1998 (12) TMI 631 - HC - Companies Law

Summary

Issues Involved:

1. Alleged oppression and mismanagement in the affairs of the Company (SBL Pvt. Ltd.).
2. Diversion of funds to associated companies without proper notice or approval.
3. Non-charging of interest on loans advanced to associated companies.
4. Increase in share capital by a rights issue.
5. Dealings with SBL (Sikkim) Pvt. Ltd.
6. Alleged violations of Sections 370, 295, etc., of the Companies Act.
7. Request for investigation into the affairs of SBL Pvt. Ltd.

Issue-wise Detailed Analysis:

1. Alleged Oppression and Mismanagement:
The appellant, a French Company holding 30% of the share capital in SBL Pvt. Ltd., filed a petition under Sections 397 and 398 of the Companies Act alleging various acts of oppression and mismanagement by the majority shareholder (respondent No. 3). The Company Law Board (CLB) found that the appellant's grievances were centered around the diversion of funds, non-charging of interest on loans, and the increase in share capital.

2. Diversion of Funds to Associated Companies:
The appellant claimed that respondent No. 3 had been diverting company funds to its associated companies without proper notice or board approval, resulting in alleged siphoning of funds. The CLB found that while the appellant was aware of such loans (as they were reflected in annual reports), the question of interest was never raised until an arbitrator awarded 14% interest to respondent No. 2. Consequently, the CLB directed the company to charge interest on certain loans, though it found no indication of charging interest on security deposits to Rockland Estate Pvt. Ltd., Team Designs Pvt. Ltd., and SBL India Pvt. Ltd.

3. Non-charging of Interest on Loans:
The CLB found that the non-charging of interest on security deposits would not prejudicially affect the company, as the payment of rent would have been more or less equal to the interest chargeable. The CLB noted that the company was vacating premises and refunding security deposits, concluding that the company's interests were not jeopardized by these transactions.

4. Increase in Share Capital by Rights Issue:
The appellant contended that the increase in share capital by a rights issue was unnecessary. The CLB found that the decision to increase share capital had been under consideration for a long time and was approved in a board meeting held on 29.3.1994. The CLB held that the directions given in a letter would address all grievances and suggested that the appellant could sell its shares to respondent No. 2 if disputes persisted.

5. Dealings with SBL (Sikkim) Pvt. Ltd.:
The appellant argued that all profits made by SBL (Sikkim) Pvt. Ltd. should be accounted for by SBL Pvt. Ltd. The CLB found that SBL (Sikkim) Pvt. Ltd. was a separate entity and directed the parties to enter into a manufacturing agreement to resolve the issue. The CLB held that the arrangement, including a minimum 15% margin on products procured from SBL (Sikkim) Pvt. Ltd., was appropriate and did not constitute mismanagement or oppression.

6. Alleged Violations of Sections 370, 295, etc., of the Companies Act:
The CLB held that in the absence of full details, it was not possible to give a finding on the alleged violations of Sections 370, 295, etc. It also noted that mere statutory violations, when penal action is provided, do not per se constitute acts of oppression.

7. Request for Investigation:
The appellant requested an investigation into the affairs of SBL Pvt. Ltd. under Section 402 of the Companies Act. The CLB found that the appellant was fully aware of all dealings and that the transactions were reflected in the company's audited accounts. The CLB concluded that no grounds for an investigation were made out, as the respondent had furnished all necessary information.

Conclusion:
The High Court upheld the findings and order of the CLB, concluding that the CLB's decision did not suffer from any infirmity. The appeal was dismissed, and the parties were directed to bear their own costs.