1991 (10) TMI 249 - HC - Companies Law

Summary

Issues Involved:
1. Non-declaration of dividend.
2. Siphoning off of the company's monies.
3. Increase in authorised and subscribed share capital.

Summary:

Issue 1: Non-declaration of Dividend
The petitioners alleged that the non-declaration of dividends was a deliberate attempt to oppress them. However, it was conceded that non-declaration per se would not amount to oppression if it resulted from ordinary business dealings. The court noted that the company had cumulative losses amounting to Rs. 4,38,989 prior to the current management taking over and that profits were used to wipe out these losses. The court found no evidence of manipulation of accounts to deny dividends and noted that even during the petitioners' management, no dividends were declared. The court concluded that the value of shares was not affected by the non-declaration of dividends, as evidenced by the petitioners' unwillingness to sell their shares at par value.

Issue 2: Siphoning off of the Company's Monies
The petitioners alleged that the management let out the company's immovable properties at low rates, thereby making secret profits. The court found no comparative evidence to support claims of low rent and noted that the tenancy granted to M/s. Eastern Metal and Ferro Alloy Ltd. was for an unventilated mezzanine space. The court held that a single act of letting out property could not be termed as oppression and that there was no proof of secret profits by the respondents.

Issue 3: Increase in Authorised and Subscribed Share Capital
The petitioners contended that the attempt to increase the authorised share capital was an effort to reduce them to a further minority. The court found that the need for finance was justified due to the expansion of the company's business and the reopening of the Durgapur unit. The court noted that the increase in share capital was necessary to avoid dependence on institutional finance, especially given the recent Reserve Bank of India directives requiring 100% margin money for imports. The court also observed that the offer of new shares was made to all shareholders u/s 81 of the Companies Act, 1956, allowing the petitioners to maintain their percentage of shareholding. The court concluded that there was no evidence of oppression or mismanagement in the increase of share capital.

Conclusion:
The court dismissed the application, holding that the petitioners failed to establish a case of oppression or mismanagement u/s 397 or 398 of the Companies Act, 1956. The court also rejected the petitioners' request to compel the respondents to purchase their shares, citing the absence of any grounds for such an order. The application was dismissed with costs, and all interim orders were vacated. A stay of operation of the judgment was granted until November 25, 1991.