2008 (11) TMI 399 - HC - Companies Law

Oppression and mismanagement - Held that - The grievance of the present Petitioners alone can be enquired into to find out whether it would constitute continuing oppression qua them, albeit holding only 6.66 per cent of the shares of the 1st Respondent Company and no one else. No hesitation in concluding that no case regarding oppression of minority shareholders has been established by the present Petitioners. Assuming to hold to the contrary, it would still be inclined to hold that no tangible grounds are made out to conclude that it is just and equitable to wind up the Respondent No. 1 Company. For, on this finding as observed in the case of Jaladhar Chakraborty (1991 (10) TMI 249 - HIGH COURT OF CALCUTTA), no further direction needs to be issued. However, insofar as the direction pressed by the present Petitioners against the majority shareholders to buy out the shares of the present Petitioners, already dealt with that aspect in the earlier part of this judgment. There is ample material on record that in spite of differences between the two groups, the Company has been performing very well and the financial position of the Company is very sound. The Company has made huge profits in the past and has grown by leaps and bounds. Even if the Court were to consider the issue of mismanagement of the Respondent No. 1 Company as has been found earlier, that even if all the acts complained of are taken into account as it is, singularly or together, no case is made out that it is just and equitable to wind up the Respondent Company. As already adverted to all the grounds complained of by the Petitioners which according to them constitute case of oppression and mismanagement. As aforesaid, even if the said acts constituted oppression or mismanagement, were not sufficient to hold that the Respondent Company be wound up on the ground that it is just and equitable to do so within the meaning of section 433(1)(f) of the Act. W.P. fails

Issues Involved:
1. Entitlement of the present Petitioners to pursue the claim under section 397 of the Companies Act.
2. Whether the affairs of the Company were conducted in a manner prejudicial to public interest or oppressive to any member/members.
3. Whether the affairs of the Company were conducted in a manner prejudicial to the interests of the Company.
4. Whether it is just and equitable to wind up the Respondent No. 1-company.

Issue-wise Detailed Analysis:

Issue No. 1: Entitlement of the present Petitioners to pursue the claim under section 397 of the Companies Act
The original petition was presented by seven petitioners holding 27.21% of the subscribed and paid-up capital. Five petitioners withdrew unconditionally, leaving the present petitioners with only 6.66% shareholding. Under section 399(1) of the Companies Act, the present petitioners do not fulfill the requirement to apply under sections 397 or 398, which mandates not less than one-tenth of the issued share capital of the company. The petitioners relied on the principle that the validity of the petition should be considered based on the facts at the time of its presentation. However, the court held that the withdrawal of the other petitioners unconditionally implies they have given up their claims, and the present petitioners cannot resurrect those claims. The court concluded that the present petitioners' grievances alone could not constitute continuing oppression.

Issue No. 2: Whether the affairs of the Company were conducted in a manner prejudicial to public interest or oppressive to any member/members
The court found no case made out that the affairs of the company were conducted in a manner prejudicial to public interest. The petitioners argued the company was a glorified partnership, but the court found no basis in the Articles of Association (AOA) to support this. The petitioners alleged systematic exclusion and oppression by the majority shareholders. However, the court found the allegations unsubstantiated. The transfer of shares, extraordinary general meetings, and declaration of dividends were all found to be in compliance with the AOA and in the interests of the company. The court held that the grievances regarding low dividends, delayed transmission of shares, and exclusion from management did not constitute oppression of minority shareholders.

Issue No. 3: Whether the affairs of the Company were conducted in a manner prejudicial to the interests of the Company
The petitioners did not make a specific case of mismanagement under section 398. The court found no evidence to support the claim that the affairs of the company were conducted in a manner prejudicial to its interests. The company was performing well, with significant profits and growth. The court held that none of the acts complained of constituted mismanagement or justified winding up the company.

Issue No. 4: Whether it is just and equitable to wind up the Respondent Company
The court held that even if the acts complained of constituted oppression or mismanagement, they were not sufficient to justify winding up the company under section 433(1)(f) of the Act. The petitioners' principal relief to direct the majority shareholders to buy out their shares was addressed by the court, which found no basis for such a direction. The court concluded that no tangible grounds were made out to conclude that it was just and equitable to wind up the company.

Conclusion:
The petition was dismissed, and no reliefs were granted to the present petitioners. The court found no evidence of oppression of minority shareholders or mismanagement of the company that would justify winding up the company. The petitioners were not entitled to pursue the claim under section 397, and their grievances did not constitute continuing oppression.

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