2013 (8) TMI 393 - Board - Companies Law

Oppression and Mismanagement - Principles of quasi partnership - Whether respondent No. 1 company was run on the basis of principles of quasi partnership - Held that - The respondents had not denied neither admitted the fact of family business and quasi partnership Therefore the respondent No. 1 company was a family run company and the principles of quasi partnership will apply since the petitioners and the respondents hold 50 per cent. each and there was no change in the shareholding pattern - There was no denial to the report and it further strengthens the stand that the petitioners group and the respondents group hold 50 per cent. each - Moreover the respondents have neither specifically denied nor admitted with respect to the averment made by the petitioners that respondent No. 1 company was a family business and a quasi partnership except stating that in view of family arrangement the question of 50 per cent. ratio does not arise. Inspection of Records and Registers - Whether the respondents denied the inspection of records and registers to the petitioners - Held that - From the correspondence it was seen that there was no clear intention of the respondents to provide inspection of the documents to the petitioner - it was directed the company to provide the inspection of registers and records to the petitioners in accordance with law - The petitioners were also entitled to the notices for the board and general meetings as per the articles of association and the law - It was an admitted fact that the petitioners are 50 per cent. shareholders of the company and they were entitled to inspect the records and registers in the capacity as shareholders and directors. Family Settlement and Arrangement - Whether the Bench had any power to direct the parties to enforce the family arrangement/settlement - Held that - The private agreements between the parties, however, will not be considered by the Company Law Board - The private agreements can neither be sought to be enforced nor their breach give any cause of action to file a petition under sections 397 and 398 of the Act - The said provisions were the exclusive domain of the members and shareholders of the company against acts of oppression and mismanagement in the affairs of the company, but cannot seek any specific performance of private agreements - the family arrangement/settlement was not within the purview of this Bench - Reliance Natural Resources Ltd. v. Reliance Industries Ltd. 2007 (10) TMI 402 - HIGH COURT OF BOMBAY - the memorandum of understanding is a private pact between the members of the family. Relief - The interest of the company was paramount - Irrespective of the above, if the parties, i.e., the petitioners and the respondents act in good faith to resolve their differences and disputes permanently, it would not be an impediment to any of the observations/views in this order to part ways by amicable means of settlement if necessary by appointing an independent valuer to value the assets of the company - The observation was not obligatory - With the above the company petition was disposed of - No orders as to costs - All applications stand disposed of - All interim orders stand vacated Decided against petitioner.

Summary

Issues Involved:
1. Whether respondent No. 1 company is run on the basis of principles of quasi partnership.
2. Whether the respondents denied the inspection of records and registers to the petitioners.
3. Whether this Bench has any power to direct the parties to enforce the family arrangement/settlement.
4. To what relief.

Issue 1: Whether respondent No. 1 company is run on the basis of principles of quasi partnership.

Respondent No. 1 company was incorporated on April 27, 1976, as a private company with share transfers restricted. It is admitted that the company consists only of family members of petitioner No. 1 and respondent No. 2. The petitioners and respondents each hold 50% of the paid-up capital, and the company is a family business and quasi partnership between the two families. However, there is no clause in the articles maintaining the 50% ratio in the future. The respondents argue that a family arrangement negates the need for maintaining this ratio. The respondents admitted that all properties/assets were purchased from a common pool of funds jointly owned by the Sadh family. The shareholding pattern shows an equal split between the petitioners and respondents, and the respondents have not clearly denied the quasi partnership claim. Thus, the company is considered a family-run business with quasi partnership principles applicable.

Issue 2: Whether the respondents denied the inspection of records and registers to the petitioners.

The petitioners claimed they were denied inspection of records and registers post-March 31, 2003. The respondents argued that the petitioners were not concerned with the management after the family arrangement dated August 30, 2004, and September 11, 2004, but admitted to sending necessary accounts to all shareholders. Correspondence between solicitors indicates no clear intention from the respondents to provide inspection. The petitioners, as 50% shareholders and directors, are entitled to inspect records and registers. The company is directed to provide such inspection and notices for board and general meetings as per legal requirements.

Issue 3: Whether this Bench has any power to direct the parties to enforce the family arrangement/settlement.

The respondents heavily relied on a family arrangement dated August 30, 2004, and September 11, 2004, which allegedly divided properties between the parties. The petitioners did not mention this arrangement in their petition. The respondents claimed substantial implementation of this arrangement, leading to a pending suit in the High Court of Bombay. The Company Law Board's jurisdiction under sections 397 and 398 of the Companies Act, 1956, is to address oppression and mismanagement, not to enforce private agreements or family settlements. The Supreme Court has held that private agreements not reflected in the company's articles are not binding. Thus, this Bench cannot enforce the family arrangement/settlement, and the issue is beyond its jurisdiction.

Issue 4: To what relief.

The petitioners alleged misuse of company property by respondents Nos. 2 to 6 and unauthorized leasing to respondent No. 7. The respondents denied misuse and stated that the lease was recorded in board meeting minutes. The property was allotted to respondent No. 1 company, and the lease agreement with respondent No. 7 was terminated. The petitioners' request to declare all board and shareholders' resolutions from September 2003 as illegal is unsupported by evidence and thus rejected. The request to set aside any agreements to sell or transfer company property is also unsupported and rejected. The petitioners expressed willingness to exit the company for fair value, but the petition seeks to maintain the 50:50 ratio. The company is deemed a family business and quasi partnership, and the 50:50 ratio should be maintained unless the family arrangement is implemented consensually. The petition is disposed of with no orders as to costs, and all interim orders are vacated.