1985 (8) TMI 296 - HC - Companies Law

Family arrangement invalidated for lack of evidence and approval under Companies Act; suit dismissed.

VM Rao Versus Rajeswari Ramakrishnan/V. L. Dutt and Others

The court found the alleged family arrangement to be invalid and unenforceable, as it lacked evidence and approval under the Companies Act. The suit and ... Oppression and mismanagement Issues Involved:1. Validity and enforceability of the alleged family arrangement.2. Maintainability of the suit and company petition.3. Allegations of oppression and mismanagement under sections 397 and 398 of the Companies Act.4. Validity of the election of directors.5. Allegations relating to the affairs of Bajrangabali Iron and Steel Co. Ltd.6. Allegations relating to the affairs of K.C.P. Ltd.7. Allegations of abuse of process of court and collateral purpose.Summary:1. Validity and Enforceability of the Alleged Family Arrangement:The court found that the family arrangement alleged by the plaintiffs was neither true nor valid nor binding on the parties. The alleged family arrangement was not acted upon, and there was no principle of estoppel that could be invoked. The court observed that the family arrangement was not recorded in any document or proceeding and was not incorporated in the articles of association of the company. The evidence presented by the plaintiffs was inconsistent and unreliable. The court also noted that the alleged family arrangement would have required approval under section 346 of the Companies Act, which was not obtained. Therefore, the alleged family arrangement was not enforceable in law.2. Maintainability of the Suit and Company Petition:The court held that the suit, as framed, was not maintainable as it related to matters of internal management of the company. The issues raised in the suit could not be entertained by a civil court and should be agitated before the court having jurisdiction under the Companies Act. The court also found that the company petition under sections 397 and 398 of the Companies Act was not maintainable as the petitioner did not establish continuous acts of oppression or mismanagement. The court emphasized that the conduct complained of must affect the petitioner in his capacity as a member of the company and not in any other capacity.3. Allegations of Oppression and Mismanagement:The court found that the petitioner failed to establish any continuous acts of oppression or mismanagement. The allegations relating to the affairs of Bajrangabali Iron and Steel Co. Ltd. and K.C.P. Ltd. were not substantiated. The court noted that the petitioner's conduct in initiating parallel proceedings before other forums and making unfounded allegations amounted to an abuse of process of the court. The court also observed that the petitioner's real objective was to exert pressure to achieve a collateral purpose, which was not permissible.4. Validity of the Election of Directors:The court held that the election of the first and second defendants as directors of V. Ramakrishna Sons Ltd. was valid and in accordance with law. The court found that the general body of the company had the power to elect directors, and the exercise of this power by the majority shareholders could not be considered oppressive. The court also noted that the petitioner did not protest the election at the relevant time and only raised the issue later to support his claim of a family arrangement.5. Allegations Relating to Bajrangabali Iron and Steel Co. Ltd.:The court found that the special resolution passed by Bajrangabali Iron and Steel Co. Ltd. authorizing the issue of further shares to any person was valid. The court held that the resolution was passed in accordance with section 81 of the Companies Act and was justified given the financial condition of the company. The court also noted that the petitioner's allegations of dilution of share value and improper conduct were not supported by evidence. The valuation reports presented by the petitioner were found to be unreliable and lacking in material particulars.6. Allegations Relating to K.C.P. Ltd.:The court found that the allegations relating to the award of transport contracts by K.C.P. Ltd. were not substantiated. The court noted that the contracts were awarded based on negotiated rates and were in line with past practices. The court also observed that the petitioner did not raise any objections at the relevant time and only brought up the issue later to support his claims.7. Allegations of Abuse of Process of Court and Collateral Purpose:The court found that the petitioner's conduct in initiating parallel proceedings and making unfounded allegations amounted to an abuse of process of the court. The court observed that the petitioner's real objective was to exert pressure to achieve a collateral purpose, which was not permissible. The court also noted that the petitioner's actions in preventing the production of records for cross-examination were highly reprehensible and indicative of his mala fide intentions.Conclusion:The court dismissed the appeals, confirming the findings of the learned single judge. The court held that the family arrangement pleaded by the appellants was not proved, valid, or binding. The suit and company petition were not maintainable, and the allegations of oppression and mismanagement were not substantiated. The election of directors was valid, and the actions relating to Bajrangabali Iron and Steel Co. Ltd. and K.C.P. Ltd. were found to be justified and in accordance with law. The court also condemned the petitioner's conduct as an abuse of process and aimed at achieving a collateral purpose.