2013 (4) TMI 1006 - HC - Companies Law

Issues Involved:

1. Maintainability of the company petition under Sections 397 and 398 of the Companies Act, 1956.
2. Eligibility of the petitioner to file the petition based on shareholding criteria under Section 399.
3. Redemption of preference shares and its impact on share capital.
4. Alleged manipulation and mismanagement by the company's directors.
5. Validity of resolutions passed by the Board of Directors and their implementation.
6. Petitioner's rights and remedies concerning alleged oppression and mismanagement.

Detailed Analysis:

1. Maintainability of the Company Petition:

The primary issue was whether the company petition filed under Sections 397 and 398 was maintainable. The learned Company Law Board held that to maintain such a petition, the petitioner must hold not less than 1/10th of the issued share capital. The appellant held only 12,00,000 equity shares, amounting to Rs. 1,20,00,000, which was less than the required 1/10th of the paid-up share capital of Rs. 12,07,87,000. Consequently, the petition was deemed not maintainable.

2. Eligibility Based on Shareholding Criteria:

The appellant contended that he was entitled to maintain the petition under Section 399 due to his right to additional shares based on a Board resolution. However, the Board found that the appellant did not have 10% of the paid-up capital on the date of filing the petition. The contention that the appellant's shareholding was diluted after the acts of complaint was not supported by evidence, as there was no reduction in share capital.

3. Redemption of Preference Shares:

A significant issue was whether the 2,00,000 preference shares were redeemed. The respondents argued that these shares were not redeemed due to lack of profits, and the amount was shown as a loan. The appellant's claim that the shares were redeemed was not accepted, as redemption can only occur out of profits or by allotment of shares, which was not the case here.

4. Alleged Manipulation and Mismanagement:

The appellant alleged mismanagement and manipulation by the company's directors, including the improper handling of share application money. The Board held that these allegations required detailed inquiry and were not grounds to maintain the petition without meeting the eligibility criteria under Section 399.

5. Validity of Board Resolutions:

The appellant sought implementation of a Board resolution to issue additional shares. However, the process of allotment was incomplete, requiring statutory approvals. The Board held that the appellant could not claim to hold 1/10th of the share capital based on an unimplemented resolution.

6. Petitioner's Rights and Remedies:

The appellant argued that his rights as a minority shareholder were defeated by the company's actions. However, the Board emphasized that the remedy for enforcing the contract was available in Civil Court, not before the Company Law Board, due to the lack of eligibility under Section 399. The appellant's conduct, including signing balance sheets acknowledging the share capital arrangement, estopped him from challenging it.

In conclusion, the appeal was dismissed, affirming the Company Law Board's decision that the petition was not maintainable due to the appellant's failure to meet the statutory shareholding requirement. The judgment underscored the importance of adhering to procedural and statutory requirements in company law disputes.

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