1991 (4) TMI 335 - HC - Companies Law

Summary

Issues Involved:
1. Allegations of oppression of minority shareholders.
2. Validity of the shareholders' agreement and its enforcement.
3. Appointment and re-appointment of directors.
4. Management and conduct of the company's affairs.
5. Rights issue and financial arrangements.

Detailed Analysis:

1. Allegations of Oppression of Minority Shareholders:
The petitioners, representing the Mehta group, contended that they were being oppressed as minority shareholders by the respondents, particularly the GIIC and the State Government. They alleged that their rights to appoint directors were being jeopardized through dubious methods, the injunction issued by the City Civil Court was violated, and funds of the company were being squandered due to wrong personnel policies and decisions aimed at ousting the Mehta group and inducting Gujarat Ambuja Cements Ltd.

2. Validity of the Shareholders' Agreement and Its Enforcement:
The shareholders' agreement between the Mehta group and the GIIC, dated April 9, 1981, provided that the Mehta group would have the right to nominate up to three directors on the board as long as they held 25% equity shares. The agreement also stipulated that the GIIC would not reduce its shareholding below that of the Mehta group and would offer any shares intended for public sale first to the Mehta group. The court upheld the agreement and noted that the GIIC was attempting to undermine it by not subscribing to the additional equity required for the project.

3. Appointment and Re-appointment of Directors:
The court found that Mr. M.N. Mehta, despite the alleged resignation or non-reappointment claims by the respondents, continued to be a director under section 256(4) of the Companies Act, 1956. The court noted that the adjourned meeting required by the statutory provision was not held, and thus, Mr. Mehta should be deemed re-appointed. The court also addressed the issue of Mr. Sanat Mehta, stating that it was not necessary to give a direction for his appointment as he was not previously appointed by the company.

4. Management and Conduct of the Company's Affairs:
The court addressed the petitioners' concerns about the management and conduct of the company's affairs, including the alleged mismanagement and financial irregularities. The court directed that the representation made by Mr. Mehta regarding the alleged charges against him and others should be forwarded to the chartered accountants appointed for investigation.

5. Rights Issue and Financial Arrangements:
The court directed that the rights issue, which was opened on January 2, 1990, should be closed on May 15, 1991, and the shares should be allotted within four weeks thereafter. The court also ordered that the amount received from the Mehta group or its associates should be utilized by the company to repay the bridge loan of Rs. 2.70 crores received from the Indian Bank. The court emphasized the need for the company to act in accordance with the shareholders' agreement and to provide necessary application forms to the petitioners or their nominees.

Conclusion:
The court partially allowed the judge's summons, directing that Mr. M.N. Mehta continues as a director of the company and that the rights issue be closed by May 15, 1991, with shares allotted within four weeks. The rest of the prayers were rejected, but the petitioners were allowed to move a fresh application if necessary. The operation of the order was stayed up to April 29, 1991, at the request of the respondents' advocates.