2011 (2) TMI 1262 - HC - Companies Law

Oppression and mis-management - applicants are minority shareholders - wrongful control of the company by the majority shareholders causing loss to it and being prejudicial and oppressive to its members - application they sought an order of injunction restraining the company from selling their shares.

Summary

Issues Involved:
1. Wrongful control and oppression by majority shareholders.
2. Sale of shares in Dishergarh Power Supply Corporation Ltd. (DPSC Ltd.).
3. Restraint on utilization of sale proceeds.
4. Allegations of mismanagement and improper transactions.
5. Interim reliefs and preservation of company assets.

Issue-wise Detailed Analysis:

1. Wrongful Control and Oppression by Majority Shareholders:
The respondents, minority shareholders of Descon Ltd., filed an application under sections 397 and 398 of the Companies Act, 1956, alleging wrongful control by majority shareholders causing loss and being prejudicial and oppressive to its members. The Company Law Board (CLB) was approached to address these grievances.

2. Sale of Shares in Dishergarh Power Supply Corporation Ltd. (DPSC Ltd.):
The appellant company held 13,36,220 shares in DPSC Ltd., constituting 32.31% of the shareholding. Andrew Yule and Co. Ltd., along with other shareholders, decided to sell their shares, which led to the appellant's ouster from management. The High Court appointed a special officer to auction these shares, and Orbis Power Ventures P. Ltd. emerged as the highest bidder at Rs. 710 per share. The sale was confirmed by the High Court and upheld by the Supreme Court, leading the appellant to sell its shares for over Rs. 90 crores.

3. Restraint on Utilization of Sale Proceeds:
The respondents sought an injunction to restrain the appellant from utilizing the sale proceeds of the shares. The CLB, while justifying the sale of shares at Rs. 710 per share, restrained the appellant from utilizing the sale proceeds. The appellant argued that the CLB's order was contradictory, as it justified the sale but imposed a bar on utilizing the funds. The High Court found that the CLB provided no reasons for restraining the utilization of funds, making the order unsustainable.

4. Allegations of Mismanagement and Improper Transactions:
The respondents alleged mismanagement, including the formation of a shareholders' trust, improper transfer of shares, acquisition of shares at higher prices, and contemplated sale of company assets at undervalued prices. They also complained about the directors' interest in another company, Cable Com Services Ltd., and improper maintenance of books of account. These allegations formed the basis for seeking reliefs, including declaring the shareholders' trust ineffective and superseding the board of directors.

5. Interim Reliefs and Preservation of Company Assets:
The respondents sought interim reliefs to preserve the company's assets, alleging that the directors would dissipate the assets to the detriment of the company and shareholders. The CLB's order restrained the appellant from utilizing the sale proceeds, but the High Court modified this order, allowing the company to utilize the funds for capital expenditure and revenue expenditure with certain conditions to protect the interests of the minority shareholders.

Conclusion:
The High Court allowed the appeal to the extent of modifying the CLB's order, permitting the appellant to utilize the sale proceeds for capital and revenue expenditures under specific conditions. The CLB was directed to decide the main company petition within four months. The appeal was allowed without any order for costs.