235. Now it is evident that this company appointed as the sole selling agent for North India with a paid-up capital of Rs. 4,55,000 received a commission of Rs. 45,56,000 i.e., ten times its share capital while the V. K. Automative (Pvt) Ltd., sole selling agent for South India earned commission 36 times its share capital investment, i.e., Rs. 38,23,000. In all the commission paid to these two companies is Rs. 85,00,000 during 1992-93. To my mind unless the turnover of these companies is in crores of rupees, such a huge commission cannot be earned by these companies. Nextly it is seen that appointment of consultants and selection of candidates is intended to select a person having knowledge and experience in dealing with automobile spare parts with sufficient financial resources to meet the magnitude of the agency for substantial areas of the country and should have a wide network for supply of spare parts throughout the area for which they are appointed as agents and their marketing skills. While the managing director of V. K. Automotive Pvt. Ltd., was at least an employee of the respondent-company for some time, the managing director of Hastina Automobiles Pvt. Ltd., is only the son-in-law of one Krishna Murthy, sales manager in the first respondent-company, without any knowledge in marketing automobile spare parts. Although the report of the consultant with regard to Hastina Automobiles Pvt. Ltd., says that they are experienced entrepreneurs nowhere it is stated what type of experience the entrepreneurs had. On the other hand the company was initially incorporated with two directors, namely P. A. A. Prasad and another Smt. Y. Rajeswari, w/o Y. V. Subba Rao on September 25, 1990.


Sri Ramdas Motor Transport Ltd. ... vs Karedla Suryanarayana And Ors. on 18 October, 2001

236. Admittedly though no evidence was produced to show that these directors had any experience in the marketing field or manufacturing automobile spare parts, for reasons best known to the consultants they recommended to the company for their appointment as sole agents. Without discussing all these aspects the Board brushed aside the complaint of petitioner No. 9 on the ground that he was on the board for nearly three years after they were appointed as dealers. The court should not miss the point that petitioner No. 9 is none other than the son-in-law of the managing director of the company and he himself was heading several subsidiary companies and more or less the whole family including petitioner No. 9 was holding about 60 per cent of the shares and other shareholders being individual shareholders they cannot raise their voice in the company as it may be difficult for them to muster necessary strength to oppose the second respondent and perhaps they might be satisfied with the dividends that are being paid to them for the investment they made. Now because of the differences between the family members, these underhand dealings came to light. If they are together things would not have gone in this manner to the detriment of the interest of the other shareholders apart from causing loss to the exchequer by avoiding payment of sales tax, excise duty, income-tax, etc. When the acts of mismanagement brought to the notice of the court are ignored, it amounts to giving a seal of approval for the mismanagement of the affairs that are being conducted by the company which are prejudicial to public interest.


237. Persons of confidence :
 Coming to the other contention of the respondents that they can appoint only those in whom they have confidence, I can only observe that if the respondents want to appoint people of their confidence without undertaking any such process they would have straightaway appointed these companies as their sole agents. I have no manner of doubt in holding that the respondents introduced this make believe process of selection by inviting applications and appointing consulting agencies to justify their action in paying huge amounts, before the income-tax authorities by taking a stand that they are independent agencies and they have nothing to do with the company and to save themselves from any criticism from the Income-tax Department as happened in the case of three firms which were closed after income-tax raids which necessitated the company in opening these companies as their sole selling agents. The ninth petitioner brought to the notice of the public that the managing directors of these two companies are none other than the blue-eyed people that are close and dear to the second respondent in his underhand dealings.
238. Donation to a non-existing trust :


In C. A. No. 65 of 1996 the petitioner brought to the notice of the Board that during the financial year 1995-96 the company gave a donation of Rs. 10 lakhs to Srinivasa Charity Trust in which the second respondent and his family members were trustees which was wound up on May 30, 1992, and in the guise of giving this amount as a donation the second and third respondents used this amount for their personal benefits. This contention was refuted by the respondent company stating that it is a subsequent event and the Board haying dealt with it in C. A. No. 65 of 1996 rejected the said contention, which has become final. Therefore, according to the respondent-company, the matter cannot be opened now. The said contention of the respondent found favour with the Board. The law is well settled on this aspect that any orders passed by a judicial forum at the intelocutory stage is only intended to make interim arrangements during the pendency of the main case and any such order is subject to the orders to be passed in the main case. I have already taken a view that though it is an event that has taken place after the filing of the application the issue can be canvassed as the main petition is still pending. I have seen the interim order passed by the Board on November 28, 1997. The Board refused to grant interim relief by holding that it is an existing trust on the ground/ basis of (1) the resolution produced by the respondents wherein the second respondent was authorised to take steps and transfer the assets to Srinivasa Educational Society ; (2) the exemption certificate issued by the income-tax authorities and (3) the assessment order for the financial year ending with March 31, 1996, on the basis of a nil return without giving a finding on the contention of the petitioners, that the later para, of the resolution dated May 30,


the contention of the petitioners, that the later para, of the resolution dated May 30, 1992, (annexure A) filed along with the counter of the respondents is a fabricated one. Be that as it may after considering the events the Board recorded a finding that the application filed under Sections 397 and 398 of the Act has to stand on the allegations contained in the petition and subsequent events brought on record alone cannot entitle any person to a relief in case the main petition fails. In other words in case the allegations in the main petition are held proved then the subsequent events may be taken into consideration by the Board in moulding relief suitably. In the normal course as the second respondent being the managing trustee of the trust, the Board would have directed him to produce the original records of the trust to see which of the resolutions produced by the parties are true and genuine. From the material available on record and as per the version of the petitioners that the trustees passed a resolution on May 30, 1992, to wind up the trust and he also filed copy of the resolution. On the other hand, the case of the respondent is that the trust resolved to transfer the assets of the trust to Srinivasa Educational Society but not to wind up the trust. It is useful to extract the resolutions filed by the parties.


239. Copy of the resolution filed by the petitioners :
"true copy of the resolution passed at the meeting of the board of trustees of Sri Srinivasa Charity Trust, Kakinada, held on May 30, 1992, at 20-6-2, Sitapatirao Street, Kakinada 533 -1.


The chairman placed before the meeting a photostat copy of the registered deed of memorandum and articles of association of Sri Srinivasa Educational Society, Kakinada. The said society was registered with the Registrar E. G. District, Kakinada, on April 24, 1992.

The chairman suggested that in view of our trust being not able to achieve the desired objects on its own in spite of best efforts and also on being satisfied that the said desired objects of our trust can be attained through Sri Srinivasa Educational Society, Kakinada, which was registered with the similar and identical objects as that of ours, it is desirable to wind up our trust and pass over the moveable and immovable properties to Sri Srinivasa Educational Society. In this regard he brought to the notice of members the resolution passed on April 20, 1992, a copy of which is also placed before the meeting.


After thorough discussion the following resolution is unanimously passed :
 'Resolved that our trust Sri Srinivasa Charity Trust be and is hereby wound up today i.e. May 30, 1992, and all the assets and liabilities as on today (list enclosed) be and are hereby transferred/handed over to Sri Srinivasa Educational Society--Regd. Kakinada. Further Sri K. V. R. Choudary, Managing Trustee be and is hereby authorised to complete the necessary formalities in this regard'."
240. Copy of the resolution filed by the respondents :
"Meeting of the board of trustees of Sri Srinivasa Charity Trust, Kakinada, held on May 30, 1992, at Ram Nivas, Sitapatirao Street, Kakinada, at 10 a.m. The chairman placed before the meeting a photostat copy of the registered deed of memorandum and articles of association of Sri Srinivasa Educational Society, Kakinada. The said society was registered with the Registrar E, G. District, Kakinada, on April 24, 1992.

The chairman suggested that in view of our trust being not able to achieve the desired objects on its own in spite of best efforts and also on being satisfied that the said desired objects of our trust can be attained through Sri Srinivasa Educational Society, Kakinada, which was registered with the similar and identical objects as that of ours, it is desirable to wind up our trust and pass over the moveable and immoveable properties to Sri Srinivasa Educational Society. In this regard he brought to the notice of members the resolution passed on April 20, 1992, a copy of which is also placed before the meeting.


After discussion the following resolution is unanimously passed :
 'Resolved that Sri K. V. R. Choudary, managing trustee be and is hereby authorised to take all steps to become a sponsor patron in Sri Srinivasa Educational Society and for which purpose, do all such things that" are necessary such as advancing/transferring moveable and immovable properties to Sri Srinivasa Educational Society.

Resolved that Sri K. V. R. Choudary, managing trustee be and is hereby authorised to take necessary permission from the income-tax authorities and do all acts that.are necessary for finally transferring the properties of our trust to Sri Srinivasa Educational Society.' The meeting terminated with a vote of thanks to chairman."
241. From these resolutions, it is seen that while the preamble to both the resolutions is one and the same the resolutions said to have been adopted are different as per the version of the parties. The Board did not feel the necessity of summoning the minutes book of the trust to find out which of the resolutions is true. Even as per the version of the respondents themselves, the managing trustee opined that the trust was not able to achieve the desired objects on its own in spite of best efforts ... and it is desirable to wind up the trust and pass over the movable and immovable property to Srinivasa Educational Society. While acceding to the request of the managing trustee, the trustees resolved to take necessary permission from the income-tax authority and do all acts that are necessary for finally transferring the property of the trust to Srinivasa Educational Society. It is not known why the trustees, who are none other than the family members of respondent No. 2 passed such a resolution, when the managing trustee himself suggested winding up of the trust.


242. Be that as it may, on April 27, 1992, the secretary of Srinivasa Educational Society applied for permission for establishment of Sri K. V. R. College of Engineering in Kakinada in an extent of Ac. 31.96 cents of land situated in the backward area of Ponnamanda village of Kothapally Mandal, East Godavari District. This land was shown in the name of the trust in the list of properties of the trust as on May 30, 1992, with the signature of the second respondent. The Board without examining the need and purpose in donating Rs. 10 lakhs to this trust owned by the second respondents family out of a total donation of Rs. 11,01,382 given by the company during that year, simply upheld the donation on the basis of exemption certificate granted by the Commissioner of Income-tax on March 6, 1995, for a period of five years and on the basis of the assessment order for the assessment year 1995-96 passed on the basis of nil return. When once a decision was taken to transfer the assets of the trust to the society way back in 1992 on the ground that the trust failed to achieve the desired results and the society to which the trust thought of transferring its assets, started functioning, it is not known why the second respondent got income-tax exemption in 1994 for a period of five years for a defunct trust in contravention of the alleged resolution passed by the board, whereunder he was authorized to take necessary permission from the income-tax authorities for effecting transfer of properties of the trust to the society. Be that as it may it is not the case of the respondent that this amount was in any way required for carrying on the activities of the trust. In fact they have not shown utilization of this amount in the income-tax return. Nextly, it is to be seen that normally the donee will


in the income-tax return. Nextly, it is to be seen that normally the donee will be approaching the donor for donation by specifying the purpose. There is absolute silence on the part of the respondents, as to - who approached the company for donation or at least how this donation was utilised by the trust belonging to the family of the second respondent. By diverting the funds in this manner to a non-functioning trust if not non-existent trust belonging to the second respondent family, the company avoided payment of income-tax and claimed exemption. The Board has not applied its mind to the crux of the matter and simply washed its hands by saying that the contribution is to an existing trust. Hence it cannot be said that the affairs of the company are being run not in a manner prejudicial to public interest.


243. Discrepancies in the stock of finished products :
 This issue was not raised in the company petition. But it was raised by filing C. A. No. 65 of 1996 and C. A. No. 115 of 1997 seeking amendment to the main petition. The allegation of the petitioners is that respondents Nos. 2 and 3 are misappropriating huge funds of the company by not bringing major quantities of automobile parts manufactured by the company to the books of account by filing annual reports of the company for the years 1989-90, to 1995-96. He also filed a statement pointing out the discrepancies in respect of automobile parts at an estimated value of Rs. 86.49 crores in a span of seven years.
244. Unfortunately the Board not only rejected the plea but also gave a certificate to the company for the increase in the turnover during the subsequent years and the Board says that the petitioners themselves agreed that in the subsequent years the closing stocks and opening stocks are shown properly. Likewise, the Board simply believed the version of the respondent-company that this procedure is being followed for a number of years as gospel truth having observed as follows :
 "The company has unhesitantly admitted that the discrepancy in closing stock which was being followed for over a number of years would have been made more comprehensive than what was shown in the balance-sheet."
245. The Board further held :
 "The discrepancies have occurred due to incomplete narration of closing stock in the balance-sheet and it is due to non-supply of full description of closing stock and it cannot be assumed that there is diversion of spare parts by the company."
246. In other words the petitioners have not been able to establish that the respondent-company is diverting the products of the company without accounting for the same.


247. In arriving at this conclusion, the Board relied upon the compilation of entries in the RJI register said to have been maintained under the provisions of the Central Excise Act which contains the day-to-day particulars of opening stock production, sales and closing stock together with statement of reconciliation for the year 1994-95 and it is also the case of the respondent-company that the entries in the RJI register are being periodically verified and signed by the authorities.

248. Now it is to be seen whether the procedure followed by the Board can be sustained in law.

249. Mr. Raghavan tries to impress upon the court that the Board comprises a member well acquainted with the accounts and other experts have approved the explanation given by the respondent-company. I can only observe that as this country is having such type of accounts officers the black money that is being generated in the industrial circles of this country is 3 to 4 fold than the real currency, which is expected to be in circulation as per the version of the Reserve Bank of India. If the members of the Board properly analysed this issue in a manner known to law and not carried away by extraneous reasons, the result of the company petition would have been otherwise.


250. The book that was produced before the Board was produced before this court also. To my surprise it is nothing but a compilation prepared by the company. But the original RJI register was not produced before the Board to prove that the Central excise authorities have verified and signed in the register. Further the Board did not summon the original RJI register to find out whether the entries in the compilation book tally with the original register or not. In fact no Central excise officer was examined to prove that the entries in the RJI register are being periodically checked and signed by the Department officials. As stated supra none of the entries in the compilation was proved by the respondent in a manner known to law by examining themselves or their representatives or the excise officials. Further the members of the Board were carried away with the increased turnover of the company year after year by completely brushing aside the allegations made by the petitioners.

251. Now the next question is whether the finding recorded by the Board is sus-tainable, even if the perfunctory enquiry conducted by the Board is given any credence in the light of the documentary evidence.


252. From the annual reports, it is seen that the company divided the automobile spare parts that are being manufactured by it into four groups, namely (1) king pins, king pin units, shackle pins, shackle pin bolts, C & BP tubes, (2) tie-rod ends, kits and draglinks, (3) UJ crosses and (4) piston pins and the production as well as sales were shown groupwise in the annual reports. From the information culled out from the balance-sheet, the discrepancies in the stock were shown yearwise as follows :
 Statement showing the difference of manufacturing items and its costs as per the price of SRMT (1) King pins (2) Tierod ends (3) U. J. Cross (4) Piston Total value 1989-90 Opening stock 1,90,707 11,946 Production 16,93,546 1,19,502 94,629 2,60,254 Sales 3,43,485 ...

 1,26,660 Closing stock 2,33,978 22,020 Discrepancy 13,06,790 1,19,502 94,629 1,23,520 (Amount Rs.) 13,06,79,000 2,39,00,400 2,83,88,700 61,76,000 1,891 1990-91 Opening stock 2,33,978 22,020 Production 18,19,083 1,58,315 1,00,666 3,77,958 Sales 4,02,824 1,71,588 Closing stock 3,76,565 ...


36,336 Discrepancy 12,73,672 1,58,315 1,00,666 1,92,054 (Amount Rs.) 12,73,67,200 3,16,63,000 3,01,99,800 96,02,700 1,988 1991-92 Opening stock 3,76,565 36,336 Production 19,17,917 1,76,116 1,28,738 2,03,529 Sales 4,19,260 1,44,354 Closing stock 3,27,631 24,462 Discrepancy 15,47,591 1,76,116 1,28,738 71,049 (Amount Rs.) 15,47,59,100 3,52,23,200 3,86,21,400 36,52,450 2,321 1992-93 Opening stock 3,27,631 24,462 Production 21,93,374 1,36,833 1,19,927 2,01,883 Sales 4,56,203 1,26,948 Closing stock 1,90,404 5,472 Discrepancy 18,74,394 1,36,833 1,19,927 93,925 (Amount Rs.) 1,87,43,400 2,73,66,600 3,59,78,100 46,96,250 2,554 1993-94 Opening stock 1,90,404 5,472 Production 24,89,080 1,44,537 1,55,651 2,75,534 Sales 5,43,636 1,45,434 Closing stock 72,048 3,942


1,45,434 Closing stock 72,048 3,942 Discrepancy 20,63,800 1,44337 1,55,651 1,31,650 (Amount Rs.) 20,63,80,000 2,89,07,400 4,66,95,300 65,82,500 2,885 1994-95 Opening stock 72,048 3,942 Production 24,90,943 1,83,966 1,44,055 2,42,725 Sales 4,88,413 1,49,166 Closing stock 1,24,385 5,394 Discrepancy 19,50,193 1,83,996 1,44,055 92,107 (Amount Rs.) 19,50,19,300 3,67,99,200 4,32,16,500 46,05,350 2,796 1995-96 Opening stock 1,24,385 5,394 Production 39,22,383 1,67,955 1,72,197 1,76,316 Sales 5,72,499 1,69,062 Closing stock 1,10,969 15,672 Discrepancy 33,63,576 1,67,955 1,72,197 + 3,024 (Amount Rs.) 33,63,57,600 3,35,91,000 5,16,59,100 1,51,200 4,212 Total value of discrepancy since 1989-90 to 1995-96 = Rs. 186.49 crores.


253. The estimated value of the unaccounted spare parts as per the price list of the company was arrived at. The total value of the discrepancies of the stocks from 1989-90 to 1995-96 worked out to Rs. 186.49 crores :
 Though this is a very serious allegation, the Board neither looked into original annual reports filed by the petitioners to find any discrepancies in the stocks nor assessed the value of the missing stocks and expressed their satisfaction on the explanation given by the respondents without verifying the truth or otherwise of their plea.
254. The ninth petitioner to prove his case pointedly has taken one item, i.e., piston pins for the year 1994-95. These pins are sold in sets consisting of 6 pieces. The opening stock of piston pins for the year 1994-95 is 657 sets (3,942 pins) and the production during the year is 40,454 sets (Nos. 2, 42, 725 pins). The total number of sets available for sale are 41,111 and the sets sold are 24,861. The closing stock of the sets should be 16,250. But the closing balance was shown as 899 and the missing sets are 15,357 whose value works out to Rs. 70,76,811 at the rate of Rs. 461 per set as per the price list of the respondent-company. To prove the falsity of the case of the respondents, the petitioners furnished the account of piston pins for the years 1980, 1994-95 and 1996-97. The table is extracted hereunder :
 Stock position of piston pins in the balance-sheets of S. R. M. T.


Piston Pins 1994-95 1996-97 Sets Production in Nos.

 Sets Production in Nos.

 Sets Production in Nos.

 Opening stock 1,20,204 2,42,725 2,612 1,43,424 Production 20,034 40,454 23,904 Sales 20,327 41,111 26,516 Closing stock 18,363 24,861 24,223 1,964 16,250 2,293 1,964 2,293 15,351 Stock Difference value Nil 15351 X 461 Rs. per set -Rs. 70,76,811 Nil Before filing the petition in the Law Board At the time of filing the petition in the Law Board After filing the petition in the Law Board


255. When these discrepancies were shown at the time of considering the plea of . the petitioner for appointment of interim administrator in C. A. No. 65 of 1996 the members of the Board observed that "we made a pointed question to Sri Raghavan whether the company will be in a position to produce a statement reconciling the figures of production, sales and dosing stock to compare the same with the monetary value of shares shown in the annual accounts, he readily agreed to do so". Thereafter at the time of final hearing, learned counsel for the respondents filed a statement said to be a reconciliation statement and the same is extracted herein :
 Reconciliation statement of opening stock, production, sales and dosing stock for the year 1994-95 Group Opening Stock As per balance-sheet Production Sale Closing Stock As per balance-sheet Piston pins 25,103 24,861 King pins 32,052 4,11,862 3,77,374 66,540 King pin units 2,392 1,10,751 1,11,039 2,105 Other 32,555 72,048 19,68,329 21,71,780 46,726 1,24,385 M.V. Parts and Engine parts 2,17,622 21,85,951 U. J. Crosses 2,876 1,44,055 1,46,390 Tie rod ends.

 2,173 1,83,996 1,77,696 8.473 kits, Drag Links Grand total 72,705 72,705 30,61,719 30,09,140 1,25,284 1,25,284 Note : 1. The narration in respect of "piston pins" under the head "Production" in balance-sheet is incomplete.


2. Balance-sheet production figure shown against narration "piston pins" Nos. 2,42,725 includes other engine parts Nos. 2,17,622.

3. In this statement they have been included under "Other M. V. parts and engine parts".


256. On the basis of the above statement, counsel for the respondents contended that the petitioners arrived at the conclusion on the basis of incomplete narration in the annual reports and the production of piston pins includes other engine parts whose number is 2,17,622 and they are shown in this reconciliation statement. This contention found favour with the members of the Board. To my mind the explanation is utterly false and far from the truth. For the first time I came across with a contention that the figures shown in the balance-sheet are incomplete and they include some other engine parts whose identity was not established. If there is any truth in this reconciliation statement, the respondents would have stated what are the other engine parts that they are manufacturing, how their production and sales were shown in the balance-sheets of all those years, and how for the first time in the reconciliation statement they came up with this story that piston pins include other engine parts. The case of the petitioners is that the automobile spare parts that are being manufactured by the company are reflected in the balance-sheet and to their knowledge there are no other engine parts that are being manufactured by the company. Under the caption "sales" after sale of Tata vehicles for which the company is dealer, sales of SRMT parts were shown and the sale of other engine parts was not shown in any of the annual reports. The respondents have not given any explanation how the sale proceeds on other engine parts are being shown in the balance-sheets. Nextly the production of piston pins for the year 1994-95 was shown as 2,42,225 (40,454 sets) in the annual report. But in the reconciliation statement the production was shown as 25,103 sets. It is not known from where he got this figure. From the figures given in the balance-sheet the difference is 15,351 sets as explained in the Table. This difference is sought to be explained by stating that the production includes other engine parts Nos.


Table. This difference is sought to be explained by stating that the production includes other engine parts Nos. 2,17,622, this figure is shown separately along with other parts whose production, sale and closing stocks were shown groupwise and though the so called other engine parts have nothing to do with either the piston pins account or other parts shown groupwise in the annual reports.


257. Assuming for a moment that the reconciliation is true, the respondents have shown other M. V. parts and engine parts under different head and how they can add these parts to piston pins accounts. The fallacy of this argument can be exposed from another angle also. The mischief played by the respondents which missed the eye of the Board, is as follows. The piston pins produced in that year was 2,42,725, As they are being sold in sets of 6 Nos. the number of sets will be 40,454. But the respondents mischievously deducted the so-called other engine parts from the total number of pins, i.e., 2,42,725--2,17,622 and shown that 25,103 Nos. pistons pins were produced. If this figure is divided by six, the number of sets will be only 4,184. For this, if the opening stock of 657 sets are added total number of sets available for sale would be 4,841 sets. But the piston pins sold during that years are 24,861 sets while the other figures relating to piston pins were shown in sets--production was shown in numbers as explained above. The Board did not apply its mind to these grave discrepancies that are evident on the face of the reconciliation statement. The falsity in the plea of the respondent-company can be exposed in another manner also. From the annual reports for the years 1980 and 1996-97 (after Board order in C. A. No. 65 of 1996) it is seen that there are no discrepancies in the stocks of the piston pins. If other engine parts are included in the piston pins, why were the discrepancies that occurred in the financial year 1994-95 not there in those years and where have the other engine parts gone ? I understand in 1980 the company was following the calendar year but the company seemed to have opted financial year for accounts


the company was following the calendar year but the company seemed to have opted financial year for accounts purpose subsequently.


258. If the statement of the respondent counsel that the production of piston pins includes other engine parts is true, how they disappeared in the years 1980 and 1996-97 when the respondent-company is following the same pattern of accounts consistently for the last 25 to 30 years as per their version before the Board and their own letter dated September 24, 1996, addressed to petitioner No. 4 wherein he stated "that the itemwise tally of each and every part manufactured in the formula given by you is impracticable because of the large number of items manufactured and also on account of combination sale and the company has been consistently following the same pattern of disclosing the quantitative particulars of production, sales and stock for the last 25 to 30 years."

259. From the above it can be safely presumed that either the details of the spare parts shown for the years 1980 and 1996-97 should be false or the figures shown in the year 1994-95 should be false.

260. The above discussion exposes the falsity of the plea of the respondents that the production figure of piston pins includes other engine parts. The Board did not even advert to the discrepancies in the stock position from 1989-90 to 1995-96 with regard to (1) king pins, (2) tie-rod ends, (3) U. J. crosses and (4) piston pins whose value seems to be Rs. 186.49 crores as per the price list of the respondent-company.


261. Learned counsel for the petitioners strenuously contended that as the company is involved in manufacture of spare parts, the accounts of the company have to be audited under the Cost Audit (Report) Rules, 1968. On the other hand, counsel for the respondents contended that these rules are not applicable to this company. I am not going into that controversy. From the statement of discrepancies extracted supra, it is seen that a large number of spare parts that were produced by the company were not brought to the books of account. In fact the respondents did not dispute seriously the discrepancies. They simply tried to get over by saying "incomplete information". At least there is a prima facie evidence to show that there is large scale embezzlement of funds of the company and there is large scale evasion of excise duty, sales tax, income-tax etc., and required thorough investigation.

262. In the light of the foregoing discussion, I have no hesitation to hold that the Board in its anxiety to give a clean chit to the respondent-company has not even looked into the annual report of the company as approved in the annual general body meeting of the company to find out whether there is any truth in the allegation about the large scale misappropriation of the company funds by not bringing the automobile spare parts that are being manufactured by the company to the books of account as is evident from the statement extracted supra and satisfied itself with the statement of the petitioners that in the subsequent years opening stocks and closing stocks are being shown properly without reference to large scale evasion of both direct and indirect taxes apart from excise duty payable to the State as well as Central Governments.

Other acts of mismanagement


Other acts of mismanagement

263. I am not adverting to the plea of the petitioner with regard to the diversion of material for construction of a community hall in the name of the mother of the second respondent, Hotel Jaya International, sale of scrap, used oil etc. as no serious arguments were addressed on these matters before me, though the petitioners filed some material and deposed on these issues in his evidence before the Board. I would not like to express any opinion on these aspects.

264. From the findings recorded by me on the acts complained of by the petitioners with regard to mismanagement, I have no hesitation to hold that the affairs of the company are being conducted by respondents Nos. 2 and 3 (father and son) as joint managing directors of the company in a manner not only prejudicial to public interest but also prejudicial to the interest of the shareholders of the company as well.

Acts of oppression :
 The word "oppression" used in Section 397 of the Act was not defined in the Act.
265. In Universal Dictionary the word "oppression" is defined as (1) harsh ; tyrannical (2) causing a state of physical or mental discomfort or weariness.

266. As Section 397 of the Act being a corresponding Section to Section 210 of the old English Act, counsel for the petitioner placed reliance both on English decisions as well as Indian decisions.


267. In Elder v. Elder and Watson ltd. [1952] Scottish Cases 49, Lord Keith while considering the word "oppression" observed that "it is not lack of confidence between shareholders per se that brings Section 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder." In Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66; [1959] 29 Comp Cas 1 (HL) Lord Viscount Simonds speaking for the majority of the House of Lords observed, (page 28): "Oppression under Section 210 may take various forms. It suggests, to my mind, as I said in Elder's case, a lack of probity and fair dealing in the affairs of a company to the prejudice of some portion of its members. The Section introduces a wide power to the court to deal with such a situation in an equitable manner which it did not have in the case of a company prior to the passing of the Act of 1948." Lord Denning in a separate judgment held that the object of the remedy is to bring "... to an end the matters complained of, that is, the oppression, and this can be done even though the business of the company has been brought to a standstill." (page 33)

268.In Five Minute Car Wash Service Ltd., In re [1966] 36 Comp Cas 566; [1966] 1 All ER 242 (Ch D), it was held that an act or omission may also amount to oppressive conduct if it is designed to achieve an unfair advantage.


269. In Shanti Prasad Jain v. Kalinga Tubes Ltd. , their Lordships of the Supreme Court observed that (p. 364) :
 "the law, however, has not defined what is oppression for purposes of this section, and it is left to courts to decide on the facts of each case whether there is such oppression as calls for action under this section.

(Page 366) : . . . the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case . . . It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. . . . Section 397 unless it be shown that this lack of confidence sprang from a desire to oppress the minority in the management of the company's affairs and that there was at least an element of lack of probity and fair dealing to a member in the matter of his proprietary right as a shareholder."


270. In Gajarabai Patny v. Patny Transport (Pvt.) Ltd. [1966] 36 Comp Cas 745 (AP), this court considered the effect of Sections 397 and 398 of the Act of 1956. Justice Jaganmohan Reddy, as he then was, observed that (headnote): "where there is discrimination by the majority of shareholders or by the majority of the directors to the detriment of the minority amounting to oppression, and the affairs of the company are managed in a manner derogatory to the company's interest, Sections 397 and 398 of the Companies Act can be invoked and the court has unfettered discretion in such a case to impose upon the parties whatever settlement it considers just and equitable to remove the oppression."

271. On facts of the case, his Lordship held (headnote) : "that the action of the directors in withholding transfer of shares in favour of the petitioners, in accordance with the terms of the will, while at the same time transferring some other shares in the managing agency firm, under the same will, was vindictive and harsh and unreasonable and amounted to oppression.

272. In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. , their Lordships of the Supreme Court in para. 52 of the judgment held that (page 782) "the person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as shareholder". If this act is proved, the power of the Company Law Board to invoke Section 397 of the Companies Act will be justified.


273. While going through the minutes book I found two/three important resolutions adopted by the board which throw sufficient light on the acts complained of by the petitioners against respondents Nos. 2 and 3 and which were not placed before the Board. While dealing with the merits of the case, I have taken note of the resolutions.

274. In Malleswara Finance and Investments Co. v. Company Law Board [1995] 82 Comp Cas 836; [1995] 1 Comp LJ 1 (Mad), the main matter in dispute was the decision to increase the share capital of the company so as to reduce the majority shareholders into minority shareholders. Learned counsel for the appellant in that case contended that the allotment of the shares is a matter of internal management of the company and the same is outside the scope of Section 397 or 398 of the Act. After reviewing the case law on the subject, the Madras High Court held that (page 886): "it is well established that directors of a company are in a fiduciary position vis-a-vis the company and must exercise their power for the benefit of the company. If the power to issue further shares is exercised by the directors not for the benefit of the company but simply and solely for their personal aggrandisement and to the detriment of the company, the court will interfere and prevent the directors from doing so. The very basis of the court's interference in such a case is the existence of the relationship of a trustee and cestui que trust as between the directors and the company." On the facts of the case, the court having observed that there was no necessity to increase the capital since there was no plant or machinery, why the share capital was increased is not explained. Accordingly, the court held that the directors of the fifth respondent-company did not act in good faith and amounted to act of oppression.


275. In Mrs. Rashmi Seth's case [1992] 3 Comp LJ 89 ; [1995] 82 Comp Cas 563 (CLB), the Principal Bench of CLB held that the action of the company in passing a resolution that the petitioner consented for transfer of her holding of 50 per cent. shares by fabricating minutes showing her presence, though she did not attend the meeting and other resolutions passed in such a meeting are null and void and non-operative. As the petitioner continued to hold 50 per cent. shares in the company and as such she was held to have fulfilled the criteria prescribed under Section 399 of the Companies Act, 1956, for filing a petition under Sections 397 and 398 of that Act.

276. In the aboye judgment it was further held that the action of the directors in not offering shares to all the shareholders, but to one shareholder, such allotment had the effect of converting the majority shareholding of the petitioner into a minority shareholding and the same amounts to acts of oppression and mismanagement. The Company Law Board further held that the directors cannot utilise the fiduciary powers over the shares purely for the purpose of destroying an existing majority or creating a new majority and exercise of power to issue further shares for the purpose of consolidating and improving voting power to the exclusion of the existing majority shareholder cannot be allowed.

277. In R. Khemka's case [1998] 16 SCL 1 (AP) this court observed that the word "oppression" is a chameleonic word and it changes its colour and content from time to time, place to place, and event to event, depending on circumstances of the case. His Lordship also observed while Section 397 of the Act is intended to protect the interest of minority shareholders, Section 398 of the Act is intended for maintaining public interest and interest of the company.


278. From the above it is seen that if the company with the support of the majority shareholders creates a state of physical or mental discomfort to the minority members and tries to alter shareholdings of the members by fabricating the resolutions as held supra it has to be construed as an act of "oppression" of the minority by majority. Further, in a case of mismanagement, the minority shareholders need not prove the allegations to be true. Mere apprehension is sufficient for making an order by the Company Law Board with a view to bringing to an end the disputes, as seen from Section 398(2) of the Act.

279. But Sri Raghavan appearing for the respondents strenuously contended that the Company Law Board, not being a court and being creature of a statute, whose powers are enumerated cannot exercise powers in equity as is being done by the High Courts as well as the Supreme Court.

280. While this court considered the series of objections raised by counsel, this contention was rejected by holding that the Company Law Board is empowered to exercise inherent powers under Rule 44 of the Company Law Board Regulations, 1991, akin to the inherent powers that are being exercised by the civil courts under Section 151 of the Civil Procedure Code.

281. Nextly, from the language of Section 398, mere apprehension in the minds of minority shareholders is sufficient and the allegations levelled against the majority shareholders need not be proved in the strict sense for exercise of the powers vested in it under Section 402 of the Act by the Board.

282. Keeping the dicta laid down in the cases referred supra, I proceed to examine whether the acts complained of by the petitioners constitute acts of oppression.


Rights issue :
 The case of the petitioner is that in January, 1994, the company made rights issue all of a sudden without any discussion in any board meeting or the general body meeting, on September 25, 1993, with a view to bringing the shareholding of the petitioners below 10 per cent. in order to see that the petitioners would not approach the Board for reliefs against oppression and mismanagement and the issue was not for any bona fide business purpose. The petitioner in his chief examination categorically stated that in the board meeting held on July 29, 1993, the issue regarding expansion or modernization of the company was not in the agenda. It is also his case that in the annual general body meeting held on September 25, 1993, no discussion about expansion or modernisation of the company took place. Be that as it may, the petitioners having received the offer of rights on April 31, 1994, applied for shares on March 8, 1994, but the shares were not allotted to the petitioner for a long time on the ground that the form was not signed by one Aruna Devi who was holding shares jointly along with the petitioner and who died in the year 1980, though the death certificate of Aruna Devi was sent to the company on May 25, 1994. The case of the respondents is that the additional share capital was sought to be raised for purposes of expansion and modernisation and replacement through the rights issue as per the resolution of the board in its meeting held on July 29, 1993. The company has not allotted the shares to the petitioner, as the petitioner did not attach the death certificate of the joint shareholder along with the application. It is only in 1997 the shares were allotted to the ninth petitioner.


283. Rejecting the contention of the petitioners, the Board held that it is beyond their comprehension as to how the rights issue as long as the offer is accepted would reduce one's shareholding forgetting the fact that the shares were not allotted to the ninth petitioner till 1997, i.e., three years after the company petition was filed. On the second contention that the company is not in need of funds, the Board observed that it was not the first time that the company made such an issue. Earlier in 1991 also such an issue was made even without verifying the minutes of the board dated July 29, 1993. Ultimately the Board held as follows (page 538 of 98 Comp Cas) :
 "Therefore, we cannot subscribe to the view of the petitioners that the rights issue was made with an oblique motive especially when it will have effect on nearly 90 per cent. of the shareholders other than the petitioners who hold only around 10.6 per cent. shares."
284. Having taken such a view the Board surprisingly held (page 539) :


284. Having taken such a view the Board surprisingly held (page 539) :
 "However, we find that the grievance of the petitioner relating to delayed allotment of the shares has substance. We are not in a position to appreciate the stand of the company that the death of a family member was not known to the persons in management, viz., second respondent for over three years to allot shares applied for in 1994, in 1997. Personal differences should not come in the way of discharging statutory responsibilities. The delayed allotment has denied the petitioner the benefit of dividend declared. Therefore, we are of the view that the petitioner should be compensated at least to the extent of the dividend that he would have been otherwise entitled to if the shares had been allotted in time. Accordingly, we direct the company to compensate him by payment of interest at the same rate at which dividends were declared and paid in respect of the delayed period within a period of one month from the date of receipt of this order."


285. Now let me see to what extent the findings recorded by the Board can be sustained. The case of the respondent is that the Board has taken a decision at its meeting held on July 29, 1993, admittedly after the disputes started. The agenda notice for that meeting was filed before the Board as annexure R-15 by the respondents themselves. None of the agenda items relate to expansion or modernisation or replacement of the old machinery. Perhaps they want to take advantage under the last item "any other matter with the permission of the chair". But at the same time the resolution adopted at the meeting was not filed before the Board. I summoned the original minutes book to have a look at the resolutions adopted by the board. The subject replacement/modernisation of machinery was taken up under Item No. 8 (D) in the board meeting held on July 29, 1993, and the resolution adopted under this item is extracted hereunder :
"Resolved that approval of the company be and is hereby given in prin-' ciple to take up replacement-cum-modernisation of machinery and expansion of the plant.


Resolved further that the scheme of funding and other details be considered at the next board meeting which shall be made available by the managing director."
286. From the above resolution it is seen that the board did not decide to raise additional amounts through rights issue-Secondly, if the rights issue was made for the purpose of expansion, etc., the respondents did not state how the additional share capital raised was utilised even at the time when the case was heard at the fag end of 1998. Further the case of the respondent is that about Rs. 1.5 crores was raised through rights issue and it is not known whether the company is not in a position to raise that amount if it is really needed from other sources. On the other hand, the specific case of the petitioner is that the company made rights issue only to see that his shareholding is reduced to less than 10 per cent. thereby preempting him from approaching the Board under Section 397 of the Act. The ninth petitioner spoke about this issue in detail while giving evidence. From the resolution of the board it is seen that the company is having surplus funds and with regard to raising of additional share capital, the board having agreed in principle to the suggestion of the second respondent that about Rs. 7.5 crores may be raised for the purpose, resolved to consider the scheme of the funding and other details at the next board meeting which shall be made available by the managing director. From the above it is seen that the board did not resolve to raise additional share capital by rights issues. Further while the estimated amount for the purpose is Rs. 7.5 crores the amount raised through rights issue is only Rs. 1.5 crores. How the remaining amount was raised, the company did not explain. On the other hand, the respondents did not file the copy of these resolutions before the Board purposely as they will be caught on the wrong side.


287. In the light of the foregoing discussion the conclusion arrived at by the Board that the company decided to raise Rs. 1.50 crores by making rights issue is not based on any material and it is the result of non-application of mind.


288. Nextly, the Board brushed aside the contention of the petitioner that the company made a rights issue only to see that his shareholding is reduced to less than 10 per cent. to prevent him from approaching the Board under Section 397 of the Act, by holding that it is beyond their comprehension as to how the rights issue as long as the offer is accepted would reduce one's shareholding. The case of the petitioner is that both in the petition as well as in his evidence that having accepted the rights issue, he submitted an application dated March 8, 1994, to the Assistant Secretary, when the company did not allot the shares to the petitioner on the ground that the ioint shareholder, i.e. Aruna Devi has not signed the application, he submitted the death certificate of Aruna Devi on May 25, 1994. The copy of the letter along with death certificate were filed before the court. Though counsel for the respondent-company contended that the company did not receive the death certificate till 1997, he neither produced any evidence to show that the death certificate was not received by the company in 1997 nor he elicited anything contra in the cross-examination of the petitioner that he has not furnished the death certificate on May 25, 1994. If there is no mala fide intention on the part of respondents Nos. 2 and 3 it is not known how the shares remained unallotted to the petitioner for three long years, more so in the light of the observation of the Board that "we are not in a position to appreciate the stand of the company that the death of the family member was not known to the persons in management".


289. Mr. Raghavan in his marathon arguments did not attack this finding of the Board. Be that as it may, the very finding of the Board that "personal differences should not come in the way of discharging the statutory responsibilities and awarding of payment of interest at the rate at which the dividends were declared to compensate the petitioner", is sufficient to hold that respondents Nos. 2 and 3 pitched upon the rights issue and withheld the allotment of shares to the ninth petitioner with a view to see that the shareholding of the petitioner will be less than 10 per cent. Had the other shareholders not joined him, he would not have on his own approached the Board under Section 397 of the Act.

290. In Malleswara Finance and Investments Company (P.) Ltd.'s case [1995] 82 Comp Cas 836; [1995] 1 CLJ 1 the Madras High Court held that in the absence of any evidence that the increase in the share capital was necessary, the issue and allotment of shares is not in good faith and is intended to defeat the rights of shareholders.

291. In Gajarabai Patny's case [1966] 36 Comp Cas 745 (AP), his Lordship Justice Jaganmohan Reddy as he then was in this court held that the action of the directors in withholding transfer of shares in favour of the petitioners, in accordance with the terms of the will, while at the same time transferring some other shares in the managing firm, under the same will, was vindictive, harsh, unreasonable and amounted to oppression.


292. In Standard Industries Ltd.'s case [1994] 80 Comp Cas 764 again the Principal Bench of the Company Law Board held that the action, as evidenced by resolute endeavour, to go with the rights issue in spite of opposition from 48 per cent. shareholders in effect, intended to reduce the petitioners and others to insignificant minority and suffers from lack of probity and fair play.

293. Following the dicta laid down in the above judgments, I hold that withholding of allotment of shares of the ninth petitioner even after producing the death certificate of the joint shareholders, the late Aruna Devi, along with her letter dated May 25, 1994, for more than four years is only with a view to preempt the ninth petitioner and his group from approaching the Company Law Board complaining of acts of oppression and mismanagement in the affairs of the company and such an action is vindictive, harsh and unreasonable and amounts to oppression.

Removal of petitioner No. 9 as director :
 The case of petitioner No. 9 is that he was removed as director in the extraordinary general body meeting of the company held on January 21, 1994, without following the procedure prescribed in the Act. It is also his case that the petitioners and other shareholders supporting him were not allowed to participate in the said meeting and he was not accorded any opportunity to explain his position as envisaged under Section 284 of the Act. His further case is that once the board decided to convene the meeting as per the requisition, a special notice under Section 190 of the Act must have been issued by the requisitionist. Likewise, the provisions of Section 168 of the Act were not followed and the notice for the meeting did not contain any explanatory statement as envisaged under Section 173 of the Act and as such the proceedings of the meeting have to be declared as null and void.


294. The case of the respondents is that the company received a requisition notice for removal of the petitioner as director of the company. After the court litigation initiated by the petitioner on the requisition notice came to an end, in the extraordinary general body meeting held on January 21, 1994, it was unanimously decided to remove the petitioner as director. Their case is that the telegraphic representation sent by the petitioner for the board meeting held on December 27, 1993, was circulated to the members, as the petitioner did not choose to attend the meeting to make oral representation. The general body decided to remove him after considering the telegraphic representation and as such the provisions of Section 284 of the Act were complied with.

295. With regard to issuance of special notice under Section 190 of the Act, the case of the respondent is that the requisition notice received by the company was a composite one both under Section 169 of the Act as well as under Section 190 of the Act. Hence, the removal of the petitioner was in consonance with the above provisions of law and had the support of all the shareholders who attended the meeting and as such it cannot be impugned.


296. The Board, having observed that in a petition under Section 397 of the Act directorial complaints cannot be generally agitated, examined the same and held:
 "As per record, nine shareholders requisitioned for convening an extraordinary general body meeting for passing a resolution to remove the petitioner as a director. Having taken recourse to the legal forum, the petitioner is complaining that the provisions of Sections 284 and 190 of the Act were not followed in this process". The Board accepted the plea of the respondents that "the circulation of telegraphic representation is sufficient compliance with the provisions of Section 284 of the Act". The other contention of the petitioner that the requisitionist has not issued special notice of fourteen days before the date of meeting did not find favour with the Board and they observed that Section 169 of the Act has to be read independently from Section 284 of the Act. Since a notice under Section 169 of the Act is received by the company and the notice indicates the business to be transacted in the meeting which is to be held within a stipulated time framed as provided under that section, the question of issuing separate special notice under Section 190 of the Act does not arise and the notice of the requisitionist was treated as special notice under Section 190 of the Act. The Board also held that "the provisions of Section 190 of the Act are applicable only in connection with the annual general body meeting and not in respect of a requisitioned extraordinary general body meeting". The Board also held that "in case of meetings convened on requisition under Section 169 of the Act, no explanatory statement need be enclosed. In that view of the matter, the Board held that the removal of the petitioner as director does not suffer from any legal infirmity".


297. Before considering the correctness or otherwise of the order of the Board, it should be kept in mind that petitioner No. 9 was given in marriage to respondent No. 2's daughter in 1969 and he became a director of the company in 1970. He was not only a director of this company, but also actively involved in the management of the affairs of the various subsidiary companies. He was the (1) managing partner of Padmalaya Finance Company, (2) managing director of Vijaya Engine Valves Limited, (3) managing director of K. V. R. Forgings and (4) chairman of Bhavani Castings. From this it is clear that the petitioner was holding important positions at least in four subsidiary companies apart from the post of director in the respondent-company. After the disputes have arisen between the father-in-law and son-in-law, i.e., respondent No. 2 and the ninth petitioner, he was stripped of the positions held by him one after the other except the post of managing director for K. V. R. Forgings which he seemed to have resigned after he became Member of Parliament in 1984. No explanation whatsoever is forthcoming as to why he was removed from various positions held by him for nearly 2 1/2 decades. From the events that have taken place, it is obvious that he was stripped of all his positions as he has fallen from the grace of his father-in-law and he started raising his voice against the mismanagement of the affairs of the company by respondent No. 2. Nextly, as a director of the company he will be having access to all the records and account books of the company and as director he is entitled to have the information as a matter of right unlike a shareholder who has no right to have the information with regard to the day-to-day affairs of the company. This is evident from the alleged letter of the company dated December 3,


affairs of the company. This is evident from the alleged letter of the company dated December 3, 1993, addressed to the ninth petitioner, which did not reach him as per the answer given by the ninth petitioner to Q. No. 131 in cross-examination. The question (Q. No. 136) put to the ninth petitioner and the answer given by him in his cross-examination are extracted below :


"Q. 136. You have every right to inspect the books and records of the company ?


A. Since the information asked for was not given and it is not possible to go through the records of the company and find out the mis-appropriation."
298. From questions Nos. 6 to 10 in the cross-examination, it is seen that counsel suggested to the ninth petitioner that as a director he is having access to all the books, records and accounts.

299. From this it is evident that petitioner No. 9 is stripped of his directorship, so that he will not have access to the records and to pre-empt him from approaching the Board seeking relief against acts of oppression. This answer of the ninth petitioner is further fortified from the reply given by the company to the letters addressed by him seeking information before and after losing the directorship as well as the replies of the company to the other petitioners as shareholders.

300. From this angle, if we look at the notice, nine shareholders belonging to respondent No, 2's family gave notice after the disputes have arisen between respondent No, 2 and the ninth petitioner, the irresistible conclusion that can be arrived at is that respondent No. 2 with the power at his command wants to oppress the voice of the petitioners by not allowing him to have access to the records, accounts, etc., more so, when he tried to find pitfalls in the administration and tried to expose the misdeeds of respondent No. 2 prejudicial to public interest as well as the interest of the company.


301. Coming to the resolution removing petitioner No. 9 as director, the specific case is that in the annul general body meeting held in September, 1993, he raised the issue of misappropriation of Rs. 1.25 crores and as a retaliation respondent No. 2 got requisition notice issued by his family members on November 4, 1993. The requisition notice is said to have been given under Section 169 of the Act requesting the managing director to convene an extraordinary general body meeting to consider and pass a resolution, "resolved that Mr. Chundru Srihari Rao be and is hereby removed as director of the company". They also stated that "it may be treated as special notice under Section 190 of the Act".


302. Section 284 of the Act deals with removal of directors. Under Sub-section (1), a company may, by ordinary resolution, remove a director before the expiry of his period of office. Under Sub-section (2), a special notice has to be given for passing a resolution for removal of a director or appoint some one in his place. Under Sub-section (3), on receipt of such a notice, the company shall forthwith send a copy thereof to the director concerned, and the director shall be entitled to be heard on the resolution at the meeting. Under Sub-section (4), the director concerned after receipt of the meeting notice may make a representation in writing to the company and request its notification to members of the company. While giving notice for a general body meeting, the company has to send a copy of the representation to every member of the company, and if a copy of the representation is not sent for the reasons stated therein, the director may without prejudice to his right to be heard orally, require that the representation shall be read out at the meeting. From the language employed in Sub-sections (3) and (4), I feel that there is some ambiguity with regard to the time at which notice to be given to the director, i.e., prior to giving notice for the general body meeting or after the notice for general body is given. I need not go into the controversy, as both counsel did not address arguments on this aspect.

303. Under Section 190 of the Act, notice of intention to move the resolution shall be given to the company not less than fourteen days before the date of meeting at which the resolution to be moved, excluding the day on which the notice is served or deemed to be served on the member concerned.


304. Under Section 169 of the Act, on receipt of requisition meeting notice received from the members of the company, the board of directors shall proceed to call for an extraordinary general body meeting of the company. Though the board at its meeting held on December 27, 1993, decided to call for the extraordinary meeting, on January 21, 1994, neither the notice calling for the meeting nor the explanation of the ninth petitioner appended to the notice, or the resolution passed in the general body meeting were produced either before the Board or this court to find out whether the statutory requirement is satisfied in convening the meeting or the contents of the telegram, to know whether it can be treated as an explanation and whether the resolution adopted by the general body reflects the application of mind by the members to the telegram in removing petitioner No. 9 as director.


305. Be that as it may, even assuming that the company complied with statutory requirements in convening the meeting, under Section 294(3) of the Act, the director is entitled to be heard on the resolution at the meeting. In the evidence, the petitioner categorically stated that having received the notice for extraordinary general body meeting slated on April 21, 1994, he along with his wife went to attend the meeting at 3.30 p.m., which is scheduled to be held at 4.00 p.m., to explain to the shareholders of the company the reasons why a resolution is being moved to remove him as a director and to explain to them the stand taken by him for exposing corruption and misappropriation of funds by respondent No. 2, but he was not allowed to enter the meeting hall as the gates were closed at 3.30 p.m. and the security told him that they were doing so under instructions. Immediately, he gave a press release, but the same was published on January 27, 1994, vide answer to question No. 65 in chief-examination. This statement of the petitioner stood unrebutted. But the Board accepted the version of the company and held that the removal of the petitioner as director does not suffer from any legal infirmity.


306.Firstly, I have gone through the order as well as the material papers filed by the respondents in this regard. From Sub-section (4) of Section 284 it is seen that even if the representation is not circulated to the members of the company, the director may, without prejudice to his right to be heard, orally require that the representation shall be read out at the meeting. From this, it is evident that even if the representation is circulated with the notice, the right of the director sought to be removed, of being heard is preserved. As the deposition of the petitioner that he was not allowed to enter the meeting hall to explain his stand and he gave a press statement to that effect which was published on December 27, 1993, stood unrebutted, I have no option except to hold that the resolution adopted by the general body at its meeting held on April 21, 1994, is in contravention of Section 284 of the Act.


307. Counsel for the respondent strenuously contended that the shareholders cannot be restrained from calling a meeting and they are not bound to disclose the reasons while calling for an extraordinary general body meeting to move a resolution for removal of some directors and appoint others in their place, nor the reasons for the resolutions are subject to judicial review by placing reliance on Life Insurance Corporation of India's case . Their Lordships of the Supreme Court in para. 100 held as follows (page 636) :
 "100. Thus, we see that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting in accordance with the provisions of the Companies Act. He cannot be restrained from calling a meeting and he is not bound to disclose the reasons for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review .. . .. It does not require the shareholders calling a meeting to disclose the reasons for the resolutions which they propose to move at the meeting."


308. It is true that the Honourable Judges of the Supreme Court have taken such a view in upholding the action of the Life Insurance Corporation in seeking removal of non-executive directors in Escorts Limited who resisted transfer of shares held by the financial institutions in favour of non-resident Indians with a view to avoid confrontation with the Government and the Reserve Bank and to adopt more conciliatory approach as per the policy of the Government, to earn foreign exchange by attracting non-resident individuals of Indian nationality or origin to invest in the shares of Indian companies, by providing incentives to facilitate investment by non-residents of Indian nationality or origin in shares of Indian companies and by liberalising the existing facilities and procedural formalities, and who dragged the issue to the court. In arriving at this conclusion, they placed reliance on Company Law by Gower who compared the shareholders and board of directors as legislative and executive organs. Their Lordships opined that the only effective way the members in general meeting can exercise their control over the directorate in a democratic manner is to alter the Articles so as to restrict the powers of the directors for the future or to dismiss the directorate and appoint others in their place. I have no quarrel with the general proposition laid down by the Honourable Supreme Court.


309. But the facts and circumstances of that case are altogether different from the facts and circumstances of this case. Here, the Board is considering whether the action of the shareholders in calling for an extraordinary general body meeting to move a resolution for removal of petitioner No. 9 is bona fide one or tainted with bad faith at the instance of respondent No. 2. Though the resolutions are not subject to judicial review, the court should not close its eyes to the time and the manner in which the resolution is sought to be moved by the shareholders, more so, when the shareholders who have given the notice for convening of the extraordinary general body meeting are no other than the kith and kin of respondent No. 2, apart from the fact that the ninth petitioner was stripped of all his positions in the subsidiary companies which he was holding for more than 2 1/2 decades at the same time. In fact, in Standard Industries Ltd.'s case [1994] 80 Comp Cas 764, 771 (CLB) while considering the action of the majority shareholders fully subscribing to the rights issue to the detriment of the petitioners observed that "it was not the legality of the rights issue but the modus pperandi adopted by the respondents that was the real issue". From the above it is seen that it is not the legality of the resolution passed by the general body removing the ninth petitioner as director, but the time, the intention, modus operandi adopted by respondents Nos. 2 and 3 in getting the resolution passed, so that he will not have access to the original records and account books, etc., to see that the ninth petitioner is placed in a disadvantageous position to expose their misdeeds and also to gain time to fabricate the documents, which are in their possession, in the event of his approaching the Company Law Board under Chapter VI of the Companies Act.


310. In Life Insurance Corporation of India's case their Lordships of the Supreme Court held that (page 628) : "Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of public interest, the effect on parties who may be affected, etc".

311. From this judgment it is crystal clear when fraud or improper conduct is alleged against the majority shareholders, the Board is expected to lift the corporate veil to see whether the majority shareholders acted in violation of the statutory provisions, whether any element of public interest is involved and whether any of the parties are affected by their actions and whether the resolution is moved in good faith. But the Board without seeing whether the removal of the petitioner by the general body is in good faith or at the dictates of respondents Nos. 2 and 3, who are controlling the majority shareholders and even without looking into statutory provisions whether the resolution passed by the general body satisfied the test laid down in Section 284 of the Act, simply held that the removal of the ninth petitioner as director does not suffer from any legal infirmity.


312. Hence, it is rather difficult to hold that the procedure prescribed for removal of petitioner No. 9 as a director under Section 284 of the Act is followed. As such the finding of the Board that Section 169 of the Act has to be read independently from Section 284 of the Act and no explanatory statement need be enclosed in the case of meetings convened on requisition and that the provisions of Section 190 of the Act are applicable only in connection with the annual general body meeting and not in respect of a requisition for the extraordinary general body meeting, runs counter to the provisions of the Act and I have no manner of doubt to hold that the findings of the Board are not in consonance with the provisions of the Act.


313. Other acts of oppression not adverted to by the Board, by not considering the voluminous record :
1. Assault by Krishna Mohan :
 While giving answer to questions Nos. 77 and 78 in chief, categorically stated that respondent No. 2 sent one Krishna Mohan working as manager in S. R. M. T. to his cabin to assault him and in the assault he received bleeding injuries. With the result he was treated in the Government Hospital at Kakinada and he also filed a criminal case against the said Krishna Mohan. It seems the case is still pending. On the other hand, the case of the respondent-company is that on a complaint given by Krishna Mohan, petitioner No. 9 was convicted and a fine was imposed on him. Rebutting this argument, petitioner No. 9 brought to the notice of this court that on appeal the order of the learned magistrate was reversed. It is not known how the magistrate kept the criminal case filed by the ninth petitioner pending and disposed of the criminal case filed by Krishna Mohan though both the complaints arose out of the same incident and they being case and counter case.
2. Assault by Mr. M. V. V. Satyanarayana Rao :


2. Assault by Mr. M. V. V. Satyanarayana Rao :
 Mr. M. V. V. Stayanarayana Rao, joint managing director of Padmalaya Finance Corporation and co-son-in-law of petitioner No. 9 seemed to have caused bodily injuries to petitioner No. 9 and he lodged a complaint before the III Town Police Station, Kakinada, on April 9, 1997. Though a case was registered in Cr. No. 82 of 1997 under Section 324 read with Section 34 of the Indian Penal Code no action seemed to have been taken by the police. In those circumstances, petitioner No. 9 filed Writ Petition No. 27324 of 1997 questioning the inaction on the part of the police. In the counter, the Sub-Inspector of Police while admitting that the investigation has not been completed went to the extent of saying that the incident has nothing to do with the disputes between the co-sons-in-law. The learned judge in his judgment dated November 7, 1997, recorded a finding as follows :
 "It is rather difficult to appreciate as to how the Investigating Officer could have expressed any opinion whatsoever about the non-involvement of certain persons whose names are mentioned by the petitioner."
In fact this court directed the Superintendent of Police to entrust the investigation of the case to another Inspector of Police by divesting the Sub-Inspector of Police, III Town Police Station, Kakinada. Even after the judgment, the result of the investigation has not seen the light of the day till this date.


(3) Criminal cases filed by Satyanarayana Rao, son-in-law of respondent No. 2 :
 It is also his case that the said Satyanarayana Rao filed as many as eight criminal cases against him, i.e., C. C. Nos. 434 of 1998, 453 of 1998, 82 of 1999, 93 of 1999, 607 of 1999, 46 of 1999, 56 of 1999 and 94 of 1999. Though these cases were filed after the company petition, the fact remains that the persecution of the ninth petitioner is continuing and the court has to take judicial notice of these cases, as counsel for the respondents did not deny the fact of filing so many criminal cases against the ninth petitioner.
(4) Criminal cases filed by K. V. V. Prasada Rao another son-in-law of respondent No. 2 :
 Another co-son-in-law Mr. K. V. V. Prasada Rao filed three criminal cases against him, viz., C. C. Nos. 705 of 1999, 706 of 1999 and 707 of 1999.
Again though these cases are subsequent to the filing of company petitions, I have taken judicial notice for the reasons given below.

These cases filed by both the co-brothers of the ninth petitioner against him are all pending in the criminal courts, Kakinada.


(5) Criminal case against E. Satyanarayana Murthy--List witness under Section 3(1)(e) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989 :
It is his further case that (a) at the instance of respondent No. 2 a criminal complaint was given by one Peter Bala against one E. Satyanarayana Murthy, who worked in various capacities in the respondent-company, on a suspicion that he is giving information to petitioner No. 9, stating that he scolded him by his caste name on August 8, 1995, and the same was registered as Crime No. 55 of 1995 under Section 3(1)(e) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989. He was detained in the prison for more than ten days. Ultimately, he was granted bail by this court in Crl. Petition No. 3912 of 1995, dated August 17, 1995.


(b) Mr. E. S. N. Murthy in his representation dated September 7, 1995, to the Collector and S. P. stating that the management was harassing him for the reason that the ninth petitioner cited him as a witness in the company case and not able to withstand the harassment, he resigned the job. Not being satisfied with this, the second respondent got him implicated in this false case though he did not even know the de facto complainant and he requested them to get the case investigated by a superior Police Officer and to do justice to him. It is also his case that when the district authorities did not move in the matter, to save himself, he left Kakinada and settled in Visakhapatnam. Though the complaint and representation are of the year 1995 neither the police prosecuted him nor closed the case till this date.
(6) False case against Y. D. Rama Rao :


(6) False case against Y. D. Rama Rao :
 It is also his case that the second respondent got a false criminal case registered against Y. D. Rama Rao, who worked as manager in S. R. M T. for more than 20 years and now Chairman of Super Bazar, Kakinada, on the ground that he abused and beat one Harijan under Section 3(l)(e) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989. In proof of the allegation the pamphlet published by Y. D. Rama Rao explaining the circumstances under which he was forced to go on hunger strike at taxi stand near Balajicheruvu on September 23, 2000, and also the bail order granted by the First Additional Sessions Judge, East Godavari on September 20, 2000, wherein Mr. Rama Rao categorically pleaded that de facto complainant has been pressed into service by the S. R. M. T. group in order to foist a false case against him. As this incident is after the judgment of the Board, I am not taking into consideration, as the same was not brought to my notice in a manner known to law. It is suffice to state that Y. D. Rama Rao is supporting the ninth petitioner as seen from the statement of George Babu before police on February 17, 1994.


(7) Inaction of police against D. George Babu, Security Guard in S. R. M. T. : The specific case of the ninth petitioner is that when the petitioner and his group of shareholders are taking steps to file a company petition one Mr. D. George Babu, who is working as a security person in S. R. M. T. followed him to Samalkota Railway Station on February 17, 1994, and on a complaint given by his men, as he is leaving for Hyderabad, the Railway Police arrested and handed him over to regular police and the said George Babu gave a statement before the police. As per his version, while he was in "A" shift from 6.00 a.m. on the fateful day the security officer by name Ch. S. V. S. N. Murthy sent for him at about 2 p.m. in the noon and he was asked to go in plain dress on the Kinetic Honda bearing No. AP-5-8656 belonging to the security officer and asked him to trace the whereabouts of petitioner No. 9 and also to see who are the others accompanying him including Y. D. Rama Rao and he admitted that Sri Hari Rao having seen him asked Mr. E. Satyanarayana Murthy and Tallapudi Subba Rao who are with him to hand him over to the Railway Police who in turn handed him over to the local police before whom he gave the above statement. No information is forthcoming whether the police registered a crime or not against George Babu and at what stage the investigation is. But the receipt given by the police in proof of receipt of the complaint given by E. Stayanarayana Murthy and the statement given by the said George Babu before the police were filed before the Company Law Board.


(8) Threat to ninth petitioner by respondent No. 2 after board meeting dated October 3, 1993 :
 The case of the petitioners is that immediately after the board meeting dated October 3, 1993, wherein the issue of misappropriation was again raised by him, is over, respondent No. 2 threatened him to vacate the premises of SRMT wherein the office of Padmalaya Finance Corporation was also located within 24 hours and thereafter having agreed before the police not to press for vacation of the premises, removed his table and placed it outside the company premises on October 14, 1993.
314. The ninth petitioner in his affidavit dated May 13, 1998, filed before the Board not only brought all these incidents to the notice of the Board with documentary evidence, but also deposed in his evidence on the incidents that have taken place till the time of giving evidence (see answers to questions Nos. 78, 84 and 86 in chief).

315. The company did not produce any rebuttal evidence on any of the above aspects. Though such a voluminous material was placed before the Board, it did not discuss whether the above actions on the part of respondents Nos. 2 and 3 amount to oppression of the minority shareholders or not.


316. From the above documentary and oral evidence available on record, I have no hesitation to hold that the petitioner placed sufficient material explaining not only his inability in not getting the list witnesses to give evidence but also proved that respondents Nos. 2 and 3 are creating fear psychosis among the list witnesses, that if any one helped the ninth petitioner or raised his voice against the activities of respondent No. 2, the first and foremost thing would be, that he will be arrested by the police under the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989. Secondly, the series of incidents referred to supra both before and after filing of the company petition are clearly intended to prove to the outside world that a man who incurred the wrath of respondent No. 2 even if he is his own son-in-law will not be spared so easily and the persecution will continue till he is crushed.

317. At this stage the court is expected to take judicial notice of the fact that in the entire district, the respondent-company is the biggest industrial house with assets worth more than Rs. 100 crores and we can imagine how much political clout the managing director of such a company will wield not only in the town, but also in the entire district leave apart the State.

318. We should also keep in mind that petitioner No. 9 was a Member of Parliament when he was in the good books of his father-in-law and when petitioner No. 9 fell from the grace of his father-in-law, another son-in-law by name Mr. Ravinder is now Member of Parliament.


319. Hence, all the above incidents clinchingly establish that as the majority of directors and majority of the shareholders in the respondent-company hail from the family of respondent No. 2 and they will go to any extent to silence the minority shareholders by using their brute majority in the company and also by using the political clout and physical force at their command to suppress any dissent voice against his illegal activities.


Compromise proposals :
 After the petitioners filed C. A. No. 65 of 1997 seeking appointment of interim administrator, as the petitioners offered to sell their shares to the respondent-company at a value determined by an independent chartered accountant, the Board suggested that the matter should be settled amicably in its meeting held on September 5, 1997, not only relating to the respondent-company--Gopal Automatic Limited, but also other four group companies, in which the petitioner had some interest and counsel for the respondent has taken time to find out the reaction of his clients. Again when the matter came up for hearing on September 29, 1997, he sought for further extension of time by stating that the shareholding of the respondent-company and its subsidiaries being divergent, the shareholders have to be consulted before any commitment could be given to the Company Law Board. Though the attendance sheet does not reflect the reaction of the respondents from the order of the Board it is seen that the respondents did not agree to the proposals. Having taken time to consult the shareholders in the company as well as its subsidiaries no material whatsoever is placed to show that the views of the shareholders were ascertained either by convening general body meetings of these companies or by circulation and they did not agree to the proposals.


320. In the appeal, arguments were addressed by counsel for about three weeks. I understand respondent No. 3 was physically present in the court most of the time apart from the employees of the respondent-company and every day having pointed out the glaring illegalities committed by the Board, this court went on suggesting that this matter has to be settled amicably and the shares held by the petitioners can be purchased by the company instead of inviting a judgment on the merits. But the respondents flatly refused to purchase the shares by contending that the financial position of the company would not permit such a measure. From the record, it is seen that the annual turnover of the company is more than Rs. 100 crores and it is having sufficient reserves.


321. This is evident from resolution 8-B at the meeting of the board of directors held on July 29, 1993, in the following terms :
"8-B : Subject: Authority to invest surplus funds in Government securities and shares of company :
 Resolution : Resolved that pursuant to the provisions of Section 292(1)(d) and (2) and other applicable provisions of the Companies Act, 1956, Sri K.V.R. Choudary, managing director and Sri K. Sarathi, joint managing director be and are hereby severally authorised to invest funds of the company in fixed/term deposits with banks, body corporate and in shares and/or debentures (convertible and non-convertible) of companies and other Government securities (Central or State or semi-Government) provided, however, that the total amount up to which the funds to be invested as aforesaid shall not exceed the sum of Rs. 2 crores (rupees two crores only) at any one time until otherwise decided in this regard)."


322. Further, even according to the respondents an amount of Rs. 1.5 crores were raised through the rights issue in 1993 and how this amount was invested was not explained by the company. Further, in the extraordinary general body meeting held on December 6, 2000, the shareholders with a view to diversify the activities of the company and to carry on the business of generating, selling, transmitting, distributing, supplying electric power and host of other activities including floriculture, horticulture, not only amended the objects clause, but also authorised the board of directors to borrow any sum or sums of money exceeding the aggregate of the paid-up capital of the company and its free reserves, provided, however the total amount so borrowed shall not exceed Rs. 100 crores at any time. Can it be said that a company of this magnitude is not having financial resources at its command and is not in a position to purchase the shareholding of the minority shareholders whose shareholding is less than 10 per cent. as on today ? To my mind, such an action on the part of the respondent-company is nothing but victimisation and persecution of petitioner No. 9 and other shareholders supporting him. It may be the intention of respondents Nos. 2 and 3 to show to others that if they raised their voice against their mismanagement they will meet the same fate as petitioner No. 9 who is none other than the son-in-law of respondent No. 2. This conduct of respondents Nos. 2 and 3 is yet another act of oppression of minority shareholders.


Non-furnishing of the information :
On November 2, 1993, the first petitioner addressed a letter to all the directors seeking information on the closure of parcel offices and selling of about forty lorries.

(1) The secretary in his letter dated December 3, 1993, stated that "the matters referred to by you are the matters to be dealt with by the management during the day-to-day business. Hence it is not possible to accede to your request". If information sought for, relates to day-to-day business, it is not known why respondent No. 2 has taken a resolution in the meeting of board of directors alleged to have been held on August 7, 1992, as well as February 27, 1993. When the ninth petitioner, as director, sought for the information in his letter dated November 27, 1993, the company claimed that a reply was sent on December 3, 1993, stating that "the books of account and other records are available at the registered office of the company and he may come and inspect the same during 2.00 p.m. to 4.30 p.m. on any working day with due prior intimation to them". In proof of service of notice, they filed acknowledgment dated December 27, 1993, and petitioner No. 9 categorically denied about the receipt of the said letter. In the witness box also counsel for the respondents cross-examined the petitioner that he being a director he is having access to statutory books. The petitioner in his deposition categorically stated to question No. 86 in chief that respondent No. 2 threatened him to vacate the premises of Padmalaya Finance on October 3, 1993. This issue was dealt with separately apart from the attempted attacks on his body by that time.


(2) Petitioner No. 9 by his letter dated July 17, 1995, i.e., after the filing of the petition before the Board requested for certified copies of the registers duly enclosing banker's cheque for the purpose and the company secretary by his letter dated July 20, 1995, asked him "under what provision of law he is seeking certified copies of the said registers as he is no more director by that date".

(3) Again in the month of September, 1997, when petitioner No. 9 sought for several details with regard to the financial transactions of the company through registered letter as well as telegram dated September 24, 1997, respondent No. 3-joint managing director raised the same query "please let us know under what provisions of the Companies Act a member is entitled to several details which you sought for".


(4) Again on February 27, 1999, petitioner No. 9 addressed a letter to furnish photostat copies of the (1) balance-sheets of the company for the years 1983-84 to 1986-87, (2) copies of contract registers for the years 1989-90 to 1992-93 (3) list of bad debts with all particulars for the years 1991-92 to 1996-97 and (4) particulars of the passenger cars possessed by SRMT Limited as on the date with full particulars relating to company make, model and its registered numbers as they are required for arguments before the Company Law Board. The company secretary in his letter dated March 6, 1999, has taken the stand in the first para, "that the submissions on both the parties have completed before the Company Law Board and the matter is posted to March 22, 1999, for reply of counsel for the petitioner and further stated that no fresh documents or facts can be introduced in the reply" as if he is the authority to decide the admissibility of the documents in a case pending before the Board.


In the second para., it is stated that "the company is not required to give the information sought for" and again questioned the petitioner "under what provisions of the Act the company is bound to furnish the above". In the third para, of the letter, the secretary stated that in September, 1994, itself the company informed that the register of contracts of which the petitioner required copies were not traceable. Hence, furnishing the copies of register of contracts for the period 1989-90 to 1992-93 is not possible. From the above it is seen, while admitting that the matter is posted for reply arguments to March 22, 1999, the company secretary states that no fresh documents or facts can be introduced in the reply. It is not known how the petitioners are precluded from substantiating their plea, in reply to the arguments of the respondents by securing fresh material relevant to the issues that have cropped up for adjudication, more so, when the Tribunal did not follow any known procedure like marking of documents as exhibits recording oral evidence, etc. Further, if more evidence is collected on the plea already raised, through the documents sought for it is always open to the petitioner to file an application to reopen the hearing for receiving the documents as additional evidence at any time before the Board pronounced the orders and even at the appellate stage in support of his plea. Be that as it may, in the second para, the secretary flatly refused to furnish the information sought for and questioned the petitioner under what provision he is asking the information.


As far as register of contracts is concerned, under Section 301 of the Act, every company is bound to keep one or more registers in which the particulars of all the contracts and arrangements covered by Sections 297 and 299 of the Act have to be mentioned. Under Section 297 of the Act, no director of the company or his relative can enter into a contract without the express consent of the board of directors and under Section 299 of the Act if a director of the company is directly or indirectly concerned with the contract or arrangement, etc., to be entered into on behalf of the company, he shall disclose the nature of his concern or interest in the meeting of the board of directors and obtain prior approval of the board and the same should find a place in the register. This being a vital register containing the information whether any director or his relative has entered into contract or arrangement with the company with or without disclosing the same to the board of directors, the company secretary simply stated that the register of contracts for the period 1989-90 to 1992-93 is not traceable.


(5) Petitioner No. 9 again addressed a letter on September 12, 2000, having seen that huge amounts were written off as bad debts in the annual reports of the company, seeking full and accurate information regarding bad debts that were written off during those five years, and the reply given by respondent No. 2 on September 19, 2000, is that "please let us know under what provisions of the Act a shareholder is entitled for such elaborate information and any clarification/explanation will certainly be given at the annual general meeting, if sought for, by the shreholders". When petitioner No. 9 is not being allowed to enter the premises and there is every threat of attacking his person or implicating him in criminal cases as seen from the record, the possibility of attending annual general meeting and raising any question with regard to these bad debts is completely ruled out.