2004 (11) TMI 625 - Board - Indian Laws

Summary

Issues Involved:
1. Issue of Limitation
2. Allegations of Oppression and Mismanagement
3. Appointment and Role of NRI Director
4. Allotment of Shares

Detailed Analysis:

1. Issue of Limitation:
The primary issue remitted by the Hon'ble High Court of Delhi to the Company Law Board (CLB) was to decide on the limitation period for filing the petition. The High Court's order emphasized that the limitation issue goes to the root of the matter and must be addressed explicitly. The respondents argued that the petition filed in 2003 was time-barred under Article 137 of the Limitation Act, 1963, which prescribes a three-year period from when the right to apply accrues. They contended that the cause of action arose in 1989 when the petitioner sent a DD for Canadian Dollars 5000, and no further communication occurred until 2001. The petitioners, however, argued that the cause of action was continuous, starting from the Board resolution on 3.6.1988 to allot 40% shares and appoint the petitioner as NRI Director, and extending through various subsequent actions and inactions by the respondents.

2. Allegations of Oppression and Mismanagement:
The petition under sections 397 and 398 of the Companies Act, 1956, alleged oppression and mismanagement by the respondents. The petitioner claimed that despite a Board resolution to allot him 40% shares and appoint him as NRI Director, the necessary formalities were not completed by the respondents. The petitioner also highlighted that the company failed to file annual returns and balance sheets for several years, which further indicated mismanagement.

3. Appointment and Role of NRI Director:
The petitioner was appointed as NRI Director pursuant to a Board resolution dated 3.6.1988 and subsequent RBI clearance. However, the petitioner did not complete the formalities required for his appointment, and his name appeared as NRI Director in the company's records for about a year. The respondents argued that the petitioner vacated the office under Section 283(g) of the Companies Act, 1956, due to non-attendance at Board meetings. The petitioner, however, contended that the respondents failed to fulfill their obligations to complete the formalities and issue the share certificate.

4. Allotment of Shares:
The core grievance involved the non-allotment of the agreed 40% shares to the petitioner. The petitioner argued that the respondents were responsible for completing the formalities and issuing the share certificate, which they failed to do. The respondents countered that the petitioner never made a written application or paid for the shares as required by law. The petitioner maintained that the payment of Canadian Dollars 5000 was towards the share allotment, while the respondents claimed it was a repayment of rent owed to the petitioner's father.

Judgment Summary:
The CLB, after considering the arguments and written submissions from both sides, concluded that the issue of limitation did not apply in this case. The Board found that the company was akin to a family partnership, and the cause of action was continuous from the initial Board resolution in 1988. The Board noted that the respondents had not provided any evidence for their failure to complete the formalities and issue the share certificate. The Board relied on the Supreme Court judgment in L.S. Synthetics Ltd. v. Fairgrowth Financial Services Ltd. and Anr., which stated that the Limitation Act, 1963, does not apply to proceedings before quasi-judicial tribunals. Consequently, the CLB held that the petition was maintainable and not barred by limitation.

The CLB's decision emphasized that the respondents could not take advantage of their own wrongs and highlighted the continuous nature of the cause of action in family partnership companies. The petition was thus allowed to proceed, and the issue of limitation was decided in favor of the petitioner.