High Court of Madras
K. Balasundaram Vs Coromandel Engg. Co. Ltd. and Ors.
Company Appeal No. 21 of 2010 and M. P. No. 1 of 2010
22 Sep 2010
JUDGEMENT
K. Venkataraman, J:-
Challenging the order dated July 12, 2010, made in Company Application No. 84 of 2010 in Company Petition No. 7 of 2009 (Coromandel Engineering Co. Ltd. v. Dr. K. Balasundaram [2010] 159 Comp Cas 561), of the Company Law Board, Chennai Bench and for setting aside the same, the present company appeal was filed.
The short facts leading to the filing of the appeal put forth by the appellant, are set out hereunder:-(a) The second respondent is a private company incorporated on October 23, 1980. Late G. Kandaswamy was in charge of the second respondent-company and other group companies until his demise. The appellant could not involve in the day-to-day affairs of the second respondent-company and other companies as he had to travel to the United Kingdom often for his treatment. During the life time of the said G. Kandaswamy, respondents Nos. 3 and 5 have been actively involved in the day-to-day affairs of the company and running the same. The appellant is entitled to about 28.29 per cent. of the shares in the second respondent-company pursuant to the demise of his father. After the demise of his father, respondents Nos. 3 and 5 were running the second respondent-company as if it was their proprietary concern and the appellant was kept in isolation as regards the affairs of the company.
The appellant was shocked to notice some construction being carried on in the land belonging to the company situated at Athipalayam Road, Chinnavedampatti village, Coimbatore, which is of an extent of 10 acres. The enquiry done by the appellant revealed that the said 10 acres valuable property of the company was being jointly developed along with M/s. Coramandal Engineering Co. Ltd., the first respondent herein. On further enquiry, the appellant came to know that a fraudulent transaction took place by which, a sale deed was executed in favour of respondents Nos. 6 and 7, who are the sons of the fifth respondent. The said sale has been challenged before the Company Law Board by the appellant. The sale was made for the value which was below the market value. The execution of the company seal of the seller was duly authorised by the resolution of the shareholders in the extraordinary general meeting of the company held on November 21, 2005 and duly authorised by the board of directors of the company on the same day.
The second respondent-company has created a charge by way of an equitable mortgage on another property of the company situated at Chinnavedampatti village, Coimbatore of the total extent of 3.37 acres on May 29, 1998, in favour of Dena Bank, Coimbatore to secure the facilities sanctioned by the said bank to M/s. Akkammal Steel P. Ltd., to an extent of Rs. 277 lakhs. M/s. Akkammal Steel P. Ltd., is a group of company and the respondents hold the entire shares and control in the said entity and as such, the mortgage is completely illegal and any payment to and for the benefit of M/s. Akkammal Steel P. Ltd., from and out of the funds of the second respondent-company is nothing but an unjust enrichment to respondents Nos. 3 and 5. On the strength of the said mortgage, the Dena Bank has extended credit facilities up to Rs. 747 lakhs to M/s. Akkammal Steel P. Ltd. The credit facilities would also show that the sale of 6.63 acres of land to respondents Nos. 6 and 7 for a meagre amount of Rs. 51,00,000 is illegal resulting in huge loss to the second respondent-company and loss to the appellant herein, who is a substantial shareholder in the company.
The appellant had approached the Company Law Board under section 397/398 of the Companies Act, 1956, vide C. P. No. 7 of 2009 seeking some reliefs. As the first respondent did not move forward with the project pursuant to the filing of Company Petition No. 7 of 2009, the appellant did not pursue the issue of getting an order of stay against the first respondent.
The value of the property sold by the second respondent would be Rs. 15 crores as per the market value at the relevant point of time. The first respondent filed C. A. No. 84 of 2010 for a direction from the Company Law Board that the first respondent is entitled to proceed with the terms of the joint development agreement dated May 23, 2008. The said application was allowed by the Company Law Board by its order dated July 12, 2010 and the same is under challenge in the present appeal.
The following substantial questions of law are framed for consideration in this appeal:-
(i) Whether the Company Law Board passed an order in favour of a third party and against a minority shareholder approaching the board under section 397/398 of the Companies Act, 1956?
(ii) Whether the Company Law Board passed an interim order against the petitioner under section 397/398 of the Companies Act, 1956, without looking at the prima facie case and the evidence adduced?
(iii) Whether the Company Law Board justified an order affecting the rights of the petitioner under section 397/398 of the Companies Act, 1956, on the sole ground that the company has other properties too?
(iv) Whether the Company Law Board passed an interim order which amounts to giving a determination on the main company petition itself in a proceeding under section 397/398 of the Companies Act, 1956?
(v) Whether the Company Law Board confined its role to look at the alleged interests of the company alone when apparently larger public interest is involved by allowing the application through the impugned order?
I have heard Mr. Aravind Dattar, learned senior counsel for M/s. Durga Rao and Associates for the appellant, Mr. P. S. Raman, learned senior counsel, for Mr. B. Giridhara Rao, learned counsel for the first respondent and Mr. Karthik Seshadri, learned counsel for M/s. Iyer and Thomas, learned counsel for respondents Nos. 2 to 7.
The second respondent-company is a private company incorporated on October 23, 1980. One G. Kandaswamy, the father of the appellant and respondents Nos. 3 and 5 were the major shareholders. The name of the shareholders and the number of shares held by them are set out here under:-
