2002 (2) TMI 1317 - Board - Companies Law

Summary

Issues Involved:
1. Alleged oppression through the clandestine issue of shares.
2. Validity and legality of board meetings and resolutions.
3. Alleged breach of SEBI Take Over Code.
4. Alleged exclusion from management and manipulation of records.
5. Equitable considerations in family companies.

Summary:

1. Alleged oppression through the clandestine issue of shares:
The petitioner claimed control over 68% shares in Panchsheel Textile Mfg. & Trading Co. (P.) Ltd. ("the company") and alleged that the clandestine issue of 10,000 shares to the respondents reduced his controlling interest to 30%, converting his majority into a minority. He sought the cancellation of this share allotment, citing it as an act of oppression.

2. Validity and legality of board meetings and resolutions:
The petitioner argued that the issue and allotment of shares were done without his knowledge or consent, and he was unaware of the relevant board meetings. The respondents countered that the petitioner was aware and had consented to the allotment, evidenced by his participation in meetings and signing of documents. The court found that the petitioner's claim of not attending the meetings was inconsistent and noted his contemporaneous conduct suggested his knowledge and consent.

3. Alleged breach of SEBI Take Over Code:
The petitioner argued that the allotment of shares violated the SEBI Take Over Code as it resulted in the respondents gaining control over 26% shares in Vardhman, a listed company. The court ruled that the SEBI Take Over Code was not applicable since the change in control was within the promoters' group, exempting it from the Code's provisions.

4. Alleged exclusion from management and manipulation of records:
The petitioner alleged manipulation of records and exclusion from management. The court noted that the petitioner's group was not entirely excluded from management, as evidenced by the participation of his wife in board meetings and his own substantial financial contributions to the company. The court found no substantial evidence of exclusion or manipulation that would support the petitioner's claims.

5. Equitable considerations in family companies:
The court recognized the family nature of the company and the need for equitable considerations. Despite the legal merits, the court emphasized that equitable considerations should prevail in family disputes. The court directed that the control of the company should go to the petitioner, provided he assumes all liabilities of the company and refunds the consideration for the 10,000 shares to the respondents. The court also stipulated that the petitioner should acquire the preference shares held by the respondents at face value.

Conclusion:
The petition was disposed of with directions for the petitioner to assume control of the company upon fulfilling specific conditions, ensuring equitable resolution in the context of a family company. The court emphasized the importance of maintaining fairness and integrity in family business disputes.