COMPANY LAW BOARD, Additional Principal Bench, Chennai
G. Vijayalakshmi
v/s.
Tirupur Textiles (P.) Ltd.
SMT. LIZAMMA AUGUSTINE, Member
C.P. NO. 3 OF 2007
SEPTEMBER 6, 2010
ORDER
1. This is a petition filed by two shareholders of a family company, under sections 397 and 398 of the Companies Act, 1956 (hereafter to be referred as “the Act”). The averments in the petition can be briefly stated as below :
The first respondent-company, Tirupur Textiles was incorporated on January 19, 1956 and later the articles have been amended adopting a new set of articles with effect from October 1, 1971. The textile mill, incorporated on January 19, 1956, by G. T. Krishnasamy Naidu, the grandfather of the petitioners and the second respondent, was meant to be a closely held family company. Of the original 7,500 shares, only 500 went to an outsider, P. Asher, who owned the licence for setting up the mill. Gradually, Krishnasamy Naidu’s two sons, G. T. K. Sivasubramaniam and G. T. K. Shanmugasundaram, came to own all the family’s shares in the company. After the death of Sivasubramaniam on December 10, 1984, his adopted son Vijaykrishna, the second respondent, became the managing director of the company. Shanmugasundaram continued as a director till his death on November 6, 2000. The second respondent owns 51 per cent. of the company’s paid-up capital. The petitioners who are daughters of Shanmugasundaram jointly own 31 per cent. of the shares. On March 12, 2007, they filed this company petition saying they are being excluded by the second respondent from participating in the day-to-day management of the company.
2. In 1974, the paid-up capital was Rs. 7,50,000, divided into 7,500 shares of Rs. 100 each, out of which Krishnaswamy Naidu held 2,000 shares, his wife Vijayammal held 1,000 shares and their children, Rajasekaran, Sivasubramaniam, Parthasarathy and Shanmugasundaram held 1,000 shares each. Asher was allotted 500 shares. Thus, the entire paid-up capital except 500 shares was held by the family members. The shares held by Rajasekaran was transmitted in the name of his son (Ranganathan), following the adoption of Rajasekaran by T.R. Narayanaswamy (the paternal cousin of Naidu), and thereafter he was no longer associated with the company. After the death of Krishnaswamy Naidu and his wife, the 3,000 shares held by them were equally transmitted in the name of his three sons, Sivasubramaniam, Parthasarathy and Shanmugasundaram. Thus, prior to December 31, 1974, 6,000 shares were being held by the three brothers, and the remaining 500 and 1,000 shares were held by Asher and Ranganathan, respectively. These three brothers were having 2,000 shares each in another company (Palani Andavar Mills) and Sivasubramaniam sold his 2,000 shares to Parthasarathy and in turn purchased 2,000 shares of respondent No. 1 company from Parthasarathy, and thus became a 4,000 shareholder. Later, Ranganathan sold his 1,000 shares among Sivasubramaniam and Shanmugasundaram proportionately. The company had issued bonus shares on December 31, 1974, December 31, 1975, December 31, 1985 and March 31, 1995. As on March 31, 2006, the paid-up capital of the company is Rs. 90 lakhs consisting of 90,000 equity shares of Rs. 100 each. The first petitioner holds 13,800 shares and the second petitioner holds 13,800 shares. Except P. Asher (non family member), the members on the board of the company were, Krishnaswamy Naidu and his sons.
3. The third respondent is the mother of the second respondent, the fifth respondent is a friend of the second respondent and the fourth respondent is son of P. Asher who is associated with the company after the death of his father, and he is a director from December 19, 1969, onwards. The sixth respondent is an employee of the company and functioning as executive director from February 18, 2002. The first petitioner got married and settled in Hyderabad and the second petitioner is settled in Coimbatore. After the death of the petitioners’ father on November 6, 2000, the petitioners who hold 31 per cent. stakes, have been making representations to the second respondent that the petitioners should be associated with the management of the company and they be made the directors. Several attempts were made to settle the issue amicably. As evident from the shareholding pattern and the representation on the board from time to time, each group had their nominees on the board and they have been sharing the responsibilities as also the profits. The petitioners’ father and the second respondent’s father were alone associated with the management of the company as directors from the family. The other directors were nominees of these two families and they had no say in the management of the affairs of the company. Since the petitioner’s father had no male issues, the second respondent has been avoiding the petitioners and ignoring the demand to spin off one out of the three undertakings to the petitioners. The second respondent who is the majority shareholder is having absolute control of the affairs of the company, and enjoying the movable and immovable properties of the company. The company does not declare more than 15 per cent. dividend even though it had a reserve of Rs. 9,64,50,354 as on March 31, 2006. During the past nine years the company has expanded the business by replacing the old plant and machinery with modern, sophisticated and high productive machinery. The company has implemented voluntary retirement scheme by spending substantial amount. Nine wind mills were installed at a cost of Rs. 1,840 lakhs and plant and machinery worth Rs. 2,628 lakhs was imported. Besides, Rs. 63 lakhs has been incurred towards voluntary retirement scheme. The above facts will be evident from annexures A2 and A3 documents. The petitioners have not been receiving notices for extraordinary general meeting and annual general meeting for the past six years.
4. The petitioners are not given notice of the extraordinary general meeting and annual general meetings for the past six years. They did not challenge the same since negotiations were progressing. The second respondent has treated their silence as an approval of the various acts and mismanagement of the company. The company has three units, the second respondent has master minded a scheme to settle all the workmen of Unit II and sell the 14 acres of land belonging to the company in Peelamedu. The company has constructed a bungalow worth several crores, and the second respondent is in exclusive possession of it without paying any rent. This would show that he is not bothered about the interest of the company. The second respondent, in the name of modernisation is disposing of the old machinery at book value and siphoned off the differential amount. There is nobody on the board to protect the interest of the petitioners since all the other members are the nominees of the second respondent. The second respondent as managing director is being paid a salary of Rs. 7 lakhs and the sixth respondent (executive director) is also being paid Rs. 8 lakhs towards salary and other purposes. The sixth respondent has been reappointed for a period of five years from November 1, 2005, at the extraordinary general meeting dated December 28, 2005. There are several inter-company transactions reflected in the balance-sheet for the year 2004 to 2006 which are detrimental to the interest of the company. Those companies are under the control of the second respondent and he is being benefited illegally, thus diverting the profits of the company to his group concerns. The actual income of the company is not disclosed in its books. The net profit disclosed in the balance-sheet ending March 31, 2006, is very meagre. It must earn a net profit of Rs. 5 crores per annum as against Rs. 48 lakhs shown in the balance-sheet. An investigation is required in this matter. As on December 24, 1975, the company had three subsidiaries, viz., respondents Nos. 8 and 9 and Tirupur Gin and Press P. Ltd. Currently respondent No. 8 and respondent No. 9 are no longer subsidiary companies of respondent No. 1. After the introduction of section 43A, the company became a public limited company with effect from April 1, 1976. The second respondent purchased the shares of respondent No. 8 and respondent No. 9 companies at a very nominal value and deprived the company of actual market price. These two companies along with other group companies are entering into various contracts with the company, which are detrimental to the interest of the company and minority shareholders. The eighth and ninth respondents were profit making companies even while they were subsidiaries of the company. It is not known how these two companies ceased to be the subsidiaries of the company. The entire plant and machinery, land and building of the three units are mortgaged to Andhra Bank, Tirupur and charges have been created in respect of the loan sanctioned from time to time. The petitioners did not interfere in this matter because they were awaiting a settlement by way of an exit from the company.
5. The company has been incorporated for the benefit of G. T. K. family, and as on today the family is in management of the company. The following are the seven shareholders :
