2019 (7) TMI 525 - Tri - Companies Law

Oppression and Mismanagement - Continuation of petition by the legal heir of deceased petitioner - Whether the acts of oppression and mismanagement is still maintainable, at the instant of the son of the petitioner, as legal heir since he is not part of those acts and oppression and mismanagement alleged to have been made by the original petitioner? HELD THAT - It is a settled position of law that the acts of oppression and mismanagement should not only be existing at the time of filing company petition, they should also being continuous harsh and burdensome leading to the conclusion that the directors action lack in probity and those grounds should justify winding up of the company under the just and equitable clause. As per law, as legal heir of his father Mr. A. Mayuresh Bhat (son) can get deceased father estate, which includes shares held by his father, after applying for the same as per law and respondent No. 1-company has to consider it. Admittedly, shares of original petitioner is not in dispute and this is not the issue raised in the instant petition by the son. However, the son can hardly maintain the company petition which is filed by making various acts of oppression and mismanagement by his father (Shri Arun Bhat). However, Mr. A. Mayuresh Bhat (son), after getting transmission of the shares of his father, he may claim his rights basing on such transmission, in accordance with law. Moreover, the son is prima facie holding 4 per cent. shares by contributing share capital of ₹ 2,00,000 and share application of ₹ 42,100 and also stated that he is hardly involved in the affairs of the company by attending the annual general meeting/board meetings as contended by the respondents. Therefore, he cannot maintain instant petition filed by his father, under section 397/398 of the Act, 1956. The petitioner failed to substantiate the acts of oppression and mismanagement as alleged by him in the company petition and some of reliefs as sought in the main company petition are also not tenable and cannot be granted. However, the legal heir can claim transmission of shares of his father by submitting necessary documents to respondent No. 1-company and thereafter, the company has to take suitable action for the same. And thereafter, if the son still feels that respondent No. 1-company is resorting to acts of oppression and mismanagement, he is at liberty to file a fresh company petition in accordance with law. Petition dismissed.

Summary

Issues Involved:
1. Alleged acts of oppression and mismanagement.
2. Maintainability of the petition by the legal heir of the original petitioner.

Issue-wise Detailed Analysis:

1. Alleged Acts of Oppression and Mismanagement:

The petitioner, a director of M/s. Banana County Resort P. Ltd., filed the petition under sections 397 and 398 of the Companies Act, 1956, seeking various reliefs, including the removal of certain respondents from the board of directors, purchase of shares at a fair value, and cessation of activities by the respondents. The petitioner alleged mismanagement and negligence by the respondents, including failure to obtain necessary licenses, non-payment of taxes, misappropriation of funds, and mismanagement leading to the company's financial distress. The petitioner also claimed that the respondents had opened multiple bank accounts without proper authorization and had been operating the company as their personal property.

The respondents denied these allegations, stating that the petitioner had not cooperated in the company's operations and had failed to attend board meetings. They argued that the petitioner had outsourced material procurement, causing delays and increased costs, and had not remitted due amounts to the company, leading to financial issues. They also contended that the petitioner had unauthorizedly appointed his wife as an additional director and had not disclosed interests in other companies as required by law.

The Tribunal found that the allegations of oppression and mismanagement were unsubstantiated. The Company Law Board had appointed a chartered accountant to audit the company's affairs, and the audit report did not conclusively indicate any diversion of funds or significant mismanagement. The Tribunal concluded that the company's affairs were being conducted satisfactorily and that the petitioner had not provided sufficient evidence to support his claims.

2. Maintainability of the Petition by the Legal Heir:

After the original petitioner, Mr. Arun Bhat, passed away, his son, Mr. A. Mayuresh Bhat, sought to be impleaded as his legal heir to continue the petition. The Tribunal allowed the impleadment but left the question of maintainability open for decision during the hearing.

The Tribunal noted that Mr. A. Mayuresh Bhat held only 4% of the company's shares and had not been actively involved in the company's affairs. As a legal heir, he could inherit his father's shares but could not maintain the petition based on allegations made by his father. The Tribunal stated that Mr. A. Mayuresh Bhat could claim his rights after the transmission of shares and, if necessary, file a fresh petition if he experienced acts of oppression and mismanagement.

Conclusion:

The Tribunal dismissed the company petition, stating that the allegations of oppression and mismanagement were unsubstantiated and that the legal heir could not maintain the petition based on his father's claims. The legal heir was advised to seek transmission of shares and pursue any further grievances in accordance with the law.