2017 (3) TMI 1764 - Tri - Companies Law

Allotment and transfer of right shares - Right shares allotted to other shareholders without intimation to petitioner - oppression and mis-management - Maintainability of petition - section 397/398 of the Companies Act, 1956 - Petitioner was admittedly not holding minimum 10% shares of the Company - time limitation - HELD THAT - The Government of India has passed an order dated 16.11.2012 (Annexure-4, page 44-48 of material papers filed by the Petitioner) by permitting the Petitioner to file a Petition under section 397/398 of the Companies Act, 1956 against the Management of Gowthami Solvent Oils Private Limited (Respondent Company). So the present petition is maintainable. Issue of Rights Shares - HELD THAT - The Petitioner was left with no other option except to question the above decision of the Company, in the first instance by duly reserving her right to question rights issue later. Accordingly, the Petitioner has filed Company Petition No. 07/111/SRB/2000 before the then Company Law Board for restoration of her name in the Register of Members of the Company by reserving her right to agitate the right issue later on. The petitioner is fully justified to file the said case restricting the illegal removal of her name by reserving her right to question the present issue. Whether the acts alleged in the Company petition constituted acts of oppression and mismanagement so as to invoke Sections 397/398 of the Act? - HELD THAT - The Company/Respondent, on one hand making allegation that the petitioner was raising vexatious litigation against it, on the other hand, the Company/Respondent itself dragged the litigation upto Apex court and also took so much time to implement orders of CLB. The Company has not changed its mended his ways of dealing with minority shareholders like the petitioners especially when the Company is closely held Company and profit making Company and CLB already held that depriving the shareholding of the petitioner in the Company was illegal. All these acts constitute acts of continuous oppression and mismanagement and these acts justify winding up of the Company but it would certainly prejudice the interest of petitioner and the Company itself as it is admittedly profit making Company. It is settled position of law that the majority has a right to control and manage the affairs of thee Company in its best interest. However, the issue to be examined in each case is whether majority power has been exercised in good faith in the interest of the Company or only to deprive minority shareholders/the Petitioner of her rights. The Company has a fiduciary relation towards the minority shareholder as much as the corporation itself or its officers or Directors - The Petitioner is entitled for all the three rights issues as applicable to other shareholders of the company in proportionate to the shareholding of the respective shareholders. The Respondents have raised all frivolous, pleas in opposing the just claim of the Petitioner, which arises pursuant to granting of rights issues in question. The Petitioner was put to untold misery in forcing to approach this Tribunal again. This Tribunal cannot lose sight of frivolous contentions made by Respondents. In view of the above background, continuous oppression on the minority shareholder and mis-management deserves exemplary cost to be imposed to protect the interest of minority shareholders. Since, this frivolous litigation is prosecuted at the instance of Respondent No. 2 3 they have to be saddled with the exemplary cost to be borne by them personally from their personal accounts. The Respondents are directed to allot all the three rights issues shares comprising a total of 5250 shares i.e., 350 in 1991-1992, 2100 shares in 1995-1996 and 2800 shares in 2004-2005 - Petitioner directed to pay the amount of ₹ 13,65,000/- by way of D.D. to the Respondents within a period of four weeks from the date of receipt of copy of the Order and thereafter two weeks time is granted to the Respondents to allot shares accrued through three rights issues to the petitioner and to rectify the members register - Respondents No. 2 and 3 are directed to pay cost of ₹ 50,000/each to the Petitioner and the same is to be paid from their personal account.

Summary

Issues Involved:
1. Maintainability of the Company Petition under Section 397/398 of the Companies Act, 1956.
2. Whether the Company Petition is barred by laches and limitation.
3. Whether the Petitioner was issued offers for the subscription of rights issues for the years 1991-92, 1995-96, and 2004-05.
4. Whether the acts alleged constitute oppression and mismanagement.
5. Reliefs the Petitioner is entitled to.

Detailed Analysis:

1. Maintainability of the Company Petition:
The petition was filed under Section 397/398 of the Companies Act, 1956, and the Petitioner obtained permission from the Central Government under Section 399(4) to file the petition. The Government of India passed an order dated 16.11.2012 permitting the Petitioner to file the petition against the management of the Respondent Company. Therefore, the petition is maintainable.

2. Barred by Laches and Limitation:
The Petitioner has been contesting the issue of rights shares since 1991-92. The continuous litigation and efforts to claim the rights shares, including filing OP No.26/1999 and CP No. 7 of 2000, demonstrate that there is no limitation involved as it is a continuous cause of action. The contention of the Respondents that the petition is barred by laches and limitation is rejected as untenable.

3. Issuance of Rights Offers:
The Petitioner claimed she was denied her rights shares for the years 1991-92, 1995-96, and 2004-05. The Company admitted that no offer was given for the second rights issue (1995-96) due to the non-registration of the Petitioner’s changed address. For the third issue (2004-05), the Petitioner was not a member due to her illegal removal from the register, which was later rectified by the CLB order. The Tribunal found that the Petitioner was entitled to the rights shares and the Company’s actions were fraudulent and oppressive.

4. Oppression and Mismanagement:
The Tribunal concluded that the Company’s actions, including the illegal denial of rights issues and the removal of the Petitioner’s name from the register, constituted continuous acts of oppression and mismanagement. The Company’s refusal to allot the rights shares even after the CLB’s order and the subsequent litigation demonstrated a clear pattern of oppressive conduct.

5. Reliefs Entitled:
The Tribunal directed the Respondents to allot the three rights issues shares totaling 5250 shares to the Petitioner. The Petitioner is to pay ?13,65,000 for the shares, and the Respondents are to rectify the members register within two weeks of receiving the payment. Additionally, Respondents No. 2 and 3 were ordered to pay costs of ?50,000 each to the Petitioner from their personal accounts.

Conclusion:
The Tribunal allowed the Company Petition with specific directions for the allotment of shares and imposed exemplary costs on Respondents No. 2 and 3 for their oppressive actions and mismanagement. The judgment underscores the importance of protecting minority shareholders' rights and ensuring fair corporate governance.