2008 (3) TMI 474 - HC - Companies Law

Mismanagement and oppression by the majority shareholders - Held that - Learned Company Law Board noticed that the second petitioner, who is the managing director of the first petitioner was active in the management of APAKSH either as vice-chairman of the board or the member of project monitoring committee, that he signed as many as nine cheques, that he himself opposed the audit of previous year accounts by M/s. S. R. Batliboi and Associates and that the petitioners failed to bring in the final call money even after the learned Company Law Board passed orders on March 20, 2003, to that effect. These are matters which are questions of fact and were proved before the Company Law Board by necessary material. It is not, therefore, proper for this court to go into these matters, which are not contentious. The learned Company Law Board considered all the material for appreciating the facts, applied law and recorded findings correctly. The question of law, therefore, does not arise out of the said order. The company appeal is misconceived. Appeal dismissed.

Issues Involved
1. Allegations of mismanagement and oppression by majority shareholders.
2. Jurisdiction and powers of the Company Law Board (CLB) under sections 397, 398, 402, and 403 of the Companies Act, 1956.
3. The enforceability of shareholders' agreements and their incorporation into the company's memorandum and articles of association.
4. The role and rights of minority shareholders in company management and contractual obligations.
5. The relevance and admissibility of evidence in proceedings before the CLB.
6. The scope of appeal under section 10F of the Companies Act, 1956.

Detailed Analysis

Allegations of Mismanagement and Oppression by Majority Shareholders
The petitioners alleged mismanagement and oppression by the majority shareholders of APAKSH Broadband Limited, claiming that the majority equity holders and EPC contractor AKSH mismanaged funds and operations, leading to project delays and incomplete implementation. They sought various reliefs including the reconstitution of the board of directors and investigation into the investments made by the fifth respondent.

Jurisdiction and Powers of the Company Law Board (CLB)
The CLB, constituted under section 10E of the Companies Act, exercises powers and functions conferred by the Act. The CLB's procedure is regulated by the Company Law Board Regulations, 1991, and it is guided by principles of natural justice. The CLB considered the petitioners' claims but concluded that individual shareholders do not have the right to sue in the name of the company for injuries suffered by the company, thus dismissing the petition under sections 397 and 398 of the Act.

Enforceability of Shareholders' Agreements
The petitioners requested the incorporation of the shareholders' agreement into the memorandum and articles of association of APAKSH. The CLB found that the petitioners, as shareholders, could not enforce rights of the company against AKSH under the EPC contract, which had its dispute resolution mechanism through arbitration.

Role and Rights of Minority Shareholders
The court emphasized that corporate governance and management are regulated by the Act, and shareholders have no role in day-to-day management. The right of shareholders to seek inquiry into company affairs does not confer locus standi to question business decisions. The court upheld the principle that the company is not the property of shareholders, and shareholders cannot intervene in company contracts.

Relevance and Admissibility of Evidence
The petitioners contended that they were not allowed to present oral evidence or mark a letter from APTS regarding project progress. The CLB's refusal to admit this evidence was challenged, but the court found that the CLB had considered all relevant documents and applied the law correctly.

Scope of Appeal under Section 10F
Under section 10F, appeals against CLB orders lie only on questions of law arising from the order. The court directed the petitioners to address only questions of law. The court found that the CLB had correctly applied the law and that no substantial question of law arose from the CLB's order. The appeal was dismissed in limine, as it was deemed misconceived.

Conclusion
The High Court upheld the CLB's decision, emphasizing that shareholders cannot sue for injuries suffered by the company and that the CLB had correctly applied the law. The appeal was dismissed, reinforcing the principle that corporate governance is the domain of the board of directors and not individual shareholders.

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