1999 (9) TMI 977 - Board - Companies Law

Summary

Issues Involved:
1. Maintainability of the petition under Section 397/398 of the Companies Act, 1956.
2. Non-payment of dividend for the year 1994-95.
3. Alleged financial mismanagement and irregularities.
4. Alleged breach of the promoters' joint venture agreement.
5. Shifting of the registered office.
6. Non-issue/delayed issue of notices for board/general body meetings.
7. Public interest and the need for monitoring the company's affairs.

Detailed Analysis:

1. Maintainability of the Petition:
The respondents argued that the petition under Section 397/398 was not maintainable due to a prior winding-up petition filed by the petitioner. However, the Board held that the winding-up petition was filed in the capacity of a creditor for non-payment of dividends, whereas the current petition was filed in the capacity of a shareholder alleging oppression and mismanagement. The Board concluded that filing a winding-up petition does not bar a shareholder from filing a Section 397/398 petition.

2. Non-payment of Dividend:
The petitioner alleged non-payment of the dividend for the year 1994-95. The respondents claimed that a substantial part of the dividend had been paid. The Board found that the amount of Rs. 78 lakhs sent by the company to the petitioner was towards service charges and not dividend. The Board concluded that the company failed to pay the dividend, which constitutes oppression/mismanagement. The company was directed to show the unpaid dividend in its accounts and include it in the repayment scheme as per the Bombay High Court's directions.

3. Alleged Financial Mismanagement:
The petitioner alleged financial mismanagement, citing a significant drop in turnover and the company's inability to pay its debts. The respondents attributed the financial difficulties to a labor strike and lack of financial support from the petitioner. The Board noted that the petitioner, as a joint venture partner, should have been more actively involved in the company's management. The Board acknowledged the company's financial difficulties, as evidenced by the proceedings before the Bombay High Court, and emphasized the importance of public interest.

4. Alleged Breach of the Promoters' Joint Venture Agreement:
The petitioner alleged that the second respondent breached the joint venture agreement by not paying service charges and exporting products independently. The respondents argued that the petitioner did not fulfill its obligations under the agreement. The Board did not specifically address this issue in detail but acknowledged the ongoing disputes between the parties.

5. Shifting of the Registered Office:
The petitioner alleged that the second respondent violated the Board's order by shifting the registered office. The Board found that the order only restrained the company from shifting the office to Nasik and did not cover releasing the premises. The Board did not address the issue further as it was a past event.

6. Non-issue/Delayed Issue of Notices for Board/General Body Meetings:
The petitioner alleged non-issue or delayed issue of notices for meetings. The Board did not elaborate on this allegation but directed that notices for board meetings should be sent to all directors, including the petitioner's nominees, by registered post at least seven days before the meetings along with the agenda.

7. Public Interest and Monitoring:
The Board emphasized the importance of public interest, given the company's financial difficulties and the involvement of over 90,000 shareholders. The Board directed the Department of Company Affairs and the Securities and Exchange Board of India (SEBI) to appoint two independent directors with legal and accounts experience to monitor the company's affairs for three years. These directors were to submit joint quarterly reports to the Central Government on the company's affairs.

Conclusion:
The petition was disposed of with directions to appoint independent directors for monitoring, ensure proper notice for meetings, and include the unpaid dividend in the repayment scheme. The Board emphasized the need for active involvement of the petitioner's nominees in the company's management to assist in its revival.