1999 (11) TMI 887 - Board - Companies Law

Issues Involved:
1. Allegations of oppression and mismanagement u/s 397/398 of the Companies Act, 1956.
2. Compliance with the family agreement dated March 23, 1991.
3. Mismanagement of the plastic division.
4. Transfer of shares to VLS Finance and its implications.
5. Deadlock in the management and the proposed division of assets.

Summary:

1. Allegations of Oppression and Mismanagement u/s 397/398:
The petitioners alleged acts of oppression and mismanagement by the respondents in the affairs of Trackparts of India Limited. The company, a public listed entity, was originally a private limited company formed in 1969. The petitioners claimed that the respondents did not comply with the family settlement agreement, leading to unequal shareholding and autocratic management by the respondent. The respondents countered by stating that the petitioners, despite being in minority, were trying to retain control of the company.

2. Compliance with the Family Agreement:
A family agreement dated March 23, 1991, was entered into between the families of the four brothers, providing for equalization of shareholding and joint management. The petitioners alleged that the DB group did not comply with the terms of the agreement, leading to unequal shareholding. The respondents argued that the family agreement, which provided for arbitration in case of disputes, could not be enforced through this petition.

3. Mismanagement of the Plastic Division:
The petitioners alleged that the plastic division, started in 1994, was mismanaged by the respondent, leading to heavy losses and financial difficulties for the company. The respondents contended that the plastic division suffered due to inadequate financing and lack of support from the petitioners. Both parties accused each other of actions that worsened the financial situation of the company.

4. Transfer of Shares to VLS Finance:
The petitioners facilitated the transfer of shares to VLS Finance, which the respondents claimed reduced their majority to a minority. The respondents argued that the transfer was in violation of Article 110 and the SEBI Take Over Code. The petitioners maintained that the transfer was legal and necessary due to the pledge agreement with VLS Finance. The Company Law Board noted that the legality of the transfer should be adjudicated separately, especially since VLS Finance stated they would not exercise voting rights.

5. Deadlock in Management and Proposed Division of Assets:
The Company Law Board observed that the disputes between the parties led to a deadlock in the management. Despite attempts for amicable settlement, including appointing a former Supreme Court judge as chairman, the parties could not resolve their differences. The Board concluded that the division of assets was the only solution to end the disputes. The petitioners would manage the forge division, and the respondents would manage the other two divisions. A fresh board would be constituted with an independent chairman nominated by ICICI to oversee the division process.

Conclusion:
The Company Law Board directed the division of assets of Trackparts of India Limited to resolve the disputes between the family shareholders. The petitioners would manage the forge division, and the respondents would manage the other two divisions. The ICICI would appoint a valuer to determine the value of shares and the forge division, and the company would purchase the petitioners' shares, effecting a reduction in share capital. The final division of assets was to be completed by June 30, 2000, under the supervision of an independent chairman.

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