2013 (2) TMI 445 - HC - Companies Law

Oppression & mismanagement - Restraining from selling, alienating, encumbering, transferring or creating any third party rights and/or interests in respect of the shares - Company Petition filed by invoking provisions of Sections 397 and 398 - Held that - Petitioners do not have any cause of action in view of the allegations of misuse of the Company s assets, infrastructure and other resources for the Petitioners own businesses, the R-1 Company s profitability in the absence of R-2 has been not only reduced to NIL rather the R-1 Company s losses are increasing year after year. In such facts and circumstances of the case R-2 was constrained and was justified to call an EOGM for voluntary Winding up of the R-1 Company. No reason whatsoever given referring to this admitted position on record with respect to the shareholding of the Appellants/Original Petitioners. There is force in the contentions so raised. The Board has not at all dealt with the aspect, which, goes to the root of the matter while deciding the maintainability of the Company Petition. Another factor, though recorded by the Board, yet failed to consider that Bipin C. Mehta, who admittedly expired after filing of the Company Petition, had transferred his shares to these legal heirs, just cannot be overlooked 30% overall shareholding of the Appellants/Original Petitioners. The situation was totally different on the date of filing of the Company Petition, specially in view of the admitted position so recorded. The Board ought to have considered the date of filing of the Petition, as well as the admissions so given by the contesting Respondents, before rejecting the Company Petition in such a fashion on the ground of maintainability. The order is contrary to the law and the record. They are awaiting transfer order to be passed by the majority. As this rejection itself goes to the root of the matter as ultimately that resulted into dismissal of the Company Petition even on merits. Therefore, remand the matter by keeping all points open for all the parties to reconsider the matter by giving opportunity to the parties to put up their case on merits also.

Summary

Issues Involved:
1. Maintainability of the Company Petition under Sections 397 and 398 of the Companies Act, 1956.
2. Consideration of shareholding requirements for filing a Company Petition.
3. Failure to address crucial aspects by the Company Law Board.
4. Rejection of the Company Petition without proper evaluation of facts and admissions.
5. Remand of the matter for rehearing on all points.

Analysis:

1. Maintainability of the Company Petition: The Appellants, holding 30% equity shares, filed a Company Petition invoking Sections 397 and 398 of the Companies Act. The contesting Respondents, holding 68% equity shares, admitted the shareholding disparity. The Company Law Board rejected the application citing technical grounds, stating it was "not maintainable." However, the High Court Judge found this rejection erroneous, emphasizing that the Board failed to consider crucial aspects, leading to the dismissal of the Company Petition.

2. Shareholding Requirements: The Judge highlighted the mandatory nature of Section 399(1) of the Companies Act, emphasizing that petitioners must satisfy the Board regarding their shareholding eligibility to allege oppression and mismanagement. The Judge noted that the Board did not address the admitted shareholding position of the Appellants, which was essential in determining the maintainability of the Company Petition. The Judge also pointed out the transfer of shares to legal heirs, altering the shareholding scenario from the date of filing the Petition.

3. Failure to Address Crucial Aspects: The Judge criticized the Board for overlooking vital aspects, such as the admitted shareholding positions and the transfer of shares to legal heirs. The Judge deemed the Board's order contrary to law and the record, emphasizing the importance of considering all relevant facts before rejecting the Company Petition solely on maintainability grounds.

4. Rejection of Company Petition: The Judge found the rejection of the Company Petition on maintainability grounds as pivotal, as it led to the dismissal of the Petition on merits. Consequently, the Judge decided to remand the matter, allowing all parties the opportunity to present their case on merits. The High Court quashed the Board's order and remanded the matter for rehearing on all points, emphasizing the need for a comprehensive evaluation.

In conclusion, the High Court's judgment focused on the maintainability of the Company Petition, the shareholding requirements, the failure of the Board to address crucial aspects, and the subsequent remand of the matter for rehearing on all points, ensuring a fair consideration of the case.