Delhi High Court
Prakash Nath & Ors. vs M/S. Ashoka Manufacturing Co. ... on 13 July, 2012
Author: A.K.Sikri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ COMPANY APPEAL NO. 4 OF 2002
COMPANY PETITION NO. 160 OF 2004
% Pronounced On: 13th July, 2012.
1. Company Appeal No. 4/2002
PRAKASH NATH & ORS. . . . APPELLANTS
Through : Ms. Pinky Anand, Sr. Advocate
with Ms. Natasha Sahrawat,
Advocate
VERSUS
M/S. ASHOKA MANUFACTURING CO.
PVT. LTD. & ORS. . . RESPONDENTS
Through : Mr. Krishna Kumar, Advocate
with Mr. Kaustubh Shukla,
Advocate
2. Company Petition No. 160/2004
M/S. ASHOKA MANUFACTURING CO. PVT. LTD. ... PETITIONER
Through : Mr. Krishna Kumar, Advocate
with Mr. Kaustubh Shukla,
Advocate.
VERSUS
MANU MACHINE TECH PVT. LTD. ... RESPONDENT
Through : Ms. Pinky Anand, Sr. Advocate
with Ms. Natasha Sahrawat,
Advocate
CORAM :-
HON'BLE THE ACTING CHIEF JUSTICE
A.K. SIKRI, ACTING CHIEF JUSTICE
1. The aforesaid company appeal as well as the company petition are
interconnected. The parties in both the proceedings are common. In fact, in
CP No. 14/1997 filed by Mr. Prakash Nath and others before the Company
Law Board, orders dated 30.5.2002 were passed directing re-drawl of the
balance sheet of M/s. Ashok Manufacturing Co. Pvt. Ltd. Mr. Prakash Nath
and others filed appeal CA No. 4/2002 challenging that judgment.
2. According to M/s. Ashok Manufacturing Co. Ltd., on re-drawl of the
balance sheet as per the directions of the Company Law Board, a sum of
`56,53,834.50p. is payable, apart from interest, by M/s. Manu Machine Tech
Pvt. Ltd. On that basis, Co.P. No. 160/2004 is filed for winding up of M/s.
Manu Machine Tech Pvt. Ltd. Since foundation of the company petition is
the order passed by the Company Law Board, it would be proper to deal
with the company appeal in the first instance.
3. Brief facts leading to the disputes between the parties are recapitulated
below.
4. M/s. Ashok Manufacturing Co. Pvt. Ltd. (hereinafter referred to as the
„Company‟) consisted of two units, namely, Division-A and Division-B,
which carried on business of manufacture of machines, stainless steel,
pressings and parts. A settlement dated 29.8.1992 was arrived at between
the two groups managing the Company. As per this, the aforesaid two
divisions came under two different managements. Division-A came to be
managed by Mr. Achal Nath and his group, while Division-B came under
the control of Mr. Prakash Nath and his group. This settlement also
provided that the Division-B would be required to take the bank liabilities to
the extent of `32,31,633/- and also make available various machineries
which were in their possession and custody to the Division-A. According to
Mr. Prakash Nath and his group, the other group controlling Division-A did
not implement and/or carry out the obligations fully, though at the same time
both the groups were managing their two divisions independent of each
other. Since differences arose between the two groups, Mr. Prakash Nath
and three others filed a company petition under section 397 and 398 of the
Companies Act before the Company Law Board, New Delhi, inter alia,
seeking formal division of the two groups and implementation of the
settlement fully.
5. We may also note that the Company was originally incorporated in
Lahore in 1939 and the registered office was transferred to Delhi in 1967.
Both the groups are family members of two brothers, who initially
incorporated the aforesaid company. Mr. Prakash Nath is one of the
brothers and Mr. Achal Nath is the son of the other brother Shri Ashok Nath.
On 8.4.1990, a family settlement was arrived at as per which the division of
the business took place and finally agreement dated 29.8.1992 was entered
into dividing the company into „A‟ & „B‟ divisions with effect from
30.11.1992. The balance sheet was also prepared on 30.11.1992 to identify
the assets and liabilities as on that date.
6. Having regard to the fact that there had already been a family
settlement, as per which the company was divided into two divisions which
were being managed by the two groups ever since then independently and
the matter only related to finalization of accounts and incorporation of
Division-B as an independent company, the Company Law Board gave a
suggestion during the course of hearing on 9.12.1997 that once the liability
of the company is divided, dispute could be settled by appointing Chartered
Accountants to examine the books of accounts to identify the various items
of liabilities shown in the books of accounts as on the date of division. This
suggestion was accepted by both the parties which led to passing of the
following orders dated 9.12.1997 appointing M/s. V. Shankara Iyer & Co.,
Chartered Accountants, to examine the books of accounts and give their
recommendations on apportionment of liabilities between the two divisions.
The said order reads as under :-
"When the matter was heard it was brought to our
notice that, there had already been a family
settlement between the parties according to which
the assets of the company have already been divided
into Division A and Division B and taken over by
the respective parties. The only disputed issues
relates to the apportionment of liability of the
company which has to be apportioned between
Division A and Division B. The counsel for the
parties have agreed that the liability that is shown in
the books of accounts on the date of division would
be examined by a Chartered Accountant and on the
basis of the findings given by him, the same will be
apportioned between Division A and Division B.
They have sought our directions in regard to the
appointment of a Chartered Accountant. We hereby
appoint M/s. Shankar Iyer & Co., Chartered
Accountants to examine the books of accounts to
identify the various items of liabilities shown in the
books of accounts as on the date of division of the
company and give their recommendations on
apportionment of these liabilities between the two
divisions..."
7. The said Chartered Accountants gave their report, but it was not
acceptable to both the parties who raised different nature of objections
thereto. The Company Law Board thereafter heard the arguments and
passed the impugned orders. In its impugned judgment, the Company Law
Board found as under :-
(a) Allegation of the respondents herein, petitioner in the said
petition, that late Shri Ashok Nath of Division-A had diverted
the funds of the company to ABRO and ABI were not
substantiated.
(b) The contention of the respondent herein that as per the family
settlement the resources of all the three companies, namely,
M/s. Ashok Manufacturing, ABRO and ABI were to be pooled
together and division was to take place accordingly, which was
not done, hence this contention was no more open to the
petitioners having regard to the orders dated 9.12.1997.
(c) The only issue which was to be determined was the quantum of
liabilities to be apportioned as per the books of accounts of the
company on the date of division of the company for which M/s.
V. Shankar Iyer & Co., Chartered Accountants, were appointed.
In this behalf, the Company Law Board passed the following
order :-
"Since the company had already been
divided and that the two groups are
managing the affairs of the divisions
independently for nearly 10 years, it would
be more appropriate to formalize the division
of the company especially when we find that
both the divisions are independently
maintaining separate accounts which are
consolidated for the purpose of preparation
of the annual accounts of the company.
Therefore, in exercise of our power under
Section 402 of the Act, we direct as follows.
The petitioner will corporate a new company
in respect of Division B within a period of 3
months. All assets and liabilities of Division
B as on date shall be taken over by the new
company. The existing company will consist
of Division A along with its assets and
liabilities. All the assets acquired and
liabilities incurred by or attributable to
Division B with effect from 30.11.1992 shall
be with the new company and the assets
acquired and liabilities incurred by or
attributable to Division A shall be with the
company. As far as the apportionment of the
unapportioned liabilities as on 30.11.92
between the two divisions is concerned,
since this issue is pending for long inspite of
intervention of third parties viz. Shri Sud and
M/s.Shankar Iyer & Co., we direct, even if it
is to cause some prejudice to one of the
groups, that these liabilities on that should be
divided equally between the two divisions as
the shareholding of each group is equal.
Likewise, undivided assets also will be
divided equally. If either of the divisions
had incurred any expenditure on behalf of
other Division or cleared any liability of the
other division after 30.11.92, adjustment
should be made. In view the directions in
regard to the liabilities, Group A need not
have the apprehension that it may have to
shoulder the liabilities of Division B with
apprehension is found to be their main
objection for formal division of the
company. The statutory auditor of the
company will recast the accounts of both the
Division in terms of the above directions
within a period of 3 months to enable the
parties to part way. Once the new company
is incorporated, the share capital of the 4th
respondent company will be reduced by
50%."
8. Before recording the submissions of the counsel for the appellant,
challenging the aforesaid order, I must point out that disposal of these
matters have been unduly delayed. The judgments were reserved on two
occasions earlier. After it was reserved for the first time, while dictating the
judgment, it transpired that on certain issues some clarifications were
needed. It was primarily for the reason as would be stated hereinafter at the
appropriate stage some of the aspects on which oral submissions were made
are not found in the impugned orders passed by the learned Company
Judge. The matter therefore listed for direction/further arguments. By that
time, roster changed and therefore this case could be taken up only on
Fridays. Many times case could not be taken up for hearing because of
paucity of time and on many occasions because of non-availability of one
counsel or the other. Though at that stage I could have released the matter
and sent to the Regular Bench, however, this Court found itself morally
bound to decide as arguments were heard earlier and judgment reserved.
Therefore, it would not have been proper to send the case to another Court
for fresh argument altogether. Even the counsel for both the parties wanted
this Court to proceed with the matter.
9. Counsels for the parties filed their written submissions and the order
was reserved again. However, it was again found that there was few sets
of written argument/synopsis submitted by counsel for both the parties
which were causing certain confusion. The matter was listed again and the
learned counsels for the parties were directed to file one set of consolidated
written argument. The appellant filed written arguments on 29.4.2010. The
respondent counsels took some time and filed the written arguments on
24.5.2011. Thereafter, counsel for the respondent wanted to make oral
submission as well and for this purpose the case was again adjourned
number of times. Ultimately, statement was made on 16.3.2012 that no
further arguments are to be heard and the judgments were reserved on that
day. I deemed it proper to state this position to make the record straight.
10. Learned Senior Counsel for the plaintiff has argued that after
differences and disputes had arisen between the two groups of the family, it
resulted in family settlement which was arrived at on 8.4.1990. Since the
AMC was the parent company and two other companies namely ABRO and
ABI had come up with the aid and diversion of funds of AMC, the family
settlement dated 8.4.1990 specifically dealt with the division of three
companies between two groups equally by pooling all the three companies
together. It was further pointed out that by document dated 8.2.1992,
balance sheets of AMC, ABI and ABRO were to be finalized to implement
the family settlement dated 8.4.1990. However, the balance sheet of ABRO
was not finalized and further time was sought to finalize the balance sheet
of ABRO. Further, the minutes of meeting dated 14.10.1992 shows that
diversion of ABRO was yet to be accounted for. Learned Senior Counsel
accepts that financial arrangement of AMC was made as per which it was
physically divided into two divisions i.e. Division A and Division B and the
operation of the bank account were divided between the two Divisions.
However, the grievance is that assets and liabilities of AMC and ABI were
accounted for on 27.1.1994, the pooling in of ABRO was never effected as
per the family settlement dated 8.4.1990 and the following terms and
conditions of the family settlement have not been implemented today:
a. Diversion of Funds
Diversion of funds to ABRO from AMC is 9 crores between 1976 to
Nov 1992 with interest on account of profit margin and approx ` 5 Crore
between 1976 to Nov 1992 on account of net saving of income Tax to be
accounted for: the claim of appellants share is half of total diversion i.e. 6.5
crores tentatively ascertained by appellants to be ` 6.5 crores.
b. Tenancy Rights
i. As per family settlement dated 8.4.1990, ` 30 lacs value was to be
taken for tenancy rights of AMC/ABI corporate office at 12 Scindia House,
Connaught Place, New Delhi (Clause 2 (h) ) The said premises are
exclusively under use and occupation of AN group till date.
It is argued that one of the valuable assets of AMC is tenancy rights
of No.1, Canal Road which was defacto divided but dejure partition has not
been affected. LD. CLB has grossly failed to direct formal division of
tenancy rights over land and property bearing No.1, Canal Road, Delhi
110009 even though entire assets, land, building, plant and machinery,
personnel and products etc have been physically divided by the parties and
duly appreciated by ld. CLB.
c. Compensation for Logo and Name of ABI
` 1.25 lacs was agreed to be paid by AN group to PN group on account of
logo and name of ABI which has not been implemented till date as is clear
from the minutes of the meeting dated 21.11.1992.
d. Shareholding and Consequential Benefits in ABI.
PN Group had 25% shareholding in ABI. As per family settlement
this 25% shareholding of ABI was to be enhanced to 49% and necessary
implementation was to follow. No monetary benefits have been given to PN
group from ABI since the date of family settlement. No dividends on share
or bonus share or share capital have been refunded. Personal deposit of ` 5
lacs of PN group has not been refunded till date. Mrs. Lily Prakash Nath
was director in ABI; however she has not been allowed to participate in
company affairs. The same has not been done till date.
e. Pooling of ABRO for Division.
Appellants have specifically prayed to give total effect to
implementation of the family settlement 8.4.1990 before CLB vide prayer
(b) that the court direct respondent no.1,2 and 3 to implement with
immediate effect the family settlement and bring about legal separation of
Divisions A and B to form into separate legal entities and also prayer (f)
which reads as „direct the Respondent to hand over 50% of assets in control
of Respondent No.5 company ABRO also to the Petitioners in terms of
family settlement and the various decisions agreed to between the
respondents and the Petitioners."
It is abundantly clear from above that respondents did not implement
the family settlement dated 8.4.1990 in its totality. ABRO was not pooled in
for division in the common kitty ever. The tenancy rights were not divided
between the parties. Compensations on account of goodwill and name were
not paid by the respondents. Petitioners have not been given benefits of
their 49% shareholdings in ABI.
11. Learned Senior Counsel further argued that the subject matter of the
present appeal is limited only to strict implementation of family settlement
dated 8.4.1990 and various minutes of meeting dated 24.11.1992 and this
fact was accepted by the CLB but the CLB implemented it partially. It is
also argued that CLB wrongly implemented the consent order dated
9.12.1997 and the consent order had a limited operation qua AMC as a
company alone. According to her, the diversion of ABI and ABRO had to be
accounted for. Questioning the report of the auditors namely Shankar
Aiyar‟s report which was based on order dated 9.12.1997, submission was
that it did not take into account the diversion and therefore, was not
acceptable to both the parties. Even CLB itself had rejected this report vide
order dated 24.12.2001. Predicated on this it is sought to be argued that all
issues were reopened by the CLB itself Submission of learned Senior
Counsel was that CLB in its operative portion of the judgment dated 30 th
may 2002 directed that „the statutory auditor of the company will recast the
accounts of both the divisions in terms of above directions within a period
of 3 months to enable the parties to part way". Statutory auditor of the
company has not recast the balance sheets of two divisions till date.
12. It was also submitted that the alleged recovery of amount due from
respective groups pursuant to recasting of balance sheet or reconciliation of
accounts inter-se between two groups is not subject matter of present appeal.
CLB has not ascertained the liabilities. Hence this issue cannot be agitated
before this appellate court. However, without prejudice to the rights and
contentions of the appellants, as per the balance sheet of Division A for the
financial year 2002-03 filed with ROC, nothing is due or payable to Division
A by Division B. Note 8 of the said balance sheet reads as follows:-
"Claims are recorded in the books on receipt basis.
Further there is no outstanding claims as on date
of the balance sheet."
13. Submission is that, on the contrary, an amount of `4.25 lacs is due
and payable by Division A to Division B as per recast balance sheet as on
15.6.2004 by the appellants Division B. In order to give legal flavour to the
aforesaid submission, Ms. Pinky Anand, submitted that in a petition under
Section 397 and 398 of the Companies Act, appropriate directions can be
issued to enforce and implement the family settlement. In support reliance
is placed on the following judgments:-
(i) Ms Pushpa Prabhudas Vora and ors. Vs.
Voras Exclusive Tools Pvt. Ltd. [2000 (101)
Com Cas 300]
(ii) Trackparts of India Ltd. and Ors v. KN
Bhargav and Ors & Smt. Radhika Bhargava
and ors. Vs. KN Bhargava and ors. [(2000) 4
Comp LJ 310 (All)]
(iii) Sishunath Ranjan Dutta and Anr. Vs.
Bhola Nath paper House ltd. 1983 53 Comp
cases 883.
(iv) S. James Fredrick and Anr. Vs. Mrs Minnie
R. Fredrick and Ors. [2000 (101) Comp Cas
294]
(v) KN Bhargava and Ors. V. Trackparts of
India ltd. and Ors [2001 (104) Comp Cas
611]
14. She also submitted that in the case of Hansa Industries Pvt. Ltd and
others Vs. Kidarsons industries Pvt. Ltd. (C. Appeal (civil) 1682/1999,
decided on 13.10.2006) it was held that the family arrangements are
governed by special equity peculiar to themselves and would be enforced if
honestly made. "The principles which apply to the case or ordinary
compromise between strangers, do not equally apply to the case of
compromises in the nature of family arrangements. Family arrangements are
governed by a special equity peculiar to themselves, and will be enforced if
honestly made, although they have not been meant as a compromise, but
have proceeded from an error of all parties, originating in mistake or
ignorance of fact as to what their rights actually are, or of the points on
which their rights actually depend." On tenancy rights the learned counsel
relied upon the judgment in Kailash Financiers (Calcutta)Pvt. Ltd. (1982
Tax LR 2439).
15. Mr. Kishan Kumar, learned counsel appearing for the respondent on
the other hand submitted that it was not open to the appellant to challenge
the order dated 30.5.2002 passed by the CLB as the appellant itself had acted
upon the said order by taking various steps pursuant thereto which are as
under:-
(i) The appellants in company appeal no.4/2002
set up a company by the name of Manu Machine
Tech Pvt. Ltd. (refer affidavit filed on 15th July,
2003 in Company Petition No. 314/2000)
(ii) Again pursuant to the said order the statutory
auditor after into consideration all the facts, came to
a specific finding that Prakash Nath group namely
Group B, would require to pay an amount of `
99,14,286/- as on 30th June, 2003. The said
certificate was sent to the company by the statutory
auditor alongwith the certificate giving the details.
(iii) The said fact was also duly incorporated in
the balance sheet as on 31st march, 2003 by way of a
note which read as under:
The amount has thereafter been incorporated in the
balance sheet year after year and the balance sheet
as on 30th march, 2006 again specifically records as
under:
"20. The effect to the ruling of the „Company Law
Board order dated 27.03.2002 has been given w.e.f
31st march, 2005 at the directions of the Board of
Directors. Consequently, the assets and liabilities of
Div. „B‟ have been removed the Balance Sheet and
allocated to Manu Machines Tech (P) Ltd. An
amount of ` 99,14,286/- has been shown as amount
recoverable from Division B in the Balance Sheet as
31st march, 2005. The amount recoverable from
Manu Machine Tech (P) Ltd. has been contested in
the High Court and the matter is still pending."
16. Learned counsel further argued that the Auditors report submitted
alongwith the Balance Sheet dated 5th September 2006 also specifically
mentions and reiterates the fact that the amount of ` 99,14,286/- is
recoverable from Division B namely from M/s Manu MachineTech Pvt. Ltd.
The relevant extracts read as under:-
"3. The effect to the ruling of Company Law
Board Order dated 27.03.2002 has been
removed from the Balance Sheet and liabilities
of Division „B‟ have been removed from the
Balance Sheet and allocated to M/s Manu
machine Tech. (P) Ltd. An amount of `
99,14,286 has been shown as amount
recoverable from Division „B‟ in the balance
Sheet as at 31st March, 2006 effect of all
adjustment have been made through the
General Reserve Account. The previous year
figures have also been rearranged to give the
above effects. The amount recoverable from
Division „B‟ (M/s Manu Machine Tech Pvt.
Ltd.) has been contested in the Hon‟ble Delhi
High Court and the matter is still pending."
The Balance Sheet for the year 2003, 2004, 2005 and 2006 are already
part of the records. The said details by way of note is also being mentioned
in the Balance Sheet from year to year and have been mentioned for the year
ending 2007, 2008, 2009 and 2010. In view of the aforesaid the only thing
that was required to be done was that the Prakash Nath Group i.e Division B
was/ is still required to pay the total amount working out of `1,23,05,063/-
as on 31.12.2010 as per the auditors certificate attached and interest @ 18%
is due ` 1,66,11,835/- till 31.12.2010.
In spite of the aforesaid specific order "Prakash Nath group has not
only failed to make the payment but have also clandestinely removed assets
of the company from the Division B and disposed it off. In this process the
appellant group has not only over reached the orders of this Hon‟ble Court
but has also committed contempt and fraud for which they are liable. The
respondent Company has also shown from the records that Mr. Prakash Nath
and his group are liable to be proceeded for misfeasance and appropriate
directions to be given for ascertaining the extent of loss the company has
suffered and further directions to be given for Mr. Prakash Nath & his group
to make good the same to the company.
17. Refuting the contentions of the appellant, it was submitted that these
false and frivolous issues were raised only to prevent to payment of
legitimate dues of the respondent. In this behalf, submission of the
respondent proceeded in the following manner:-
That Balance Sheet of 30th March, 2003 does not show the figure of
outstanding. This is incorrect as the same had been referred in the note and
the reason also given as to why the said amount has not been incorporated.
It may be pertinent to note that in the event the amount is said to be included
in the body of the Balance Sheet as amount accrued, the company would
have had to pay tax on the said amount even though the same had not been
received. Further in view of the pendency of the proceedings and the appeal
before this Court the said amount was considered appropriate to be
mentioned in the form of a note. The issues relating to matters prior to
3.11.1992 are being raised/ reagitated. This is not only improper, but a
deliberate attempt to prevent respondent company from getting its dues. A
mere perusal of the petition before the Company Law Board would show
that this was not an issue raised in the petitioner and cannot from the subject
matter of the present appeal. Further, the records placed before the Court
would clearly shows that the parties have agreed to a settlement by way of
various documents executed from time to time and in the presence of an
Arbitrator and that the only action for compliance was the payment of
liabilities by Group B which was also agreed by way of execution of
documents on 30.11.1992 to be ` 32,31,635/-. Reference could be made to
the document dated 27.11.1994 duly signed by Mr. Prakash Nath wherein it
had been agreed that the Division B would pay the liability of `32,31,635/-
to the Bank. After the execution of the said document no other issue remain
outstanding for determination by the Arbitrator and only the implementation
of separation of the physically units were to take place. In the written
submissions dated 29.4.2010, the whole of the issues which were before the
Arbitrator and which were resolved and the partially implemented, have
now sought to be raised again and sought to be reagitated. These issues
cannot be made the subject matter of the appeal as they were not the subject
matter of the Company Law Board Petition under Section 397 and 398
originally. Reference could be made to the petition itself. Reference could
also be made to the reply filed by the respondents, recording the actions
taken and the actions required to be taken as admitted by the parties.
Also the issues pertaining to the directions given by the Arbitrator are
subject matter of Arbitration and could not be raised in the petition under
Section 397 and 398 or in appeal before this Court, to seek further directions
with regard to the Award passed in the said proceedings.
Tenancy:
This issue was never raised before the Company Law Board. The
Land in possession of the respondent Company belongs to the individuals
and the respondent company is only a tenant. The division in the units does
not give any right to dispose of any part of the land as both the divisions and
the company has no title or right to the said land. The Prakash Nath Group
however, is clandestinely and illegally seeking to transfer the rights of the
land held by Division B earlier. Transfer of such right would be void ab
initio.
At the end it was submitted that the appellant was liable to pay a sum
of `99,14,286 as on 30th June, 2003 which amount had still not been paid
and, therefore, the company petition filed by the respondent herein be
admitted.
18. From the arguments of the appellant, recapitulated above, it becomes
clear that the whole thrust is upon the family settlement entered into
between the groups and the grievance made is that CLB has not given
complete effect to this settlement while deciding the petition of the appellant
herein under Section 397 & 398 of the Companies Act. In the process the
appellant are also trying to raise the alleged pending issues in respect of
other companies which were the subject matter of family settlement. The
argument is that the Company Law Board had the inherent power to do the
justice in the interest of company and the shareholders and principle of
partnership could be applied in resolving the disputes between the family
members. However, we have to keep in mind that the company petition
filed by the appellant was only in respect of M/s Ashoka Manufacturing
Pvt. Ltd. Other Two companies are/were the part of the family settlement,
could not be part of the said company petition. These companies are
separate entities in the eyes of law. While dealingwith the aforesaid
company i.e. M/s Ashok manufacturing Pvt. Ltd. which was brought before
the Company law Board, the CLB could not venture into the affairs of
other company particularly ABRO and ABI. Furthermore, reading of the
developments which took place before the CLB after the filing of the
Company petition and the manner the matter was heard from time to time
would show that the parties were agreed to resolve their disputes which
were required to be determined and the order dated 9.12.1997 was passed
by the CLB. As per this order, the assets of the company in question had
already been divided between the parties into Division „A‟ and Division „B‟
and taken over by the respective parties (pertinently, this is the position
accepted throughout even in these proceedings). This order further records
that the only dispute relates to the "apportionment of liability of the
company which has to be apportioned between Division „A‟ and Division
„B‟. This order really clinches the issue and clearly spells out the position
which was taken by both the parties as on that day. They had accepted that
the assets had been divided and only liabilities were to be apportioned
between the two groups. In order to ascertain the liabilities and to arrive at
the apportionment thereof, both the parties also agreed that this aspect could
be examined by the Chartered Accountants. The agreement was also to the
effect that liability as on date of division was to be examined by the
Chartered Accountants. The matter thereafter which remains to be settled
was the extent of liability and apportionment there of between the two
groups. For this purpose M/s Shankara Iyer & Co., Chartered Accountants
were appointed to examine the books of accounts to identify the various
items of liabilities shown in the books of accounts as on the date of the
division of the company and give their recommendation on apportionment
of these liabilities between these two divisions. The learned CLB recorded
that keeping in mind this statutory aspect, the CLB recorded that when the
parties themselves had agreed and confined the issue which remained to be
settled to the apportionment of the liability, the issue whether a family
agreement between the shareholders could be implemented through a
petition under Section 397/398 of the Companies Act had become
redundant. For this reason, the CLB did not examine the same.
19. I find myself in agreement with the aforesaid approach of the CLB
and there is hardly any reason to turn around and take somersault by
bringing the grievances relating to ABRO and ABI alleging that the funds
of the company had been diverted to these two companies. That part, the
CLB also recorded that the appellant could not substantiate the allegations
about the diversion of funds. Paras 20 and 21 of the impugned order record
the same in the following manner:-
"20. In the background of this order we have to
examine the allegation of the petitioners. Their
main grievance is that late Ashok Nath of Division
A had diverted the funds of the company to ABRO
and ABI. As far as ABRO is concerned, the
petitioners have not furnished the manner and mode
of the alleged diversion. Since the company was
procuring electronic parts from ABRO, the only
manner by which the funds could have been
diverted is by paying excessive prices for these
electronic parts. No details have been given in this
regard. The petitioners, it appears, seem to have
raised this allegation purely based on the
comparative percentage of profits of the company
and that of ABRO. Another allegation is that
ABRO had no assets or resources of it own and that
the resources of the company were being utilized by
ABRo and this has been denied by the respondents.
Since ABRO is a limited company, the petitioners
could have produced the Balance Sheets and Profit
Loss Accounts of the company, from which we
could have found out whether ABRO had its own
resources. We note that even the respondents have
not produced these documents. Further, the period
of alleged diversion was between 1972-1990, that is
over a period of 15 years during which period, the
1st petitioner was on the Board of the company.
Therefore, in view of absence of proper material to
substantiate this allegation of diversion, and the 1st
petitioner was a director of the company during the
relevant period, we cannot hold that the respondent
shareholders had acted in a manner prejudicial to
the interests of the company in its dealing with
ABRO or that funds had been diverted to ABRO.
As far as ABI is concerned, we find that the
petitioners are also substantial shareholders in this
company with one of them on the Board and that the
1st petitioner had signed the applications for getting
approval of the CLB for payment of commission to
ABI. A party to a decision can never allege
mismanagement, that too, after a period of a decade.
Therefore, we do not find any merit in the stand of
the petitioners that by paying commissions to ABI,
the respondent shareholders had acted against the
interest of the company. In regard to allegation that
ABI was suing, the resources of the company is
concerned, we reiterate our observation in regard to
ABRO in this respect."
20. It is difficult to accept the contention that since report of the
Chartered Account was not accepted by the parties and the Board also
refused to act thereupon, the order dated 9.12.1997 did not lose its force.
The Chartered Accountants were called upon to look into and examine the
books of accounts to identify the liabilities as on date of division of the
company and give their recommendations on apportionment of these
liabilities between the two divisions. If the Chartered Accountant could not
perform this task satisfactorily, that would not mean that the appellant
became entitled to back out from the statement made on 9.12.1997 namely
in so far as the assets of the company are concerned, they had been divided
between the parties and only dispute related to the apportionment of the
liabilities.
21. In the aforesaid backdrop when the report of the Chartered
Accountants was not acceptable having regard to the fact that the matter was
between the two groups of family and was pending since long, the CLB
thought it equitable to direct equal distribution of the liabilities between the
two divisions as on the date of division of the company into two groups
more so, when the shareholding of each group was also equal. The
direction was accordingly given to the statutory auditor of the company to
recast the accounts of both the Divisions and for incorporation of new
company to formalized the aforesaid division in two groups.
22. Having regard to the above, most of the arguments of the appellant
relating to diversion of the funds to ABRO became redundant and
meaningless. Still some comments are needed. As far as diversion of funds
is concerned, the appellants are holding that this diversion occurred between
1976 to November, 1992 and has to be accounted for. The plea is ex facie
farfetched, as obviously from 1976 till the date of family settlement, both the
groups were incharge of the affairs of the company who were running the
company jointly. No objection of any nature was made at that time and on
the basis of same allegation, without any cogent prove to support the said
allegations, the appellants want reopening of all those accounts for all these
years which is an impossible and unattainable task. Similar would be the
position in respect of claim for possession of logo and name of ABI,
shareholding and consequential benefits in ABI pooling of ABRO for
division and tenancy rights. The respondents appear to be correct that the
appellants are trying to raise the issues relating prior to 30.11.1992 some of
which were even the subject matter of the arbitration between the parties.
Since these matter relate to other two companies, it would be more
appropriate for the appellant to raise those disputes, if still permissible
under the law by separate proceedings in accordance with law.
23. Insofar as tenancy rights are concerned, the stand taken by the
respondent is that land in possession of the respondent company belongs to
individuals and the company is only a tenant. The Division of unit does not
give any right to dispose the land. In any case this is a question which can
be determined in a separate civil proceedings and opportunity to that effect
is granted to the appellant.
24. As a consequence, Company Appeal is hereby dismissed.
CO. PET. 160/2004
25. As pointed out above, in the beginning of this order, according to the
petitioner M/s. Ashok Manufacturing Co. Ltd., on re-drawl of the balance
sheet as per the directions of the Company Law Board, a sum of
Rs.56,53,834.50p. is payable, by M/s. Manu Machine Tech Pvt. Ltd. apart
from interest. Since the appeals stand dismissed, this company petition be
listed for hearing before the Regular Bench on July 30, 2012.
(ACTING CHIEF JUSTICE)
JULY 13, 2012
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