1999 (12) TMI 778 - HC - Companies Law

Summary

Issues Involved:
1. Irregularity in the allotment of shares.
2. Siphoning off funds of the company.
3. Irregular removal of petitioners-Directors from the Board.
4. Invalidity in the appointment of the managing director.
5. Allegations of defalcation of stock.

Summary:

1. Irregularity in the Allotment of Shares:
The petitioners alleged irregularities in the allotment of shares, claiming that shares were not issued as per their entitlement. The Commissioner noted discrepancies in share issuance but concluded that some claims were not even projected by the parties concerned. The court found no substantial ground for CLB's intervention on this issue.

2. Siphoning off Funds of the Company:
The petitioners claimed that funds were siphoned off in the form of loans and advances. The Commissioner verified that payments were made with the joint signatures of both the respondents and one of the petitioners, indicating their participation in the transactions. The court held that the respondents, having been party to the transactions, could not disown knowledge of them and thus could not maintain the application on these grounds.

3. Irregular Removal of Petitioners-Directors from the Board:
The petitioners challenged their removal from the Board, alleging it was done irregularly. The court noted that a suit was already filed regarding the resolutions passed at the annual general meeting, and the petitioners had initiated civil and criminal proceedings on similar grounds. The court found the petition to be mala fide, aimed at harassing the appellants.

4. Invalidity in the Appointment of the Managing Director:
The petitioners questioned the validity of the managing director's appointment. The court observed that the petitioners had participated in the decision-making process, and their subsequent challenge was not maintainable. The CLB's decision to appoint an Administrator was deemed unjustified.

5. Allegations of Defalcation of Stock:
The petitioners alleged defalcation of stock. The Commissioner's report revealed no significant discrepancies, noting that the physical stock of gold and silver was in excess compared to the records. The court found the allegations to be patently false and unsupported by the Commissioner's findings.

Conclusion:
The court concluded that the petitioners' actions were mala fide and aimed at harassing the appellants. The CLB's order was found untenable in law and unjustified on facts, with no proof of mismanagement or oppression established. The court set aside the CLB's order, reinstating the Board of Directors' management and directing the Administrator to hand over control immediately. The respondents were ordered to pay the costs of the appeal.