2008 (3) TMI 485 - HC - Companies Law

Oppression and mismanagement - ask of selling the landed properties of the first respondent-company - Held that - It is wholly inappropriate for this court to take upon itself the task of selling the landed properties of the first respondent-company and in distributing the sale proceeds as this court in proceedings under section 10F of the Companies Act 1956 can neither substitute itself for that of the Company Law Board nor can it exercise the powers conferred on the Company Law Board under section 402 of the Companies Act. The interlocutory orders passed by this court during the pendency of the appeal including those appointing Advocates Commissioner for the sale of the landed property of the first respondent-company inviting bids by prescribing the earnest money deposit receiving the bid amounts etc. would not survive disposal of the appeal. Since bids have been received by the Advocates Commissioner from several persons and the money received has been deposited in the High Court Registry pursuant to the interim orders passed during the pendency of this appeal it is but appropriate that the amount received either from the highest bidders or from the unsuccessful bidders be returned to them. The High Court Registry shall or such persons being identified by their respective counsel return the money received from them by way of an account payee cheque drawn in their favour.

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Sale of company's landed property.
3. Direction to convene a general meeting to elect a new board of directors.
4. Appointment of Advocate Commissioners for sale of property.
5. Jurisdiction and powers of the Company Law Board under Section 402 of the Companies Act.
6. Scope of appeal under Section 10F of the Companies Act.

Detailed Analysis:

Allegations of Oppression and Mismanagement:
The appellants, 22 shareholders of the respondent company, alleged various acts of oppression and mismanagement by the second respondent, including non-commencement of activities, debiting personal and fictitious expenditures, misappropriating funds, illegal sale of property, illegal removal of directors, misuse of office equipment, illegal writing off of assets, illegal forfeiture and re-issue of shares, non-maintenance of minutes, and non-delivery of share certificates. They sought reliefs including the supersession of the board of directors, restraining the respondents from handling the company's property, setting aside shares acquired by the second respondent, and directing the second respondent to reimburse personal expenditures and render accounts for rentals collected.

Sale of Company's Landed Property:
The Company Law Board (CLB) found no fault with the sale of 570 sq. yards of the company's property at Rs. 2,200 per sq. yard, noting that the market value of Rs. 7,000 per sq. yard as per the valuation certificate was unrealistic. The CLB observed that the company had faced hurdles in selling its property, including poor enquiries and legal issues, and that the sale was intended to create a buffer against illegal encroachment. The CLB held that the action of the board of directors in selling the property was justified and that the purchasers should derive valid title.

Direction to Convene a General Meeting to Elect a New Board of Directors:
The CLB directed that a general meeting be convened to elect a new board of directors not exceeding five in number, with one appointed as the managing director. This was due to the deadlock in the company's affairs and the irreconcilable relationship between shareholders, resulting in a loss of mutual trust and confidence. The CLB appointed a retired judge to preside over the meeting and oversee the election process. The court upheld this direction, noting that the CLB had the power to issue such directions under Section 402 of the Companies Act.

Appointment of Advocate Commissioners for Sale of Property:
The court appointed Advocate Commissioners to oversee the sale of the company's property, directing them to cause necessary publication, invite tenders, negotiate with bidders, and report the proceedings to the court. The sale was to be conducted in three separate lots with specified upset prices. The court also directed the Advocates Commissioner to deposit the sale proceeds in the High Court registry.

Jurisdiction and Powers of the Company Law Board under Section 402 of the Companies Act:
The court noted that the CLB has wide remedial powers under Section 402 of the Companies Act to regulate the conduct of the company's affairs and issue appropriate directions. The CLB's powers are not subject to the normal corporate management provisions of the Companies Act and can include appointing an administrator or a special officer to manage the company's affairs. The court held that the CLB's directions to convene a general meeting and elect a new board of directors were within its jurisdiction and did not necessitate interference.

Scope of Appeal under Section 10F of the Companies Act:
The court emphasized that an appeal under Section 10F is limited to questions of law and not of fact. The court found that the CLB had elaborately dealt with the contentions regarding the sale of property and the election of a new board of directors, providing just and valid reasons for its decisions. As no question of law arose from the CLB's findings, the court dismissed the appeal.

Conclusion:
The court upheld the CLB's order directing the convening of a general meeting to elect a new board of directors and the sale of the company's property under the supervision of Advocate Commissioners. The court dismissed the appeal, finding no question of law necessitating interference with the CLB's findings and directions. The court also directed the return of the money received from bidders to the respective parties.

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