2012 (4) TMI 718 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Disproportionate allotment of shares.
3. Misuse of company funds.
4. Non-issuance of share certificates.
5. Fabrication of meeting minutes.
6. Non-payment of remuneration.
7. Overbilling and embezzlement.
8. Import of second-hand machinery.
9. Mismanagement of company's financial affairs.
10. Purchase of land by director for personal benefit.
11. Issuance of dishonored cheques.
12. Allegations of competitive business by petitioner.
13. Petitioner's contribution to the company.
14. Legal precedents supporting the petitioner's claims.
15. Respondents' defense and counter-arguments.

Summary:

1. Allegations of Oppression and Mismanagement:
The petitioner alleged that respondent Nos. 2 and 3 manipulated company records to gain control, reducing the petitioner's shareholding from 33.33% to 13.57% without proper meetings or consent, creating a new majority.

2. Disproportionate Allotment of Shares:
The respondents made further disproportionate allotments among existing shareholders and to their relatives, without conducting any proper meetings, violating sections 286 and 292, and the company's articles of association.

3. Misuse of Company Funds:
Respondent Nos. 2 and 3 misused company funds for personal allotments, circulating funds through various accounts. The audit report confirmed overbilling and manipulation of records.

4. Non-Issuance of Share Certificates:
No share certificates were issued to the petitioner, violating section 113 of the Companies Act, 1956. The audit report noted the absence of original share certificates and counterfoils.

5. Fabrication of Meeting Minutes:
The petitioner argued that no actual Board or general meetings were held, and the minutes were fabricated to satisfy legal requirements. The audit report supported this claim, noting the lack of attendance records and proper notices.

6. Non-Payment of Remuneration:
Despite the petitioner's significant contributions, no remuneration was paid, while respondent Nos. 2 and 3 received substantial salaries. The audit report highlighted the lack of Board resolutions for these payments.

7. Overbilling and Embezzlement:
The audit report confirmed overbilling in the structural value of the building, purchase of second-hand machinery at new machinery prices, and inflated billing for SS storage tanks.

8. Import of Second-Hand Machinery:
The respondents imported second-hand machinery from Italy but recorded it as new machinery, embezzling funds by showing inflated costs in the books.

9. Mismanagement of Company's Financial Affairs:
The respondents made huge cash withdrawals despite sufficient funds, circulating these amounts through unrelated accounts, ultimately using them for personal allotments.

10. Purchase of Land by Director for Personal Benefit:
Respondent No. 3 purchased land required for Pollution Control Board compliance through his relatives, instead of in the company's name, breaching trust and usurping company benefits.

11. Issuance of Dishonored Cheques:
The respondents issued cheques to farmers that bounced due to insufficient funds, causing legal issues for the petitioner as a director, despite not being involved in these transactions.

12. Allegations of Competitive Business by Petitioner:
The respondents falsely accused the petitioner of running a competitive business through United Gram Udyog Samiti, a non-profit organization, to tarnish his reputation.

13. Petitioner's Contribution to the Company:
The petitioner played a crucial role in setting up the project, securing loans, and establishing quality management systems, contributing significantly to the company's success.

14. Legal Precedents Supporting the Petitioner's Claims:
The petitioner cited several legal precedents where courts held that meetings held without proper notice are invalid, and allotments made for personal gains constitute oppression.

15. Respondents' Defense and Counter-Arguments:
The respondents argued that the petitioner was aware of and consented to the allotments, and the company required funds for its operations. They claimed the petitioner aimed to gain control over the company and tarnished its reputation by writing to customers and banks.

Judgment:
The court found the respondents' actions oppressive and mismanaged, ordering the cancellation of illegal share allotments, restoration of equal shareholding, equal Board representation, and the return of siphoned funds. The petitioner was also granted access to company records and participation in its affairs.