2013 (1) TMI 174 - Board - Companies Law

Grant of ad interim injunction - Sections 111, 397, 398, 402 of the Companies Act, 1956 - Oppression and mismanagement - Discharge the financial liabilities - The respondent Nos. 2 & 3 have approached the petitioner and the respondent nos. 37 & 38 and proposed to purchase the entire shares of the company from the respondent Nos. 2 & 3 subject to condition that respondent nos. 37 & 38 will discharge the entire liability of the company - Petitioner enter into agreement for to paid a sum to the company which is inclusive of the consideration money for the purchase of 50% of shares Held that - Since the share certificates stand transferred in their name and they, being 50% shareholder, are entitled to get the reliefs prayed for. Having failed to make payment in terms of the agreement within the stipulated period, the petitioner, failed to establish any prima facie case in its favour. Agreement entered into already stands expired due to efflux of time and due to non-compliance of its terms by the petitioner. Time was the essence of the contract/agreement which was not adhered to by the, petitioner themselves in this case, as such, the Agreement the basis of the petition, has no value in the eye of law. In favour of respondent Possession of the property - Held that - Prima facie, it is not convincing that a party, who fails to make initial payments under the agreement, will be handed over the possession of the property. In addition to above, there is no endorsement in the agreement that the possession was delivered to the petitioner at the time of execution of the agreement Therefore, balance of convenience does not He in favour of the petitioner.

Issues Involved:
1. Jurisdiction under Sections 111, 397, 398, 402 of the Companies Act, 1956.
2. Allegations of oppression and mismanagement.
3. Interim reliefs sought by the petitioner.
4. Validity and enforcement of the agreement between the petitioner and respondents.
5. Prima facie case, balance of convenience, and irreparable loss.
6. Civil suit filed by respondents before the High Court.
7. Physical possession of the disputed property.

Detailed Analysis:

1. Jurisdiction under Sections 111, 397, 398, 402 of the Companies Act, 1956:
The petitioners invoked the jurisdiction of the Company Law Board under Sections 111, 397, 398, 402 of the Companies Act, 1956, alleging acts of oppression and mismanagement by the respondents. The petitioners sought various reliefs including the alteration of the share register and the declaration of certain board resolutions as null and void.

2. Allegations of Oppression and Mismanagement:
The petitioners claimed to be 50% shareholders in the respondent company and alleged that the respondents were not managing the company in accordance with the agreed terms. They accused the respondents of reducing their shareholding from majority to minority by appointing new directors and issuing shares to others without proper authorization.

3. Interim Reliefs Sought by the Petitioner:
The petitioners sought several interim reliefs, including the framing of a scheme for proper administration, directing respondents to sell their shareholding to the petitioner, altering the share register, deleting certain shareholders, declaring certain board resolutions as null and void, and various injunctions to restrain respondents from holding board meetings, utilizing company funds for litigation, transferring assets, and changing land use.

4. Validity and Enforcement of the Agreement:
The petitioner entered into an agreement with the respondents on June 30, 2011, which was subsequently modified on August 30, 2011. The agreement included terms for the transfer of shares and the management of the company. The respondents argued that the petitioner and other parties failed to adhere to the terms of the agreement within the stipulated time, rendering the agreement void. The petitioner had paid a sum of Rs. 4,60,23,000 but failed to fulfill the entire payment obligation.

5. Prima Facie Case, Balance of Convenience, and Irreparable Loss:
The Board assessed whether the petitioner had established a prima facie case, the balance of convenience was in their favor, and whether they would suffer irreparable loss if interim relief was not granted. The Board found that the petitioner failed to make payments as per the agreement, thus not establishing a prima facie case. The balance of convenience did not favor the petitioner as there was no convincing evidence of possession or payment of security charges for the property. Additionally, no irreparable loss was found as the respondents were willing to refund the amount paid by the petitioner upon return of the share certificates.

6. Civil Suit Filed by Respondents Before the High Court:
The respondents had already filed a civil suit before the High Court challenging the validity of the agreement and the transfer of shares. The existence of this suit further complicated the petitioner's claim and contributed to the decision to deny interim relief.

7. Physical Possession of the Disputed Property:
The petitioner claimed physical possession of the property, but the Board found no documentary evidence to support this claim. The respondents also claimed possession, and there was no endorsement in the agreement indicating that possession was transferred to the petitioner.

Conclusion:
The Board concluded that the petitioner failed to establish a prima facie case, the balance of convenience did not lie in their favor, and no irreparable loss would be caused if interim relief was not granted. Consequently, the prayer for ad interim injunction was declined. The case was scheduled for further proceedings with directions for filing replies and rejoinders.

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