2003 (10) TMI 678 - Board - Companies Law

Summary

Issues Involved:
1. Exclusion from Management
2. Financial Mismanagement
3. Improper Conduct of Board Meetings
4. Refusal to Deliver Share Certificates
5. Denial of Inspection of Books of Account
6. Alleged Misappropriation of Funds
7. Decrease in Production and Lack of Factory Management
8. Removal of Auditors

Detailed Analysis:

1. Exclusion from Management:
The petitioners, holding 24.55% shares, claimed exclusion from management despite historical involvement. The respondents allegedly indulged in financial mismanagement and improper management. The petitioners cited several legal precedents to argue for the winding up of the company on just and equitable grounds due to the breach of an understanding that the company would be managed like a partnership. The court found that the company operated as a quasi-partnership and that the principles of partnership applied. The removal of the first petitioner from the office of executive director was not considered an act of oppression as it was done without malafide intention, and the first petitioner's salary and perquisites were not curtailed. However, the court acknowledged the need for representation of the petitioners on the Board.

2. Financial Mismanagement:
The petitioners alleged various instances of financial mismanagement, including diversion of business, manipulation of accounts, and misappropriation of funds. The respondents argued that the petitioners failed to prove continuous acts of oppression and that the acts complained of were not in the character of shareholders. The court found that many allegations lacked full particulars and concrete evidence. The alleged misappropriation of funds by the ninth respondent was acknowledged but did not result in any loss to the company as the amount was returned. The court emphasized that past acts do not fall within the ambit of sections 397 and 398.

3. Improper Conduct of Board Meetings:
The petitioners claimed procedural irregularities in conducting Board meetings, such as last-minute circulation of agendas and refusal to include issues proposed by the petitioners. The respondents countered that the meetings were conducted properly and in accordance with the law. The court noted that the grievances were procedural and could be remedied by exercising statutory rights. The court did not find sufficient evidence to support the petitioners' claims of improper conduct of Board meetings.

4. Refusal to Deliver Share Certificates:
The petitioners alleged inordinate delay in delivering share certificates. The respondents explained that the company had kept the certificates in safe custody for over 40 years and returned them upon request in March 2000. The court found that the issue was remedied prior to the filing of the petition and could not be the subject matter before the CLB.

5. Denial of Inspection of Books of Account:
The petitioners claimed they were denied complete inspection of books of account. The respondents contended that the petitioners were given opportunities to inspect the books, which they failed to utilize fully. The court found that the company did not refuse inspection and that the petitioners could exercise their statutory rights for any further inspection.

6. Alleged Misappropriation of Funds:
The petitioners accused the ninth respondent of misappropriating funds. The respondents argued that the amount in question was returned and that the company's business involved large cash transactions. The court found no evidence of misappropriation resulting in loss to the company and noted that past acts do not fall within the ambit of sections 397 and 398.

7. Decrease in Production and Lack of Factory Management:
The petitioners alleged a decrease in production and sales due to mismanagement and diversion of business. The respondents countered that the company's turnover increased during the relevant years. The court found that the petitioners' claims were unsubstantiated and noted that the first petitioner was responsible for production during the relevant period.

8. Removal of Auditors:
The petitioners claimed that the statutory and internal auditors were removed due to adverse remarks in their reports. The respondents argued that the removal was a lawful exercise of shareholders' rights. The court found that the removal of auditors did not constitute an act of mismanagement and that the petitioners were bound by the decisions made at the annual general meeting.

Conclusion:
The court concluded that many allegations lacked evidence and did not fall within the ambit of sections 397 and 398. The court directed the sale of shares held by the petitioners to the respondents or the company at a fair value to be determined based on the balance sheet as on 31-3-2001. The court reserved the right to appoint a valuer and issue consequential directions.