2009 (3) TMI 559 - HC - Companies Law

Oppression and mismanagement - Held that - The questions of law that had been raised in the case whether there had been acts of oppression and mismanagement could not be answered without resolving the dispute of the civil suit relating to the validity of the resignation letter and the entitlement of the petitioner Nos. 2 and 3 to treat themselves as shareholders of the company. The alleged wrongful allotment and adjustment of shares that constitute the core issue of oppression and mismanagement again are the issues that would fall for consideration only in the civil suit before which the relief of injunction is sought. It is not as if the Company Law Board cannot itself decide issues of forgery, fraud etc. but it is a case where civil suits have already been filed and it would be inappropriate to let the Company Law Board adjudicate on the same, although packaged to make it appear as though it is an open and shut case of oppression and mismanagement. The appeal is, therefore, dismissed giving, however, liberty to the petitioners to approach the Company Law Board again if the status of entitlement as directors and shareholders of the company are estab- lished before the Civil Court.

Summary

Issues Involved:
1. Dismissal by CLB on non-maintainability.
2. Acts of oppression and mismanagement.
3. Background facts.
4. The first company petition and circumstances that led to civil suits.
5. Nature of civil suits.
6. Core contentions in the first suit.
7. The second suit by the father.
8. Core issue in the second suit.
9. Basis of family arrangement.
10. Father's plea regarding family settlement.
11. Suit by the father to neutralize the strength of defense.
12. Cause for withdrawal of the first company petition.
13. Congruence of issues to be resolved before Company Law Board and civil courts.
14. Preliminary objections and Company Law Board's reasoning.
15. Jurisdiction of the Company Law Board.
16. Questions of law and their resolution.
17. Conclusion.

Detailed Analysis:

1. Dismissal by CLB on Non-Maintainability:
The appeal was filed under section 10F of the Companies Act against the Company Law Board's (CLB) order dismissing the petition on non-maintainability grounds. The petitioners had alleged oppression and mismanagement, but the CLB dismissed it based on preliminary objections from the respondents.

2. Acts of Oppression and Mismanagement:
The specific acts of oppression and mismanagement included the alteration of share allotment details in Form No. 2, the alleged forged resignation of a petitioner, and the manipulation of company records. The petitioners also claimed that the second respondent had siphoned off company funds.

3. Background Facts:
The first respondent company was incorporated to establish a multiplex cinema theatre. The company's shareholders included the first petitioner and his sons, with the second respondent being one of the directors. Disputes arose over the management and control of the company.

4. The First Company Petition and Circumstances Leading to Civil Suits:
The first company petition (C.P. No. 15 of 2004) was withdrawn due to delays in obtaining a forensic report and ongoing police investigations. The High Court granted anticipatory bail to the second respondent and suggested that the disputed documents be kept in abeyance for six months, allowing the parties to seek remedies in civil court.

5. Nature of Civil Suits:
(i) Civil Suit No. 662 of 2004:
Filed to seek an injunction against the respondents to prevent the transfer or encumbrance of the multiplex without the plaintiffs' consent. The suit detailed the shareholding pattern and alleged that the second respondent had fabricated a resignation letter to take control of the company.

(ii) Core Contentions in the First Suit:
The plaintiffs claimed that the first petitioner was still a director and that the second respondent's actions were based on forged documents. The suit sought to prevent the respondents from creating encumbrances over the company's properties.

(iii) The Second Suit by the Father:
The first petitioner sought a declaration that a family settlement was null and void and an injunction to prevent the respondents from claiming any benefits under it. This suit aimed to counter the second respondent's defense based on the family settlement.

(iv) Core Issue in the Second Suit:
The declaratory action regarding the family settlement was essential to challenge the validity of the resignation letter and the family settlement used by the second respondent to justify his control over the company.

(v) Basis of Family Arrangement:
The second respondent claimed that the family settlement and resignation were part of an arrangement where the first petitioner had relinquished his rights in exchange for a monetary award.

(vi) Father's Plea Regarding Family Settlement:
The first petitioner argued that the family settlement was obtained through undue influence, misrepresentation, and coercion. He alleged that the second respondent had threatened him and other family members.

(vii) Suit by Father to Neutralize the Strength of Defense:
The suit aimed to invalidate the family settlement and prevent the second respondent from using it to justify his control over the company. The first petitioner did not seek a declaration of his directorship but focused on the family arrangement.

6. Cause for Withdrawal of the First Company Petition:
The first company petition was withdrawn due to the pending civil suits and criminal investigations. The petitioners believed that the High Court's order, which kept the disputed documents in abeyance, allowed them to file a fresh petition.

7. Congruence of Issues to be Resolved Before Company Law Board and Civil Courts:
The CLB dismissed the petition, noting that the issues of oppression and mismanagement were intertwined with the civil suits. The validity of the resignation letter and the family settlement were central to both the civil suits and the petition before the CLB.

8. Preliminary Objections and Company Law Board's Reasoning:
The CLB dismissed the petition on the grounds that the High Court's order had expired and that the petitioners were engaging in forum-shopping. The CLB concluded that the issues raised were better suited for resolution in civil court.

9. Jurisdiction of the Company Law Board:
The CLB cannot adjudicate on matters involving disputed questions of fact, especially when civil suits are already pending. The issues of forgery, fraud, and the validity of the resignation letter and family settlement were to be resolved in civil court.

10. Questions of Law and Their Resolution:
The questions of law regarding oppression and mismanagement could not be resolved without first determining the validity of the resignation letter and the petitioners' status as shareholders and directors, which were issues pending in civil court.

11. Conclusion:
The appeal was dismissed, but the petitioners were given the liberty to approach the CLB again if their status as directors and shareholders was established in civil court. No costs were awarded.

By maintaining the original legal terminology and significant phrases, this summary provides a comprehensive analysis of the judgment while ensuring privacy and readability.