2014 (8) TMI 1111 - Board - Companies Law

Acts of oppression and mismanagement - petitioners under sections 397 and 398 of the Companies Act, 1956 - Held that - Valuation of the property of the company in the form of resort was done by the valuer appointed as per the direction of this hon ble Board and sufficient efforts were made by appointing property dealer to sell the property at a price higher than the aforesaid valuation by the valuer so that the proceeds after payment of the liabilities of the company could be distributed amongst the petitioners and the respondents in the ratio of their shareholding. However, no buyer could offer the price higher than the aforesaid valuation done by the valuer. Not only this, neither the petitioners nor the respondents are also willing to buy out each other. Apart from this, the proposal of division of the property, i.e., resort in the ratio of the shareholding of the petitioners and the respondents by way of maps given through C. A. No. 416 of 2011 were also objected by the respondents as the said division would result in stoppage of business operation of the company and even reasonable price may not be received out of the sale of unviable portions of the land/property. Under these facts and circumstances, it is considered appropriate in the interest of the company that the business operations be continued with the co-operation of the petitioners and the respondents and both the petitioners and the respondents to get the property valued again as per the current market conditions and to sell the property at reasonable price for distribution of proceeds in the ratio of their shareholding after paying off the liabilities. The business of the respondent-company should continue with better co-ordination and co-operation amongst the petitioners and the respondents and, hence, it is held that (i ) The resolutions passed in the extraordinary general meetings held on November 15, 2010 and December 14, 2010, for removal of the petitioners as directors were bad in law and, hence, null and void ; (ii ) The petitioners are hereby restored as directors of respondent No. 1-company ; (iii ) The petitioners and the respondents to co-operate with each other and to get the property valued again through the renowned valuer as per the current market conditions and, therefore, the property be sold at a reasonable price and the sale proceeds be distributed in the ratio of the shareholding of the petitioners and the respondents after the payment of liabilities of the respondent-company ; (iv ) The respondent-company is to make necessary changes/alterations in the statutory records and the returns with the Registrar of Companies within 30 days.

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Non-accounting of receipts and competitive business.
3. Non-holding of board and general meetings.
4. Non-allotment of shares and refund of share application money.
5. Removal of petitioners as directors.
6. Division of company property.
7. Legality of extraordinary general meetings.
8. Continuation of business operations and valuation of property.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners filed a petition under sections 397 and 398 of the Companies Act, 1956, alleging acts of oppression and mismanagement by the respondents. The company, a closely held family company, was incorporated on February 18, 1998. The petitioners held 40% of the paid-up capital, while the respondents held 60%. The petitioners claimed that the respondents breached trust and confidence, particularly in board meetings held on April 28, 2008, and June 24, 2008, by not accounting for all receipts from bookings and engaging in competitive business.

2. Non-Accounting of Receipts and Competitive Business:
The petitioners alleged that the respondents did not account for all bookings at the resort in the company's books and were involved in a competing business. The respondents denied these allegations, stating that the banquet hall and the resort catered to different types of functions and were not in competition. The respondents also claimed that all bookings were duly accounted for and that the petitioners were not serious about running the business.

3. Non-Holding of Board and General Meetings:
The petitioners claimed that no board or general meetings were held, and no notices were given to them. The respondents countered that all meetings were held with proper notice as per the Companies Act, 1956, and the articles of association. The respondents argued that the petitioners were only interested in the appreciation of land value and not in the business operations.

4. Non-Allotment of Shares and Refund of Share Application Money:
The petitioners deposited Rs. 10,00,000 towards share application money, but neither shares were allotted nor was the amount refunded. The respondents acknowledged the receipt of the amount and stated that it was used for purchasing and developing the property. They denied enhancing their shares in the company without proper procedure.

5. Removal of Petitioners as Directors:
The petitioners received notices for board and extraordinary general meetings to remove them as directors. They claimed that the notices were not compliant with section 284 of the Companies Act, 1956, and that their removal was an act of oppression. The respondents argued that the removal was due to the petitioners' prejudicial activities and neglect of the company's business.

6. Division of Company Property:
The petitioners proposed dividing the resort property in proportion to their shareholding (40% and 60%). The respondents opposed this, arguing that such a division would render the business unviable. The petitioners insisted that division was the only solution, while the respondents were willing to continue the business with cooperation from the petitioners.

7. Legality of Extraordinary General Meetings:
There were disputes regarding the legality of the extraordinary general meetings held on November 15, 2010, and December 14, 2010, for the removal of the petitioners as directors. The petitioners claimed that the meetings were not properly conducted, while the respondents maintained that all procedures were followed, and the removal was justified.

8. Continuation of Business Operations and Valuation of Property:
The court observed that the business should continue with cooperation between the petitioners and respondents. The property should be revalued as per current market conditions, and if sold, the proceeds should be distributed according to the shareholding after paying off the company's liabilities.

Judgment:
1. The resolutions passed in the extraordinary general meetings held on November 15, 2010, and December 14, 2010, for the removal of the petitioners as directors were declared null and void.
2. The petitioners were restored as directors of the company.
3. The petitioners and respondents were directed to cooperate, get the property revalued, and sell it at a reasonable price, distributing the proceeds according to their shareholding after settling liabilities.
4. The company was ordered to make necessary changes in statutory records and returns with the Registrar of Companies within 30 days.

Conclusion:
The court emphasized the importance of cooperation between the parties for the smooth functioning of the company and upheld the petitioners' right to representation on the board, considering their 40% shareholding. The petitioners' removal was deemed oppressive, and the court provided a structured approach to resolve the property division and business continuation issues.

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