2002 (7) TMI 811 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement u/s 397 and 398 of the Companies Act, 1956.
2. Non-issuance of share certificates and non-repayment of loans.
3. Alleged siphoning of funds and channelling business to a proprietary concern.
4. Non-holding of Board Meetings and Annual General Meetings (AGM).
5. Appointment of a third director without proper procedure.
6. Deadlock in the management and the viability of winding up the company.

Summary:

1. Allegations of Oppression and Mismanagement:
The petitioner alleged various acts of oppression and mismanagement in the affairs of the respondent company, Rapti Supertronics (P.) Ltd., and sought reliefs including the appointment of an Administrator and the winding up of the company on just and equitable grounds.

2. Non-Issuance of Share Certificates and Non-Repayment of Loans:
The petitioner claimed to have invested Rs. 1.5 lakhs as equity and given loans amounting to Rs. 3.2 lakhs to the respondent company and Rs. 2 lakhs to Supertronics. The petitioner alleged that no share certificates were issued, and the loan amounts were not repaid. The respondent argued that the petitioner, being a 50% shareholder and director, was equally responsible for any alleged acts and that the company's financial position did not allow for the repayment of loans.

3. Alleged Siphoning of Funds and Channelling Business:
The petitioner accused the respondent No. 2 of siphoning off funds and channelling business to Supertronics. However, the Board found no substantial evidence to support these allegations. The transactions between the respondent company and Supertronics were in line with the MoU, and no concrete materials were provided to substantiate the claims.

4. Non-Holding of Board Meetings and AGM:
The petitioner alleged that no Board Meetings were called, and AGMs were held with short notices. The respondent countered that notices were given as per the company's Articles, and the petitioner, as a director, could have convened meetings himself. The Board found that the petitioner did not attend the meetings despite receiving notices and did not provide details for preparing the trial balance.

5. Appointment of a Third Director Without Proper Procedure:
The petitioner contended that the appointment of Harshad Bhai Patel as a director was done without proper procedure. The Board acknowledged that the appointment was void due to the lack of quorum but found no evidence that any decisions taken by the new director were detrimental to the petitioner or the company.

6. Deadlock in Management and Viability of Winding Up:
Both parties admitted a deadlock in the management of the company and sought winding up. The Board noted that the company had ceased operations, had no significant assets, and its substratum was lost. Given the mutual loss of trust and the deadlock, the Board concluded that no relief could be granted under sections 397/398. The petitioner was advised to seek winding up of the company if so desired.

Conclusion:
The petition under sections 397/398 was dismissed, with the Board noting that the allegations of oppression and mismanagement were not substantiated and that the company's substratum was lost. The petitioner was advised to take suitable action for winding up the company. Costs were on parties.