2006 (2) TMI 299 - HC - Companies Law

Summary

Issues:
- Appeal against Company Law Board's order
- Locus standi of State Bank of India to make the application
- Legal infirmity in the impugned order
- Increase of share capital without due procedure
- Allegations of mismanagement and diversion of funds
- Duty of State Bank of India as an executor under Indian Succession Act

Analysis:

The appeal was made against an order passed by the Company Law Board, allowing State Bank of India's application under various sections of the Companies Act, 1956. The Board found that the company and its directors raised share capital without following due procedure, leading to a complaint by the Bank. The original promoter's shareholding was allegedly manipulated after his death, prompting the Bank to seek transmission of shares in its name as per the deceased's will. The Board granted reliefs in favor of the Bank, setting aside the increase in share capital and appointment of additional directors.

The main contention raised was the locus standi of State Bank of India to make the application. The appellant argued that the Bank, acting as an executor, cannot be recognized under the Companies Act and Banking Regulation Act. However, the respondent contended that the Bank, as an executor under the Indian Succession Act, had the right to seek relief and act in the capacity of an executor. The Court upheld the Board's decision on the facts, finding no material irregularity in its findings regarding mismanagement and improper increase in share capital.

The Court agreed with the Board's conclusion on the law, emphasizing the Bank's duty as an executor to implement the trust as per the Indian Succession Act. It dismissed the appeal, stating that the Board had the authority to grant relief without waiting for the board of directors' decision. The Court found the decisions cited by the appellant's counsel irrelevant to the issues at hand. Consequently, the appeal was dismissed, and the interim order was vacated, allowing the board of directors to function in accordance with the law. No costs were awarded in the matter.