2009 (6) TMI 1010 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement under Sections 397, 398, 402, 406, 209, and 235 of the Companies Act, 1956.
2. Validity of share transfers and the petitioners' shareholding status.
3. Maintainability of the petition under Section 399 of the Companies Act, 1956.
4. Alleged illegal sale of the company's land.
5. Collusion between the petitioners and respondents.
6. Petitioners' conduct and clean hands principle.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners alleged that respondents Nos. 2 to 4, in their capacity as directors, breached their fiduciary duty by seeking to sell the only valuable asset of the company at a grossly underquoted price for personal gain. The petitioners also claimed that they were kept in the dark about the company's affairs, including not receiving notices for board meetings and annual general meetings. The respondents allegedly attempted to oust the petitioners from the management and affairs of the company.

2. Validity of Share Transfers and Petitioners' Shareholding Status:
The petitioners claimed that they collectively held 38,070 equity shares, constituting 53% of the total paid-up capital of the company. However, the respondents contended that the petitioners had sold their shares to the respondents in 2002 and did not hold any shares at the time of filing the petition. The respondents argued that the petitioners had handed over signed share transfer forms and share certificates as security against loans, which were later used to transfer the shares to the respondents.

3. Maintainability of the Petition under Section 399:
The respondents raised a preliminary objection that the petition was not maintainable under Section 399 of the Companies Act, 1956, as the petitioners did not hold the requisite number of shares at the time of filing the petition. The court noted that the petitioners had not provided any documentary evidence to prove their shareholding on the date of filing the petition. The court emphasized that Section 399 stipulates minimum qualifications for members to file a petition under Sections 397 and 398, and these requirements are mandatory.

4. Alleged Illegal Sale of the Company's Land:
The petitioners alleged that the respondents attempted to sell the company's land at an undervalued price and entered into an agreement to sell the land without proper authorization. The respondents denied these allegations and argued that the petitioners had no standing to challenge the sale as they were no longer shareholders. The court found that the petitioners had not provided sufficient evidence to support their claims regarding the illegal sale.

5. Collusion between the Petitioners and Respondents:
Respondent No. 7 argued that the petitioners and respondents Nos. 1 to 6 colluded in filing the petition. The court noted that the petitioners did not file a rejoinder to respondent No. 7's reply, effectively admitting the correctness of the allegations. The court found that the petitioners had suppressed material facts and had not come to the Company Law Board with clean hands.

6. Petitioners' Conduct and Clean Hands Principle:
The court emphasized that the petitioners must come with clean hands to seek equitable relief under Sections 397 and 398. The court found that the petitioners had made false statements and suppressed material facts, including their shareholding status and the filing of annual returns. The court held that the petitioners' conduct disqualified them from seeking relief in an equitable jurisdiction.

Conclusion:
The court dismissed Company Petition No. 27 of 2007 as not maintainable under Section 397/398 of the Companies Act, 1956, due to the petitioners not having the requisite qualification under Section 399 and coming to the Company Law Board with unclean hands. The court also found that no case of oppression and mismanagement was made out on merits. All interim orders were vacated, and no order as to costs was made.