2018

CASE ANALYSIS
Dipak Himatsingka and Ors. vs. APL Holdings and Investments Limited
and APL Investment Limited and Ors.
VAISHALI RATHI
III YEAR, E
15010126478
 IRAC ANALYSIS
BEFORE THE COMPANY LAW BOARD
Dipak Himatsingka and Ors. vs. APL Holdings and Investments Limited and APL
Investment Limited and Ors.
Hon'ble Judges/Coram: S. Balasubramanian, Chairman
Date of Judgement: 15.07.2008
Citation: [2009]148CompCas571(CLB)
FACTS OF THE CASE:

The facts of the case are that the petitioners and the respondents belong to one Himatsingka
family. The first petitioner and the 2nd respondent are brothers. After the demise of their
father, disputes had arisen between the two brothers resulting in filing of a partition suit by
the petitioners before Calcutta High Court. There are two family companies and the
petitioners have filed petitions under Sections 397/398 in respect of both the companies.
Neither of the companies carries on any business. Both of them own one flat each in the same
premises and are in joint possession of the common areas. Both the flats along with the
common area have been given on lease and licence basis to the 8th respondent. In both the
companies, the petitioners hold 45% shares while the respondents hold 55% shares.

ISSUES RAISED:

The petitioners had filed these instant petitions alleging that

1. the companies are not holding any board and general meetings
2. the respondents are guilty of mismanaging the assets of the companies
3. they have failed to give inspection of statutory registers/records of the companies to
the petitioners
4. the respondents have failed to declare dividends
5. the respondents directors are siphoning of funds of the companies
6. with a view to reduce the shareholding of the petitioners without their knowledge, one
of the companies has issued right shares.

RULES APPLIED:

 Section 166, The Companies Act, 1956

  Section 209A, The Companies Act, 1956
 Section 205, The Companies Act, 1956
 Section 241 read with Section 397, The Companies Act, 1956

DECISION:

The Board directed the company to appoint a Receiver to realise the license fee and service
charges from the 8th respondent and declare the dividends by holding general meetings. The
respondents were also held liable for mismanaging the assets of the company. The right to
inspect the statutory registers/records of the companies was upheld. The directors were held
liable for siphoning of funds of the companies and were punished accordingly.

ANALYSIS:

Corporate governance is concerned with set of principles, ethics, values, morals, rules
regulations, & procedures etc. Corporate governance establishes a system whereby directors
are entrusted with duties and responsibilities in relation to the direction of the company’s
affairs.

The term “governance” means control i.e. controlling a company, an organization etc or a
company & corporate governance is governing or controlling the corporate bodies i.e. ethics,
values, principles, morals. For corporate governance to be good the manager needs to meet its
responsibilities towards its owners (shareholders), creditors, employees, customers,
government and the society at large.

The concept of ‘corporate governance’ is not an end; it’s just a beginning towards growth of
company for long term prosperity.1

Need for corporate governance arises due to separation of management from the ownership.
For a firm success, it needs to concentrate on both economic and social aspect. It needs to be
fair with producers, shareholders, customers etc. It has various responsibilities towards
employees, customers, communities and at last towards governance and it needs to serve its
responsibilities at the best at all aspects.

The court in the present case took into consideration various aspects of corporate governance
and its objectives. It was in furtherance of this approach that the court took into consideration

1
Pandey Anubhav, Duties of Directors under the Indian Companies Act, 2013, iPLEADERS (May 19, 2017)
https://blog.ipleaders.in/directors-duties/
several cases which upheld the objectives of the corporate governance and laid down various
principles. In MSDC Radha Ramanan v. MSD Chandrashekher Raja2, the Apex court opined
that even if oppression is not established, the CLB can pass such orders as it thinks fit with a
view to protect the interest of the company. In Devi Jhora Tea Co. v. Varandra Krishna3, it
has been held that in a petition under Sections 397/398 of the Act, CLB can supplant the
entire corporate management and can give directions contrary to Articles or provisions of the
Companies Act. In Shoes Specialities Pvt. Ltd. v. Standard Distilleries & Breweries Pvt. Ltd.4
also it has been held that the CLB can pass any order to do full justice between the parties.

Thus, the CLB passed the order on the basis of the following provisions taking into
consideration the interests of the related parties:

 Duties of directors towards shareholders:

Director’s duties are to use their fair and reasonable diligence while discharging their duties
and they shall act honestly, and with such care as may be reasonably expected from, having
regard to their knowledge and experience. Most of the powers of Directors are power in trust
and therefore should be executed in the interest of the Company and not in the interest of
Director or any section of members. If they fail to exercise reasonable care, skill and
diligence, they shall be liable for any loss or damage resulting there from. He is liable for act
of negligence, breach of statutory duties, breach of warranty, liability for act of co-directors
etc. 5

Directors act as agents of the shareholders and act as a trustees of shareholders. Thus they
have a fiduciary duty to protect the property of the company. Simply stated the following are
the duties of Directors. Directors must exercise all care and due diligence as a man of
ordinary prudence would exercise.

 Rights of the shareholders of the Company:

Voting Power on Major Issues. This includes electing directors and proposals for
fundamental changes affecting the company such as mergers or liquidation.

2
Manu SC 1342/2008
3
(2004) 58 CC 771
4
(2007) 90 CC 1
5
Soni Sonali, Corporate Governance in India – Past, Present & Future, INDIA CSR NETWORK (October 15,
2011) http://indiacsr.in/corporate-governance-in-india-past-present-future-by-sonali-soni-top-prize-winner-
article/
Ownership in a Portion of the Company. However, when business thrives, common
shareholders own a piece of something that has value. As these assets generate profits, and as
the profits are reinvested in additional assets, shareholders see a return in the form of
increased share value as stock prices rise.
The Right to Transfer Ownership. Right to transfer ownership means shareholders are
allowed to trade their stock on an exchange. The right to transfer ownership might seem
mundane, but the liquidity provided by stock exchanges is extremely important.
An Entitlement to Dividends. Along with a claim on assets, you also receive a claim on any
profits a company pays out in the form of a dividend. Management of a company essentially
has two options with profits: They can be reinvested back into the firm (thus, one hopes,
increasing the company’s overall value) or paid out in the form of a dividend. However,
whenever dividends are declared, common shareholders are entitled to receive their share.
The Right to Sue for Wrongful Acts. Suing a company usually takes the form of a
shareholder class-action lawsuit. A good example of this type of suit occurred in the wake of
the accounting scandal that rocked WorldCom in 2002, after it was discovered that the
company had grossly overstated earnings, giving shareholders and investors an erroneous
view of its financial health. The telecom giant faced a firestorm of shareholder class-action
suits as a result. More recently, Wells Fargo & Co. has been hit with shareholder class-action
suits for misleading investors about its financial performance and fraudulent sales practices.6

CONCLUSION:

Stipulation and elucidation of the duties and responsibilities of the directors of a company,
especially the public limited companies, are welcome and great contribution of the new
company law of India, to better corporate governance and security, and the best possible
growth and prosperity in the corporate world of India.

The former company law of India, the Companies Act of 1956, was disgustingly deficient in
the respect of Corporate Governance. The new CA-2013 can be seen as offering a landmark
piece of legislation in this regard, which duly and explicitly clarifies, redefines, and enlarges
the ambit of duties and responsibilities of the directors. The provisions regarding the duties
and responsibilities of the directors, including the independent directors, not only provide

6
Upadhyay Maneesh, Corporate governance and directors' duties in India: overview, DSK LEGAL, (01 Feb
2018)
https://content.next.westlaw.com/Document/I2ef128031ed511e38578f7ccc38dcbee/View/FullText.html?context
Data=(sc.Default)&transitionType=Default&firstPage=true&bhcp=1
greater certainty to the directors regarding their conducts and responsibilities, and thus,
ensuring better and impeccable corporate management and governance; but also enable and
empower the beneficiaries, regulators, and the courts, to judge, regulate, and control the
activities and obligations of the directors more objectively and effectively.

The concept of corporate governance hinges on total transparency, integrity and

accountability of the management and the board of directors. The importance of Corporate
Governance lies in its contribution both to business prosperity and to accountability.

In the age of globalization, global competition, good corporate governance helps as a great
tool for corporate bodies. It existed from Vedic times as the Highest standards in
ArthaShastra to today’s set of ethics, principles, rules, regulations, values, morals, thinking,
laws etc as good corporate governance.

BIBLIOGRAPHY

Chakrabarti Rajesh, Corporate Governance in India (31 March 2008)

https://doi.org/10.1111/j.1745-6622.2008.00169.x

Pandey Anubhav, Duties of Directors under the Indian Companies Act, 2013,
iPLEADERS (May 19, 2017) https://blog.ipleaders.in/directors-duties/

Sarkar Jayati, Large Shareholder Activism in Corporate Governance in Developing

Countries: Evidence from India (12 February 2003) https://doi.org/10.1111/1468-
2443.00010

Soni Sonali, Corporate Governance in India – Past, Present & Future, INDIA CSR
NETWORK (October 15, 2011) http://indiacsr.in/corporate-governance-in-india-past-
present-future-by-sonali-soni-top-prize-winner-article/

Upadhyay Maneesh, Corporate governance and directors' duties in India: overview, DSK
LEGAL, (01 Feb 2018)
https://content.next.westlaw.com/Document/I2ef128031ed511e38578f7ccc38dcbee/View/
FullText.html?contextData=(sc.Default)&transitionType=Default&firstPage=true&bhc
p=1