2014 (8) TMI 1214 - Board - Companies Law

Oppression and mismanagement - seeking transfer of equity shares to enhance the holding to 45% without insisting upon to execute personal guarantee in favour of KSFC - seeking directions from this Bench to the respondents to purchase the petitioner s entitlement of 45% equity shares out of respondent company s total equity shares determined by the Independent Valuer - HELD THAT - It is not a case fall under the definition of section 397 and 398. From the pleading and document it is evident that the respondents have fulfilled their obligation in implementing the compromise petition. The petitioner has failed to substantiate that how he is entitled to 45% of the equity share without fulfilling the terms and condition as mentioned in the compromise petition. It is only an understanding between the panics that the petitioner will be entitled to 45% of the equity shares. The contention of the petitioner that this Bench appointed valuer on the basis of joint memo filed by the parties to determine the value of equity shares of the Company for considering the petitioners claim under relief 18.3 (viii). It is only a claim made by the petitioner but the petitioner s entitlement to 45% of the equity shares in the company has not been determined by any court or authority. Admittedly the petitioner is holding 25, 00, 000 equity shares constituting 17.5% of the shares. Even on the merits of the case the petitioner failed to fulfil the obligation on his part and for that reason me petitioner cannot put blame on the part of the respondents. The petitioner has filed the present petition by invoking Section 397/398 and 402 of the companies Act 1956 alleging certain acts of oppression and mismanagement in the affairs of company. From the pleading and document the petitioner has not made out any case either on oppression or mismanagement in the affairs of the Company. On the other hand the R1 Company is a going concern and performing very well. There is no dispute or denial that the respondent Company under the leadership of board of directors and assisted by the top level management team have a good corporate governance. It is a well settled law that even an isolated act cannot be construed an act of oppression and mismanagement. In this case even the averments grounds and reliefs do not constitute any oppression and mismanagement in the affairs of the Company by the respondents. The petitioner has not made out any case either on oppression or mismanagement and the petition has miserably failed and liable to be dismissed - Petition dismissed.

Summary

Issues Involved:
1. Transfer of equity shares to enhance petitioner's holding to 45% without personal guarantee to KSFC.
2. Directions for respondents to purchase petitioner's entitlement of 45% equity shares.
3. Allegations of oppression and mismanagement.
4. Compliance with the compromise petition terms.

Detailed Analysis:

1. Transfer of Equity Shares to Enhance Petitioner's Holding to 45% Without Personal Guarantee to KSFC:
The petitioner alleged that the respondents failed to enhance his shareholding to 45% as agreed in the compromise petition dated 02.12.2009. The compromise petition stated that the shareholding between the petitioner and the respondents would be in the ratio of 55:45, and the respondents would transfer necessary equity shares to the petitioner after obtaining consent from secured creditors. The respondents argued that the petitioner did not provide the required details to KSFC, which sought a personal guarantee from the petitioner for loan repayment. The petitioner refused to provide this guarantee, leading to the non-issuance of the NOC by KSFC. The court noted that the petitioner failed to fulfill his obligations under the compromise petition and did not provide the necessary information to KSFC, thus the respondents could not be blamed for non-compliance.

2. Directions for Respondents to Purchase Petitioner's Entitlement of 45% Equity Shares:
The petitioner sought a direction for the respondents to purchase his entitlement of 45% equity shares at a rate determined by an independent valuer. The court observed that the petitioner's claim to 45% equity shares was not substantiated by any court or authority, and his current holding was only 17.5%. The respondents had made efforts to comply with the compromise petition, but the petitioner's non-cooperation with KSFC hindered the process. The court concluded that the petitioner was not entitled to the relief sought as he did not fulfill his obligations.

3. Allegations of Oppression and Mismanagement:
The petitioner alleged acts of oppression and mismanagement by the respondents, including unlawful enhancement of share capital and diversion of funds. The court found that the petitioner did not provide sufficient evidence to substantiate these allegations. The respondents demonstrated that the company's financial management and operations were conducted efficiently, and no material evidence was presented to prove otherwise. The court held that the petitioner's claims did not meet the legal standards for oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.

4. Compliance with the Compromise Petition Terms:
The court reviewed the terms of the compromise petition and the efforts made by the respondents to comply with it. The respondents had written to KSFC seeking consent for the share transfer and had kept the petitioner informed. The petitioner's refusal to provide a personal guarantee and failure to furnish required details to KSFC were significant obstacles. The court concluded that the respondents had acted in good faith to implement the compromise petition, but the petitioner's non-cooperation prevented its full execution.

Conclusion:
The court dismissed the petition, stating that the petitioner failed to make out a case for oppression and mismanagement. The petitioner did not fulfill his obligations under the compromise petition, and the respondents had made reasonable efforts to comply with its terms. The interim orders were vacated, and no costs were awarded.