The Madras High Court has referred to the Serious Fraud Investigation Office (SFIO) the alleged misappropriation of funds of Binny Limited, one of India’s oldest surviving companies, by its directors. Originally incorporated as the Buckingham and Carnatic Company in the 19th century, it became a public limited company in 1969 after various amalgamations and demergers over the years.
Justice CV Karthikeyan ordered the Madras High Court Registry to sign a copy of the judgment in the civil case to the SFIO for conducting an inquiry into the “fraudulent activities” of company directors as well as independent directors to the detriment of the general public. A copy of the order is marked to the Registrar of Companies and the Bombay Stock Exchange also for information.
The judge, further, imposed a cost of ₹ 5 lakh on the company’s independent director Rajiv Bakshi for conducting a perjury and ordered him to pay the amount to the Dean of the Rajiv Gandhi Government General Hospital in Chennai for using it to treat indigent patients. He also said, the plaintiff has no bona fide and has approached the court by suppressing important information.
Furthermore, stating that the independent director cannot make a civil claim regarding the company’s affairs, the judge said, the plaintiff should approach the National Company Law Tribunal (NCLT) under Section 213 of the Companies Act 2013. When the NCLT is empowered. to investigate the affairs of the company on any complaint made by any person, the jurisdiction of the civil court will be ousted, he said.
“Perhaps, the plaintiff and all the defendants (the company’s major shareholder M. Nandagopal, his daughter Sumathi Ramesh Babu, his sons Nate Nandha and Arvind Nandagopal, finance director T. Krishnamurthy and another independent director Jamuna Sounderam) want to avoid the investigation and therefore have filed the suit now ,” the judge said while throwing out several interim applications in the suit.
He went on to say: “It is clear that they have indulged in shadow boxing and although the purpose is indescribable, it is clear that the plaintiff is not bona fide… Those who seek justice must do equity. Unfortunately, the hands of the plaintiff are dirty and greased.. I consider that the lawsuit is the collusion suit launched by the plaintiff with all the defendants. There is no credibility in the claim.”
The judge pointed out that the company has practically stopped its original business of fabric manufacturing and is now going into some other business including real estate. Mr. Nandagopal, aged 85 and suffering from cancer, holds 44.86% of the shares and his second son Mr. Arvind holds 3.58% of the shares. Independently of this, both hold 26.24% of the shares through other companies.
Thus, the father-son duo only holds 74.69% of the shares directly or indirectly and the remaining shares are subscribed by the public. One of Binny Limited’s major assets is 63 acres of land in Chennai. SPR Constructions Private Limited has entered into a joint development agreement with Binny to build around 2,500 apartments in the property on a 60:40 profit sharing basis.
However, a dispute arose between Binny and SPR after the project began. The matter was referred to an arbitration tribunal which in April 2024 ordered the SPR to deposit ₹100 crore within 10 weeks. “It is thus clear that the quarrel and internecine dispute between the second, third and fifth defendants (father and three sons) is mainly about the sharing of spoils,” the judge wrote.
Justice Karthikeyan stated that the plaintiff has now filed a suit against the Board’s resolution to appoint Mrs. Babu and Mr. Nandha as directors of the company. Though the prayer in the suit was only to prevent the two brothers from interfering with the affairs of the company, they have filed a sub-application and obtained an interim injunction, from another judge, against the major shareholder Mr. Nandagopal as well.
Since it is a trite law that the prayer in the interim application cannot exceed the scope of the main prayer in the suit, the inference can be drawn that the plaintiff has deliberately obtained a wrongful injunction against the main shareholder, the judge said.
Further, the statement is full of allegations against the major shareholders and the two newly inducted directors but is silent on the allegations against Mr. Arvind. “This clearly shows that there is not only suppression of material facts but collusion with one of the defendants… The plaintiff cannot claim ignorance of the facts and if he claims ignorance, he is not suitable to continue as an independent director,” he added.
Justice Karthikeyan also pointed out that the appellant Mr. Bakshi appears to have had certain financial transactions worth ₹ 21.6 crore with Binny Limited, through a company named Geetanjali Enterprises Private Limited in which he was one of the directors, but this fact was not brought to the notice of Mr. Nandagopal before inducting as an independent director at Binny.
“That the independent director must not have financial transactions with the company that will be proposed to be an independent director is determined by law. When people come to court to ask for justice, they must also show justice in their actions,” said the judge and vacated the interim order given by his predecessor in the application filed along with the suit.
