2010 (8) TMI 770 - Board - Companies Law

Summary

Issues:
1. Maintainability of the main petition based on shareholding and income tax returns.
2. Allegation of fraudulent transfer of shares and oppression and mismanagement.

Issue 1: Maintainability of the main petition based on shareholding and income tax returns:

The respondents challenged the maintainability of the main petition, arguing that the petitioners did not have the required shareholding to file the petition. The petitioners countered by stating that their shareholding exceeded 10% of the company's shares, making them eligible to file the petition. The court noted that the petitioners' shareholding was indeed over 10%, as evidenced by the income tax returns relied upon by the respondents. The court held that since the petitioners met the qualification criteria, the petition could not be dismissed based on the alleged lack of qualification under Section 399 of the Companies Act, 1956.

Issue 2: Allegation of fraudulent transfer of shares and oppression and mismanagement:

The petitioners alleged that the respondents fraudulently transferred their shares in the company, taking advantage of the petitioners' trust. The petitioners claimed that they signed income tax returns without realizing the fraudulent transfers. The respondents argued that the income tax returns showing the transfer of shares constituted an admission by the petitioners, warranting the rejection of the petition. However, the court held that such admission was evidentiary and not a formal admission made in contemplation of the litigation. The court emphasized the need to allow the petitioners the opportunity to prove their claims, especially since they asserted ignorance regarding the inclusion of share transfers in the tax returns. The court distinguished various legal precedents cited by the respondents, ultimately dismissing the application challenging the maintainability of the petition.

In conclusion, the court ruled in favor of the petitioners, rejecting the respondents' application due to lack of merit. The judgment highlighted the importance of allowing the petitioners the chance to substantiate their claims and emphasized the need to consider the entire petition's content rather than isolated sentences.