1998 (9) TMI 651 - Board - Companies Law

Summary

Issues Involved:
1. Legality of Redemption of Preference Shares
2. Allegations of Oppression and Mismanagement
3. Validity of Extraordinary General Meeting and Removal of Director
4. Allegations of Misappropriation of Company Funds

Summary:

1. Legality of Redemption of Preference Shares:
The petitioners challenged the redemption of their 4% cumulative preference shares, claiming they were still shareholders and thus qualified to file a petition u/s 397/398 of the Companies Act. The company contended that these shares had already been redeemed. The Board found that the preference shares were validly redeemed through a board resolution on March 9, 1996, and the redemption amount had been sent to the petitioners, who refused to accept it. Therefore, the petitioners were no longer shareholders and did not qualify to file the petition u/s 399.

2. Allegations of Oppression and Mismanagement:
The petitioners alleged that the company's estates and investments were sold without their knowledge, and the proceeds were mismanaged. The Board noted that the company had discharged all liabilities and profitably invested the remaining funds. The petitioners' claims were not substantiated with sufficient evidence.

3. Validity of Extraordinary General Meeting and Removal of Director:
The petitioners contested the validity of the extraordinary general meeting held on December 20, 1995, which resulted in the removal of the first petitioner as a director and the appointment of respondents Nos. 3 and 4 as directors. The Board found that the meeting was properly convened by respondent No. 2 as per Section 169, and the resolutions passed were valid. The company was not considered a partnership despite being a family company, as the first petitioner became a shareholder only in 1987, six years after its incorporation.

4. Allegations of Misappropriation of Company Funds:
The petitioners claimed that respondent No. 2 withdrew Rs. 20 lakhs from the company's fixed deposits without their knowledge. The Board found that Rs. 18 lakhs of the withdrawn amount was invested at 18% in Sancotrans Limited, and there was no evidence of misappropriation by respondent No. 2.

Conclusion:
The petition was dismissed as the petitioners were no longer shareholders and thus lacked the locus standi to file the petition. The Board also noted that the petition appeared to be motivated by the first petitioner's desire to acquire a flat in Madras owned by the company, which he had already pursued through a civil suit. Efforts to settle the matter amicably failed, and no costs were awarded.