1985 (12) TMI 317 - HC - Companies Law

Issues Involved:
1. Allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.
2. Validity of share allotments and board meetings.
3. Appointment and role of Shri Deshpande as arbitrator or commissioner.
4. Amendments to the original petition and replies.
5. Allegations of bias and misconduct against the arbitrator.
6. Scope and validity of the reference to arbitration.
7. Procedural and jurisdictional challenges.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners (P-1 and P-2) filed a company petition under Sections 397 and 398 of the Companies Act, 1956, alleging acts of oppression and mismanagement against the respondents (R-2, R-3, and R-4) in the affairs of Saz International Pvt. Ltd. The petitioners claimed that the respondents took steps to deprive them of their majority shareholding and managing directorship, mismanaged the company's affairs, and diverted its funds.

2. Validity of Share Allotments and Board Meetings:
The petitioners disputed the validity of board meetings held on December 28, 1984, January 1, 1985, and January 31, 1985, during which significant decisions were made, including the allotment of shares to R-2, R-4, and P-2, and the appointment of R-2 as the managing director. The petitioners claimed these meetings were improperly convened and that the share allotments were not in accordance with the approvals granted by the Reserve Bank of India.

3. Appointment and Role of Shri Deshpande:
The court appointed Shri Deshpande to determine the shareholding of the parties and the validity of the disputed board meetings. The respondents later contested his role, arguing that he was acting beyond his jurisdiction and alleging bias. The court clarified that Shri Deshpande was appointed as an arbitrator, not merely a commissioner, to decide the main controversy regarding the shareholdings.

4. Amendments to the Original Petition and Replies:
The petitioners sought to amend their petition to correct an averment regarding the shareholding of P-2, which implied acceptance of the disputed share allotments. The respondents also sought to amend their reply to challenge the validity of the allotment of 2,498 shares to P-1 in 1978. The court allowed both amendments, emphasizing the need for a comprehensive adjudication of all disputes.

5. Allegations of Bias and Misconduct Against the Arbitrator:
The respondents alleged bias and misconduct against Shri Deshpande, claiming that his decisions indicated partiality. The court found no basis for these allegations, noting that the proceedings before Shri Deshpande were conducted fairly and that the respondents' objections appeared to be tactics to delay the arbitration process.

6. Scope and Validity of the Reference to Arbitration:
The court addressed the respondents' contention that disputes under Sections 397 and 398 cannot be referred to arbitration. The court held that its wide powers under these sections included the ability to refer specific issues to arbitration, especially with the parties' consent. The order dated May 22, 1985, constituted a valid reference of the controversy regarding the shareholdings to arbitration.

7. Procedural and Jurisdictional Challenges:
The court dismissed procedural challenges raised by the respondents, including applications to stay the proceedings before the arbitrator and to dismiss the company petition. The court affirmed the continuation of the arbitration process, directing Shri Deshpande to resume proceedings and file his award within four months.

Conclusion:
The court's judgment addressed multiple complex issues, including the validity of share allotments and board meetings, the appointment and role of the arbitrator, amendments to the petition and replies, and allegations of bias. The court upheld the arbitration process, allowing amendments to ensure a comprehensive resolution of all disputes, and dismissed procedural challenges aimed at delaying the proceedings. The judgment emphasized the court's broad powers under Sections 397 and 398, including the ability to refer specific issues to arbitration with the parties' consent.

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