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2021 (6) TMI 976 - Tri - Companies LawOppression, mismanagement or misappropriation - seeking parity in the shareholding of the 1st Respondent Company to the extent that the petitioner and the Respondent No.2 hold 50% of the shareholding each - valuation of shares of the 1st Respondent Company so as to give a quietus to the disputes in the running of the company - removal of the Respondent No.2 as the Managing Director - seeking re-constitution of the Board of Directors on the basis of proportional representation to the shareholding of the parties - seeking removal of the 3rd Respondent as the Director of the Company - seeking investigation into the affairs of the Respondent No.1Company - seeking to bring back siphoned funds - HELD THAT - Prior to incorporation of the Respondent No.1 Company, Respondent No.2 and Petitioner and other two persons agreed to hold 25% shares each in the Respondent Company - if the majority acts are against the provisions of the Articles of Association or the statute covering it, or makes any arbitrary use of the majority powers, resulting or likely to result in financial loss or where action could be characterized as unfair and improper could be arise only when Company starts its operations. In the present case the 1st Respondent Company began its operation on 14.08.2006 after its incorporation and the e-mail referred to by the petitioner was sent on 06.06.2006. It is true that prior to the constitution of the Respondent Company there was an understanding between the parties. Unfortunately, it was not made a record after the establishment of the Company. Therefore, this Tribunal considers it as a preliminary discussion between the parties before the incorporation of the 1st Respondent Company. Hence, claiming oppression based on a previous understanding cannot be considered as an act amounts to oppression and mismanagement of the Company. Petitioner contends that Respondent intends to increase the capital of the Company to dilute the shareholding of the Petitioner. Petitioner also contends that he is a 40% shareholder in the Respondent No.1 Company and entered into a Memorandum of Understanding (MoU) with Respondent No.2 which is a private agreement to buy back the 15% shares of the Petitioner - it is clear that Petitioner by entering into an MoU with Respondent No.2 agreed that he holds 40% of shares in the Respondent No.1 Company. This, MoU can be considered as a document to conclude that the Petitioner holds 40% of share in the Respondent Company, as he does not provide any other evidence to prove that he is a 40% shareholder in the Company. Moreover, nothing on record to prove that the Company increased the Share Capital to dilute the Shares of the Petitioner. To prove oppression against the minority shareholder in the Respondent No.1 Company, Petitioner must prove that the other Companies are engaged in the same class of business, conduct the affairs of other companies in an unfair manner that prejudice the interests of the minority shareholder in the Respondent No.1 Company. In this Petition except the allegations stated in the Petition, Petitioner has not produced any record to show that the website is owned by the Respondent No.2. Mere change of employees from the Respondent No.1 Company to the Respondent No.4 Company does not constitute oppression and mismanagement. This Tribunal is of the view that the Company Petition is nothing but a dressed up petition using different expressions in various paras of the Petition prefacing it with allegations of Oppression and Mismanagement with no actual records placed it along with the Petition would not assume the character of a petition under Section 397 and 398 of the Companies Act,1956 - this Bench is of the view that this is not a fit case for approving the allegations of oppression and mismanagement in the Respondent Company as alleged by the Petitioner - Petition dismissed.
Issues Involved:
1. Alleged acts of oppression and mismanagement by Respondent No.2. 2. Discrepancies in shareholding and directorship. 3. Alleged misuse of company resources and funds. 4. Validity and enforcement of the Memorandum of Understanding (MoU). 5. Allegations against additional Respondents (Nos. 4 & 5) regarding employment and intellectual property. Detailed Analysis: 1. Alleged Acts of Oppression and Mismanagement by Respondent No.2: The petitioner alleged that Respondent No.2 engaged in various acts of oppression and mismanagement, including not transferring shares as promised, keeping the petitioner in the dark about company affairs, and conducting the company as a family fiefdom. The Tribunal found these allegations to be unsubstantiated due to a lack of evidence. The Tribunal emphasized that vague and uncertain allegations do not entitle a petitioner to relief unless supported by concrete evidence. 2. Discrepancies in Shareholding and Directorship: The petitioner claimed that there was an initial agreement to hold 25% shares each among four individuals, which was not honored. The Tribunal noted that the email indicating this agreement was part of preliminary discussions and was not formalized. The Articles of Association (AoA) of the company did not reflect this agreement. The Tribunal concluded that the petitioner’s claim of oppression based on this understanding could not be considered valid as it was not documented post-incorporation. 3. Alleged Misuse of Company Resources and Funds: The petitioner accused Respondent No.2 of raising duplicate invoices, diverting funds for personal expenses, and increasing his and Respondent No.3's remuneration unjustifiably. The Tribunal found these to be mere allegations without supporting records. The Tribunal cited the necessity for specific allegations and evidence to warrant an investigation, which the petitioner failed to provide. 4. Validity and Enforcement of the Memorandum of Understanding (MoU): The petitioner entered into an MoU with Respondent No.2, agreeing to sell 15% of his 40% shareholding. The Tribunal noted that the MoU confirmed the petitioner’s 40% shareholding but did not support the petitioner's claim of holding 50% shares. The Tribunal found no evidence of the company increasing its share capital to dilute the petitioner’s shares. The MoU was considered a private agreement and not enforceable under the company petition. 5. Allegations Against Additional Respondents (Nos. 4 & 5) Regarding Employment and Intellectual Property: The petitioner alleged that Respondent No.4 hired employees from Respondent No.1 and used intellectual property developed by Respondent No.1. Respondent No.4 argued that employees have the right to change jobs and there was no non-compete agreement. The Tribunal found no evidence of intellectual property infringement or any connection between the domain names and the alleged software products. The Tribunal concluded that mere employee movement does not constitute oppression or mismanagement. Conclusion: The Tribunal dismissed the petition, stating that the allegations of oppression and mismanagement were not substantiated with concrete evidence. The Tribunal emphasized the need for specific, supported allegations to grant relief under Sections 397 and 398 of the Companies Act, 1956. The petition was dismissed with no order as to costs.
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