2009 (5) TMI 969 - Board - Companies Law

Issues Involved:
1. Appointment of inspectors to investigate the affairs of the company under Sections 235(2), 236, and 237 of the Companies Act, 1956.
2. Allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.
3. Discrepancies in the company's financial statements and misappropriation of funds.
4. Denial of shareholder rights and representation on the board.
5. Request for purchase of shares by the majority group or the company.

Issue-wise Detailed Analysis:

1. Appointment of Inspectors to Investigate the Affairs of the Company:
The petitioner sought an order under Sections 235(2), 236, and 237 of the Companies Act, 1956, for the appointment of inspectors to investigate the affairs of the company. The petitioner alleged that there were significant discrepancies in the company's financial statements and that funds were being misappropriated. However, the court noted that the purpose of Section 235(2) is not to order an investigation into the economic working of the company unless there is material to show that the fall in profits was due to illegal acts. The court found that the allegations made in the petitions were insufficient to maintain C.P. No. 32 of 1999 and that no case had been made out under Section 235(2) read with Sections 236 and 237 of the Act. The Registrar of Companies had already carried out an inspection under Section 209A of the Act, and prosecutions had been launched based on the inspection report.

2. Allegations of Oppression and Mismanagement:
The petitioner filed C.P. No. 31 of 2003 under Sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement. The petitioner claimed that he was denied representation on the board and access to the company's books of accounts. The court noted that the petitioner had not filed a rejoinder to the counter affidavit despite being given repeated opportunities. The court found that the petitioner had failed to make out a case of oppression and/or mismanagement. However, the court acknowledged the dissatisfaction of the petitioner, who held 25% of the shares but was not allowed any representation on the board.

3. Discrepancies in the Company's Financial Statements and Misappropriation of Funds:
The petitioner pointed out several discrepancies in the company's financial statements, including differences in sales figures, undervaluation of stock, and manipulation of expenses. The petitioner alleged that the respondents were using different sets of accounts for different purposes and that the accounts were rewritten. The court noted that the allegations made by the petitioner were not sufficient to warrant an investigation under Section 235(2) of the Act. The court also noted that the Registrar of Companies had already carried out an inspection under Section 209A of the Act, and prosecutions had been launched based on the inspection report.

4. Denial of Shareholder Rights and Representation on the Board:
The petitioner claimed that he was denied his legal and proprietary rights as a shareholder, including representation on the board and access to the company's books of accounts. The court noted that the petitioner held 25% of the shares but was not allowed any representation on the board. The court acknowledged the petitioner's dissatisfaction and noted that the respondents had not denied that the petitioner sought representation on the board or the purchase of his shares at Rs. 500 per share.

5. Request for Purchase of Shares by the Majority Group or the Company:
The petitioner requested that the respondents be directed to purchase his shares at Rs. 500 per share or that the company be directed to purchase the shares with a consequent reduction in share capital. The court noted that the petitioner and the respondents were not able to go together in the company. To end the matters complained of and in the interest of the company, the court directed the respondents to buy the shares of the petitioner at Rs. 500 per share or to make the company purchase the shares at the same rate with a consequent reduction in share capital. Alternatively, the respondents were given the liberty to sell their shareholding to the petitioner at Rs. 500 per share within two months of receipt of the order.

Conclusion:
The court disposed of Company Petitions Nos. 32 of 1999 and 31 of 2003 by directing the respondents to buy the petitioner's shares at Rs. 500 per share or to make the company purchase the shares with a consequent reduction in share capital. All company applications were disposed of, and all interim orders were vacated. No order as to costs was made.

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