2018 (2) TMI 1683 - Tri - Companies Law

Oppression and mismanagement - Whether the Petitioners are entitled to file this Company petition? - Petitioners contention that no notice of EGM was served on them for passing special resolution relating to the business items mentioned supra and the allotment of shares - Held that - Sending of notice of EGM by ordinary post is a proper compliance of section 53(1) of the Companies Act, 1956 and the Petitioners contention that there is no proper service of notice to them cannot hold water and there is no irregularity in the conduct of the EGM. Further it is to be noted that P2 is holding only 4.88% of the shareholding and it is a foregone conclusion that even if he has attended the meeting the resolutions would have been through despite his presence in view of his 4.88% shareholding. The company has raised funds for the purpose of this expansion plans only and the further issue of capital, issue of debentures etc. are justified and the contention of the Petitioner that the company is creating some false and fictitious expansion and diversification plan to entice R22 which is a subsidiary of a public sector enterprise is totally unfounded and misconceived. The Petitioners stated that in the Balance Sheet of the company for the year ended 31-3-2010, there are violation of Sections 217(l)(b), 217(l)(c), 217(2A), 211(3A), 211 and 211(1) for which the Respondents suitably explained that none of the Section have been violated by the Company. However, violation of certain sections of the Companies Act, 1956 cannot become a ground to convert such violation in an act of oppression and mismanagement under sections 397-398 of the Companies Act against these Petitioners, hence this allegation also falls to the ground. Further for invoking the equitable jurisdiction of this Tribunal under sections 397-398, the Petitioners have not made out a case that the company s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to the Petitioners, and there being no ground for commanding it for winding up of the company, there could not be any occasion to look into as to whether wind up of the company would unfairly prejudice such member or members but that otherwise the facts would justify winding up of the Company. In the facts and circumstances of this case, the allegation of oppression and mismanagement by the Petitioners fails.

Issues Involved:
1. Eligibility of Petitioners to file the Company Petition.
2. Allegations of oppression and mismanagement.
3. Refusal to register transfer of shares.
4. Conduct of Extra Ordinary General Meeting (EGM) without notice.
5. Increase of authorized and subscribed capital, and allotment of shares and debentures.
6. Alleged illegal allotment of shares.
7. Alleged violations of specific sections of the Companies Act, 1956.

Detailed Analysis:

Issue 1: Eligibility of Petitioners to file the Company Petition
The Tribunal examined whether the Petitioners were entitled to file the petition under Sections 397 and 398 of the Companies Act, 1956. The primary contention was the non-transfer of shares due to non-cancellation of adhesive stamps on the share transfer forms, leading to non-compliance with Section 108 of the Companies Act, 1956. Consequently, P1 and P3 to P11 were not recognized as members of R1 Company, making the petition non-maintainable under Section 399 of the Companies Act, 1956. The Tribunal upheld this view, concluding the petition was not maintainable.

Issue 2: Allegations of oppression and mismanagement
Although the petition was deemed non-maintainable, the Tribunal considered the merits of the allegations. The Petitioners claimed oppression and mismanagement, alleging that the company’s actions led to dilution of their stake and reduction in share value. However, the Tribunal found no substantial evidence supporting these claims, noting that the company’s actions, including fund utilization for expansion, were justified and monitored by independent professionals and an IFCI nominee. The Tribunal concluded there was no oppression or mismanagement.

Issue 3: Refusal to register transfer of shares
This issue was discussed under the eligibility point. The Tribunal reiterated that the non-transfer of shares was due to non-compliance with Section 108 of the Companies Act, 1956, as the adhesive stamps on the transfer forms were not canceled. Thus, the refusal to register the transfer was legally justified.

Issue 4: Conduct of Extra Ordinary General Meeting (EGM) without notice
The Petitioners alleged they were not served notice for the EGM held on 30-03-2011, where significant resolutions were passed. The Tribunal found that the notice was sent by ordinary post as required under Section 53(1) of the Companies Act, 1956, and no irregularity was established. Additionally, given P2’s 4.88% shareholding, the resolutions would have passed regardless of their presence.

Issue 5: Increase of authorized and subscribed capital, and allotment of shares and debentures
The Petitioners contended that the increase in capital and allotment of shares and debentures were unnecessary and prejudicial. The Tribunal found that the company raised funds for legitimate expansion purposes, including land development, building, and machinery, which were monitored by independent professionals. Thus, the actions were justified and not indicative of any malfeasance.

Issue 6: Alleged illegal allotment of shares
The Petitioners claimed the allotment of shares was illegal and aimed at enriching the Respondents. The Tribunal, however, found no evidence supporting these allegations. The allotment was part of the company’s expansion plans and was conducted following proper procedures.

Issue 7: Alleged violations of specific sections of the Companies Act, 1956
The Petitioners alleged violations of Sections 217(1)(b), 217(1)(c), 217(1)(e), 217(2A), 211(3A), and 211 of the Companies Act, 1956. The Tribunal found that these allegations did not constitute grounds for oppression and mismanagement under Sections 397 and 398. The company’s financial statements and disclosures were found to be in compliance with the relevant standards.

Conclusion:
The Tribunal dismissed the petition due to non-maintainability under Section 399 of the Companies Act, 1956. However, in the interest of justice, the Tribunal provided an option for P2 to exit by selling shares to R1 Company at a fair valuation or for P1 and P3 to P11 to resubmit compliant share transfer documents. The petition was disposed of without costs.

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