2012 (7) TMI 56 - Board - Companies Law

Petition for oppression and mismanagement - transfer of shares to the third respondent who is the wife of the second respondent done purposefully to capture the management and control over the company by the second and third respondents - assets of the company have been sold even though the liabilities of the company are yet to be cleared - removal of a partner/director is a gross act of oppression - Held that - From the perusal of the deed of assignment it is evident that the first petitioner has signed the deed and he is having full knowledge of the sale of assets and receipt of consideration - as winding up of the company is concerned, it is for the company to take decision if the company is not doing any business and they feel that the company should be wound up - in the event of making profits by the company, the company can declare dividend to its shareholders as decided by the directors, therefore the contention of the petitioners that they should have logically paid one-third of the sale consideration is not correct - the appointment of 3rd Respondent was done away back in the year 1993 and the petitioner signed the annual returns and there is no document to show that the petitioner expressed his concern with regard to misrepresentation by the respondents. Raising of such issue after lapse of 16 years is completely unwarranted and an after thought - extraordinary general meeting to propose a resolution to remove the first petitioner reason given in the explanatory statement that the first petitioner has acted against the interest of the company, respondent s intention to remove the petitioner as a director is quite evident and obviously the statutory provision, viz., section 283(1)(g) applied to remove the petitioner as a director, thus even in a quasi partnership, a partner/director can be removed if his acts are prejudicial to the interest of the company against petitioner.

Summary

Issues:
Allegations of oppression and mismanagement in company affairs under sections 397 and 398 of the Companies Act, 1956.

Analysis:
The petitioners alleged oppression and mismanagement by the second and third respondents in the affairs of the company. They claimed that the transfer of shares to the third respondent, the wife of the second respondent, was done to capture management control. The petitioners argued that the assets were sold to another company without clearing the liabilities, leading to the company's desire to be wound up. They contended that they were promised one-third of the shares but were not paid accordingly. The petitioners also claimed they were excluded from management decisions and meetings despite being shareholders and directors. They sought various reliefs, including taking over the company's charge and winding it up.

The respondents refuted the allegations, stating that the petition was misconceived and aimed at pressuring them to disburse sale proceeds without following due process. They argued that the petitioners suppressed material facts and knowledge about the company's affairs. The respondents explained that the sale proceeds needed to cover liabilities, debts, and statutory obligations before distribution. They highlighted the petitioners' disruptive actions, leading to freezing of the company's bank account and subsequent legal actions. The respondents ultimately removed the first petitioner as a director due to his conduct and filed a writ petition to resolve banking issues.

After analyzing the arguments and evidence, the Board found that the petitioners failed to substantiate their claims of oppression and mismanagement. The Board noted that the first petitioner was aware of the sale of assets and signed related documents. It emphasized that decisions regarding winding up and distribution of assets belonged to the company and its directors, not the petitioners. The Board dismissed the petition, stating that the petitioners did not establish grounds for relief. It upheld the removal of the first petitioner as director due to his actions against the company's interest. The Board concluded that the petition lacked merit and ruled in favor of the respondents. The petitioners were reminded of their rights as shareholders to receive notices for general meetings and access company records as per legal provisions.