2006 (5) TMI 193 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the deletion of Articles 8 and 9 of the Articles of Association of the Company.
2. Allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.
3. Delay and laches in filing the Company Petition.
4. Validity of the consent given by certain members for filing the Company Petition.

Detailed Analysis:

1. Validity of the Deletion of Articles 8 and 9:
The appellants challenged the deletion of Articles 8 and 9, which allowed for the admission of Patron Members upon payment of Rs. 25,000, arguing that it was against the interest of the Company. The respondent Company countered that the deletion was necessary to prevent the induction of members based solely on donations, which could lead to the Board being packed with relatives and supporters of existing members. The deletion was upheld by the Sub-Court, Madurai, and the CLB found no reason to interfere with this decision. The deletion was seen as a measure to ensure that membership admissions were controlled by the General Body, thereby maintaining a democratic process.

2. Allegations of Oppression and Mismanagement:
The appellants argued that the deletion of Articles 8 and 9 was oppressive and prejudicial to the interest of the Company. They contended that the provision for Patron Members facilitated the introduction of individuals of calibre and substance, which was beneficial for the Company. The respondent Company, however, maintained that the deletion was in the best interest of the Company, as it prevented the arbitrary induction of members by the Executive Committee. The CLB concluded that the deletion did not amount to oppression or mismanagement as defined under Sections 397 and 398 of the Companies Act, 1956, and that the affairs of the Company were not being conducted in a manner prejudicial to public interest or the interests of the Company.

3. Delay and Laches in Filing the Company Petition:
The appellants filed the Company Petition in June 1997, five years after the resolution to delete Articles 8 and 9 was passed in March 1992. The respondent Company argued that the petition was barred by delay and laches. The CLB agreed, noting that the appellants had not provided any explanation for the delay. The delay was seen as considerable and unexplained, and the CLB dismissed the petition on this ground as well.

4. Validity of the Consent Given by Certain Members:
The respondent Company challenged the maintainability of the petition on the grounds that three of the nine members who consented to the filing of the Company Petition had participated in and voted for the resolution to delete Articles 8 and 9. The CLB found that the consent given by these members could not be considered valid, as they had initially supported the resolution. Without their consent, the appellants did not meet the requisite shareholding requirement under Section 399 of the Companies Act, 1956, for maintaining the petition. The CLB thus dismissed the petition on this ground as well.

Conclusion:
The High Court upheld the decision of the CLB, finding no merit in the appeal. The deletion of Articles 8 and 9 was deemed justifiable and not prejudicial to the interests of the Company. The petition was dismissed on grounds of delay, laches, and invalid consent, and no case of oppression or mismanagement was made out under Sections 397 and 398 of the Companies Act, 1956. The appeal was dismissed without any order as to costs.