1990 (3) TMI 247 - HC - Companies Law

Issues Involved:
1. Mismanagement and misappropriation by the respondent.
2. Restoration of funds to the company.
3. Punishment under sections 539, 540, 541, 542, and 543 of the Companies Act, 1956.
4. Removal of the respondent from the office of director.
5. Temporary injunction restraining the respondent from attending board meetings.
6. Disqualification from holding any office of director in the company.
7. Costs and interest on sums restored to the company.
8. Maintainability of the petition under section 398 of the Companies Act, 1956.

Detailed Analysis:

1. Mismanagement and Misappropriation by the Respondent:
The petitioners alleged that the respondent, while serving as the managing director, committed acts of mismanagement, misappropriation, and received illegal gratification. Specific accusations included delays in executing the hotel project, placing orders without disclosure, making fraudulent appointments with exorbitant remunerations, and embezzlement. These actions were claimed to have caused significant losses to the company, prejudicing the interests of the company and the public.

2. Restoration of Funds to the Company:
The petition sought an order directing the respondent to restore Rs. 44,78,000 to the company, representing the amount allegedly misappropriated or lost due to the respondent's mismanagement and illegal activities.

3. Punishment under Sections 539, 540, 541, 542, and 543:
The petitioners requested the court to punish the respondent under the specified sections of the Companies Act, 1956, which deal with fraudulent conduct and misfeasance by company officers. These sections, read with Schedule XI, provide for imprisonment and other penalties for such offenses.

4. Removal from the Office of Director:
The petition sought the removal of the respondent from the office of director. The respondent had already resigned as managing director in May 1987 and was removed as a director in an extraordinary general meeting held on January 18, 1988.

5. Temporary Injunction:
The petitioners requested a temporary injunction to restrain the respondent from attending board meetings. However, this aspect became moot as the respondent was no longer a director following the extraordinary general meeting.

6. Disqualification from Holding Office of Director:
The petition sought to disqualify the respondent from holding any office of director in the company, based on the alleged acts of mismanagement and misappropriation.

7. Costs and Interest:
The petitioners sought costs for the proceedings and interest on any sums the respondent was directed to restore to the company.

8. Maintainability of the Petition under Section 398:
The primary issue addressed in the judgment was the maintainability of the petition under section 398 of the Companies Act, 1956. Section 398 allows members of a company to apply to the court for relief in cases of mismanagement if the affairs of the company are being conducted in a manner prejudicial to public interest or the interests of the company. The court emphasized that the language of section 398 is in the present tense, indicating that the mismanagement must be ongoing at the time of the application. Since the respondent was no longer in control of the company's affairs, the court concluded that the petition under section 398 was not maintainable. The court noted that Schedule XI and sections 539 to 544 are applicable only in the course of proceedings under section 398 and are ancillary to the main application. Therefore, the past conduct of an ex-officer cannot constitute a cause of action for filing an application under section 398 by the present management.

Conclusion:
The court rejected the petition in limine, stating that the reliefs sought were outside the scope of section 398, as they pertained to past actions by a person no longer in control of the company. The petitioners were advised to seek appropriate relief through other legal avenues, such as civil or criminal proceedings, for any fraudulent or tortious acts committed by the respondent. No order as to costs was made.

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