2001 (12) TMI 880 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Nature of the relationship between the parties (partnership vs. shareholder).
3. Termination of agreements and use of the trade name "Ultrafilter".
4. Competing business activities by the respondent.
5. Remedies and reliefs sought by the petitioners.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The second petitioner, holding 51.82% shares in M/s Ultrafilter (India) Private Limited, alleged acts of oppression and mismanagement against the respondent, who holds 26% shares. The petitioner claimed that the respondent's actions, such as attempting to gain control of the company and supporting a competitor, were oppressive and detrimental to the company's interests.

2. Nature of the Relationship Between the Parties:
The petitioner argued that the relationship between the second petitioner and the respondent is akin to a partnership, not merely a shareholder relationship. The petitioner emphasized that "each partner owes a higher degree of duty not only to the other partner but also to the Company." The court acknowledged that the company was formed based on mutual trust and confidence, and thus, the principles of partnership could be applied. It was noted that the company is "nothing but a glorified partnership between the petitioner and the respondent."

3. Termination of Agreements and Use of the Trade Name "Ultrafilter":
The respondent terminated the 'Technical Collaboration Agreement' and the 'Trade Mark Registered User Agreement,' advising the company not to use the word "Ultrafilter." The court noted that the 'Technical Collaboration Agreement' had expired, and the termination was within the respondent's rights. The court also recognized that the dispute over the trade name was the subject of a civil suit in Bangalore.

4. Competing Business Activities by the Respondent:
The petitioner alleged that the respondent started competing with the company by supporting a competitor, M/s Pace Equipment, which marketed Sabroe dryers. The court found that while the respondent's insistence on marketing Sabroe dryers was not against the company's interest, the respondent's failure to ensure that Pace also marketed the company's filters was detrimental. The court held that both parties had breached the doctrine of utmost good faith by engaging in competing businesses.

5. Remedies and Reliefs Sought by the Petitioners:
The petitioner sought to restrain the respondent from interfering with the company's affairs and from competing with the company. The court directed the petitioner/company to purchase the respondent's shares at a fair value determined by the statutory auditors, based on the balance sheet as of 31.3.1999. The court emphasized that the strained relationship between the parties justified the application of partnership principles and the need for one party to exit the company.

Conclusion:
The court concluded that the company is in the nature of a partnership and that the respondent's actions were detrimental to the company's interests. The court directed the petitioner/company to purchase the respondent's shares to resolve the disputes and protect the company's interests.