1996 (10) TMI 367 - HC - Companies Law

Removal of director Oppression and mismanagement Power of Tribunal on application under sections 397 and 398

Issues Involved:
1. Validity of the extraordinary general meeting (EOGM) and the resolutions passed therein.
2. Jurisdiction of the Company Law Board (CLB) post-final order in the main petition.
3. Allegations of oppression and mismanagement.
4. Applicability of Section 284 of the Companies Act regarding the removal of directors.
5. Maintainability of the appeals filed by the directors.

Detailed Analysis:

1. Validity of the EOGM and Resolutions:
The EOGM was held on October 19, 1994, under the observation of an independent observer appointed by the CLB. The chairman of the meeting, an employee of Shaw Wallace Company, declared certain resolutions as infructuous and split one resolution into seven parts concerning the removal of directors appointed after June 1, 1993. The CLB found that the chairman's decision to allow votes by alleged transferees and pledgees was improper. The Board declared the resolutions for the removal of directors as passed, emphasizing that the original owners of the shares had the right to vote.

2. Jurisdiction of the CLB Post-Final Order:
The CLB retained seisin over the matter even after the final order in Company Petition No. 44 of 1993, allowing it to pass subsequent orders. The Board's jurisdiction extended to ensuring the proper conduct of the EOGM and addressing any issues arising from it. The inherent powers under Regulation 44 of the Company Law Board Regulations, 1991, were invoked to meet the ends of justice and prevent abuse of process.

3. Allegations of Oppression and Mismanagement:
The CLB and the High Court found substantial evidence of oppression and mismanagement by the board of directors under the influence of the ninth respondent. The fraudulent increase in share capital and the improper inclusion of names in the register of members were highlighted. The CLB's decision to remove the directors and allow the majority shareholders to exercise their rights was aimed at rectifying these issues and restoring proper management.

4. Applicability of Section 284 of the Companies Act:
The appellants argued that the removal of directors without individual notice violated Section 284 of the Companies Act. However, the court held that the principles of natural justice did not apply in this context as the complaint was against the entire board, not individual directors. The resolution's validity was upheld, and the CLB's authority to remove the directors under Sections 397 and 402 of the Companies Act was affirmed.

5. Maintainability of Appeals by the Directors:
The appellants contended that the appeals were not maintainable as the directors had ceased to hold office. However, the court noted that the interim stay order obtained by the appellants prevented the implementation of the CLB's order, allowing the directors to file appeals. The appeals were found to be maintainable.

Conclusion:
The High Court dismissed all the appeals, confirming the CLB's order. The court directed the appellants to hand over charge to the newly appointed board within two weeks. The judgment emphasized the CLB's broad powers under Sections 397 and 402 of the Companies Act to address issues of oppression and mismanagement and ensure the proper conduct of the company's affairs.

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