2013 (3) TMI 765 - HC - Companies Law

Summary

Issues Involved:

1. Deadlock in Family Company
2. Non-payment of Salary and Allowances
3. Right to File Petition u/s 397 and 398
4. Breach of Fiduciary Duty by Directors
5. Mismanagement and Siphoning of Funds
6. Reliefs of Buy-Out or Sell-Out
7. Conduct of Company Affairs in Contravention of the Act

Summary:

1. Deadlock in Family Company:
The Court addressed whether the Company Law Board (CLB) should have intervened when there was an admitted deadlock in the business conduct of a family company. The Court found no deadlock between shareholders, noting that the issues were between Directors and not shareholders. The Court held that corporate democracy could be restored through proper meetings and appointments, thus answering the issue in the negative.

2. Non-payment of Salary and Allowances:
The Court examined whether non-payment of salary to one Director and allowances to shareholders constituted oppression. It was found that the Appellants had withdrawn significant amounts for their remuneration and expenses, and the delays in payments did not amount to oppression. Therefore, this issue was also answered in the negative.

3. Right to File Petition u/s 397 and 398:
The Court considered if the Appellants, having agreed to disengage from management per a Memorandum of Understanding (MoU), could file a petition under Sections 397 and 398. The Court determined that the MoU was mentioned only as background and did not preclude the filing of the petition, thus answering this issue affirmatively.

4. Breach of Fiduciary Duty by Directors:
The Court evaluated whether one Director could allege breach of fiduciary duty by another Director when both were involved in competing businesses. It was found that the Respondent No. 2 had not breached his fiduciary duty, whereas the Appellant No. 1 was found to be competing with the company through Kapotex Industries Pvt. Ltd. This issue was answered in the negative.

5. Mismanagement and Siphoning of Funds:
The Court assessed allegations of siphoning off funds and mismanagement by Respondent No. 2. It concluded that the Respondent No. 2 had not mismanaged the company or siphoned funds, as the accounts were transparent and signed by the Appellant No. 1. This issue was also answered in the negative.

6. Reliefs of Buy-Out or Sell-Out:
The Court considered if the CLB should have ordered a buy-out or sell-out of shares. It found that the company was not in a deadlock situation and corporate democracy could prevail through proper meetings. The Appellants, having started a competing business, did not deserve such reliefs. Thus, this issue was answered in the negative.

7. Conduct of Company Affairs in Contravention of the Act:
The Court examined if the affairs of the company were conducted in gross contravention of the Act. It found that the Appellant No. 1, despite being a Director, did not call for meetings or address issues until just before filing the petition. The Court held that the non-holding of meetings did not constitute oppression or mismanagement. This issue was answered in the negative.

Conclusion:
The Court dismissed the appeal with costs, finding no case of oppression or mismanagement by the Respondents. The Appellants were found to have acted with unclean hands, and no reliefs of buy-out or sell-out were warranted.