2010 (7) TMI 819 - Board - Companies Law

Issues:
Petition filed under sections 397 and 398 of the Companies Act, 1956 alleging acts of respondents prejudicial to company's interest, seeking appointment of special officer, cancellation of shares, and rectification of share register. Disputed shares transferred to respondent No. 2 in 2004. Business activity closed down in 2007, petitioners claim closure for personal gain. Respondents argue petitioners aware of company activities, no grounds for oppression or mismanagement. Petitioners seek interim reliefs, respondents oppose, citing lack of grounds and business judgment. Bench examines share transfers, director appointments from 1980 to 2008, finds no prima facie case for interim reliefs. Respondent No. 2 undertakes not to deal with fixed assets until succession matter resolved. Bench denies interim reliefs, grants liberty to mention.

Analysis:

1. Petition under Sections 397 and 398:
The petitioners filed a petition under sections 397 and 398 of the Companies Act, 1956, alleging prejudicial acts by respondents affecting the company's interest. They sought the appointment of a special officer, cancellation of shares issued to Indian nationals in 1980, and rectification of the share register. The disputed shares were transferred to respondent No. 2 in 2004, leading to the petitioners questioning the shareholding distribution since 1980.

2. Closure of Business Activity:
The petitioners claimed that the business activity of the company was closed down in 2007 by respondent No. 2 for personal gain. They alleged that the closure was to create third party rights over the company's premises. Respondents argued that the closure was due to lack of work orders and economic viability. The bench noted the conflicting claims and examined the circumstances surrounding the closure.

3. Interim Reliefs and Business Judgment:
The petitioners sought interim reliefs, including the appointment of a special officer, based on their allegations. However, respondents opposed, stating that there were no grounds for oppression or mismanagement. They argued that the business judgment to close down the company was taken in good faith due to economic reasons. The bench considered the arguments from both sides and found no prima facie case for granting interim reliefs.

4. Share Transfers and Director Appointments:
The bench examined the share transfers from 1980 to 2008 and director appointments from 2004 to 2008. It was highlighted that the first petitioner was aware of these activities as evidenced by his attendance at various company meetings. The bench found no grounds to pass interim reliefs based on the information presented regarding share transfers and director appointments.

5. Fixed Assets and Undertakings:
Regarding the fixed assets of the company, the bench noted that respondent No. 2 had given an undertaking not to deal with the fixed assets until a succession matter was resolved. This undertaking provided assurance that the fixed assets would not be tampered with during the legal proceedings. The bench considered this aspect in its decision regarding the grant of interim reliefs.

6. Decision on Interim Reliefs:
After considering the arguments and evidence presented by both parties, the bench concluded that there was no prima facie case to invoke the doctrine of equity to interfere with the decisions of the domestic forum. Therefore, the interim reliefs sought by the petitioners were not granted. The bench granted liberty to mention for any further proceedings or issues that may arise in the case.

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