2001 (4) TMI 938 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement under Section 397/398 of the Companies Act, 1956.
2. Allotment of equity and preference shares on 15-6-1991.
3. Non-election of the first petitioner as a director at the AGM on 26-3-1993.
4. Delay in filing the petition.
5. Application of partnership principles to the family company.
6. Validity of the board resolution dated 31-5-1986.
7. Allegations concerning the affairs of the 11th respondent, a wholly-owned subsidiary.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners, holding more than 10% of the shares in Silver Cloud Estates Private Limited, filed a petition under Section 397/398 of the Companies Act, 1956, alleging acts of oppression and mismanagement. The primary grievances included the allotment of 9,900 equity shares and 36,000 preference shares on 15-6-1991 to certain respondents and the non-election of the first petitioner as a director at the AGM on 26-3-1993.

2. Allotment of Equity and Preference Shares:
The petitioners argued that the allotment of shares was done without their participation, which reduced their shareholding from 12% to 1%. They contended that the shares were allotted at par value despite the higher real worth, resulting in the unlawful enrichment of the respondents. The respondents, however, justified the allotment as a necessary measure to meet the bank's requirements and improve the company's debt-equity ratio. The Company Law Board (CLB) noted the absence of conclusive proof that the board's resolution to convert loans into shares was communicated to all shareholders, including the petitioners. Therefore, the CLB directed the company to offer the petitioners proportionate shares at par value.

3. Non-Election of the First Petitioner as Director:
The first petitioner claimed that his non-election as a director was an act of oppression, especially since it deviated from the company's normal practice of electing all retiring directors. The respondents countered that the non-election was in the normal course. The CLB acknowledged the family nature of the company and the first petitioner's long-standing directorship but refrained from passing an order to restore his position due to the strained relationships and the passage of eight years since his removal.

4. Delay in Filing the Petition:
The respondents argued that the petition was filed after an unexplained delay of 5 to 7 years. The petitioners countered that while there was a delay, it did not cause prejudice to the respondents. The CLB agreed with the petitioners and held that the delay did not bar them from prosecuting the petition.

5. Application of Partnership Principles:
The petitioners emphasized that the company, originally a family partnership firm, should be governed by partnership principles. The respondents rejected this notion, stating that the company operated under the Companies Act, not as a partnership. The CLB, however, noted that in family companies with equal shareholding and participation, equitable principles should be considered, thus rejecting the respondents' contention.

6. Validity of the Board Resolution Dated 31-5-1986:
The petitioners questioned the genuineness of the board resolution authorizing the company to accept deposits from directors and issue shares in discharge of such deposits. The respondents provided a copy of the resolution but failed to produce the original minutes. The CLB found no conclusive proof that the decision was communicated to all shareholders and held that the petitioners' exclusion from the share allotment was unjustified.

7. Allegations Concerning the Affairs of the 11th Respondent:
The petition included allegations about the 11th respondent, a wholly-owned subsidiary. However, since the petitioners did not argue these points or seek specific reliefs, the CLB did not address these allegations.

Conclusion:
The petition was disposed of with the direction for the company to offer proportionate shares to the petitioners at par value, addressing the primary grievance of reduced shareholding. No order was passed regarding the first petitioner's directorship or the allegations concerning the 11th respondent. The petition was disposed of with no order as to costs.