2007 (6) TMI 543 - Board - Companies Law

Acts of oppression and mismanagement - removal of director - Increase in the shareholding - company maintaining two sets of Minutes, one signed and other not signed - Petitioner No.1 himself was a wrong doer - HELD THAT - In the present petition the respondents have succeeded in proving the unclean hands of the petitioner. The petitioner himself being a wrong doer is not entitled to any relief and it is settled law that the CLB may refuse to grant relief where the petitioner does not come to the court with clean hands. Thus, I find that the petition is not maintainable even on the basis of the preliminary objections raised in this case. I find that the respondents are right in contending that the provisions of Section 80(1A) are not applicable to this case and that the removal of the petitioner as director has been as per the compliance with the law. The petitioner was very much aware of his removal, he was served with the notice of EGM on 13.1.2003. Though the petitioner has denied the receipt of this notice served under Certificate of Posting, the circumstances of assessee make it amply evident that the petitioner was in full knowledge of his removal from 4.1.2003 when the first notice of his removal was received by him. However, even if the petitioner's contention is believed to be true that the last notice sent under Certificate of Posting was not received by him an action in contravention of law may not per se be oppressive. The CLB, however, will have to consider the entire materials on record and the totality of the circumstances of the case. Otherwise too, the directorial complaints cannot be entertained in a petition under Sections 397 and 398 of the case and particularly so when the petition already stands dismissed on account of preliminary objections. Increase in the shareholding , the petitioner had failed to make out a case that the petitioner groups' shareholding has been reduced from 51.40% to 33.33%, that it has been made with merely for an extraneous purpose and not in the interest of the company but to gain control over the affairs of the company. Rather it is a case where the petitioners' had themselves consented, though a tacit consent, to revert back their shareholding to 33.33.% for each of the promoters/directors from 51% immediately after the transfer of land (belonging to AVI trading partnership firm of petitioners) in the name of AVI Sales Pvt. Ltd. i.e. the respondent No.1 company to get over the hassles and to override the provisions of liability of transfer charges. Thus, even this allegation of petitioner fails on account of their consent and acquiescence as this transfer and reduction in share was done on 18.2.2002 and this petition has been filed in Feb. 2005. As regarding the only other allegation of maintaining two sets of Minute Books of Meetings, the CLB's Bench Officer's report explains it all. The unsigned minutes were basically a computer printout taken in the absence of directors. The petitioners have failed to make out a case even on merits. Thus, I find no reason to allow the petition. The petition is hereby dismissed. All interim orders stand vacated. All CAs stand disposed off.

Issues Involved:
1. Allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.
2. Increase in share capital and alleged reduction of petitioners to minority.
3. Removal of Petitioner No.1 as Director.
4. Diversion of business and funds to other companies.
5. Maintenance of statutory records and minutes.
6. Opening of new bank accounts in violation of court orders.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners filed Company Petition No. 19/2005 under Sections 397 and 398 of the Companies Act, 1956, alleging acts of oppression and mismanagement by the respondents in the affairs of the respondent company, M/s AVI Sales Pvt. Ltd. The petitioners claimed that the respondents increased the share capital to reduce the petitioners to a minority and diverted business and funds to other companies controlled by the respondents.

2. Increase in Share Capital and Alleged Reduction to Minority:
The petitioners argued that the share capital was increased without following legal procedures, and shares were allotted to the respondents without notice to the petitioners, reducing them to a minority. The respondents countered that the company was formed with an understanding of equal shareholding among the promoters and that the shareholding was reverted to equal proportions after transferring land to the company. The respondents argued that the petitioner had consented to the share allotment and raised no objections for over three years, indicating acquiescence.

3. Removal of Petitioner No.1 as Director:
The petitioners contended that Petitioner No.1 was removed as Director without proper notice or legal procedures. The respondents argued that Petitioner No.1 was aware of his removal, having received notices for the Extraordinary General Meeting (EGM) and Board Meeting. The respondents maintained that the removal was legal and that the petitioner had ample opportunity to contest it but chose not to.

4. Diversion of Business and Funds:
The petitioners alleged that the respondents diverted business and funds from the respondent company to other companies controlled by them, including Respondent No.4. The respondents denied these allegations, stating that Respondent No.4 was an associate company and had advanced funds to the respondent company. They also accused Petitioner No.1 of siphoning off funds from the respondent company and running parallel businesses.

5. Maintenance of Statutory Records and Minutes:
The petitioners claimed that the respondents maintained two sets of minutes, one signed and one unsigned, and failed to keep statutory records properly. The respondents explained that the unsigned minutes were computer printouts taken in the absence of directors, as advised by the Bench Officer during an unannounced visit. The respondents provided a revised report from the Bench Officer to support their explanation.

6. Opening of New Bank Accounts:
The petitioners argued that the respondents opened new bank accounts in violation of a court order dated 18th May 2005. The respondents did not specifically address this issue in their arguments.

Judgment:
The Board found the petition to be a counterblast to cases filed by the respondents against the petitioners in Gujarat, alleging siphoning off of funds. The Board held that the petitioners had delayed filing the petition and had acquiesced to the share allotment, making the petition not maintainable. The Board also found that the respondents had complied with legal procedures for the removal of Petitioner No.1 and that the petitioners had failed to prove their allegations of oppression and mismanagement. Consequently, the petition was dismissed, and all interim orders were vacated.

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