2007 (5) TMI 666 - Board - Indian Laws

Issues Involved:
1. Allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.
2. Illegal appointment of additional directors.
3. Unauthorized sale of company property.
4. Unauthorized opening and operation of a new bank account.
5. Allegations of siphoning company funds and property.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners, holding 47.71% shares, alleged acts of oppression and mismanagement by the respondents, specifically against R-8. The respondents' shareholding was 37.29%, and the remaining 14.99% was held by others. The petitioners challenged the unauthorized sale of company property and the illegal appointment of additional directors. The respondents argued that the petitioners had acted against the company's interest in the past, including transferring funds to relatives and opening a new bank account without authorization.

2. Illegal Appointment of Additional Directors:
The petitioners contended that the appointment of R-3 and R-4 as additional directors was illegal and done without compliance with the Act's provisions. They argued that no board meeting took place on 1st April 2005, and the signatures on Form No. 32 were forged. The respondents claimed the appointments were valid, as the form was signed by Petitioner No. 1. However, the petitioners provided a handwriting expert's report confirming the forgery. The judgment concluded that the appointments were part of continuous acts of oppression to create a new majority and were declared null and void.

3. Unauthorized Sale of Company Property:
The petitioners alleged that the sale of Flat No. 105, Golf Apartments, was unauthorized and conducted at an inadequate consideration of Rs. 25 lakhs, significantly below the market value. The sale was executed without board authorization, and the proceeds were withdrawn on the same day. The respondents argued the sale was to pay off unsecured creditors. The judgment found the sale unauthorized, illegal, and a breach of fiduciary duties, declaring the sale null and void and directing the return of the amount drawn.

4. Unauthorized Opening and Operation of a New Bank Account:
The respondents alleged that the petitioners opened a new bank account in violation of a CLB order and siphoned funds. The petitioners argued the account was opened to deposit an Income Tax refund and other payments, as the main account was inoperative due to the CLB order. The judgment found that the petitioners' actions were explained and did not constitute contempt.

5. Allegations of Siphoning Company Funds and Property:
The respondents accused the petitioners of siphoning company property by leasing factory land to relatives at minimal rates without board approval. The petitioners contended the lease was executed with unanimous consent and in the company's interest. The judgment noted that the respondents had waived and acquiesced to the lease for seven years and could not raise the issue now.

Judgment:
The judgment concluded that the respondents' actions constituted oppression and mismanagement. It declared the appointment of R-3 and R-4 as additional directors null and void, the sale of the flat unauthorized and illegal, and directed the return of the amount drawn by the respondents. The resolutions changing authorized bank signatories were also canceled.

Order:
1. Appointment of R-3 and R-4 as additional directors declared null and void; Form No. 32 filed with the ROC also declared null and void.
2. Agreement to sell and purchase dated 7.7.2005 declared null and void; respondents restrained from entering into any mutation of the flat.
3. Respondents directed to refund the amount drawn illegally from the company's bank account.
4. Resolution changing authorized signatories canceled and declared null and void.
5. R-1 company directed to implement the above directions forthwith.

The Company Petition 71/05 was allowed, all interim orders vacated, and all CAs disposed of with no order as to costs.

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