1989 (8) TMI 273 - HC - Companies Law

Oppression and mismanagement Power of Tribunal on application under sections 397 and 398, Winding up - Company when deemed unable to pay its debts

Summary

Issues Involved:
1. Appointment of an administrator for the company.
2. Maintainability of the applications under section 402 of the Companies Act.
3. Legality and validity of the contracts dated March 20, 1987, and February 12, 1987, with VIP Enterprises and REK Exhibitors.

Issue-wise Detailed Analysis:

1. Appointment of an Administrator for the Company:
The petitioners argued that the respondents' conduct created a deadlock, making it impossible to manage the company's affairs. The respondents, in the majority, unilaterally denied the petitioners, representing the minority shareholders, the right to participate in the company's affairs. Respondent No. 16 appeared without authority in a suit in the Bombay City Civil Court and did not defend the claim of VIP Enterprises, resulting in the appointment of a receiver. The respondents committed contempt of court by violating orders. The court found that the company's affairs were being conducted in a manner detrimental to its interest, with rival groups unable to manage the company without causing loss. Therefore, the court concluded that appointing an administrator was necessary to manage the company's affairs effectively.

2. Maintainability of the Applications under Section 402 of the Companies Act:
The court examined whether the applications were maintainable under section 402 of the Companies Act. Section 402 allows the court to regulate the conduct of the company's affairs in future by an order under sections 397 and 398. The court must retain seisin over the matter to exercise this power. The consent order dated March 29, 1984, resolved the disputes complained of by restoring the power of attorney jointly in favor of petitioner No. 2 and respondent No. 5 and referring specific disputes to the determination of Gala or Anthony Lewis. The court did not retain seisin over the matters to which these applications relate. The reliefs sought, including appointing an administrator and canceling agreements with third parties, were not retained in the consent order. Therefore, the applications were not maintainable under section 402 of the Act.

3. Legality and Validity of the Contracts Dated March 20, 1987, and February 12, 1987, with VIP Enterprises and REK Exhibitors:
The petitioners contended that the contracts with VIP Enterprises and REK Exhibitors were illegal and void. However, the court found that VIP Enterprises and REK Exhibitors had no notice of the petition under sections 397 and 398 or the subsequent proceedings. There was a resolution of the company empowering respondent No. 16 to enter into such agreements. The power of attorney granted to respondent No. 16 was valid for dealing with third parties who had no notice of the disputes. The contracts were not vitiated by mistake, misrepresentation, fraud, or coercion. Therefore, the contracts could not be declared void or illegal.

Conclusion:
The court dismissed the judge's summons in Company Application No. 136 of 1988 and Company Application No. 137 of 1988. The petitioners were ordered to pay the costs of the company, VIP Enterprises, and REK Exhibitors. All ad interim orders made by the court on these applications were to continue for four weeks from the date of the judgment.