2007 (11) TMI 416 - HC - Companies Law

Oppression and mismanagement - Winding up petition - Held that - The petition does not contain any specific instances of alleged acts of oppression and mismanagement. The allegations are of general nature. No doubt the respondents filed certain documents like minutes of the board of directors as well as copies of the ledger etc. and the petitioners tried to project their case on the basis of these documents. However the petitioners never chose to amend the petition or lead any evidence in this behalf. It was imperative on the part of the petitioner to show that the circumstances were such which would show that there is just and equitable cause for winding up of the company. This is not so in the present case. On the contrary as noted above at the relevant time the petitioner stopped taking interest in the affairs of the company thinking it to be a sinking ship . Today the company is leading healthy life and is very much alive and kicking. Furthermore when the entire events are taken as a part of a consecutive story the phrase used by the Supreme Court the facts of this case would warrant that no interference is called for. W.P. dismissed.

Issues Involved:
1. Allegations of oppression and mismanagement under sections 397/398 and section 433 of the Companies Act, 1956.
2. Non-receipt of intimation regarding Board meetings, business activities, and annual general meetings.
3. Manipulation and creation of minutes of company meetings.
4. Unauthorized increase in shareholding and allotment of shares without notice to the petitioners.
5. Mismanagement and manipulation of company accounts.
6. Transfer of shareholdings by respondent Nos. 2 and 3 during the pendency of the petition.
7. Validity of the petition in light of the respondents' actions and explanations.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners filed the petition under sections 397/398 and section 433 of the Companies Act, 1956, alleging oppression and mismanagement by the respondents. They claimed that respondent No. 2 controlled all accounts and finances and, in collusion with respondent No. 3, manipulated the accounts and conducted the company's affairs oppressively.

2. Non-receipt of Intimation Regarding Meetings:
The petitioners alleged that they had not received intimation of Board meetings, business activities, and annual general meetings since 1983. They contended that no minutes were maintained, and those that existed were manipulated by the respondents. However, the court noted that the meetings where decisions were taken to increase the authorized capital were held at the petitioners' residential address, and petitioner No. 1 was shown to be present. This fact was not denied by the petitioners, indicating their knowledge of the meetings.

3. Manipulation and Creation of Minutes:
The petitioners claimed that the minutes of the company meetings were manipulated and created as per the respondents' convenience. The court observed that the petitioners did not amend the petition or lead any evidence to support these claims. The respondents provided clarifications for the discrepancies pointed out by the petitioners, and the court found that the petition lacked proper pleadings and evidence.

4. Unauthorized Increase in Shareholding:
The petitioners alleged that the shareholding of the company was increased without notice to them, and shares were allotted to respondents Nos. 2 and 3 and their family members, reducing the petitioners' shareholding from 41% to less than 10%. The court found that the petitioners were aware of the increase in authorized capital and the allotment of shares. The respondents provided evidence that petitioner No. 1 had signed loan documents with the bank on behalf of the company, indicating his knowledge of the resolutions passed in the meetings.

5. Mismanagement and Manipulation of Accounts:
The petitioners highlighted various irregularities in the minutes and accounts, alleging mismanagement by respondent No. 2. The court noted that the respondents provided explanations for the discrepancies, such as typographical errors, which did not alter the results in the balance-sheets. The court found that the petitioners' allegations were not substantiated by proper pleadings or evidence.

6. Transfer of Shareholdings:
During the pendency of the petition, respondent Nos. 2 and 3 transferred their shareholdings, and the new shareholders were added as respondents Nos. 4 to 8. The court noted that the petitioners were offered the shares before they were sold to the new respondents, but they refused to buy them. This indicated that the petitioners were aware of the share transactions and did not show interest in purchasing the shares due to lack of funds or other reasons.

7. Validity of the Petition:
The court found that the petitioners failed to make out a case of oppression and mismanagement warranting interference. The petition lacked specific instances of alleged acts of oppression and mismanagement, and the allegations were of a general nature. The court emphasized that the petitioners did not provide proper pleadings or evidence to support their claims. The court also noted that the company was doing well and was not in a state warranting winding up.

Conclusion:
The court dismissed the petition, concluding that the petitioners had not been able to make out any case of oppression or mismanagement. The petition, along with the pending miscellaneous application, was dismissed. The court was guided by the principles laid down by the Supreme Court in cases dealing with sections 397 and 398 of the Companies Act, emphasizing the need for continuous acts of oppression and just and equitable grounds for winding up the company.

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