2014 (6) TMI 846 - Board - Companies Law

Oppression and mismanagement of Company - Held that - Mehra family is controlling the affairs of Respondent No. 1 company and the bank accounts have been opened in the name of the Respondent company after obtaining necessary approval of the Board of Directors in the interest of the company. It is true that the management of the company is empowered to open as many bank accounts in the name of the company as is considered expedient in the interest of the business of the company. However, it is also relevant to emphasize that the said bank accounts ought not to be used for diversion of funds of the company. On one side, the Petitioners/Applicants Advocate has alleged the diversion of funds of the Respondent company. On the other hand, the Respondent Advocate has controverted that there is no case of siphoning of funds of the company. Under these facts and circumstances, I am of the considered view that the Respondent company be allowed to continue the bank accounts in the interest of the company and the Petitioners be given liberty to look into the receipts and payments of money in the bank accounts so as to ensure that the funds are utilised in the interest of the company. - Decided partly in favour of Petitioners.

Issues involved:
Alleged oppression and mismanagement under Sections 397, 398, 402, and 403 of the Companies Act, 1956 regarding siphoning of funds, diversion of funds, and financial mismanagement by the Mehra family. Dispute over the opening and operation of bank accounts, alleged irregularities in loan accounts, and issuance of post-dated cheques.

Analysis:

1. Allegations of Siphoning of Funds:
The Petitioners filed a petition alleging oppression and mismanagement, specifically accusing the Mehra family of siphoning funds by diverting payments to secret bank accounts. The Respondent No. 11 notified outstanding amounts and irregularities in loan accounts, indicating potential financial mismanagement. The Petitioners sought to direct the Respondents to route credits only through specific bank accounts and close others, emphasizing concerns about undisclosed accounts and unauthorized transactions.

2. Response and Defense:
The Respondent's Authorized Representative countered the allegations, highlighting the Petitioners' minority shareholding and disputing claims of partnership with the Mehra Group. They defended the decisions made by the Board of Directors, asserting transparency in transactions, including the MOU involving liabilities and asset sales. The Respondent denied the existence of secret bank accounts and refuted the allegations of diversion of funds and stripping of assets.

3. Legal Proceedings and Decision:
The Petitioners argued that the Mehra family was diverting funds to unauthorized accounts, causing financial harm to the company. In response, the Respondent reiterated the authority of the Board to manage bank accounts in the company's interest. The judgment acknowledged the company's right to maintain bank accounts but directed submission of monthly bank statements to ensure proper fund utilization. The decision aimed to balance the interests of the company and the Petitioners, allowing scrutiny of financial transactions without restricting the company's operations.

4. Conclusion:
The Company Law Board's judgment addressed the allegations of financial mismanagement and diversion of funds by the Mehra family, emphasizing the need for transparency and oversight in financial matters. By allowing monitoring of bank transactions while permitting the company to continue its operations, the decision sought to safeguard the company's interests while addressing the Petitioners' concerns. The case was disposed of without costs, providing a resolution to the immediate dispute over bank accounts and financial management practices.

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