2003 (1) TMI 725 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement u/s 397/398 of the Companies Act.
2. Nature of the company as a quasi-partnership.
3. Removal of the first petitioner as Managing Director (MD).
4. Mismanagement and financial misconduct allegations against the respondents.
5. Relief sought by the petitioners, including the purchase of their shares by the company or respondents.

Summary:

1. Allegations of Oppression and Mismanagement u/s 397/398:
The petitioners alleged oppression and mismanagement in the affairs of Polymer Paper Limited, claiming that the Puri group mismanaged the company and removed the first petitioner as MD without proper notice, which was against the provisions of the Memorandum of Understanding (MOU) dated 18-10-1974.

2. Nature of the Company as a Quasi-Partnership:
The petitioners argued that the company was in the nature of a quasi-partnership, providing for equal participation of both groups in management. The MOU indicated lifetime directorship for the first petitioner and Sunil Puri, reflecting a quasi-partnership. The respondents contended that the company was a public listed company with over 450 members, and the MOU was with Fritz, not the petitioner.

3. Removal of the First Petitioner as Managing Director:
The first petitioner was removed as MD due to alleged prejudicial acts against the company, including accepting resignations of key employees and engaging in competing business. The petitioners claimed this removal was oppressive and against the MOU. The Board found that the removal was not bona fide but noted procedural irregularities in the removal process.

4. Mismanagement and Financial Misconduct Allegations:
The petitioners accused the respondents of mismanaging funds, including diverting US $23,000 and misappropriating company assets. The respondents denied these allegations, asserting that the funds were used for legitimate business purposes and that the petitioners were involved in competing business through their relatives.

5. Relief Sought by the Petitioners:
The petitioners sought reinstatement of the first petitioner as MD or, alternatively, the purchase of their shares by the company or respondents. The Board held that the principles of quasi-partnership and legitimate expectation applied, and directed that the shares of the petitioners be purchased by the company or Sunil Puri group on a valuation by an independent valuer.

Conclusion:
The Board concluded that the company was in the nature of a quasi-partnership and that the petitioners had legitimate expectations. Despite procedural irregularities in the removal of the first petitioner as MD, the Board directed the purchase of the petitioners' shares by the company or Sunil Puri group to put an end to the matters complained of, in accordance with section 402 of the Companies Act.