2006 (10) TMI 241 - HC - Companies Law

Summary

Issues Involved:
1. Validity and implications of agreements dated 19-5-1997.
2. Allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.
3. Registration and transfer of shares.
4. Delay and acquiescence in seeking relief.
5. Pendency and relevance of a civil suit (Suit No. 961/2004).

Detailed Analysis:

1. Validity and Implications of Agreements Dated 19-5-1997:
The foundation of the dispute involves two agreements dated 19-5-1997, where shares of Durga Builders (P.) Ltd. and Rajdhani Housing Syndicate Ltd. were purportedly sold to the Mehras. The agreements included terms such as the resignation of the Nandas as directors and the transfer of shares to the Mehras. Despite these agreements, the Mehras did not take control of the companies, nor did they file the necessary Form 32 with the Registrar of Companies. The CLB noted that the agreements were not given effect to, and the Mehras' conduct suggested the agreements were intended to secure their investments in the companies rather than effectuate an actual transfer of control.

2. Allegations of Oppression and Mismanagement:
The Mehras invoked Sections 397 and 398 of the Companies Act, alleging that the Nandas were conducting the affairs of the companies in a manner oppressive to them. The CLB found that the Mehras' claims were inconsistent with their pleadings in Suit No. 961/2004, where they stated the agreements were intended to secure their investments. The CLB held that the Mehras could not claim oppression when they had not taken steps to enforce their rights under the agreements.

3. Registration and Transfer of Shares:
The Mehras sought rectification of the register of members to reflect their ownership of shares. However, the CLB noted that the Mehras did not take control of the companies or file Form 32, which would have formalized their positions as directors. The CLB found that the lack of action by the Mehras indicated acquiescence and a failure to enforce their rights, leading to the conclusion that the agreements were not intended to be fully executed.

4. Delay and Acquiescence in Seeking Relief:
The CLB observed that the Mehras' delay in seeking relief (agreements were dated 1997, and petitions were filed in 2004) indicated acquiescence and condonation of any wrongful acts by the Nandas. The court cited legal precedents to support the view that delay, coupled with inaction, could bar relief under Sections 397 and 398, as it evidenced acceptance of the status quo.

5. Pendency and Relevance of Civil Suit (Suit No. 961/2004):
The CLB considered the pendency of Suit No. 961/2004, where the validity of the agreements and the intentions behind them were being contested. The CLB found that the issues in the civil suit were central to the petitions and that granting relief in the company petitions would be premature. The court emphasized that the civil suit would ultimately determine the validity and implications of the agreements after a full trial.

Conclusion:
The High Court upheld the CLB's decision, dismissing the appeals and holding that the CLB had correctly considered the pleadings in Suit No. 961/2004. The court noted that the observations made were prima facie and would not prejudice the final determination of the issues in the civil suit. The appeals were dismissed with no order as to costs.