2010 (11) TMI 842 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement under sections 397 and 398 of the Companies Act, 1956.
2. Shifting of the registered office without proper notice.
3. Alleged sidelining of the petitioner from management and board operations.
4. Disputes over the appointment of the managing director.
5. Legality of board meetings, extraordinary general meetings, and annual general meetings.
6. Request for fair valuation of shares and sale of shares between parties.
7. Petitioner's right to inspect books of account and records.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioner, holding 30% shares and being a whole-time director, alleged that he was sidelined by the other directors (respondents) who acted as a group. The petitioner claimed that the removal from the post of director and subsequent meetings were illegal, leading to a lack of confidence between the two groups. The respondents countered that the petitioner was not keen on associating with the management due to misunderstandings and had decided to withdraw his personal guarantee for loans, affecting the company's ability to secure credit. The court found that the petitioner's unilateral withdrawal of the personal guarantee was inequitable and prejudicial to the company, contributing to the deadlock and mistrust between the parties.

2. Shifting of Registered Office Without Proper Notice:
The registered office was shifted from the petitioner's residence to the second respondent's residence without a board resolution or notice to the petitioner, violating section 146 of the Act. The respondents argued that the shift was justified due to the petitioner's conduct. The court noted that no evidence was provided to show that notice of the board meeting was served on the petitioner, and the minutes book was not produced. Although the petitioner was likely aware of the shift, the lack of notice amounted to sidelining the petitioner and a breach of fiduciary duty by the other directors.

3. Sidelining of the Petitioner from Management and Board Operations:
The petitioner alleged that he was sidelined from management, including the operation of bank accounts, and that records were fabricated to alter cheque signing powers. The respondents contended that the petitioner was not available to sign cheques and had refused to extend his personal guarantee, necessitating changes in bank operations. The court found that the petitioner's actions, including the withdrawal of the personal guarantee, contributed to the deadlock and justified the respondents' actions to some extent.

4. Disputes Over Appointment of Managing Director:
The petitioner claimed an understanding that he would be appointed as managing director on a rotational basis, which the respondents denied. The court found no material evidence supporting such an understanding and noted that the petitioner's exclusion from management was partly due to his own actions, including the withdrawal of the personal guarantee.

5. Legality of Board Meetings, Extraordinary General Meetings, and Annual General Meetings:
The petitioner challenged the validity of several meetings held without proper notice, including the board meeting on June 21, 2008, and the extraordinary general meeting on July 17, 2008. The respondents argued that due notice was given, and the petitioner had sought leave of absence. The court found that while some meetings were held without proper notice, the overall conduct of the petitioner justified the respondents' actions to some extent. The court did not find sufficient grounds to declare the meetings null and void.

6. Request for Fair Valuation of Shares and Sale of Shares Between Parties:
The petitioner sought a fair valuation of shares and requested that the respondents sell their shares to him. The court found that the mutual trust between the parties had been lost completely and that it would be in the best interest of all concerned for the petitioner to exit the company. The court directed a fair valuation of shares by the statutory auditor and a chartered accountant chosen by the petitioner, with the petitioner selling his shares to the respondents at the determined fair value.

7. Petitioner's Right to Inspect Books of Account and Records:
The petitioner alleged that he was denied access to the company's books and records. The court had previously allowed the petitioner access to inspect the books of account and appointed a chartered accountant to authenticate the records. No irregularities were pointed out in the accounts and records, and the court found no merit in the petitioner's allegations of misuse of accounts by the respondents.

Conclusion:
The court concluded that while there were some breaches of fiduciary duty and procedural lapses, the petitioner's own conduct contributed significantly to the deadlock and mistrust. The court directed a fair valuation of shares and allowed the petitioner to exit the company by selling his shares to the respondents. The remaining reliefs sought by the petitioner were not granted, and all interim orders were vacated. The matter was posted for consequential directions on March 2, 2011.