1993 (7) TMI 357 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement u/s 397 and 398 of the Companies Act, 1956.
2. Legality of the issue and allotment of further shares.
3. Validity of the family settlement agreement.
4. Maintainability of the petition and preliminary objections.
5. Reliefs sought by the petitioners.

Summary:

1. Allegations of Oppression and Mismanagement:
The petitioners alleged that the affairs of Ringtong Tea Co. Pvt. Ltd. were being conducted in a manner prejudicial to public interest and oppressive to the petitioners. Specific allegations included serious irregularities in the sale of tea and procurement of plantation supplies, unauthorized private sales of tea, failure to hold annual general meetings, and the wrongful increase in shareholding by respondents Nos. 2 and 3.

2. Legality of the Issue and Allotment of Further Shares:
The petitioners contended that the increase in issued share capital and the allotment of further shares to respondents Nos. 2 to 6 violated Article 31 of the articles of association and the terms of a prior court settlement. The respondents argued that the share issue was necessary to meet the bank's requirements and was conducted following proper procedures. However, the petitioners argued that the allotment was intended to create a new majority and was oppressive.

3. Validity of the Family Settlement Agreement:
The respondents contended that the petitioners had no locus standi to maintain the petition due to a family settlement agreement dated October 18, 1991, which required the petitioners to transfer their shares. The petitioners disputed the implementation of this settlement and argued that it did not bar the proceedings under Section 397/398.

4. Maintainability of the Petition and Preliminary Objections:
The respondents raised preliminary objections regarding the maintainability of the petition, arguing that it was a private family dispute and that the petitioners had alternative remedies. The Board held that the petition was maintainable, as the issues raised pertained to the company's affairs and the petitioners met the eligibility criteria u/s 399 of the Companies Act.

5. Reliefs Sought by the Petitioners:
The petitioners sought interim orders to restrain the company from making private sales of tea, restrain certain respondents from acting as directors, and invalidate the allotment of shares. The Board initially granted interim reliefs, including restraining the exercise of voting rights for the disputed shares and preventing certain respondents from acting as directors.

Final Decision:
The Board found that the creation of a new majority through the allotment of shares was oppressive to the petitioners. However, considering the ongoing disputes and the family settlement agreement, the Board concluded that the company could not function properly with the warring groups continuing to hold shares. The appropriate relief was for the shares of the oppressed to be bought by the oppressor. Given the pending dispute in the Calcutta High Court regarding the family settlement, the Board decided not to invoke its discretionary powers and disposed of the petition accordingly, with no order as to costs.