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2012 Supreme(Mad) 1647
High Court of Judicature at Madras
K. VENKATARAMAN, J.
G. Vijayalakshmi (a) Brinda & Another
Versus
Tirupur Textiles Pvt. Ltd. & Others
C.A. No. 28 of 2010
Decided On : 30-03-2012
For the Appellants:Aravind P. Dattar, Senior Counsel, for Mylsamy Associates, Advocates.
For the Respondents:P.H. Aravindh Pandian, Advocate.
Headnote:
[MAIN LEGAL POINT] The principles of dissolution of partnership cannot be invoked in the case of a family company to which quasi-partnership applies, unless there is a right reserved for family members to be on the Board as of right or a basic understanding between the parties for equal participation in the management of the Company.
Fact of the Case:
The appellants, daughters of late G.T.K. Shanmugasundaram, who was one of the Directors of the company from the date of incorporation till his death, made representations to the second respondent that they should be associated with the management of the Company and they should be made as Directors. The 6th respondent is an employee of the Company and he has been functioning as an Executive Director with effect from 18.2.2002. The 3rd respondent is a house wife, the mother of the 2nd respondent and the 5th respondent is a friend of the 2nd respondent. The 4th respondent is another Director, who was associated with the Company after the death of his father-P.Asher, who was a director from the date of incorporation till his death. The 4th respondent became a Director of the Company with effect from 19.12.1969.
Finding of the Court:
The Company Law Board found that the family members find their place in the Board not because of their closeness with G. T. Krishnaswamy Naidu. When the Company was incorporated in the year 1956, G. T. Krishnaswamy Naidu and his two sons namely, G. T. K. Sivasubramaniam, the second respondent's father and T.N. Rajasekaran alone were made subscribers to the Company, apart from a non-family member, the fourth respondent herein. After transmission of the shares, either due to the death of the share-holders or relinquishment of shares, now the entire shares are being held by the appellants' group and the second respondent's group. It is not disputed that the second respondent is having the majority shares.
Issues: (1) Whether R.1 is a family company to which principles of quasi partnership applies ? (2) Whether the petitioners in the company petition have established oppression and mismanagement of the affairs of the company by the second respondent and his associates ? (3) Whether the second respondent has mismanaged the company ? (4) Whether the petitioners in the company petition are entitled to an order from the Company Law Board directing the company and the second respondent to purchase the shares of the petitioners or to spin any one of the three units to them ?
Ratio Decidendi: (1) The Company Law Board found on perusal of the history of the family, in relation to the functioning of the company that it is difficult to find out that a right was impliedly reserved for family members to be on the Board as of right. There is nothing on record to show that each branch of family would be given directorship permanently, since it is evident that the four sons of G. T. Krishnaswamy Naidu are no longer the members of the Company. It has also been found by the Company Law Board that no material is placed before it even to presume that there is a basic understanding between the parties for equal participation in the management of the Company. Finally, the Company Law Board found that the appointment of Directors is done in accordance with the Articles of Association and therefore, it has taken the view that the principles of dissolution of partnership cannot be invoked in the case on hand. (2) As regards the allegation of mismanagement made by the appellants against the second respondent and his associates, it has to be seen whether this finding rendered by the Company Law Board is justifiable. As could be seen from the company petition filed by the appellants before the Company Law Board, the following allegations have been made against the second respondent and his associates viz., (i) The company is having several cars and the second respondent is the only person enjoying them. (ii) The company has constructed a big bungalow at its cost worth about several crores and the second respondent is living there without paying the rent. (iii) In the name of modernization, the old machineries are in the process of being sold by the company at the instance of the second respondent and the actual price is not brought into the books of the company, but only reflected in the accounts as if plant and machineries are being sold to book value. (iv) There are several inter company transactions, which are reflected in the balance sheet of the company in the year ending 2004-05 and 2005-06 which are detrimental to the interest of the company. Except Thiruppur Gin and Press Private Limitied, which is wholly owned subsidiary of the company and the other companies and associate concerns are all under the control and management of the second respondent. (v) The company is not disclosing the actual income in its books. (vi) Several lakhs of rupees had been obtained towards loan under various heads and charges. (3) As regards the first allegation is concerned, I am of the considered view that the Company having a turn over of more than 100 Crores, definitely would be having several cars and one car could have been used by the second respondent. In view of the above stated position, I am of the considered view that merely because the Company owns several cars and one is being used by the second respondent, the same cannot be said to be mismanagement of the affairs of the Company by the second respondent. (4) As regards the second allegation namely, that the first respondent has constructed a big bungalow at its cost worth about several crores and the second respondent is living there without paying any rent cannot also be countenanced, since in the Counter Affidavit, it has been made very clear that the first respondent Company does not own any bungalow at Coimbatore and the second respondent resides at his own house and the Company has nothing to do with the accommodation. When such a categorical statement has been made in the Counter Affidavit of the second respondent, the appellants have not established by any worth coming documents to prove that the first respondent Company owns a bungalow at Coimbatore and the second respondent resides in the said bungalow.
Final Decision: Thus, summing up the entire discussions made above, I am of the considered view that the Company Law Board has rightly rejected the claim of the appellants and I do not find any merits in this company appeal.
1. The appellants herein aggrieved over the order of the Company Law Board dated 6.9.2010 in dismissing their petition made in C.P.No.3 of 2007 have come up with the present company appeal. The respondents 1 to 9 are the respondents herein and respondents 10 and 11 are the legal representatives of the deceased fourth respondent.
2. The case of the appellants, in nutshell, is set out here under:-
(a) The first respondent company (herein after referred to as "the Company") was incorporated as a Private Limited Company on 19.1.1956 under the Indian Companies Act, VII of 1913. G. T. Krishnaswamy Naidu, P. Asher, T.N. Rajasekaran and G. T. K. Sivasubramaniam were the subscribers of the Memorandum and Articles of Association and all of them are now no more. The main object of the company is to carry on spinning of yarn from cotton. After the incorporation, the paid up capital of the Company was initially increased to Rs.7,50,000/-consisting of 7,500 equity shares of Rs.100/-each. G. T. Krishnaswamy Naidu and his wife Vijayammal were holding 2,000 and 1,000 shares respectively. Apart from them, G. T. Krishnaswamy Naidu’s sons viz., G. T. K. Rajasekaran, G. T. K. Sivasubramaniam, G. T. K. Parthasarathy and G. T. K. Shanmugasundaram were allotted to 1,000 shares each. P. Asher, a third party, who was in no way related to G. T. Krishnaswamy and his family, was allotted to 500 shares. Thus, the entire paid up capital of 7,500 shares of Rs.100/- each and 7,000 equity shares of Rs.100/-each were held by the family members of G. T. Krishnaswamy Naidu, except 500 shares which were allotted to P. Asher in whose name the licence was ilnitially granted by the Government of India for the Textile Mill.
(b) 1000 shares of the said G. T. K. Rajasekaran son of G. T. Krishnaswamy Naidu, were transferred in the name of his son R. Ranganathan. After the death of G. T. Krishnaswamy Naidu and his wife Vijayammal, their 3000 shares were equally transmitted in the name of his sons viz., G. T. K. Rajasekaran, G. T. K. Sivasubramaniam, G. T. K. Parthasarathy and G. T. K. Shanmugasundaram and they got 1,000 shares each. The said three persons were holding 2000 shares each apart from 1000 shares, which were transferred to the said R. Ranganathan and 500 shares, which were allotted to the said P.Asher. Thus, out of the paid up capital of 7500 shares, prior to 31.12.1974, except for 500 shares and 1000 shares, which were transferred to the said R. Ranganathan, the rest of 6000 shares were being held by the said three brothers.
(c) The appellants are the daughters of late G.T.K. Shamugasundaram, who was one of the Directors of the company from the date of incorporation till his death. The members of the Board of the Company were only G. T. Krishnaswamy Naidu and his sons, except P. Asher. So long as G.T.K. Sivasumbramaniam was alive, he was functioning as the Managing Director of the Company. Since he did not have any issue, he adopted the second respondent and after his death, the second respondent has been appointed as the Managing Director of the Company and ever since then, he has been in control and management of the affairs of the company.
(d) The Company had adopted new set of Articles including Table ‘A’ of the Indian Companies Act, 1956 (for short, "the Act") with effect from 1.10.1965. The Company had three subsidiaries as on 24.12.1975, which were—
(i) Tiruppur Gin & Press Private Limited
(ii) Vijayeswari Ring Travellers Private Ltd, (8th respondent) and
(iii) Sovereign Engineers Pvt. Ltd., (9th respondent).
As on today, the 8th and 9th respondents are no longer subsidiaries. After the introduction of Section 43-A of the Act, the Company became a Public Limited Company with effect from 1.4.1976 by virtue of the turnover. After their father’s death on 6.11.2000, the appellants have been making representations to the second respondent that they should be associated with the management of the Company and they should be made as Directors. The 6th
