2013 (9) TMI 385 - HC - Companies Law

Oppression and Mismanagement u/s 397 and 398 - Proceedings of the Annual General Meeting was declared null and void - Held that - Under section 172(3) of the Companies Act non-receipt of notice will not invalidate the proceedings - That service was effected under certificate of posting was disclosed in the sur-rejoinder - In doing so CLB had acted with perversity - service of the notice of meeting cannot be disputed and the decisions taken at the meeting cannot be challenged by the respondent AKM as he abstained from the said meeting for reasons best known to him - The finding of the CLB in respect thereof was bad and was setaside. From the copy disclosed in the proceedings it appeared that not only an attempt was made to serve a copy of the notice of the meeting by hand which was the usual practice followed by the company but that such notice was also accepted on behalf of the respondent AKM - Besides the said mode of service, notice was also issued under certificate of posting and by way of pre-cautionary measure a publication was made in Financial Express Calcutta Edition - Publication was notice to all and is good service. Consideration of Accounts The sum had been directed to be paid on the basis of no explanation given by the appellant in respect thereof, which was ex-facie incorrect as the appellants did take the plea of the audited accounts which had not been assailed and that sums had been spent on account of Travel expense of AKM and the mother - The expense borne to meet statutory requirement had also been given and in not appreciating evidence in this respect, CLB could not reach the conclusion of misappropriation and the said findings with regard to reimbursement cannot be upheld. The existence of the company continued the statutory requirements had to be complied with and for such purposes staff on job-work basis was maintained - CLB based on its reasonings in respect of misappropriation from sale of plant and machinery had reached the conclusion of siphoning of funds in respect of expenses and liabilities - This evidences non-application of mind - If the basis of the demand does not exist to grant such sums will be contrary to the tenets of all law. Allotment of Shares - Even after receipt of the notice, if respondent abstained from attending the meeting, he did so at his peril - The reason for increasing the share capital was to facilitate influx of funds The CLB failed to consider that in the event all the parties had complied with the Family Settlement the company would have been sold and the proceeds divided amongst its heirs - The acts of the respondent created a situation which made it impossible to sell the company and to only meet the statutory requirements of a shell company expenses had to be borne by the company which had become defunct since 1999. To do so finance was required which was raised by the company by increasing its share capital by allotment of shares - The respondent did not apply for additional shares inspite of notice and cannot blame the appellant for shares allotted.

Issues Involved:
1. Removal of AKM and his son from directorship.
2. Allegations of misappropriation of funds.
3. Increase in shareholding without notice.
4. Validity of the Annual General Meeting (AGM) held on 20th August, 2004.
5. Compliance with statutory requirements and family settlement.

Detailed Analysis:

1. Removal of AKM and his son from directorship:
The appellant argued that AKM and his son were removed from directorship due to their absence from three consecutive board meetings as per Section 283 of the Companies Act, 1956. Notices were allegedly sent to their last known addresses and published in the Financial Express. The court found that the Company Law Board (CLB) acted perversely by not allowing the sur-rejoinder which contained evidence of notice service. Therefore, the court set aside the CLB's finding that the removal was invalid.

2. Allegations of misappropriation of funds:
The respondent AKM alleged misappropriation through traveling expenses, liabilities created, and sale of plant and machinery. The appellant PKM provided explanations and evidence, including audited balance sheets, which were not challenged by AKM. The court criticized the CLB for not verifying the accounts or considering the provided evidence, deeming its findings on misappropriation as perverse. Consequently, the court overturned the CLB's directive for PKM to repay the alleged misappropriated amounts.

3. Increase in shareholding without notice:
The respondent AKM claimed that the increase in shareholding was without proper notice and aimed to reduce him to a minority. The appellant argued that notices were sent and the increase was necessary to inject funds into the defunct company. The court noted that notices were indeed sent and AKM's non-attendance at the meeting was at his own risk. The court found no evidence of oppression or misuse of power in the share allotment and set aside the CLB's findings on this issue.

4. Validity of the AGM held on 20th August, 2004:
The appellant contended that all statutory requirements for the AGM were met, including notice publication and service under certificate of posting. The court agreed, stating that the CLB acted perversely by not considering the sur-rejoinder and the evidence of notice service. The court upheld the validity of the AGM and the decisions taken therein.

5. Compliance with statutory requirements and family settlement:
The court emphasized the importance of the Family Settlement of 2001, which contemplated the sale of the company and its assets. The appellant PKM's actions to keep the company afloat were deemed necessary due to AKM's non-cooperation. The court criticized the CLB for ignoring the Family Settlement and not considering the expenses borne by PKM to meet statutory requirements. The court directed the net worth of the company to be assessed by M/s. Singhi & Co., and offered the parties the option to buy or sell shares based on this assessment to prevent a deadlock.

Conclusion:
The appeal was allowed, and the CLB's order dated 30th March, 2006, was set aside. The court directed the assessment of the company's net worth and provided a mechanism for resolving the shareholding dispute in line with the Family Settlement. The court rejected the respondent AKM's prayer for stay.

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