2007 (1) TMI 608 - Board - Companies Law

Issues Involved:
1. Allegations of oppression under Section 397 of the Companies Act, 1956.
2. Non-receipt of notices for Board and General Meetings.
3. Failure to provide Annual Accounts and business progress information.
4. Disputes over share allotment and valuation.
5. Claims of quasi-partnership and legitimate expectations.
6. Allegations of lack of probity and misconduct.
7. Maintainability of the petition under Section 397.
8. Allegations of deadlock in management.
9. Requests for division of company property or fair valuation of shares.

Detailed Analysis:

1. Allegations of Oppression under Section 397:
The petitioners claimed oppression by the respondents, arguing that they were not receiving notices for Board and General Meetings, and were excluded from the company's business activities. They sought the purchase of their shares by the respondents at a fair value or alternatively, the division of the company's property in proportion to their shareholding. The respondents countered that the petitioners' grievances were in their capacity as directors, not shareholders, and thus not maintainable under Section 397.

2. Non-receipt of Notices for Board and General Meetings:
The petitioners argued that despite depositing money for postal expenses, they did not receive notices for meetings. The respondents failed to provide proof of dispatch. The petitioners claimed this as an act of oppression. However, the respondents argued that the petitioners had not raised this issue earlier and that the petitioners' complaints were directorial, not shareholder-related.

3. Failure to Provide Annual Accounts and Business Progress Information:
The petitioners contended that they did not receive Annual Accounts or information about business progress. The respondents argued that copies of Annual Accounts were filed by the petitioners themselves and that the company followed common accounting practices. The respondents also claimed that the petitioners had access to all necessary information as directors.

4. Disputes Over Share Allotment and Valuation:
The petitioners alleged that the respondents offered equity shares on a rights basis without offering the same to them initially, intending to push them into a minority. The respondents countered that shares were allotted at par to the petitioners as a fair gesture. The petitioners sought a fair valuation of their shares, while the respondents argued that the petitioners' valuation methods were impracticable and not permissible.

5. Claims of Quasi-partnership and Legitimate Expectations:
The petitioners argued that the company operated as a quasi-partnership, with mutual trust and equal shareholding initially, and that legitimate expectations were violated. The respondents denied the quasi-partnership nature, stating that essential elements such as equal shareholding and family arrangements were missing.

6. Allegations of Lack of Probity and Misconduct:
The petitioners accused the respondents of coercion, lack of consultation, and misrepresentation. The respondents denied these allegations, arguing that the petitioners had acted against the company's interests by writing to the Pune Municipal Corporation and objecting to construction plans.

7. Maintainability of the Petition under Section 397:
The respondents raised a preliminary objection regarding the maintainability of the petition under Section 397, arguing that the petitioners' grievances were directorial and not shareholder-related. They also contended that the petition was beyond the limitation period. The CLB found the petition maintainable, rejecting the limitation argument but ultimately concluded that the petitioners failed to make a case under Section 397.

8. Allegations of Deadlock in Management:
The petitioners claimed a deadlock in management, arguing that mutual trust and confidence were lost. The respondents countered that there was no deadlock, as other directors were managing the company as usual. The CLB found no evidence of a deadlock.

9. Requests for Division of Company Property or Fair Valuation of Shares:
The petitioners sought the division of the company's property or fair valuation of their shares. The respondents argued that such division was impracticable and not permissible, as the company's properties were separate from shareholders' assets. The CLB agreed with the respondents, finding the petitioners' demands impracticable and impermissible.

Conclusion:
The CLB concluded that the petitioners failed to make out a case under Section 397 of the Companies Act, 1956. The petitioners' grievances were found to be directorial rather than shareholder-related. The CLB directed that the petitioners move out of the company by receiving a fair valuation of their shares, to be done by an independent valuer appointed by consensus in the next Board Meeting. All interim orders were vacated, and the petition was disposed of with no order as to costs.

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