1991 (8) TMI 280 - HC - Companies Law

Summary

Issues Involved:
1. Whether the respondents complied with Article 37 of the Articles of Association regarding the transfer of shares.
2. Allegations of oppression and mismanagement by the majority shareholders.
3. Validity of the resolution passed on August 3, 1989, for the transfer of shares.
4. Petitioner's pre-emptive right to purchase shares.
5. Financial improprieties and mismanagement allegations.

Issue-wise Detailed Analysis:

1. Compliance with Article 37 of the Articles of Association:
The respondents argued that they complied with Article 37, which allows the transfer of shares to a third party with the sanction of the general meeting. They provided evidence that the shares were offered to the petitioner, who did not accept the offer. The court found that the respondents adhered to Article 37(i) and (v), which permit the transfer of shares to a third party after offering them to existing members.

2. Allegations of Oppression and Mismanagement:
The petitioner alleged that the respondents engaged in acts of oppression and mismanagement, including physical violence, financial misappropriation, and exclusion from management. The court noted that the petitioner failed to provide sufficient evidence of these allegations. The court emphasized that mere lack of confidence between shareholders does not constitute oppression under Section 397 of the Companies Act.

3. Validity of the Resolution Passed on August 3, 1989:
The court examined whether the resolution authorizing the sale of shares to Mr. R.N. Shetty was valid. The court found that the resolution was passed unanimously by the shareholders present, except for the petitioner, who was absent. The court held that the resolution was valid and in accordance with the provisions of the Articles of Association.

4. Petitioner's Pre-emptive Right to Purchase Shares:
The petitioner claimed a pre-emptive right to purchase the shares under Article 37(v). The court found that the petitioner was given the opportunity to purchase the shares but did not exercise this right. The court referred to the principle that pre-emption rights must be exercised promptly and cannot be used to obstruct legitimate transactions.

5. Financial Improprieties and Mismanagement Allegations:
The petitioner alleged that the respondents misappropriated funds and engaged in financial improprieties. The court found that the petitioner failed to provide concrete evidence to support these allegations. The court noted that the respondents had provided explanations and documentation refuting the claims of financial mismanagement.

Conclusion:
The court concluded that the petitioner failed to establish a prima facie case for relief under Sections 397 and 398 of the Companies Act. The court held that the respondents complied with Article 37 of the Articles of Association and that the resolution passed on August 3, 1989, was valid. The court allowed the respondents' application to give effect to the resolution and dismissed the petitioner's claims of oppression and mismanagement. Each party was ordered to bear their own costs.