1984 (6) TMI 192 - HC - Companies Law

Meetings and proceedings - Presumptions to be drawn where minutes duly drawn and signed, Oppression and Mismanagement

Issues Involved:
1. Legality of the issue of 900 shares on October 3, 1980.
2. Allegations of mismanagement and oppression under Sections 397 and 398 of the Companies Act, 1956.
3. Supersession of the current board of directors.
4. Appointment of a special officer to manage the affairs of the company.
5. Rights of the unsecured creditors.

Issue-wise Detailed Analysis:

1. Legality of the Issue of 900 Shares on October 3, 1980:
The petitioners contended that the issue of 900 shares on October 3, 1980, was illegal, wrongful, void, and not binding on the company and its shareholders. They argued that the shares were issued in violation of the Companies Act and the articles of the company, and in breach of the fiduciary duties of the directors. The purpose of the issue was to convert the minority respondents into a majority, thereby perpetuating their control over the company. The respondents claimed that the shares were issued to settle the demands of genuine creditors of the company. However, the court found that the minutes of the board meeting held on October 3, 1980, violated Section 193(1B) of the Companies Act as they were pasted in the minute book, rendering them invalid as evidence. Additionally, there was no record of the applications for shares, the outstanding loans, or the final adjustment of the loans in the company's account books. The court concluded that the issue of the 900 shares was illegal and void, resulting in a disturbance of the existing majority of shareholders.

2. Allegations of Mismanagement and Oppression under Sections 397 and 398 of the Companies Act, 1956:
The petitioners alleged that the respondents had engaged in mismanagement and oppression by excluding them from the management of the company, not holding annual general meetings, and attempting to sell the company's assets at a gross undervalue. The court found that the petitioners had made out a case of mismanagement and oppression. The issue and allotment of the 900 shares were found to be acts of mismanagement, and the exclusion of the petitioners from the management constituted oppression.

3. Supersession of the Current Board of Directors:
The petitioners sought the supersession of the current board of directors. The court ruled in favor of the petitioners, declaring that the present board of directors was superseded. A special officer was directed to call a meeting of the shareholders to constitute a new board of directors based on the shareholding as on March 31, 1979.

4. Appointment of a Special Officer to Manage the Affairs of the Company:
The court appointed a special officer to take charge of the business and affairs of the company. The special officer was directed to call a meeting of the shareholders for the election of a new board of directors and to hand over charge to the newly constituted board. Until the new board was elected, the special officer was to be in charge of the company's affairs and management.

5. Rights of the Unsecured Creditors:
The court did not make a final adjudication on the claims of the unsecured creditors. It was made clear that the unsecured creditors would be entitled to realize their dues in the manner they deemed fit. The petitioners were directed to pay the special officer's remuneration, and the costs of the petition were to be borne by respondents Nos. 2 and 3.

Conclusion:
The court ruled in favor of the petitioners, declaring the issue of 900 shares on October 3, 1980, illegal and void. The current board of directors was superseded, and a special officer was appointed to manage the company's affairs and call a meeting for the election of a new board. The petitioners succeeded in proving mismanagement and oppression by the respondents.

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