1999 (6) TMI 483 - Board - Companies Law

Issues Involved:
1. Closure of parcel offices
2. Sale of lorries
3. Diversion of funds
4. Removal of the petitioner as a director
5. Rights issue
6. Donation to a non-existent trust
7. Discrepancies in stock of finished products
8. Other acts of mismanagement

Detailed Analysis:

1. Closure of parcel offices:
The petitioners alleged that the second and third respondents closed 57 parcel offices without board approval, fabricated board minutes, and aimed to benefit personally by selling lorries. The respondents argued that the closures were business decisions ratified in board meetings. The Board found that the closure of parcel offices was within the board's competence and there was no evidence of personal gain by the respondents.

2. Sale of lorries:
The petitioners claimed that lorries were sold at throwaway prices and the respondents pocketed the difference. The respondents countered that the sales were conducted through auctions, and the prices were consistent with market values for old lorries. The Board found no substantial evidence of fraud or personal gain by the respondents, emphasizing the need for concrete proof in allegations of fraud.

3. Diversion of funds:
The petitioners alleged that the respondents diverted funds through benami companies, Hastina Auto Dealers Pvt. Ltd. and Veekay Automotive Pvt. Ltd., which were appointed as sole selling agents. The respondents provided evidence of a transparent selection process and denied any kickback arrangements. The Board found no substance in the allegations, noting the lack of supporting material and the legitimacy of the selection process.

4. Removal of the petitioner as a director:
The petitioners argued that the removal of the petitioner as a director was illegal and did not comply with Sections 284 and 190 of the Act. The respondents maintained that the removal was lawful and followed the required procedures. The Board found no legal infirmity in the removal, stating that the provisions of Sections 284 and 190 were complied with, and the petitioner had no right to challenge his removal in a Section 397 petition.

5. Rights issue:
The petitioners contended that the rights issue was made to reduce their shareholding below ten percent and was not for any bona fide business purpose. The respondents argued that the rights issue was for modernization and expansion, and all shareholders, including the petitioners, were offered shares at par value. The Board found no substance in the allegations, noting that the rights issue was legitimate and not oppressive to the minority shareholders. However, the Board directed the company to compensate the petitioner for the delayed allotment of shares by paying interest equivalent to the declared dividends.

6. Donation to a non-existent trust:
The petitioners alleged that a donation of Rs. 10 lakhs was made to a non-existent trust. The respondents provided evidence that the trust was in existence and the donation was legitimate. The Board upheld its earlier finding that the trust was in existence and dismissed the allegation.

7. Discrepancies in stock of finished products:
The petitioners claimed discrepancies in the stock of finished products, suggesting diversion of products worth crores of rupees. The respondents provided detailed records and reconciliations of production, sales, and closing stock. The Board found no evidence of diversion, attributing the discrepancies to incomplete narration in the balance-sheet and noting the consistency in turnover figures.

8. Other acts of mismanagement:
The petitioners alleged manipulation of the membership register, wasteful expenditure on golden jubilee celebrations, and diversion of company funds for personal projects. The respondents refuted these allegations, providing explanations and evidence. The Board found no substantial evidence to support these allegations and dismissed them as unsubstantiated.

Conclusion:
The Board concluded that the petitioners failed to establish any of the allegations meriting the grant of the prayers in the petition. However, considering the strained relationship between the petitioner and the respondents, the Board directed that the shares held by the petitioners should be purchased either by the respondents or the company to prevent future litigation and ensure the company's smooth functioning. The valuation of shares was to be conducted by an independent chartered accountant, and the purchase was to be completed within a stipulated timeframe.

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