2002 (11) TMI 799 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Allotment of impugned shares.
3. Increase of authorized capital.
4. Illegal removal of petitioners as directors.
5. Sale of products below market price.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners, holding more than 10% of the paid-up capital of M/s. Mannariah and Sons Private Limited, filed a petition under sections 397/398 of the Companies Act, 1956, alleging acts of oppression and mismanagement. They claimed that the company was a family-owned business, and the Board of Directors had to act in the interest of all family members. The petitioners argued that the company was incorporated to purchase and take over the rights in the Karapad Extension, which was a joint family property. They cited various legal precedents to support their claims of joint family business and the need for equitable treatment among family members.

2. Allotment of Impugned Shares:
The petitioners contended that the allotment of 60,000 shares in 1992 and 100,000 shares in 1999 was done without proper notice and with the intent to benefit certain family members, thereby reducing the petitioners' shareholding from 33% to 6.67%. They argued that the increase in authorized capital and subsequent allotment of shares were not bona fide and aimed at excluding them from the company. The respondents countered that notices were sent to the petitioners' addresses in India and that the allotment was necessary for the company's working capital and reconstruction needs. The Board found no evidence of improper notice and noted the delay in challenging the 1992 allotment, thus not interfering with it. However, the Board allowed the petitioners to acquire their proportionate stake from the 1999 allotment.

3. Increase of Authorized Capital:
The petitioners claimed that the increase in authorized capital from Rs. 5 lakhs to Rs. 25 lakhs was done without proper notice and consent. The respondents justified the increase as necessary for raising funds for reconstructing a mill shed, which was later leased out for Rs. 1 lakh per year. The Board found that the general body had approved the increase and that offers were made to the petitioners, although they denied receiving them. The Board allowed the petitioners to subscribe to their proportionate shares from the increased capital.

4. Illegal Removal of Petitioners as Directors:
The petitioners were declared to have vacated their office as directors under section 283(1)(g) for not attending three consecutive Board meetings. The respondents argued that the petitioners were not interested in the company's affairs, as evidenced by their infrequent attendance. The Board found that the petitioners had continued as directors and received remuneration despite their irregular attendance, indicating an intention to provide income to all family branches. The Board directed that the petitioners be reinstated as directors and receive notices for future Board meetings by registered post.

5. Sale of Products Below Market Price:
The petitioners alleged that the company sold its salt production to the ninth respondent at a rate lower than the market price, causing losses to the company. The respondents countered that the arrangement was approved by the Board and had been in place since 1958. The Board found no evidence of revenue loss due to the sales arrangement and dismissed this claim.

Conclusion:
The Board concluded that the company was a closely held family company and that any disturbance in shareholding or Board representation detrimental to family shareholders could be considered oppressive. The petitioners were allowed to subscribe to their proportionate shares from the 1999 allotment, and they were reinstated as directors. The Board directed the company to convene a general body meeting to appoint directors and manage the company's affairs in the interest of its members. The petition was disposed of without any order as to costs.