2017 (12) TMI 1640 - AT - Companies Law

Oppression and mismanagement - increase in share capital - Held that - In the Board Meeting held on 22nd June, 2015, the Petitioner was given minutes of the meeting of the Board of Directors of the 1st Respondent Company held on 1st September, 2014, statement of Profit and Loss Account, Balance Sheet and Cash Flow Statements for the year ended 31st March, 2015 without notes. Apart from the said documents, there is no material placed on records by the Respondents to suggest that before 22nd June, 2015, the Petitioner had knowledge about the increase in share capital. Increase in the share capital from ₹ 1 lac to ₹ 2 lacs of the 1st Respondent Company that took place on 21st December, 2009 and from ₹ 2 lacs to ₹ 3 lacs on 28th September, 2010 as illegal and set aside the allotment of 2500 shares to 4th Respondent on 29th January, 2010 and to the 5th Respondent to 11th Respondent on 18th January, 2011 and allotment of 2500 shares to 11th Respondent on 4th July, 2013 has been also declared illegal and set aside. Apart from that, the transfer of shares of 1st Respondent to 2nd Respondent having set aside in addition to order for the allotment of shareholders of the shares of the 12th Respondent by duly following the procedures laid down under the Companies Act and Articles of Association, no interference is called for. We are of the view that apart from the just and proper order passed by the Tribunal, it has also passed consequential reliefs of setting aside illegal allotment and therefore, no further relief can be granted to the Petitioner.

Summary

Issues Involved:
1. Alleged oppression and mismanagement by the 2nd and 3rd Respondents.
2. Legality of share capital increase and share allotment.
3. Maintainability of the petition under Sections 397 and 398 of the Companies Act, 1956.
4. Consequential relief for the Petitioner.

Issue-wise Detailed Analysis:

1. Alleged Oppression and Mismanagement:
The Petitioner claimed that his shareholding in the Company was reduced from 25% to 8.33% due to the actions of the 2nd and 3rd Respondents, which amounted to oppression and mismanagement. The Tribunal found that the 2nd and 3rd Respondents' actions were "harsh, burdensome, and detrimental" to the Petitioner, constituting acts of oppression and mismanagement. The Tribunal noted that these acts warranted a winding-up order but decided against it to avoid detriment to the Company and the Petitioner.

2. Legality of Share Capital Increase and Share Allotment:
The Tribunal declared the increase in share capital from ?1.00 lac to ?2.00 lacs on 21/12/2009 and from ?2.00 lacs to ?3.00 lacs on 28/09/2010 as illegal and set aside. Additionally, the allotment of shares to various Respondents between 2010 and 2013 was also declared illegal and set aside. The Tribunal found that the share allotments were made without proper notice to the Petitioner and violated the Companies Act and the Articles of Association. The Petitioner was not informed of the Board of Directors' meetings or the Extraordinary General Meetings where these decisions were made.

3. Maintainability of the Petition:
The Respondents argued that the Petition was not maintainable under Sections 397 and 398 because the Petitioner did not hold 1/10th of the share capital. However, the Tribunal held that once a member's share is reduced below 1/10th without their knowledge, the petition remains maintainable. The Tribunal cited precedents to support this view, emphasizing that the crucial date for determining the requirement under Section 399 is the date of the alleged oppression and mismanagement.

4. Consequential Relief for the Petitioner:
The Petitioner sought further relief beyond the Tribunal's orders, arguing that the Tribunal should have canceled the shares illegally issued to the 5th to 10th Respondents. However, the Tribunal found that it had already provided just and proper orders, including setting aside the illegal allotments and ordering the re-allotment of shares of the 12th Respondent according to the Companies Act and Articles of Association. Therefore, no further relief was granted.

Conclusion:
The Tribunal's judgment addressed the issues of oppression and mismanagement, declared the increase in share capital and share allotments as illegal, and provided appropriate reliefs. The appeals were dismissed, and no further relief was deemed necessary.