2004 (12) TMI 714 - Board - Companies Law

Summary

Issues Involved:
1. Illegal removal of the petitioner as Managing Director/Director.
2. Allegations of siphoning of funds by respondents.
3. Maintainability of the petition under Section 399 of the Companies Act.
4. Contempt of court regarding interim orders.

Detailed Analysis:

1. Illegal Removal of the Petitioner as Managing Director/Director:
The petitioner claimed to hold 49% shares in the company and alleged his illegal removal as Managing Director/Director. He was appointed as Managing Director for five years from January 1, 1998. However, he was removed by a letter dated December 16, 2000. The court found that the removal was not conducted in accordance with the law, as no Board Resolution was produced to support the removal. The court noted that the removal of a person who was induced to invest substantial funds and assured participation in management could be considered an act of oppression. However, due to strained relationships among the parties, the court did not grant the relief sought for reinstatement.

2. Allegations of Siphoning of Funds by Respondents:
The petitioner alleged that respondents 3 and 4 siphoned funds for personal use. The respondents contended that withdrawals were made based on mutual understanding and conciliation terms. The court found the explanation provided by the respondents satisfactory and noted that both parties made withdrawals as per the conciliation terms. Consequently, this allegation was not upheld.

3. Maintainability of the Petition under Section 399 of the Companies Act:
The respondents argued that the petitioner was not a shareholder as no shares were allotted to him, and thus, he lacked locus standi to file the petition. The court examined whether the petitioner was treated as a shareholder by the company. Despite the lack of documentary evidence like Board resolution or share certificates, the court considered the circumstances, including the substantial investment made by the petitioner and his appointment as Managing Director. The court held that the petitioner should be considered a member for the purposes of Section 399, thus maintaining the petition's validity. The court directed the company to allot 14,75,998 shares to the petitioner or refund the application money with interest if the company preferred not to allot shares due to strained relations.

4. Contempt of Court Regarding Interim Orders:
The petitioner filed applications alleging contempt by the respondents for violating the interim order dated January 31, 2001, which restrained dealing with the company's assets. The respondents entered into an MOU with Wockhardt Hospital Ltd. for management control, which the petitioner claimed violated the interim order. The court examined the MOU and concluded that it did not amount to dealing with the assets as it was a temporary management agreement without conferring any long-term rights on Wockhardt. The court accepted the respondents' unconditional apology and closed the contempt applications.

Conclusion:
The court directed the company to allot shares to the petitioner or refund the application money with interest, thereby addressing the main grievance about the shareholding. The allegations of siphoning funds were dismissed, and the petition was held maintainable under Section 399. The contempt applications were closed with an acceptance of the respondents' apology. The petition was disposed of without any order as to costs, and all interim orders were vacated.