1999 (12) TMI 871 - Board - Companies Law

Summary

Issues Involved:
1. Maintainability of the petition u/s 397/398 of the Companies Act, 1956.
2. Allegations of oppression and mismanagement.
3. Increase in authorized capital and allotment of additional shares.
4. Appointment of additional directors.
5. Relief to be granted.

Summary:

1. Maintainability of the Petition:
The respondents raised a preliminary objection on the maintainability of the petition, arguing that the petitioners did not satisfy Section 399 of the Act. The petitioners countered by stating that they were the first named shareholders in several joint holdings and satisfied the requirement of one-tenth of the total number of members. The Board concluded that the petitioners met the conditions of Section 399, making the petition maintainable.

2. Allegations of Oppression and Mismanagement:
The petitioners alleged that the respondents engaged in acts of oppression and mismanagement, including allotting 65,000 shares to themselves, appointing additional directors to disturb board equality, and treating the petitioners' group unfairly in terms of employment and remuneration. Attempts to settle the disputes amicably failed, leading to a hearing on the merits.

3. Increase in Authorized Capital and Allotment of Additional Shares:
The petitioners claimed that the increase in authorized capital and subsequent allotment of shares were done without their knowledge and consent, reducing their shareholding from 49.98% to 13.88%. The Board found that no formal offer was made to the petitioners to subscribe to additional shares, deeming the allotment an act of oppression. The Board held that in a family company managed as a quasi-partnership, any change in shareholding parity without mutual agreement is oppressive.

4. Appointment of Additional Directors:
The petitioners contended that the appointment of additional directors from the respondents' group disturbed the equality in board representation. The Board agreed, noting that the appointments were made in a meeting not attended by the first petitioner, who was abroad. The Board found this act to be oppressive, especially given the disproportionate increase in remuneration for the respondents' group.

5. Relief to be Granted:
The Board concluded that the issue of additional shares and the appointment of additional directors were clear acts of oppression. To resolve the disputes, the Board ordered that the respondents or the company purchase the petitioners' shares at a value determined by an independent valuer, with the valuation date being March 31, 1997. The additional shares issued in February 1996 would be excluded from the number of shares in existence on that date. The additional directors would continue, and the first petitioner would be given notice and the right to participate in board meetings. The first petitioner and the fourth petitioner would continue to receive their salary and perquisites until the shares were purchased.

The parties were directed to appear before the Board on January 7, 2000, to suggest a mutually acceptable valuer for determining the fair value of shares.