GNVS IOM Roll No: 3

Name: Mrudul Dagli

Company Law Board Indian Kanoon - http://indiankanoon.org/doc/971526/ Shri Preetam C. Kelkar vs Alcot Slugs Pvt. Ltd., Shri Binod ... on 26 June, 2007 Equivalent citations: (2008) 2 CompLJ 287 CLB Bench: S Balasubramanian ORDER S. Balasubramanian, Chairman 1. The petitioner claiming to hold 45% shares in M/S Alcot Slugs Private Limited has filed this petition alleging oppression and mismanagement in the affairs of the company. A summary of the petition is that: On the misrepresentation of the respondents that if the petitioner joined the company, there would be a huge profit and that the petitioner would be given proportionate representation on the board, the petitioner acquired 45% shares from the 2nd respondent and the petitioner was also inducted into the board effective from 1.4.1998. He also invested a sum of Rs. 4,75,055 by way of unsecured loan with an understanding that interest would be paid on this amount. The petitioner did not interfere in the functioning of the company as he had full faith and trust in 2nd and 3rd respondents. These respondents had kept the petitioner in total dark about the affairs of the company and no notice for either board meetings or annual general meetings was ever received by him. The financial performance of the company is far from satisfactory. When he paid a surprise visit to the factory of the company on 26.11.2005, he found that goods not belonging to the company were lying in the factory in raw material, semi processed and finished form. This would clearly show that the respondents are using the assets and facilities in the company for the benefit of others. The fact that the goods belonging to others were in the factory was also got recorded from an employee of the company. Further, a perusal of the balance sheet for the year ended 31.3.2005 shows that the expenditure incurred of about Rs. 60 lacs is more than sales figure of Rs. 53 lacs. This would indicate that the respondents are using the company for the benefit of others and this would also indicate that the respondents are taking away the finished goods without raising proper bills. The respondents are not giving inspection of the statutory documents including books of accounts. Since the petitioner had been questioning the conduct of the respondents, they are trying to remove the petitioner as a director by in an EOGM convened on 7.2.2006. The intention of the respondents to remove the petitioner director is with a view to take away the assets and other resources of the company after clearing the liabilities. Therefore, to protect the interests of the petitioner, the company should be wound
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GNVS IOM Roll No: 3

Name: Mrudul Dagli

up and the assets of the company should be sold and after paying off the liabilities, the balance should be distributed to the shareholders. 2. In the reply to the petition, the 2nd and 3rd respondents have submitted: When the petitioner was inducted into the board, he was handed over the entire management of the company reposing full faith and confidence. After taking over management, the petitioner started selling finished goods to his own family concern M/S Kelkar Trading Company at a price much lower than the one at which the same product is sold to other customers. Once the respondents came to know of this, the 2nd respondent called upon the petitioner to give explanation which he never did. Instead he got a letter signed by one Lalit Kumar Jha to implicate the respondents that goods belonged to the outsiders were in the factory. All the statutory records including the books of accounts are kept with the petitioner at his residence and in spite of repeated demand, he is not returning the records. Since the petitioner was operating the bank accounts and in view of his non cooperation, the respondents have stopped the operation of the bank accounts to prevent the petitioner from misappropriating the funds of the company. The respondents issued a notice to the petitioner that 2nd and 3rd respondents had requisitioned a meeting on 7th Feb., 2006 to remove the petitioner as a director. His attention was also drawn to Section 284 of the Companies Act to enable him to make his representation in writing against the proposal to remove him. He replied to this notice on 14.1.2006 making various allegations against the respondents and also asking them to refrain from removing him. In his further reply on 6th Feb. 2006, the petitioner has denied that he is in possession of any original record except certain zerox copies of some documents. On 7.2.2006, the petitioner attended the EOGM and after considering his representation, the members passed an ordinary resolution removing him as a director. Even though the petitioner has alleged siphoning of funds on the basis of figures in the balance sheet, yet, all the balance sheets have been signed by the petitioner himself as he was in charge of the accounts and finance of the company. The petitioner has been instigating the customers of the company not to pay the dues to the company and thus is putting the company into financial difficulties. Since all the books of accounts of the company are with him, the company is not in a position to file the statutory returns including Income Tax returns. Since the petitioner who is guilty of oppression and mismanagement, the petition should be dismissed. 3. Shri Jay Salva appearing for the petitioner submitted: After the petitioner joined as a director, he has been in charge of sales, purchase, accounts, finance and banking operations. The responsibility of manufacturing activities were with the 2nd respondent. The petitioner never visited the factory and therefore he was not aware of the fact that the respondents are utilizing the resources of the company for outside work and that they were dispatching good without
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GNVS IOM Roll No: 3

Name: Mrudul Dagli

invoice. These activities came to the knowledge of the petitioner only on 26.11.2005 when he visited the factory premises. The allegation that the petitioner was selling the products of the company to M/S Kelkar Trading Company at a low price is wrong. This entity was a customer of the company even before the petitioner became a shareholder and all through goods sold to this entity were at a lesser price. As a matter of fact, most of the invoices relating to supplies made to this entity are in the signature of the 2nd respondent. At the time when the petitioner joined the company, the company had a negative net worth but after he joined, the losses were wiped out and the company has been progressively making profits. Since there is complete loss of trust and goodwill between the petitioner and the respondents, the only solution is parting of ways. The present net worth of the company is estimated at Rs. 40 lacs. Since the petitioner holds 45% shares in the company, the petitioner is prepared to go out of the company on receipt of Rs. 18 lacs plus his loan or in the alternative he is prepared to purchase the shares of the respondents at Rs. 22 lacs plus loans given by them to the company. 4. Shri Rajeev Narain, Advocate appearing for the respondents submitted: In terms of CLB Regulations, the petitioner should have affirmed a proper affidavit. The affidavit filed by the petitioner is defective in the sense that he has not indicated which averments are true to his knowledge and which averments were based on legal advice. On this ground alone, the petition should be dismissed. The petitioner was earlier the manager of the company and he was inducted in the board with shareholding with a view to improve the functioning of the company. With that object, he was given complete charge of the company but he started selling the products of the company to his own family entities at a lesser price and thus has put the company into financial loss. In the EOGM held on 7.2.2006, the petitioner was removed as a director after following the legal procedure. Therefore, the petitioner had acted against the interest of the company cannot voice any grievance of oppression and therefore the petition should be dismissed. In so far as the proposal of the counsel of the petitioner that one of the parties should go out of the company is concerned, the respondents do not accept the valuation of Rs. 40 lacs. The respondents have no objection to the petitioner going out of the company on valuation to be made by an independent valuer. 5. I have considered the pleading and arguments of the counsel. While the petitioner admits that he is in charge of major functions of the company, his contention is that the respondents are in charge of manufacturing activities and they have been using the resources of the company for the benefit of outsiders and are also taking away the products without invoice. According to the respondents, he is in full management of the company including manufacturing and he has been selling goods at a lower price to his own family entities. Except these two counter allegations,
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GNVS IOM Roll No: 3

Name: Mrudul Dagli

there are no substantive allegations other than the removal of the petitioner as a director. At this stage, I am of the view that no purpose is going to be served in examining as to who is at fault especially when both the sides are conscious of the fact that they cannot continue together. In other words, parting of ways is the only remedy that can be thought of in the present case. Even though the learned Counsel for the petitioner has assessed the worth of the company at Rs. 40 lacs, there are no materials to support this valuation. Therefore, to be fair and equitable to both the sides, an independent valuer should be appointed to determine the fair value of the shares so that the petitioner being in minority could go out of the company. Accordingly, I order so. Both the sides should be present on 10th July, 2007 at 2.30PM to suggest a mutually acceptable valuer and in case they are unable to agree on a valuer, this Board would appoint its own valuer and give consequential instructions. 6. Petition is disposed of in the above terms. There is no order as to cost reserving the right to appoint a valuer.

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