1989 (5) TMI 274 - HC - Companies Law

Court rules in favor of petitioners in oppressive conduct case, orders buyout and indemnification.

Surinder Singh Bindra Versus Hindustan Fasteners (P.) Ltd.

The court found in favor of the petitioners, ruling that the Sahni group had conducted the company's affairs oppressively and prejudicially. The Sahni ... Oppression and mismanagement Issues Involved:1. Validity of the increase in the company's share capital.2. Validity of share allotment from increased capital.3. Ratio of original share allotment and subsequent changes.4. Ownership and sale of land at Faridabad.5. Re-election of a director.6. Holding of annual general meetings as per section 166.7. Resignation of a director.8. Diversion of company's funds and assets.9. Mismanagement by the managing directors.10. Prevention of effective participation in management.11. Lawful shifting of the registered office.12. Maintenance of statutory books and accounts.13. Availability and responsibility for missing books.14. Qualification of the company secretary.15. Approval of internal auditor appointment.16. Financial mismanagement in payments.17. Misappropriation or diversion of funds.18. Tampering with share-scrips and register of members.19. Non-issuance of share-scrips despite payment.20. Misrepresentation in company accounts.21. Conduct of company affairs prejudicial to interest.22. Justification for winding up the company.23. Prejudice to petitioner's interest by winding up.24. Effect of earlier dismissed petition on current petition.25. Allegations against individual petitioners and respondents.Summary:1. Validity of Share Capital Increase:The petitioners contended that the share capital was unauthorizedly increased from Rs. 25 lakhs to Rs. 30 lakhs in an annual general meeting allegedly not held on June 30, 1971. However, the court found that the petitioners had earlier accepted the increased capital in previous petitions and documents filed with the Registrar of Companies, thus acquiescing to the increase.2. Validity of Share Allotment:The court noted the absence of records showing the allotment of shares after the increase in share capital, indicating mismanagement by Somair Singh Sahni. Despite this, the petitioners' earlier acceptance of the share capital increase undermined their claim of oppression regarding share allotment.3. Ratio of Original Share Allotment:There was no formal agreement on the share ratio between the groups, but the court acknowledged an understanding that Bindra and Bhasin groups would participate in management. Their exclusion from management demonstrated oppressive control by the Sahni group.4. Ownership and Sale of Faridabad Land:The court did not delve deeply into this issue, focusing instead on the overall mismanagement and oppressive conduct by the Sahni group.5. Re-election of Director:The court found irregularities in the board's constitution and noted that the first petitioner's appointment as a director by an interim order had lapsed with the dismissal of the earlier petition.6. Annual General Meetings:The company failed to hold statutory meetings as required by section 166, contributing to the finding of mismanagement.7. Resignation of Director:The court interpreted Somair Singh Sahni's letter of resignation as a resignation from the directorship, not just as managing director.8. Diversion of Funds and Assets:The court noted allegations of fund diversion and misuse of authority by the Sahni group, indicating mismanagement.9. Mismanagement by Managing Directors:The court found that the Sahni group mismanaged the company's affairs, sidelining other groups.10. Prevention from Management Participation:The court confirmed that the Sahni group prevented Bindra and Bhasin groups from effectively participating in management, constituting oppressive conduct.11. Shifting of Registered Office:The court did not specifically address the legality of the office shift but noted overall mismanagement.12. Maintenance of Statutory Books:The company failed to maintain statutory records and comply with company law requirements, indicating mismanagement.13. Availability and Responsibility for Missing Books:The court noted the absence of statutory records, attributing responsibility to the Sahni group.14. Qualification of Company Secretary:The court did not specifically address this issue but noted overall mismanagement.15. Approval of Internal Auditor:The court did not specifically address this issue but noted overall mismanagement.16. Financial Mismanagement in Payments:The court noted financial discrepancies and mismanagement in company payments.17. Misappropriation or Diversion of Funds:The court found evidence of fund misappropriation and diversion by the Sahni group.18. Tampering with Share-Scrips and Register:The court noted allegations of tampering with share-scrips and the register of members.19. Non-issuance of Share-Scrips:The court noted the non-issuance of share-scrips despite payment, indicating mismanagement.20. Misrepresentation in Company Accounts:The court found evidence of misrepresentation in the company's accounts.21. Conduct of Company Affairs:The court concluded that the company's affairs were conducted in a manner prejudicial to the interest of the company and its members.22. Justification for Winding Up:The court found grounds for winding up the company but decided against it due to the company's operational status and potential prejudice to employees and creditors.23. Prejudice by Winding Up:The court noted that winding up would unfairly prejudice the petitioners' interests and public interest.24. Effect of Earlier Petition:The court acknowledged the earlier petition but focused on current mismanagement and oppression.25. Allegations Against Petitioners and Respondents:The court noted serious allegations and counter-allegations, indicating deep-rooted issues within the company.Conclusion:The court allowed the petition, finding that the Sahni group conducted the company's affairs oppressively and prejudicially. The court ordered the Sahni group to buy out the shares of the Bindra and Bhasin groups, indemnify them against liabilities, and discharge them from guarantees. The valuation of shares was to be determined on both asset and maintainable profit basis, with further directions to be given after receiving the valuers' report. Interim orders would continue until further directions.