2001 (9) TMI 1174 - Board - Companies Law

Issues Involved:
1. Allegations of oppression and mismanagement under Section 397/398 of the Companies Act, 1956.
2. Validity and implications of the Memorandum of Understanding (MoU) dated 2.4.1991.
3. Legitimacy of the allotment of additional shares to the second respondent and his family.
4. Denial of basic shareholder rights and ouster from management.
5. Sale of company assets without notice to the petitioner.
6. Maintainability of the petition and whether it is barred by limitation.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioner alleged acts of oppression and mismanagement by the respondents, including unauthorized allotment of shares and exclusion from the management. The petitioner claimed that the second respondent allotted 20,000 shares to himself, his wife, and his son without Board approval, reducing the petitioner's shareholding from 83.29% to 67.84%. The petitioner also alleged denial of access to company premises, account books, and statutory records, and highlighted financial mismanagement despite increased turnover.

2. Validity and Implications of the MoU Dated 2.4.1991:
The MoU between the petitioner and the second respondent stipulated that the petitioner would transfer his shares for Rs. 51,50,000 in five yearly installments, with the petitioner remaining a shareholder and director until full payment. The petitioner received Rs. 23,43,750 but claimed the balance Rs. 30,31,250 was unpaid. The respondents argued the petitioner received the full amount and had no locus standi to file the petition. The Board found the MoU was not fully honored as the petitioner remained a shareholder and was shown as such in the company's balance sheet for the year ending March 2000.

3. Legitimacy of the Allotment of Additional Shares:
The petitioner contended that additional shares were allotted to the second respondent, his wife, and son without notice or Board resolution. The respondents provided minutes of a Board meeting on 21.5.1991, chaired by the petitioner, resolving to appoint the second respondent's wife and son as directors. The Board found the petitioner had knowledge of these allotments and did not object, and the increase in share capital was justified to meet financial obligations, thus not amounting to oppression.

4. Denial of Basic Shareholder Rights and Ouster from Management:
The petitioner alleged exclusion from management and denial of shareholder rights, including non-receipt of notices for Board and general meetings. The respondents failed to provide evidence of sending notices to the petitioner's Bangkok address, and the Board found substance in the petitioner's claim that notices were deliberately sent to a Delhi address. This constituted oppression as it prevented the petitioner from participating in crucial decisions, including the sale of company assets.

5. Sale of Company Assets Without Notice:
The petitioner claimed the sale of the company's factory land, plant, and machinery was done without notice. The respondents justified the sale to discharge liabilities to the Haryana Financial Corporation (HFC) and Indian Overseas Bank. The Board found the sale was conducted without proper notice to the petitioner, constituting oppression. However, as the assets were already sold and liabilities discharged, passing orders under Section 402 would be academic.

6. Maintainability of the Petition and Limitation:
The respondents argued the petition was barred by limitation as the alleged acts occurred in 1988 and 1991. The Board found the petition was not barred by limitation, noting ongoing issues, including the sale of assets in 1998-1999, and the close relationship between the parties. The petition was filed within a reasonable time considering these factors.

Conclusion:
The Board concluded that a case of oppression was made out due to the improper allotment of shares and exclusion from management. However, given the sale of assets and the discharge of liabilities, granting relief under Section 402 was deemed impractical. The Board directed that future notices for Board and general meetings be sent to the petitioner's addresses in Delhi and Bangkok by registered post. The petition was disposed of with costs on parties.

← Previous Next →