2003 (12) TMI 660 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of fraudulent acts by the 1st respondent.
2. Maintainability of the petition under Sections 397/398 by majority shareholders.
3. Request for investigation under Section 235(2)(a).
4. Removal of the 1st respondent as a director.
5. Resolution of the conflict between the two groups of shareholders.

Detailed Analysis:

1. Allegations of Fraudulent Acts by the 1st Respondent:
The petitioners accused the 1st respondent of committing various fraudulent acts to enrich himself at the company's expense. Specific allegations included:
- Wrongful mutation of property in his favor (Annexure P-3).
- Obtaining an electricity connection in his name (Annexure P-4).
- Securing a Drug and Cosmetic Rules license in his name, representing himself as the proprietor (Annexure P-5).
- Attempting to sell medical equipment (Annexure P-6).
- Misusing the General Power of Attorney.
- Stealing documents and altering minutes of the EOGM (Annexure P-9).

2. Maintainability of the Petition Under Sections 397/398 by Majority Shareholders:
The respondent contended that only minority shareholders could invoke Sections 397/398. However, the judgment clarified that there is no stipulation in Sections 397 or 398 restricting the petition to minority shareholders. The petitioners met the requirements of Section 399, making the petition maintainable.

3. Request for Investigation Under Section 235(2)(a):
The 1st respondent, as the petitioner in CP 28 of 2003, sought an investigation into the company's affairs, alleging mismanagement and fund siphoning by the petitioners. However, the judgment noted that the allegations were based on balance sheet figures and lacked sufficient material to warrant an investigation. It was concluded that the petition was a counterblast to CP 20 of 2002 and was dismissed for want of sufficient particulars.

4. Removal of the 1st Respondent as a Director:
The 1st respondent challenged his removal on procedural grounds, claiming it violated the loan agreement with WBFC and was conducted despite his request for adjournment due to illness. The judgment upheld the removal, citing the 1st respondent's breach of fiduciary duties. It was emphasized that no director can act in breach of fiduciary duties and enrich themselves at the company's expense.

5. Resolution of the Conflict Between the Two Groups of Shareholders:
The judgment acknowledged the severe strain between the two groups, making it impossible for them to coexist within the company. It was deemed in the company's interest for one group to exit. Given the petitioners' majority shareholding and professional background in eye care, it was decided that the 1st respondent should exit the company. The 1st respondent was directed to sell his shares to the petitioners at par value with 6% simple interest per annum from July 2000 until the payment date. The company was authorized to reduce its capital or rectify the Register of Members accordingly.

Conclusion:
The judgment concluded with the directive for the petitioners or the company to purchase the 1st respondent's shares by December 31, 2003, ensuring the company's survival and allowing the petitioners to manage its affairs without hindrance. The petition was disposed of in these terms.