2009 (4) TMI 448 - HC - Companies Law

Oppression and mismanagement - Held that - In this case, the act complained of is the failure of the petitioner to accede to transmission of share of the legal representatives, the persons did not resort to the procedure prescribed under section 111 of the Companies Act. The non-issue of notice, increase of share capital and the non-offer of additional shares constitute a bundle of successive actions forming part of the same transaction and the respondent No. 1 who was admittedly a member and who complained of non-service did not chose to take action within 3 years after they knew about the appellants alloting to themselves the additional shares. Under such circumstances, it should only be held that the petitioners were not only barred by limitation; being guilty of laches, the extraordinary remedy available under the Companies Act on mismanagement could not be granted in favour of the petitioners. For the same reason, the impeachment of the appointment of the Additional Director namely of the 8th respondent ought to fail. Order of the CLB is set aside. The action complaining of oppression and mismanagement is dismissed. Even while setting aside the order of the CLB, the appellant as representing the company is directed to transmit the shares held by the deceased members in the names of the legal heirs who have obtained the necessary grants under the Indian Succession Act and who have petitioned to the company for transmission, for title to shares on the death of members cannot hang in vacuum and the right flows eo instanti.

Issues Involved:
1. Limitation of the petition filed before the CLB.
2. Authority of the CLB to order transmission of shares under sections 397 and 398.
3. Legality of the increase in shareholding by the company.
4. Authority of a single Director to convene and hold an AGM and constitute a Board.
5. Inherent contradictions in the CLB's directions.
6. Allegations of oppression and mismanagement.
7. Maintainability of the petition by legal representatives.

Detailed Analysis:

I. Limitation of the Petition
The appellant argued that the petition filed on 4-8-2005 was barred by limitation as the increase in shareholding occurred on 14-2-1996. The CLB rejected this plea, considering the increase in shareholding a continuous act of oppression. However, the High Court found that the petitioners, aware of the shareholding increase since 2002, failed to act within three years, rendering the petition time-barred under Article 137 of the Limitation Act.

II. Authority of the CLB to Order Transmission of Shares
The appellant contested the CLB's authority to order the transmission of shares in a petition under sections 397 and 398. The High Court upheld the CLB's order, referencing the Supreme Court decision in World Wide Agencies (P.) Ltd. v. Margarat T. Desor, which allowed legal representatives to maintain such petitions even if not registered as members.

III. Legality of the Increase in Shareholding
The appellant argued that the increase in shareholding was done with due notice and was filed with the ROC. The respondents countered that the increase without adequate notice constituted oppression. The High Court found that the increase itself was not oppressive unless it was mala fide or intended to wrest control without offering shares to all members. The court noted that the legal heirs had not applied for transmission of shares timely, thus the increase in shareholding was upheld.

IV. Authority of a Single Director to Convene and Hold an AGM and Constitute a Board
The appellant argued that setting aside the appointment of the Additional Director left the company with only one Director, who could not legally convene an AGM or constitute a Board. The High Court acknowledged this contradiction in the CLB's order and found the direction to hold an AGM within one month unfeasible with only one Director.

V. Inherent Contradictions in the CLB's Directions
The High Court identified inherent contradictions in the CLB's directions, particularly the mandate to hold an AGM with only one Director. This contradiction rendered the CLB's order impractical and unenforceable.

VI. Allegations of Oppression and Mismanagement
The respondents alleged oppression due to the increase in shareholding and the appointment of an Additional Director without proper notice. The High Court found no evidence of mala fides in the increase of shareholding and noted that the legal heirs had not been vigilant in asserting their rights. The court dismissed the allegations of oppression and mismanagement.

VII. Maintainability of the Petition by Legal Representatives
The High Court upheld the maintainability of the petition by legal representatives, referencing the Supreme Court's decision in World Wide Agencies (P.) Ltd. v. Margarat T. Desor. Legal representatives could maintain the petition even if not registered as members, provided they were holders of shares.

Conclusion
The High Court set aside the CLB's order, dismissing the action complaining of oppression and mismanagement. It directed the company to transmit the shares held by deceased members to their legal heirs who had obtained necessary grants under the Indian Succession Act. The company appeal was allowed, and the petitioners were instructed to submit proof of heirship for transmission of shares.

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