1986 (5) TMI 232 - HC - Companies Law

Meetings and Proceedings - Quorum for meeting Length of notice for calling meeting Directors - Vacation of Office By Notice for Meeting Directors - Power of Director - Interested not to participate or vote in Board s proceedings Oppression and mismanagement

Issues Involved:

1. Maintainability of the petition.
2. Whether the affairs of the company are being conducted in a manner prejudicial to the interest of the company and public.
3. Whether the acts of the majority are oppressive to the interest of the minority.
4. Relief.

Issue-wise Detailed Analysis:

Issue No. 1: Maintainability of the Petition

The first preliminary objection raised was that the petitioners did not own 10% shareholding on the date of filing the petition. The petitioners, however, argued that they held 150 shares out of 1,000 shares as of the date of filing. The court found force in the petitioners' contention, noting that the list of members, exhibit P-88, filed with the Registrar of Companies, showed the petitioners held 150 shares as of June 30, 1982. Despite an argument that 20 shares were transferred from Smt. Kirpal Kaur, the court concluded that even without those 20 shares, the petitioners still held more than 10% shareholding, making the petition maintainable.

The second objection was that the petition did not make out a prima facie case for winding up under section 433(f). The court agreed that an action under section 397 requires a prima facie case for winding up, citing Rajahmundry Electric Supply Corpn. Ltd. v. A. Nageswara Rao and other cases. The court found that the allegations in the petition, if established, could justify winding up under section 433(f).

The third objection was that oppression should be continuous up to the date of the petition. The court agreed, referencing Shanti Prasad Jain v. Kalinga Tubes Ltd. and other cases, that continuous acts of oppression are required. Since the petitioners alleged oppression relating to 1978-79 and took no action during Col. P. S. Dhillon's tenure as managing director, the court found no continuous acts of oppression and dismissed the petition on this ground.

Issue No. 2: Conduct of the Company's Affairs

The petitioners challenged various resolutions passed in meetings held on November 30, 1978, December 30, 1978, January 15, 1979, and February 28, 1979. They argued that the meetings lacked quorum, notices were not properly given, and some directors had ceased to be directors. The court found that the quorum was incomplete and notices were not properly given for the meetings on November 30, 1978, and December 30, 1978, making the resolutions invalid. The court also found that the transfer of shares without offering them to other shareholders was oppressive. The court invalidated the resolutions of January 15, 1979, and February 28, 1979, due to incomplete quorum and improper notice. The court also invalidated the resolutions passed in the annual general meeting on June 30, 1979, due to insufficient notice period.

Issue No. 3: Oppression of Minority Shareholders

The court found that the transfer of shares to directors and their relatives without offering them to other shareholders was oppressive. The court noted that the directors' actions in advancing loans to themselves and others without interest or proper documentation were oppressive to the minority shareholders. The court also found that the company's accounts were mismanaged, and no effective steps were taken to recover embezzled funds.

Relief

Despite finding that the company's affairs were mismanaged and the resolutions were oppressive, the court dismissed the petition due to the lack of continuous acts of oppression. The court left the parties to bear their own costs.

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