1982 (10) TMI 165 - HC - Companies Law

Investigation of company s affairs in other cases, Directors Power of, Oppression and mismanagement

Issues Involved:
1. Sale of 53 acres of rubber estate.
2. Non-declaration of dividends.
3. Double tapping and slaughter tapping.
4. Cutting and selling timber without accounting.
5. Appointment of the secretary's son as superintendent.
6. Use of company resources for personal estate.
7. Fiduciary duty and burden of proof.
8. Admissibility of the inspector's report.

Issue-wise Detailed Analysis:

1. Sale of 53 Acres of Rubber Estate:
The petitioners alleged that the sale of 53 acres of rubber estate was unnecessary, conducted without general body sanction, and resulted in the secretary pocketing a large sum. The respondents argued the sale was necessary due to financial constraints and was conducted with board approval. The court examined the minutes of the board meetings and found that the sale was discussed and approved by the board, including PW-2, who executed the sale deeds. The court concluded that there was insufficient evidence to prove the sale was conducted with ulterior motives or that the consideration was misrepresented.

2. Non-declaration of Dividends:
The petitioners claimed that dividends were not declared from 1962-63 to 1971-72 to force minority shareholders to sell their shares. The court noted that despite the non-declaration, shares were not sold below par, and dividends were declared after 1971-72. The court found no evidence of oppression or mismanagement in the non-declaration of dividends.

3. Double Tapping and Slaughter Tapping:
The petitioners alleged that double tapping was conducted without accounting for the yield and that slaughter tapping was done without board approval. The court found that extra tapping was done occasionally and was accounted for in the company's books. The evidence presented by the petitioners was not persuasive enough to prove mismanagement or misappropriation.

4. Cutting and Selling Timber Without Accounting:
The petitioners claimed that valuable timber was cut and sold without accounting for the proceeds. The court found the evidence insufficient to support this allegation. The petitioners failed to provide specific details about the number of trees cut, the time, or the loss incurred by the company.

5. Appointment of the Secretary's Son as Superintendent:
The petitioners alleged that the secretary's son was appointed superintendent by improperly removing the incumbent. The court found that RW-1, the former superintendent, resigned voluntarily due to unmet demands for better terms. The appointment of the secretary's son was done with due publicity and was not proved to be improper.

6. Use of Company Resources for Personal Estate:
The petitioners claimed that the secretary's son used company workers and resources for his personal estate. The court found no satisfactory evidence to support this allegation. The estate of the secretary's son had its own smoke-house, and the note books and diaries presented did not conclusively prove the misuse of company resources.

7. Fiduciary Duty and Burden of Proof:
The appellants contended that directors have a fiduciary duty and that the burden of proving good faith in transactions lies with them, citing Section 111 of the Indian Evidence Act. The court rejected this argument, stating that the burden of proof lies with the petitioners to establish accusations against the directors. The court emphasized that the fiduciary relationship between directors and the company does not reverse the burden of proof.

8. Admissibility of the Inspector's Report:
The appellants sought to admit the inspector's report as additional evidence. The court held that the report, obtained under Section 237, is meant for use by the Central Government and not in appeals against the original judgment. The court refused to admit the report as additional evidence, stating it would be improper to displace the original judgment based on materials obtained post-judgment.

Conclusion:
The court dismissed the petitions, finding that the evidence presented by the petitioners was insufficient to prove their allegations of mismanagement and oppression. The court upheld the learned judge's decision to direct an investigation by an inspector but did not find grounds to interfere with the management of the company based on the allegations made. The appeals and the memorandum of cross-objections were dismissed without costs, and the request for a certificate for leave to appeal to the Supreme Court was refused.

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