2015 (10) TMI 1524 - Board - Companies Law

Petition under Sections 247, 250, 397 to 405 of the Companies Act, 1956 Prevention of oppression and mismanagement Petitioner contends that HTA had illegally linked the shares with the employability and compelled to surrender his share owned by him on ceasing to be its employee Further contends that prohibition be imposed concerning transfer of shares under provision of Section 250 of the Act and directing HTA to pay to the Petitioner price of the share at current rate prevalent in the market. Respondent contends that Petitioner was allotted share from time to time thus the issue is not in dispute - Further contended that a member when ceased to be an employee of HTA he would lose his right to transfer the share held or owned by him and he would be entitled to an amount equivalent to the face value of the share held by him on the transfer of shares - Petition not maintainable u/s 397 to 405 as Petitioner fails to satisfy the requirement of Section 399. Held That - Petition not maintainable u/s 247 and 250 of the Act as no investigation in the affairs of the HTA would be called for as the Petitioner himself shown the WPP (Manutius) holding 74% shares of HTA and 24% shares held by KTA employees - Petition u/s 397 & 398 not maintainable as petitioner fails to answer the requirement of Section 399 In case of conflict between an agreement amongst shareholders placing restriction on their right of transfer and Articles of Association of a Company then latter prevails Petition dismissed with costs Decided in favour of the Respondent.

Issues Involved:
1. Maintainability of the petition under Sections 397 and 398 of the Companies Act, 1956.
2. Appointment of an inspector to investigate the affairs of the company under Sections 247 and 250 of the Companies Act, 1956.
3. Alleged oppression and mismanagement by the company.
4. Validity of amendments to the Articles of Association.
5. Compliance with the Memorandum of Understanding (MOU) dated 10.06.1974.
6. Allegations of forum shopping and delay in filing the petition.

Detailed Analysis:

1. Maintainability of the Petition under Sections 397 and 398 of the Companies Act, 1956:
The petition was dismissed on the grounds of maintainability as the petitioner failed to meet the requirements of Section 399 of the Companies Act, 1956. The petitioner held only 402 equity shares, which is less than 10% of the shareholding, and did not represent 10% of the total members or 100 members of the company. The relevant provision states:
> "A member or members of the company who has shares capital of 10% or more could file a petition under s.397, 398 and 402 of the Act."

2. Appointment of an Inspector to Investigate the Affairs of the Company under Sections 247 and 250 of the Companies Act, 1956:
The petitioner's request for appointing an inspector to investigate the affairs of the company was rejected. The petitioner himself acknowledged that WPP (Mauritius) held 74% shares of HTA and 24% shares were held by HTA employees. There was no dispute regarding the persons having financial interest or control over the company. The judgment stated:
> "No investigation in the affairs of HTA would be called for as the petitioner has himself shown the WPP (Mauritius) holding 74% shares of HTA and 24% shares have been held by HTA employees."

3. Alleged Oppression and Mismanagement by the Company:
The petitioner alleged that the company linked shareholding with employability and compelled him to surrender his shares upon retirement, which he claimed amounted to oppression and mismanagement. However, the court found that the Articles of Association, amended in 1998, clearly stipulated that employees must surrender their shares upon ceasing employment. The judgment noted:
> "On ceasing to become an employee of HTA its shares have to be surrendered which may be allotted by the designated body of Board of Directors."

4. Validity of Amendments to the Articles of Association:
The amendments to the Articles of Association, particularly those made in 1978 and 1998, were upheld. The court emphasized that Articles of Association constitute a contract between the company and its members, binding them to its terms. The judgment cited:
> "Section 36 of the Companies Act unambiguously provided that Articles of Association bind the company and the members to the same extent as if they respectively had been signed by the company and by each member."

5. Compliance with the Memorandum of Understanding (MOU) dated 10.06.1974:
The petitioner argued that the amendments to the Articles of Association contravened the MOU, which stipulated a 65:35 shareholding ratio between management and non-management staff. However, the court found that the amendments were legally binding and overrode the MOU. The judgment referenced:
> "Once the amendment to the Articles of Association of the Company had come into effect on 29th June, 1998, the appellant/plaintiff cannot enforce any right, at least against the Company, in contravention thereof."

6. Allegations of Forum Shopping and Delay in Filing the Petition:
The court noted that the petitioner had previously filed a civil suit in 2004, which was later withdrawn from the High Court of Delhi in 2013 without seeking permission to approach another forum. The petition was filed in 2012, eight years after the cause of action arose, leading to allegations of delay and forum shopping. The judgment stated:
> "The petition has been filed after more than seven years after the cause of action had arisen in 2004."

Conclusion:
The petition was dismissed on multiple grounds, including non-compliance with Section 399 of the Companies Act, lack of merit in the allegations of oppression and mismanagement, and the binding nature of the amended Articles of Association. The petitioner was also ordered to pay costs of Rs. 10,000.

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