1999 (11) TMI 804 - HC - Companies Law

Summary

Issues Involved:
1. Maintainability of the company petition.
2. Allegations of oppression and mismanagement.
3. Interpretation of Article 57 of the Articles of Association.
4. Relevance of subsequent events and amendments in pleadings.
5. Dividend squeeze as an act of oppression.

Summary:

1. Maintainability of the Company Petition:
The respondents argued that the company petition is not maintainable and should be dismissed u/s 7, Rule 11(a) of the Code of Civil Procedure, 1908, as it discloses no cause of action. They contended that the petitioners failed to make out a case u/s 397 of the Companies Act, 1956. The petitioners countered that the petition should not be dismissed at the threshold and that sufficient facts have been pleaded to make out an arguable case of oppression and mismanagement.

2. Allegations of Oppression and Mismanagement:
The petitioners alleged various incidents of oppression, including the delay in the transmission of shares, withholding of fixed deposit receipts, and the transfer of shares contrary to Article 57. The respondents argued that these incidents were either settled or too old to be relevant. They also contended that oppression must be of the member and not of lineal descendants or creditors.

3. Interpretation of Article 57 of the Articles of Association:
The petitioners argued that Article 57 was intended to maintain proportionality in shareholding and that the transfer of 3,000 shares to respondent No. 2 violated this principle. The respondents contended that Article 57 does not apply to intra-member transfers and that shares are inherently transferable unless expressly restricted in the Articles of Association.

4. Relevance of Subsequent Events and Amendments in Pleadings:
The court held that subsequent events could be brought on record by amendment to do complete justice between the parties. It referred to the case of Khimji M. Shah v. Ratilal D. Modi, which allowed for amendments to include subsequent events. The court rejected the respondents' argument that only the unamended petition should be considered, stating that subsequent events are relevant for deciding the issue of oppression.

5. Dividend Squeeze as an Act of Oppression:
The petitioners argued that the deliberate reduction in dividends constituted an act of oppression. The respondents countered that dividend declaration is a commercial decision and cannot be considered oppressive. The court noted that the issue of whether a dividend squeeze could amount to oppression requires detailed consideration and cannot be dismissed at the threshold.

Conclusion:
The court rejected the preliminary objection raised by the respondents and held that the petition is maintainable. It stated that the issues raised, including the interpretation of Article 57 and the allegations of oppression through dividend squeeze, require detailed consideration and will be decided on merits at the final hearing of the petition.