1998 (7) TMI 720 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement under Sections 397, 398, 399, 402, and 403 of the Companies Act, 1956.
2. Parallel proceedings in various judicial fora.
3. Validity of board meetings and resolutions.
4. Financial irregularities and mismanagement.
5. Appointment and dismissal of directors.
6. Issuance of shares and quorum issues.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners, holding about one-third of the shares in Titan Engineering Co. Pvt. Ltd., filed a petition under Sections 397, 398, 399, 402, and 403 of the Companies Act, 1956, alleging acts of oppression and mismanagement by the respondents. Key allegations included wrongful transfer of gas cylinders worth Rs. 3 lakhs, aiding fraudulent activities related to sales tax, and financial irregularities involving a cash shortage of Rs. 93,500.

2. Parallel Proceedings in Various Judicial Fora:
The respondents argued that the allegations in the petition were already covered in various other proceedings initiated by the petitioners, including civil suits and criminal proceedings. The Company Law Board (CLB) was urged to refrain from considering these allegations to avoid conflict of decisions and on the doctrine of election, which prevents a party from agitating the same matter in different judicial fora.

3. Validity of Board Meetings and Resolutions:
The petitioners alleged that no board meeting was called after the 103rd meeting on October 23, 1990, and that the 104th meeting was falsely recorded as held on January 23, 1991. The Registrar of Companies initiated criminal prosecution against the company for this falsification. The petitioners also challenged the validity of resolutions passed in subsequent board meetings, including the payment of interim dividends and the dismissal of the petitioner as a director.

4. Financial Irregularities and Mismanagement:
The petitioners highlighted financial mismanagement, including a shortage of Rs. 93,500 in the cash balance, which later increased to Rs. 1,60,500. The respondents allegedly misappropriated funds and failed to take corrective action despite the petitioner's repeated advisories and letters.

5. Appointment and Dismissal of Directors:
The petitioners contested the dismissal of one of the petitioners as a director, arguing that it violated Article 42 of the Articles of Association. The respondents were inconsistent in their stand regarding the cessation of office of the director, further complicating the matter. Additionally, the appointment of respondent No. 3 as an additional director without quorum and the issuance of shares to new shareholders to the exclusion of existing shareholders were also challenged.

6. Issuance of Shares and Quorum Issues:
The petitioners alleged that respondent No. 3 was appointed as an additional director without quorum and that further shares were issued to new shareholders, excluding the existing shareholders. This was seen as a deliberate attempt to eliminate the petitioners from participating in the affairs of the company.

Judgment:
The CLB dismissed the petition as not maintainable, citing that most of the allegations were already covered in other proceedings initiated by the petitioners. The court emphasized that the petitioners could not prosecute parallel proceedings and that the doctrine of election prevented them from agitating the same matter in different judicial fora. The court also noted that the petitioners' prayer for liberty to file a fresh suit on the same cause of action was expressly declined by the civil court. Consequently, the CLB refrained from looking into any of the allegations contained in the petition and subsequent applications, leading to the dismissal of the petition. No order as to costs was made.