2010 (7) TMI 274 - HC - Companies Law

Oppression and mismanagement - Held that - while dealing with the petition under sections 397 and 398 of the Act, the power of the Company Law Board, as contained in section 402 of the Act, is on just and equitable ground, in the opinion of the Board. One other aspect which has to be remembered in this case is that it is not as if by holding that the company petition filed by the appellants as not maintainable, the jurisdiction of the Company Law Board in dealing with such situation afresh if the appellants are able to succeed in their efforts in invalidating the transfer of shares and thereafter obtaining the right to maintain an application under sections 397 and 398 of the Act as required under section 399(1) of,the Act by way of fresh application, inasmuch as there is no ouster of jurisdiction of the Company Law Board by the impugned order passed by it, especially when it is certainly open to the appellants to avail the remedies in the manner known to law to redress the grievance in respect of transfer of shares effected, in my considered view, there is no grievance in existence for the appellants. The findings of the Company Law Board in the impugned order cannot be either treated as perverse or against the law or that the Company Law Board considered irrelevant materials so as to enable this Court to interfere with the same under section 10F of the Companies Act on the basis of any question of law. The appeals fail and the same are dismissed accordingly.

Issues Involved:

1. Maintainability of the company petition under sections 397 and 398 of the Companies Act, 1956.
2. Alleged oppression and mismanagement by respondents.
3. Validity of the transfer and allotment of shares.
4. Jurisdiction and powers of the Company Law Board (CLB) to decide preliminary issues.

Detailed Analysis:

1. Maintainability of the Company Petition:

The primary issue was whether the appellants met the requirements under section 399 of the Companies Act, which mandates that a petitioner must hold at least one-tenth of the issued share capital to file a petition under sections 397 and 398. The CLB found that the appellants, who initially held 24% of the shares, had their shareholding reduced to 7.20% after the transfer and further allotment of shares to the respondents. The CLB concluded that the appellants did not meet the required threshold and thus, the petition was not maintainable.

2. Alleged Oppression and Mismanagement:

The appellants alleged that the respondents committed acts of oppression and mismanagement, including failing to pay the full consideration for the transfer of shares, increasing the share capital without proper authorization, and removing the first appellant from his roles and responsibilities. The CLB noted that the appellants had voluntarily transferred their shares and participated in the meetings where these decisions were made. The CLB held that these issues were contractual disputes rather than acts of oppression or mismanagement.

3. Validity of the Transfer and Allotment of Shares:

The appellants contested the validity of the transfer and further allotment of shares, arguing that they were against the articles of association. The CLB found that the appellants had executed the necessary instruments for the transfer and participated in the meetings approving the share allotment. The CLB held that the appellants' claims were primarily about the breach of the shareholders' agreement rather than the validity of the share transactions.

4. Jurisdiction and Powers of the Company Law Board:

The appellants argued that the CLB did not have the power to decide preliminary issues, citing the Andhra Pradesh High Court's decision in B. Subba Reddy v. S.S. Organics Ltd. The CLB, however, held that it had the discretion to decide on maintainability issues as per section 10E(5) of the Companies Act, which allows the CLB to regulate its own procedure and be guided by principles of natural justice. The court agreed with the CLB, stating that the power to decide maintainability is inherent and does not need to be explicitly stated in the statute.

Conclusion:

The appeals were dismissed on the grounds that the appellants did not meet the shareholding threshold required under section 399 of the Companies Act. The court upheld the CLB's decision, stating that the appellants' claims were contractual disputes rather than issues of oppression and mismanagement. The court also affirmed the CLB's jurisdiction to decide preliminary issues of maintainability.

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