2013 (9) TMI 1191 - Board - Companies Law

Summary

Issues Involved:
1. Validity and enforceability of the Memorandum of Understanding (MoU).
2. Eligibility of petitioners to file under sections 397, 398, and 401 of the Companies Act.
3. Allegations of oppression and mismanagement.
4. Legality of the removal of directors without notice.

Summary:

1. Validity and Enforceability of the MoU:
The petitioners argued that a MoU dated 27th January 2009 was executed between petitioner No. 1 and respondent No. 2, involving the transfer of the cold storage unit and shares of the respondent-company. The respondents contended that the MoU was insufficiently stamped, not approved by the shareholders, and not executed by the respondent-company as per section 48 of the Act, making it void and illegal. The MoU was also not binding on the company as it was not executed with proper authority.

2. Eligibility of Petitioners to File Under Sections 397, 398, and 401:
The petitioners claimed to hold 6,050 shares, constituting 18% of the total issued and paid-up capital of the company. The respondents argued that the petitioners were not registered members as required under section 41 of the Act and the Articles of Association (AoA) of the company, which prohibit transfer of shares to non-members. The court concluded that the petitioners' names were not entered in the register of members, thus failing to meet the eligibility criteria under section 399 of the Act.

3. Allegations of Oppression and Mismanagement:
The petitioners alleged that respondent No. 2 violated the MoU by not transferring the remaining 82% of the shares and that the company had not filed annual returns for the years ending 31st March 2010 and 2011. The respondents denied these allegations, stating that the petitioners had misappropriated funds and failed to repay the bank loan, leading to legal actions by the bank. The court found no substantial evidence of oppression or mismanagement as required under sections 397 and 398 of the Act.

4. Legality of the Removal of Directors Without Notice:
The petitioners contended that they were removed from directorship without notice, violating section 284 of the Act. The respondents maintained that the removal was legal and part of the company records. The court noted that the MoU's validity was contingent on the bank's approval, which was not obtained, and the matter was sub-judice in a civil suit. The court concluded that the removal did not constitute oppression unless further relevant facts were substantiated.

Conclusion:
The court dismissed the petition, stating that the main issue was the enforcement of the MoU, which was a private dispute and not maintainable under sections 397 and 398. The petitioners failed to meet the eligibility criteria under section 399, and no substantial evidence of oppression or mismanagement was found. All interim orders were vacated, and pending applications were closed.