2015 (12) TMI 1694 - Board - Companies Law

Oppression and mismanagement - maintainability of petition - proof of demurer application - consenting shareholders - Held that - The number of shareholders have been attempted to be increased by opening new folios in the register of members though the shareholders are limited. In fact, the spirit of section 399 concentrates on one-tenth of the ownership either in terms of the percentage of shareholding or in terms of number of shareholders of the company and hence, for this purpose, the real ownership of the company needs to be kept in mind in terms of section 247 of the Companies Act, 1956. On this logic, the contention of having 34 members in the company based on different folios only does not carry legal support and substance. In fact, even the same individual has been counted twice or thrice and hence, on this count itself, it of the considered opinion that the number of members are actually less than 30. In view of this, the petitioners along with consenting shareholders being 3 in number constitute more than 10 per cent of the total number of members and thereby, the company petition is maintainable in terms of section 399(1) of the Companies Act, 1956. As such, the prayer made in the instant company application to dismiss the company petition on the ground of maintainability is hereby disallowed.

Summary

Issues Involved:
1. Maintainability of the company petition under Section 399 of the Companies Act, 1956.
2. Allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.
3. Validity of the consent letters and signatures.
4. Historical context and family ownership of the company.
5. Business decisions and their implications on the allegations of oppression.
6. Allegations of delay, laches, and limitation.
7. Validity of the annual general meetings and board meetings.
8. Allegations of financial mismanagement and misappropriation.

Issue-wise Detailed Analysis:

1. Maintainability of the Company Petition:
The petitioners filed a company petition under Sections 235, 397, 398, 399, and 402 of the Companies Act, 1956, alleging acts of oppression and mismanagement. The respondents argued that the petitioners did not meet the requirement of holding at least one-tenth of the issued share capital as mandated by Section 399 of the Companies Act, 1956. They contended that the petitioners, along with the consenting shareholders, did not constitute one-tenth of the total number of members. The petitioners countered that there were only 30 members, not 34, and that they constituted more than one-tenth of the total number of members. The judgment concluded that the number of members had been inflated by opening new folios, and the actual number of members was less than 30, making the petition maintainable.

2. Allegations of Oppression and Mismanagement:
The respondents argued that no case of oppression or mismanagement had been made out as there were no allegations regarding changes in shareholding or directorial patterns, non-holding of meetings, or non-service of notices. The petitioners alleged that the respondents had sidelined and oppressed certain members, including Mr. Partha Sarathi Ghosh, and that the company had been run as a family business with an understanding that all family members would have representation. The judgment did not delve into the merits of these allegations but focused on the maintainability of the petition.

3. Validity of Consent Letters and Signatures:
The respondents argued that the consent letters and signatures obtained by the petitioners were not in accordance with the provisions of the Companies Act, 1956, and the Rules and Regulations framed thereunder. They contended that the consent letters could not be treated as valid under Section 399 of the Companies Act, 1956. The petitioners denied these allegations, asserting that the consent letters were valid and that the signatures had been properly obtained.

4. Historical Context and Family Ownership:
The respondents provided a historical context, stating that the company was initially a proprietorship business, then a partnership firm, and finally a company run as a family-owned business. They argued that there was an understanding among family members regarding representation in the company. The petitioners denied the existence of such an understanding and asserted that every co-sharer had an equal right to participate in the management and affairs of the company.

5. Business Decisions and Allegations of Oppression:
The respondents highlighted that business decisions, such as investing in mutual funds and selling property, were made with the consent of the shareholders and reflected in the balance sheets. They argued that these decisions could not be challenged as acts of oppression. The petitioners contended that the investments were not managed correctly, causing losses, and that the respondents were responsible for the depletion of funds. They also alleged that the decision to export tea to Russia was made without consultation.

6. Allegations of Delay, Laches, and Limitation:
The respondents argued that the petition suffered from delay, laches, suppression, estoppel, acquiescence, and was barred by limitation. They contended that the allegations regarding the sale of property and payment to a subsidiary were made after several years and were an afterthought. The petitioners denied these allegations and asserted that the petition was filed within the permissible time frame.

7. Validity of Annual General Meetings and Board Meetings:
The petitioners alleged that no valid annual general meeting was held for the year 2013, and no valid board meetings were conducted to consider the draft accounts for the financial year 2012-13. They argued that the business transacted in the purported annual general meeting held on September 30, 2013, was null and void. The respondents countered that the notice for the annual general meeting was served on all members, and the meeting was attended by the requisite number of shareholders.

8. Allegations of Financial Mismanagement and Misappropriation:
The petitioners alleged that the respondents did not deal with the investments correctly, causing losses, and that the investments were being siphoned away for personal gain. They also contended that the dividends were not paid in accordance with their actual entitlement. The respondents denied these allegations, asserting that the decisions regarding investments and liquidation of mutual funds were business decisions made with the consent of the shareholders.

Conclusion:
The judgment concluded that the petitioners and consenting shareholders constituted more than one-tenth of the total number of members, making the company petition maintainable under Section 399(1) of the Companies Act, 1956. The prayer to dismiss the company petition on the ground of maintainability was disallowed, and the application was disposed of accordingly.