the control of the company and he was actively pursuing revival of the company with new aircraft. At this juncture, petitioner No. 1 reiterated his desire to take over the management of the company provided there was no interference from the respondents’ side. He also undertook to pump in additional funds. Respondent No. 1 had no objection to this proposal provided a definite time frame was fixed for making the company operational. While the petitioner wanted a time frame by one year, the respondents desired that it should not be more than three months. We also noted that the inspector was still to complete his inspection.
24. After hearing the parties we passed a detailed order, inter alia, containing the following :
“We have carefully considered the submissions made by the parties orally as well as in writing. We are seized of the situation where the company has not been in operation at least since June, 1991, when the only aircraft of the company was grounded. As per the first balance-sheet of the company for the year ending March 31, 1991, the company has suffered loss of Rs. 1.30 crores besides incurring preliminary and pre-operative expenses amounting to Rs. 1.95 crores as against the paid-up capital of Rs. 1 crore and Rs. 1,90,80,500 towards share application money, pending allotment. We also note that the petitioners’ group, who are NRI’s based in USA and Dubai, have so far paid over Rs. 2 crores in foreign exchange towards the equity capital of the company and they have been issued share certificates for lesser amount, that too, without following the provisions of the Companies Act, 1956, and the rules made, thereunder. The financial position of the company has further deteriorated and it has incurred further losses after March 31, 1991. Our main concern as well as that of the parties at this stage is to create conditions in which the revival of the company is possible and to ensure that the company becomes operational, as early as possible. Considering the strained relations of the two groups in management and lack of confidence, we are of the view that a stage has come when only one of the groups could run the company to the exclusion of other. We, accordingly, pass orders in the following terms:
(a) The proposal of petitioner No. 1 to reconstitute the board of directors of the company with the following as directors is approved with Shri Thomas George as chairman.
(1) Shri Thomas George.
(2) Shri C. V. Varghese.
(3) Shri Abdul Karim.
(4) Shri Jose Antony.
(5) Shri S. Rangarajan, Advocate, 152, Thambu Chetty Street, Madras-1.
(6) Cap. D. N. Patwari, 2-D, Montieth Court, 69, Montieth Road, Madras-600 008.
(b) Shri K. C. G. Verghese will hand over all the records, statutory books of account and other papers and documents on January 31, 1992, at 11 a.m. at the registered office of the company at Madras to Shri Thomas George, chairman-designate or to Shri. S. Rangarajan in case Shri George is not available. In the meantime, Shri Verghese will prepare an inventory of the entire records and hand over the same along with the records on that date to Shri Thomas George or his nominee, as the case may be.
(c) Similarly, an inventory of all the assets of the company, both movable and immovable located at different locations, be prepared by Shri Verghese and given to Shri George or his nominee on January 31, 1992, and the said assets be handed over to Shri Thomas George or his nominee, as the case may be, not later than 7 days after January 31, 1992.
(d) Chairman-designate will preside over all the board’s meetings of the company, at least till a professional managing director is appointed, . with the approval of this board.
(e) The new board of directors will start functioning after taking over the records and assets of the company.
(f) Shri M. R. Narayanan, chartered accountant, will submit his report by February 28, 1992.
(g) Chairman-designate will submit his report about the progress made for restarting the business of the company as also of connected matters by May 1, 1992.”
25. In the hearing on May 13, 1992, we noticed that many of the directions contained in our order dated January 20, 1992, even though issued with the consent of the parties, had not been complied with especially relating to handing over of assets of the company and also the essential documents like the customs clearing permit and air taxi licence which were to be handed over by respondent No. 1. It was also pointed out that certain valuable spare parts of Boeing aircraft were still in the custody of respondent No. 1. Undertakings were given by both the parties that urgent action would be taken to complete the handing and taking over of these assets as well as the documents. We also directed that the amount deposited with the customs department by way of duty, whenever received should be kept in a fixed deposit with any of the nationalised banks and should not be withdrawn without our permission. We also gave our approval for appointment of Cap. N. S. Ramachandran, Ex-Deputy Managing Director of Indian Airlines as managing director of the company for a period of one year.
26. In a further hearing on May 19, 1992, it was confirmed that the documents were handed over to the new management by respondent No. 1 and respondent No. 1 also undertook to hand over the spare parts for Boeing on the petitioners giving an undertaking that they would be kept in proper storage and used only after the arrival of the new aircraft, which undertaking petitioner No. 1 gave. The petitioner moved an interim application seeking re-confirmation for appointment of four investor directors or their nominees as they had all agreed to bring in additional funds as equity for revival of the company and to facilitate to get a new aircraft on lease. We directed him to furnish more details, as to what amount and when the same would be invested. We also directed that the new management would furnish periodical reports on the progress made in reviving the company.
27. In the hearing on September 22, 1992, Shri B. M. Rao, advocate for the petitioner, and Shri Thomas George, petitioner No. 1, informed that the suit in Madras had been withdrawn and that negotiations for leasing an aircraft have been completed and a sum of 5 lakh US dollars would be invested by the investor directors and the petitioner and that the RBI has already authorised the company to receive payment in foreign exchange. The petitioner also informed that the terms of lease for bringing an aircraft has been finalised with Searsdale Inc., Miami, and as such permission was sought for increasing the authorised capital from Rs. 5 crores to Rs. 8 crores and to issue further shares to new investors without complying with the provisions of the Companies Act. During the hearing counsel reported the progress regarding the finalisation of the annual accounts as well as the other aspects regarding take over of the assets of the company. He elaborated the difficulties that he had encountered and the attitude of non-co-operation by the respondents. However, counsel for the respondents stated that he has no objection to the induction of the additional equity fund provided all the necessary permissions are obtained and funds are utilised only for reviving the working of the company. He also pointed out that the spare parts have been kept in his client’s custody and he was ready to hand over all these parts once the aircraft is received and put in operation. Counsel for the petitioners reported about the meeting of the creditors in which petitioner No. 1 had assured the creditors that as soon as the operations are revived and working is restarted, necessary action would be taken to repay the creditors after verifying their dues. We approved the induction of four investor additional directors and also authorised the company to issue further equity shares without following the procedure laid down under section 81 of the Companies Act. However, in view of the present authorised capital being not fully subscribed, we did not approve of increasing the authorised capital. We also gave directions to take steps to issue new share certificates in lieu of old certificates which were defective and also noted that the petitioner was planning to start the services by the middle of November, 1992, and directed that the company should furnish the progress report by the end of November, 1992.
28. At the hearing on January 12, 1993, the petitioner moved an application indicating therein that there had been some set-back in restarting the operation inasmuch as the company has been black-listed by the Commerce Department of the US Government for breach of terms of agreement by the previous management with International Air Leasing Corporation and the US Government had advised other aircraft leasing companies in US not to enter into any transaction with Air Asiatic Limited except with the permission of the US Government. In regard to additional equity it was stated that the RBI had not yet permitted the company to open a bank account in Dubai. It was also stated that the accounts were yet to be finalised. Therefore, he sought time up to May 15, 1993, to restart the operations.
29. It was for the first time during this hearing that we found that the petitioner who had been put in the management had hot been very sincere in his endeavour to activate the company. Neither any documents were produced regarding black-listing of the company nor any information given as to how and why no steps were taken to lease aircraft from other countries. Even though the RBI had permitted raising of NRI funds as early as in November, 1992, nothing had been done in this regard. None from the management was present even though we had inducted new directors on the board. We expressed our distrust that even though the new management came into picture in January, 1992, no concrete results have been shown by this team even in January, 1993. At the request of the petitioners’ counsel, Shri B. M. Rao, to enlighten us on these specific points, we adjourned the hearing to January 21, 1993, for final hearing.
30. On this date also counsel for the petitioner, Shri Francis, could not give any satisfactory explanation either regarding getting a new aircraft or on mobilising additional share capital. Even regarding finalising the accounts, he expressed difficulties on account of the non-availability of records which have been with the Directorate of Revenue Intelligence. On this day we expressed our concern that the new management had hardly taken any steps to show progress in the matter and that there was nobody present before us on behalf of the management to make any authoritative statement regarding how the company would be able to show further progress within a period, of four months, as now has been sought for by the company. This is in spite of the fact that claims were made by the petitioner that he would restart the operations by November, 1992. We also expressed our view that considering mismanagement by the respondents and inability of the petitioner to restart the operations, there was perhaps no other alternative but to dismiss the petition and advise the Central Government for taking further suitable action for the winding up of the company. However, a fervent plea was made by counsel for the petitioner that there would definitely be some progress shown in the next four months, i.e., by May 15, 1993. Counsel for the respondents represented that in case the petitioner fails in restarting the company, the respondents should be given time up to July, 1993, for restarting the operations of the company. In view of the undertaking given by the petitioner and since our entire endeavour all along had been to ensure that the company revives its operations, we gave a final opportunity to the petitioners to restart the operations and also directed that it would file with us a progress report by March 15, 1993, and May 1, 1993. We fixed the final hearing on May 13, 1993, with the directions that the chairman of the company, namely, petitioner No. 1, should be present on that day.
31. When the case was taken up for hearing on May 13, 1993, we found that the company had not filed any progress report as per our earlier order. On that day it was informed that the company had already finalised an agreement for aircraft and now they are awaiting the approval of the Director-General of Civil Aviation after which they will start the operation of air services, i.e., in a matter of few days. We advised him to intimate the date of operation of the service in due course after which we could pass the final” order.
32. However, later a letter dated June 15, 1993, was received from counsel for the petitioner stating therein that Latvian Air Lines has confirmed that TU-134 aircraft is available for immediate possession and use of Air Asiatic Limited and they were ready to visit Dubai any moment for signing the contract for this purpose with Air Asiatic and, therefore, sought 15 days’ time. Petitioner No. 1 also wrote a letter dated June 14, 1993, stating therein that since the aircraft had to go through service and maintenance they were trying to restart the operation by September, 1993. We again fixed the hearing on September 23, 1993, which was later postponed to December 3, 1993.
33. Only Shri B. M. Rao, advocate for the petitioner was present on December 3, 1993, and he produced a letter from petitioner No. 1 stating therein that he was on medical treatment for the past two weeks due to renal complications and, therefore, would be in India in the month of January and requested for getting a hearing in January, 1994, to make available details and documentation regarding the steps taken for starting the work of the company with immediate effect. He also made a statement that all the efforts were on to recommence the operations of the company. But he was not in a position to give any details in the absence of the petitioner. Therefore, we directed that petitioner No; 1, being the chairman of the company, should be present before us on January 10, 1994, to indicate the progress made in the revival of the company and we also indicated therein that in case no progress is shown, the petition would be dismissed. On January 10, 1994, when we took up the case for hearing, neither counsel for the petitioner nor any one from his side was present.
34. Even though this is a case under Section 397/398, the various allegations made therein pertain mostly in the areas of mismanagement covered under Section 398, which are not only apparent on the face of the petition but also were found to be fairly well founded. Most of the allegations regarding financial affairs of the company like non-payment of lease money for the aircraft resulting in the aircraft being repossessed, cancellation of the licence by the Director-General, Civil Aviation, non-insurance of the aircraft, FERA violations leading to investigation by the Directorate of Enforcement, non-complying with the various provisions of the Companies Act, non-maintenance of proper books of account, absence of proper system of accounting, etc., have been proved beyond doubt. Therefore, we thought it fit that the then management should be changed and accordingly we handed over the management to petitioner No. 1 who had the largest stake in the company on the prima facie establishment of mismanagement by the earlier management. We granted all the requests of the petitioner relating to raising of further capital, formation of his own board of directors, handing over of the property of the company, etc., etc., with the fervent hope that he would be in a position to revive the company. It is, however, apparent and clear that the new board with petitioner No. 1 has failed in their efforts to revive the company.
35. This is a unique case wherein even though the petitioner had filed this petition under Section 397--alleging oppression and under Section 398-alleging mismanagement, nothing has been elaborated in regard to the oppression part of the allegations. Perhaps the only act of oppression could be that as against exercising voting in respect of shares worth Rs. 2 crores, the certificates relating to which were in the possession of petitioner No. 1, he was allowed to cast vote only in respect of those shares which have been shown to have been allotted to him as per the register of members. On this now, it is clear and apparent, even as per the later stand of petitioner No. 1, that the Reserve Bank of India’s permission for allotment of shares did not cover Rs. 2 crores worth of shares held by the petitioner. Therefore, the act of issuing the share certificate beyond what is really allotted and recorded in the register of members could he only considered as an act of mismanagement. All the other allegations, as we have pointed out earlier, relate to mismanagement.
36. This is one of the cases where even during the initial stages of hearing, the various acts of mismanagement alleged became fairly clear and apparent and which have been later confirmed by the reports of both the independent inspector appointed by us and also by the statutory auditors of the company. Our endeavour right from the beginning has been, in view of the company having entered into a new arena practically the first of its kind by a private sector company, to ensure that the company is put back on its track. We should say in all fairness to Shri Verghese, respondent No. 1, that he readily agreed for handing over the management of the company to petitioner No. 1 and his group with his sole aim being the revival of the company. We, on our part, even after changing the board of directors, continued to monitor the performance of the company as the revival of the same was based on various commitments given by the petitioner like raising of fresh capital, leasing of new aircraft, etc. Since we had given a time limit within which the new management was to show results, it became incumbent on our part to assess its performance. The new board and petitioner No. 1 in his capacity as chairman submitted periodical reports indicating therein the various steps taken forthe revival of the company, yet we found that none of his efforts succeeded. We gave the petitioner and his group a very long rope only with the hope that because of his high stake in the company, he would make all out efforts to revive the company. This is the reason why we gave him extension repeatedly as at every hearing he was able to show some paper or document relating to his effort for the revival of the company. However, he failed to turn up for the hearing fixed on January 10, 1994, nor have we heard anything from him till date. Accordingly, we have to perforce come to the conclusion that petitioner No. 1 has given up his revival endeavour and he has not availed himself of the ultimate relief that could be thought of in a petition under Section 397/398, i.e., entrustment of the management to him after removing the existing management against which acts of oppression and mismanagement have been complained of. Under the circumstances, we have no alternative but to dismiss the petition and we accordingly do so. With the dismissal of the petition, all our interim orders including the reconstitution of the board of directors no longer survive.
37. On the dismissal of the petition, the question that arises especially when the present board of directors has been constituted by our order, the performance of which we have found to be as unsatisfactory as the earlier one, as to who should have the management of the company when it has assets over Rs. 1 crore in the form of deposits with the customs department Rs. 60 lakhs and spare parts worth about Rs. 40 lakhs. The company in its annual general body meeting held on July 15, 1991, elected a set of directors which we had, in our order dated July 11, 1991, ordered that the resolution should not be given effect to. Now that the petition has been dismissed, the board of directors as elected by the general body meeting held on July 15, 1991, will manage the affairs of the company with immediate effect. Petitioner No. 1 who was appointed by us as the chairman will within a period of two months, hand over all the properties of the company both movable and immovable which are in his charge and also render full accounts of the company during his tenure as chairman to the new board. We hope that the reconstituted new board would now remedy all the deficiencies and evolve a suitable strategy to revive the company.
38. Before we part with the case, we feel that it is essential to observe that in view of the various irregularities noticed in the conduct of the affairs of the company and in view that it has lost its substratum and even the petitioner’s group having a large stake in the company failing to take over management, the Central Government may have to consider taking appropriate action under Section 439 read with Section 433 of the Act, in case the new board also fails to revive the company within a reasonable period of time.
39. With this observation, we dispose of the petition as dismissed.