1999 (4) TMI 631 - Board - Companies Law

Issues Involved:
1. Allegations of oppression and mismanagement u/s 397/398 of the Companies Act, 1956.
2. Validity of decisions taken in the board meeting held on June 26, 1995.
3. Discriminatory treatment in the vacation of shops.
4. Sale of a shop to Mrs. Kothari.
5. Purchase of a property from Mrs. Kothari.
6. Appointment of additional directors.
7. Non-maintenance of statutory records and non-holding of meetings.

Summary:

Allegations of Oppression and Mismanagement:
The petitioners, holding 17.5% of the equity shares in Trinity Combine Associates Private Limited, filed a petition u/s 397/398 of the Companies Act, 1956, alleging acts of oppression and mismanagement in the company's affairs.

Validity of Decisions Taken in the Board Meeting:
The petitioners argued that the board meeting on June 26, 1995, was improperly convened without an agenda and included "special invitees." Major decisions were allegedly taken without the presence of all family directors, including the managing director, which constituted an act of grave oppression. These decisions included:
- Appointment of five additional directors.
- Release of four shops from lease.
- Sale of a shop to Mrs. Nisha Kothari.
- Purchase of a house from Mrs. Nisha Kothari.

The court found that taking such major decisions without the participation of all family directors was an act of grave oppression and declared all acts in pursuance of such decisions as null and void.

Discriminatory Treatment in the Vacation of Shops:
The petitioners alleged that the respondents released their own shops from lease before the expiry of the lease period but did not release the shops belonging to petitioner No. 1. The court agreed that this was a clear act of discrimination and a grave act of oppression. The respondents were ordered to furnish details of the civil proceedings initiated to vacate the shops and to actively pursue these proceedings.

Sale of a Shop to Mrs. Kothari:
The petitioners claimed that the shop was sold at a throwaway price, resulting in a substantial loss to the company. The court noted that the petitioners had already initiated civil proceedings regarding this sale and did not provide any further directions on this matter.

Purchase of a Property from Mrs. Kothari:
The petitioners argued that the property was purchased at an exorbitant price, resulting in a loss to the company. However, since the petitioners did not seek any specific directions in their written submission and Mrs. Kothari was not a party to the proceedings, the court did not give any decision on this matter.

Appointment of Additional Directors:
The petitioners contended that the appointment of five additional directors was made to gain majority control of the board. The court found that these appointments were made without the participation of all family directors and declared them null and void.

Non-Maintenance of Statutory Records and Non-Holding of Meetings:
The petitioners alleged various acts prejudicial to the interest of the shareholders and the company, including non-maintenance of statutory records, non-holding of regular board meetings, and non-finalization of accounts. The court directed that a general body meeting be held to elect new directors and that the respondents furnish full accounts of the company from 1995 onwards for auditing.

Court's Directions:
1. Convene a general body meeting within six weeks for the election of directors, chaired by the official liquidator, Jaipur.
2. The existing board will not take any decisions unless one of the petitioner directors is present.
3. The new board will audit the company's accounts from 1995 onwards.
4. The bank accounts of the company will be frozen until the new board is constituted.
5. The board will recover all dues payable by the respondents and ensure payment of all arrears of rent for the shops belonging to the petitioners.

The petition was disposed of with no order as to costs.

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