1981 (12) TMI 131 - HC - Companies Law

Meetings and Proceedings - Representation of Corporation at Meetings of Companies & Creditors, Directors - Only individuals to be directors, Oppression and mismanagement Power of Tribunal on application under sections 397 and 398

Issues Involved:

1. Mismanagement and oppression in the Motion Pictures Association.
2. Legality of amendments to election rules.
3. Validity of elections held on August 30, 1980.
4. Appointment of an administrator for the association.
5. Legal consequences of previous litigations and orders.

Detailed Analysis:

1. Mismanagement and Oppression in the Motion Pictures Association:

The Motion Pictures Association, a company under section 25 of the Companies Act, has been embroiled in numerous legal proceedings for over a decade, primarily concerning allegations of mismanagement and oppression by a dominant group within the executive committee. The association controls the distribution and exhibition of Hindi films in the Northern region and indirectly oversees a business worth crores of rupees annually. The articles of association mandate that every member must register a picture with the company and prohibit members from engaging in contracts with non-members. The complaints allege that these provisions have been grossly abused by a small group for personal gain, resulting in the oppression of other members. The court has not fully addressed these complaints, leading to prolonged litigation and unresolved issues of mismanagement and oppression.

2. Legality of Amendments to Election Rules:

The amendments to the election rules, made on May 24, 1979, and August 6, 1980, were challenged on the grounds that they were illegal and oppressive. The original election rules allowed representatives of partnership firms and corporate bodies to nominate and be nominated for the executive committee. However, the amendments prohibited such nominations, effectively disenfranchising a significant portion of the association's membership. The court found these amendments to be prima facie violative of sections 187 and 253 of the Companies Act and the articles of association. The amendments were deemed to have destroyed the democratic character of the association's management and were declared illegal and oppressive.

3. Validity of Elections Held on August 30, 1980:

The elections held on August 30, 1980, were conducted under the amended rules, which were later found to be illegal. The amendments had the effect of preventing representatives of partnership firms and corporate bodies from contesting the elections, resulting in only 136 out of 1,400 members participating in the elections. The court held that the elections were conducted in violation of the principles of fairness and democracy and were therefore invalid. The court emphasized that the amendments were made with the intention of maintaining the dominance of a small group within the executive committee.

4. Appointment of an Administrator for the Association:

Given the history of persistent allegations of mismanagement and oppression, the court concluded that it was necessary to appoint an administrator to manage the affairs of the association. The court noted that previous efforts by company judges to rectify the situation through remedial measures had failed, and the dominant group continued to abuse its power. The appointment of an administrator was deemed an interim measure to restore confidence among the members and ensure fair and democratic management until the main petition was disposed of.

5. Legal Consequences of Previous Litigations and Orders:

The court reviewed the extensive history of litigation involving the association, noting that various company judges had made significant efforts to address the issues of mismanagement and oppression. Despite these efforts, the dominant group continued to manipulate elections and maintain its control over the association. The court emphasized that the previous orders and judgments, including those by the Supreme Court, had not resolved the underlying issues, necessitating the appointment of an administrator. The court also clarified that the current executive committee's term had ended, and fresh elections were to be conducted under the supervision of the appointed administrator.

Separate Judgment by Rajindar Sachar J.:

Rajindar Sachar J. delivered a separate judgment, addressing the appeals against the orders of October 1, 1981, and October 12, 1981. The judgment reiterated that the amendments to the election rules were not illegal per se but were inequitable and detrimental to the democratic functioning of the association. The judgment directed that future elections should be conducted under the original election rules, allowing representatives of partnership firms and corporate bodies to participate. The appointment of an administrator was set aside, and Mr. S.N. Shankar, a retired judge, was appointed as the chairman of the executive committee to oversee the elections and ensure fairness. The judgment emphasized the need for elections to be held by March 31, 1982, and provided detailed directions for the conduct of the elections.

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