2015 (7) TMI 663 - Board - Companies Law

Charges of oppression and mismanagement - Application u/s section 397 and 398 of the Companies Act, 1956 - Notice of EGM not issued to all shareholders - Held that - I am of the view that the holding of the EGM on 19.08.2004 is invalid and illegal on the ground that the petitioners have not issued notices for convening the meeting to all the shareholders of the company except informing orally to the shareholders who supported the petitioners cause. The petitioners failed to establish that they have issued notices to all the shareholders for the EGM held on 19.08.2004. As held supra that the meeting is invalid and illegal and even as per the articles the petitioners cannot claim to be a Chairman and Managing Director and Governing Director for life as the privilege was given only to late Shri K. Venkatswamy. As per Article 19 of the articles the company shall take a decision to appoint any other person to be the governing or managing director of the company. The respondents admittedly holding majority shares in the paid up share capital of the company issued a notice for convening EOGM of the company and the petitioners convened the meeting on 12.01.2006 and did not participate in the meeting. The petitioner himself filed a suit bearing O.S No.6/2006 before the Civil Judge at Arsikere against the respondents along with an application seeking temporary injunction from conducting the meeting dated 12.01.2006. The Civil Court refused to grant injunction and the suit was dismissed on 12.03.2006. The meeting which was held on 12.01.2006 is legal and valid. - The petitioners have not made out any case either on oppression or on mismanagement and the petition is liable to be dismissed.

Issues Involved:

1. Allegations of oppression and mismanagement under sections 397 and 398 of the Companies Act, 1956.
2. Validity of the appointment of the first petitioner as Chairman and Managing Director for life.
3. Legality of the Extraordinary General Meeting (EGM) held on 19.08.2004.
4. Legality of the resolutions passed at the EGM held on 12.01.2006.
5. Allegations of misuse of office and causing loss to the company by the first petitioner.
6. Proportionate representation of family members on the Board of Directors.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petition was filed under sections 397 and 398 of the Companies Act, 1956, alleging acts of oppression and mismanagement in the affairs of the company. The petitioners sought various main and interim reliefs, including the declaration that the removal of the first petitioner and respondent No. 13 from their positions as Chairman and Managing Director and Director, respectively, was illegal, null, and void. The petitioners also sought a declaration that the resolutions passed at the EGM convened on 12.01.2006 were null and void.

2. Validity of the Appointment of the First Petitioner:
The first petitioner was co-opted as a director of the company w.e.f 01.04.1980. In an EGM held on 19.08.2004, the first petitioner was appointed as Chairman and Managing Director for life w.e.f 19.08.2004 in accordance with Article 19 of the Articles of Association. The respondents contended that the purported EGM held on 19.08.2004, where the first petitioner claimed he was appointed as governing director, was attended only by the first petitioner and his family members, and the other respondents were not aware of the resolution passed.

3. Legality of the EGM Held on 19.08.2004:
The petitioners failed to establish that they issued notices to all the shareholders for the EGM held on 19.08.2004. The Bench found the holding of the EGM on 19.08.2004 invalid and illegal on the ground that the petitioners had not issued notices for convening the meeting to all the shareholders of the company, except informing orally to the shareholders who supported the petitioners' cause. The Bench was not able to take note of the genuineness of the documents related to the EGM held on 19.08.2004.

4. Legality of the Resolutions Passed at the EGM Held on 12.01.2006:
The respondents, constituting above 62.79% of the paid-up share capital of the company, issued a notice to the petitioner for convening an EGM under section 169 of the Companies Act, 1956. The EGM was convened on 12.01.2006, and the petitioner walked out of the meeting after signing the attendance register under protest. The Bench held that the meeting held on 12.01.2006 was legal and valid.

5. Allegations of Misuse of Office and Causing Loss to the Company:
The respondents made various allegations against the first petitioner regarding the misuse of his office as director and causing severe loss to the company. They contended that the first petitioner issued cheques to clear his personal liabilities, which were dishonored due to lack of funds, and contracted the work of distribution of petroleum products through an outside agency without remitting any amount into the company's account.

6. Proportionate Representation of Family Members on the Board:
The petitioners claimed that the company was incorporated as a family company with each family having proportionate representation on the board. The respondents denied this claim and contended that none of the family members of Shri K.V Gurumurthy were on the Board of the company. The Bench found that the petitioners had not made out any case of oppression or mismanagement.

Conclusion:
The Bench dismissed the petition, stating that the petitioners had not made out any case either on oppression or mismanagement. The meeting held on 12.01.2006 was declared legal and valid, and the interim orders granted by the Bench were vacated. No orders as to cost were made.

← Previous Next →