1999 (11) TMI 893 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Compliance with the family settlement agreement.
3. Mismanagement and financial losses in the plastic division.
4. Illegal board resolutions and control over bank accounts.
5. Transfer of shares to VLS Finance and its implications.
6. Deadlock in the management of the company.
7. Division of assets and equitable relief.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners alleged that the DB group acted autocratically, leading to senior executives leaving the company and mismanaging the plastic division, resulting in significant financial losses. They also claimed that the DB group did not comply with the family settlement terms, particularly regarding equalizing shareholding. The respondents countered that the petitioners, despite being in minority, were trying to retain control and had themselves oppressed the majority shareholders.

2. Compliance with the Family Settlement Agreement:
A family agreement was entered into on March 23, 1991, which included provisions for equal shareholding between the KN group and the DB group. The petitioners claimed that the DB group did not honor this agreement, leading to unequal shareholding. The respondents argued that the family settlement could not be enforced against the company as it was not a party to the agreement and that the petitioners had abandoned their claim for equalization.

3. Mismanagement and Financial Losses in the Plastic Division:
The plastic division, started in 1994, incurred heavy losses due to alleged mismanagement by the DB group. The petitioners claimed that the DB group siphoned off funds and refused to furnish accounting details, leading to non-finalization of accounts. The respondents argued that the division suffered due to insufficient funds and the petitioners' reluctance to support a rights issue. The financial institutions expressed concerns over the division's performance.

4. Illegal Board Resolutions and Control over Bank Accounts:
The petitioners alleged that the DB group fabricated board resolutions to gain control over bank accounts and appointed additional directors illegally. This led to a civil suit and a court order allowing only the earlier signatories to operate bank accounts. The respondents contended that the petitioners held an illegal board meeting and annual general meeting without proper notices, which were subsequently stayed by a civil court.

5. Transfer of Shares to VLS Finance and Its Implications:
The petitioners transferred shares to VLS Finance, which the respondents claimed reduced their majority to a minority. The transfer was allegedly done without following the provisions of the articles and the SEBI Take Over Code. VLS Finance lodged the shares for registration due to non-repayment of loans. The Company Law Board noted that the transfer's legality should be addressed in separate proceedings and VLS Finance agreed not to exercise voting rights on these shares.

6. Deadlock in the Management of the Company:
The management of the company faced a deadlock due to irreconcilable differences between the two groups. Despite attempts at amicable settlement and the appointment of an independent chairman, the disputes persisted, leading to the involvement of financial institutions seeking protection of their interests.

7. Division of Assets and Equitable Relief:
The Company Law Board concluded that the division of assets was the only viable solution to end the disputes. The board directed the division of the company's assets, with the petitioners managing the forge division and the respondents managing the other two divisions. An independent chairman nominated by ICICI would oversee the division, and the valuation of shares and divisions would be conducted by a valuer appointed by ICICI. The company was instructed to purchase the petitioners' shares and effect reduction in share capital, ensuring the interests of financial institutions were protected.

Conclusion:
The Company Law Board ordered the division of the company's assets to resolve the disputes between the two groups. The board emphasized the need to protect the interests of all shareholders and the company, including financial institutions. The decision aimed to put an end to the deadlock and ensure the company's continued operation without further conflicts.