Shri Jitendra Prasad Agarwal & Ors vs Associated Tubewell (India) Ltd & ...
2014 Latest Caselaw 2892 Del

           THE HIGH COURT OF DELHI AT NEW DELHI
%                                          Judgment delivered on: 02.07.2014

+       CO. APPL. NOS. 1/1994, 79/1997, 1002/1997 & 602/2001
        IN CO.PET.195/1986

SHRI JITENDRA PRASAD AGARWAL & ORS                                         .....Petitioners

                                               versus

ASSOCIATED TUBEWELL (INDIA) LTD
& ORS                                                                     .....Respondents
Advocates who appeared in this case:
For the Petitioners  : Dr Arun Mohan, Sr. Adv. with Mr Rajeev
                       Sharma, Mr Sahil Bhalaik, Mr Uddyam
                       Mukherjee & Mr Harsh Vardhan.
For the Respondents  : Mr Daljit Singh, Sr. Adv. with Mr M.S. Vinaik.
                       Mr Manish Kumar Srivastava for R-6.

CORAM:-
HON'BLE MR JUSTICE VIBHU BAKHRU

                                          JUDGMENT

VIBHU BAKHRU, J

1. Petitioners have filed these applications under Section 403 of the Companies Act, 1956 (herein referred to as the 'Act'), inter alia, seeking appointment of a receiver/administrator to take over the management of the respondent Company and removal of Mr Gautam Agarwal from the Board of Directors of the Company, and to debar Mr Gautam Agarwal and Mrs Raj Kumari Agarwal from participating in the management of the Company.

2. Respondent no.1 Company was incorporated as a private limited company under the Companies Act, 1913 on 14th December, 1954. The shareholding of the company was distributed between the members of the Modis' and the Agarwals' family. The Company was deemed to be a public company by virtue of Section 43A of the Companies Act. 1956 (as was in force at the material time). The Board of Directors of the Company approved the deletion of the word "private" from the name of the Company on 17th March, 1983 and the Registrar of Companies deleted the same on 6th October, 1983. The nominal capital of the Company is `25,00,000 divided into 25,000 equity shares of `100 and the paid-up capital is `20,00,000. Equity capital of `5,00,000 was issued and subscribed by the members of the Modis' family and Agarwals' family in the ratio of 60% and 40% respectively. The petitioners hold 2,800 fully paid up equity shares of `100/- each in the company.

3. The present Company Petition was filed by the petitioners under Section 397 & 398 of the Act on the ground of mismanagement and oppression by the majority shareholder, alleging that the respondent Company was being run for the benefits of the majority shareholder Mrs Raj Kumari Agarwal and her family. By an order dated 6th March 1989, the company petition was admitted.

4. Petitioner no.1 herein filed an application being CA 1/1994 submitting that the affairs of the respondent company were being run for the benefits of the majority shareholders i.e. Mrs Raj Kumari Agarwal and her family members. Details were sought with regard to educational expenses and other expenses of Mr Gautam Agarwal (son of Mrs Raj

Kumari Agarwal) incurred in Bangalore and also with regard to need of opening of the alleged branch office and the transactions conducted through the said branch office. The applicant (petitioner no.1) further states that `8,27,690 which was paid as capitation fee were passed off as consultation charges, advertisement and furniture and fitting expenses. Accordingly, a prayer was made for removal of Mr Gautam Agarwal from the board of directors of the company and debarring Mr Gautam Agarwal and Mrs Raj Kumari Agarwal from participating in the management of the company and to appoint a nominee director/ receiver/administrator of the company. And also to order investigation of the funds misused by Mr Gautam Agarwal and Mrs Raj Kumari Agarwal and refund the money misused with 18% interest p.a. to the company and other shareholders.

5. As the petitioners were not satisfied with the replies by the respondents to CA 1/1994, the petitioners filed another application being CA 79/1997 seeking directions to respondent no. 1 and its managing director to furnish documents with regard to addresses where Mr Gautam Agarwal resided as well as to provide the lease deed of the premises where the branch office of the company was functioning and to provide information as to the need for opening and closing of the branch office and also the reason for not opening a bank account of the branch office in Bangalore. The petitioners also sought certain details about the vouchers of the expenditure incurred by Mr Gautam Agarwal, his wife and Mrs Raj Kumari Agarwal in Bangalore as well as the names, designation and functions of the staff members. The petitioners, in this application, also prayed for Mr Gautam Agarwal who is the managing director of the

company to affirm on oath as to where he resided in Bangalore and the means from where his education expenses was derived at that relevant time and also travelling expenses incurred by him and his wife on their trip to the US.

6. Thereafter, the petitioners filed another application i.e. CA No 1002/1997, for appointment of a managing administrator to take over the management of the company. The petitioners by way of this application submit that the company had fraudulently surrendered its property measuring about 2200 sq. ft situated at Connaught Place, New Delhi and property measuring 350 sq. yards situated at Defence Colony, New Delhi had been let out Mrs Raj Kumari Agarwal for a nominal rent of `500 per month. The petitioners further submitted that the inspection by the Department of Company Affairs had revealed that personal expenses of the majority shareholder has been passed off as company expenses. Even expenses on pooja held at residence of the majority shareholder and buying of gifts like dhoti etc to pujari's were also being passed off as the company expenses. The petitioners complained that the balance sheet of the company and details of the meeting held were not provided by the majority shareholders initially, however, the same were handed over only after the intervention by this court. The petitioners also alleged that the majority shareholders had floated another company called Fusion Fitting (I) Ltd in the year 1996 and shares worth `56.00 were purchased and, in the same year itself the company also raised fresh loan over `56.70 lacs by mortgaging its entire fixed assets and prime properties. It is suggested that the funds raised through the mortgage of the fixed assets of the company

were used to capitalise Fusion Fitting (I) Ltd. The petitioners also contends that the company had not declared dividends since 1982.

7. Thereafter, the petitioners filed another application being CA 602/2001 seeking a direction from this court to supersede the Board of Directors of respondent no.1 and for appointment of a custodian to take charge of the company's management. The petitioners/applicants submitted that it was apprehended that the properties of the company would be alienated and therefore the petitioners had sought an injunction restraining sale/transfer of property of the company. Vide an order dated 19.02.1987 the Court recorded the submission made by the counsel for the company that the property of the company would not be sold till the next date of hearing. Again on 10.08.1987 a statement was made by the counsel for the respondent company that the property of the company would not be sold and the respondents were bound by the statement of their counsel. The petitioner no.1 submits that the company has committed breach of the said representations made to this Court by selling of the property situated at C- 430, Defence Colony, New Delhi vide two sale deeds dated 16.11.1999 for a paltry sum of `35 lacs for ground floor and `35,70,000/- for the 1st and 2nd floor to the same person.

8. I have heard the learned counsel for the parties.

9. The controversy that led to the filing of CA 1/1994 and CA 79/1997 was inter alia with respect to the appointment of Mr Gautam Agarwal as an Additional Director of the said Company on 10.10.1987 and his appointment as a Director at the Annual General Meeting held in June

1988. The petitioner has alleged that Mr Gautam Agarwal was only 20 years old the day he was appointed as an Additional Director. The notice of the Annual General Meeting held on 24.06.1988 (Annexure B) carried the following resolution as special business.

'Resolved that Mr. Gautam Agarwal be and hereby appointed as Director of this Company.'

And, the Explanatory Note (Annexure C) to the above resolution read as under:

"Mr. Gautam Agarwal is a business man having vast experience in the line of management, finance and administration. With his valuable advice it will be more advantage to the Company to have Mr. Gautam Agarwal as Director of this Company. None of the other Directors other than Mr. Gautam Agarwal is interested in passing said resolution."

10. The reply filed by the respondent clearly admits that Mr Gautam Agarwal was pursuing his education in Bangalore from July 1986 to June 1990. Apparently, after passing out of a school in Delhi, Mr Gautam Agarwal had proceeded to Bangalore to pursue his undergraduate course. Therefore, the contention that at the material time when Mr Gautam Agarwal was appointed as an Additional Director, he was barely 20 years of age and was still studying in college. Despite the same, the Explanatory note to the resolution appointing Mr Gautam Agarwal claimed that he was a businessman having vast experience in the line of management, finance and administration. There is no material that has been placed on record that substantiates the claim that Mr Gautam Agarwal had any experience prior to his appointment as an Additional Director of the respondent company. Thus, in my view it is ex facie obvious that the Explanatory note for his

appointment as a director was not correct and indicates the misuse by the respondent group of their position as the majority shareholders.

11. The petitioners alleged that Mr Gautam Agarwal was appointed as a Director only to ensure that the company could defer the expenses incurred by him. The petitioner has further alleged that during the period when Mr Gautam Agarwal was pursuing his studies in Bangalore, the company had opened a branch office at Bangalore. It is alleged that the branch office in Bangalore was in a residential house in a residential area. The petitioners have also questioned whether Gautam Agarwal resided at the branch office or at a student hostel. Although all allegations have been denied, the respondents have not unequivocally answered the said allegation. The petitioners have further alleged that no business was carried on from the branch office .The petitioner has further stated that there was no Board resolution for opening the branch office. The learned counsel for the respondents has been unable to point out any resolution for opening and closing of the branch office at Bangalore. Although, the respondents have denied the allegation that no business was carried through the branch office at Bangalore, the respondents have not produced any material to indicate any significant business that was carried out through the branch office at Bangalore. The allegation that the Bangalore branch did not have a bank account and funds for deferring the expenses at Bangalore were sent from Delhi to one Mr O.D. Mathur also remains uncontroverted. In view of the aforesaid facts, it prima facie appears that the contentions canvassed by the petitioners are merited and Mr Gautam Agarwal was appointed as a Director not because of any financial acumen and experience as stated in

the explanatory note but to ensure that he could draw benefits from the company. The branch office at Bangalore also appears to have been opened only for the purpose to facilitate the education of Mr Gautam Agarwal at Bangalore.

12. After completing his education in Bangalore, Mr Gautam Agarwal had decided to pursue a management course overseas. Concededly, this was also funded by the company. It was submitted that hiring of a qualified manager would entail additional outlay and, therefore, the company had decided to send Mr Gautam Agarwal abroad and support his further education. This in my view is a puerile explanation and is liable to be rejected. This reason coupled with the alleged reason furnished for appointing Mr Gautam Agarwal as Director - his alleged "vast experience in the line of management, finance and administration" make it prima facie apparent that the respondents have contrived explanations and canvassed contentions to ensure the flow of benefits from the company to Gautam Agarwal.

13. The petitioners filed CA 1002/1997 alleging that the company had fraudulently surrendered 2200 Sq. Ft of commercial space in Scindia House, Connaught Place, New Delhi for which the company was paying only a sum of `250.00 per month. The explanation given for surrendering the said tenancy was that the company did not have funds to carry out the repairs required by the said property. Petitioner no.1 further alleged that during the pendency of the company petition the house bearing no. C-430, Defence Colony, New Delhi, owned by the Company as a guest house had been let out to Smt Raj Kumari Agarwal and Gautam Agarwal at a rent of

`500 per month and all their personal expenses were debited as expenses of the Company. It was contended that the said property could easily fetch a monthly rental of ` 1,00,000/-. It was apprehended that the majority group (respondents) would alienate the properties to the detriment of the minority shareholders.

14. On 19.02.1987, this court recorded the statement of the counsel for the respondents that the immovable property of the company would not be sold or disposed of till the next date of hearing. The extract of the order dated 19.02.1987 is as under :-

"Mr. Sawhey wants time to file reply in the main petition. Meanwhile, an application it being CA 130/87 has been filed by the petitioners seeking certain interim directions. Mr. Sawhey states that till the next date of hearing he will not sell, dispose of or otherwise part with possession of any of the immovable properties mentioned in the application. He will also file his reply by the next date. Adjourned to 23.3.87."

15. On 10.08.1987 a statement was made by the counsel for the respondent company that the property of the company would not be sold and the respondents were bound down to the statement of their counsel. The extract of the order dated 10.08.1987 is as under:-

"Mr. Nag says that he will not sell, alienate or part with possession of the immovable property bearing No. C-430, Defence Colony, New Delhi, without orders of the Court. No further orders are required in this application. It, therefore, stands disposed of. Respondents will be bound by their statement given through counsel."

16. The Application no. 602/2001 was filed by the petitioners alleging that the above orders had been breached by the respondents and Gautam

Agarwal. It is now admitted that despite the above restrain orders from this Court, the respondent company had sold the property measuring 350 sq. yards situated at Defence Colony, New Delhi. The only explanation afforded to this Court by Mr Gautam Agarwal who had carried out this transaction on behalf of the company as a Director is that he was unaware of the orders of this Court. Mr Gautam Agarwal is stated to be the managing Director of the company and contempt proceedings have also been initiated against Gautam Agarwal in this regard. It is also not disputed that the company had surrendered the tenancy of the premises in Connaught Place, New Delhi as alleged by the petitioner. The explanation for surrender of this valuable tenancy is also prima facie devoid of any substance.

17. It is also not controverted that Smt Raj Kumari Agarwal resided in the property owned by the respondent company at Defence Colony. It is thus apparent that the benefit of the properties of the company have been availed by Smt Raj Kumari Agarwal and her family including her son-Mr Gautam Agarwal.

18. The above facts, prima facie¸ established that the resources of the company have been used for the benefit of Smt Raj Kumari Agarwal and her family. And, the petitioners have apparently been excluded from the affairs of the company. Accordingly, I deem it appropriate that an administrator be appointed for overseeing the affairs of the Company and the following directions be issued for conduct of the affairs of the company:-

(a) The Directors of the respondent company shall hand over the statutory records of the company to the administrator.

(b) The bank accounts of the company will be operated only in the manner as authorized by the administrator.

(c) The affairs of the company will be conducted by such directors and in such manner as is authorized by the Administrator.

(d) Mr Gautam Agarwal shall not draw any remuneration or any other benefit from the company unless expressly authorised by the administrator.

(e) The administrator shall appoint an independent auditor on appropriate terms to conduct an investigation into the records and books of accounts of the company and submit a report to this Court within 12 months from the date.

19. Mr Mayank Goel, Advocate is appointed as an Administrator of the company and shall be initially paid a sum of `50,000/- per month by the respondent company. Depending on the extent of his time involvement, he would be at liberty to apply for the enhancement for the remuneration to this Court, if necessary.

20. The Administrator shall also be at liberty to apply to this court to seek any other relief on behalf of the company in the event, he deems it so appropriate.

21. The question as to the amount payable by Mr Gautam Agarwal and respondents to the company and/or the petitioners would be decided at final hearing of the petition.

22. The aforesaid applications are disposed of in terms of the aforesaid directions.

VIBHU BAKHRU, J JULY 02, 2014 RK