2024 (9) TMI 1612 - Tri - Companies Law

Oppression and mismanagement - Illegal sale of land of the Company - illegal allotment of 17,29,000 equity shares - illegal appointment of Respondent No.4 as Director of the Company - illegal eemoval of Petitioner No.1 as Director - correctness of Amendment of Memorandum and Articles of Association - legality of Extra-ordinary General Meetings held and resolutions passed - Recovery of syphoned money with interest. Whether the acts or conduct of respondents are prejudicial and oppressive to the petitioners or /and whether the affairs of the Company are being conducted in a manner prejudicial to the interests of the Company as alleged by the petitioners? - HELD THAT - In view of the written and oral submission made by both the parties and after perusal of the records as mentioned, the petitioner has not pointed out any irregularity in the process of sale and the main contention of the petitioner is about the valuation of the land. The Petitioners have failed to point out any irregularity in the sale of land assets but for the price at which they are sold. As far as the issue of selling properties at lower than market value is concerned, there are no illegality in it since the stamp duty has been paid at applicable valuation and rates. However, the moot question before us is whether this act of selling land at a price lower than the market rate is an act of oppression and mismanagement. Thus it is a common practice that many companies/ individuals take conscious decisions to sell property at a price lower than the market value in view of exigencies and other factors. It is clear from the facts produced before us that Company was in urgent need of funds at that point of time - keeping in view that consent of Petitioner no 1 was also there in fixing the cut off sale price, there are no act of oppression and mismanagement for selling the land parcels at a price lower than market price. Therefore, keeping in view the aforesaid facts, there are no act of oppression and mismanagement in the sale of two land parcels as aforesaid by the Company to Respondent No.29. There are merit in the submissions made by respondents that though lease deed was signed to lease out the company to Messrs Padmavatahi Ispat but it was never put into action and ultimately the said lease deed was cancelled and advance lease rent was returned to lessee, therefore this can not be an act of oppression and mismanagement. The acts or conduct of respondents are not prejudicial and oppressive to the petitioners and affairs of the Company are also not being conducted in a manner prejudicial to the interests of the Company. Whether the alleged allotment of 17,29,000 equity shares made on 19th May 2008, 10th September 2008 and 13th October 2008 to the respondents is illegal and void ab initio and thus necessitate the need for rectification of Register of Members? - HELD THAT - The alleged allotment of 17,29,000 equity shares made on 19th May 2008, 10th September 2008 and 13 th October 2008 to the respondents is not illegal and void ab initio and thus does not necessitate any need for rectification of Register of Members. The present petition being devoid of any merit or substance is liable to be dismissed - petition dismissed.

Issues Involved:

1. Illegal sale of company land.
2. Illegal appointment and removal of directors.
3. Illegal lease of company factory.
4. Financial irregularities and siphoning of funds.
5. Illegal allotment of shares.

Issue-wise Detailed Analysis:

1. Illegal Sale of Company Land:

The petitioners alleged that two parcels of land were sold below market value to Respondent No.29, who is related to Respondent No.2. The sale was claimed to be prejudicial to the company's interests. The respondents contended that the sale was necessary to meet financial exigencies and was conducted with the consent of the petitioners. The Tribunal found no irregularity in the sale process, noting that the sale price was above the government guideline value at the time and that the petitioners had consented to the sale. The Tribunal concluded that the sale did not constitute an act of oppression or mismanagement.

2. Illegal Appointment and Removal of Directors:

The petitioners claimed that the removal of Petitioner No.1 as a director and the appointment of Respondent No.4 were conducted without proper notice and were oppressive. The respondents provided evidence of notice and special notices under Section 190 of the Companies Act. The Tribunal found that proper notice was given and that the removal and appointment were conducted in accordance with the law. The Tribunal also noted that the reasons for removal, including allegations of forgery and acting against the company's interests, were supported by evidence.

3. Illegal Lease of Company Factory:

The petitioners alleged that the lease of the company's factory to M/s Padmavati Ispat was done without proper authority and was prejudicial to the company's interests. The respondents argued that the lease was never acted upon and was eventually canceled. The Tribunal found that the lease was indeed canceled and that there was no evidence of oppression or mismanagement in this regard.

4. Financial Irregularities and Siphoning of Funds:

The petitioners claimed that there were significant financial irregularities and that funds were siphoned off by the respondents. The respondents denied these allegations and provided explanations for the financial transactions in question. The Tribunal found that the petitioners failed to provide sufficient evidence to support their claims of financial irregularities and siphoning of funds.

5. Illegal Allotment of Shares:

The petitioners alleged that the allotment of 17,29,000 shares to the respondents was illegal and aimed at diluting their shareholding. The respondents argued that the allotment was necessary for raising funds to pay off debts and was conducted in accordance with the amended Articles of Association. The Tribunal found that the allotment was legal, noting that Section 81 of the Companies Act, which mandates proportionate allotment, does not apply to private companies. The Tribunal concluded that the allotment did not constitute an act of oppression or mismanagement.

Conclusion:

The Tribunal dismissed the petition, finding no merit in the allegations of oppression and mismanagement. The Tribunal concluded that the acts of the respondents were not prejudicial to the petitioners or the company's interests and were conducted in accordance with the law. The petition was dismissed without costs.

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