1998 (3) TMI 573 - HC - Companies Law

High Court Upholds CLB's Decision on Share Allotment Dispute, Emphasizes Fairness

The High Court upheld the CLB's decision to set aside the allotment of 4,000 shares and directed both groups to bid for the shares in the company. The ... Oppression and mismanagement Issues Involved:1. Oppression in the management of Kettela Tea Co. (P.) Ltd.2. Non-reappointment of a director (Petitioner No. 3).3. Appointment of an additional director (Respondent No. 4).4. Failure to issue notice for Board and general body meetings.5. Allotment of 4,000 additional shares to Respondent No. 6.6. Direction for bidding of shares between the contesting groups.Issue-wise Detailed Analysis:1. Oppression in the management of Kettela Tea Co. (P.) Ltd.:The petitioners alleged that the affairs of the company were being conducted in an oppressive manner, citing various acts such as the non-reappointment of a director, improper appointment of an additional director, failure to issue notices for meetings, and the allotment of additional shares to create a new majority. The CLB found that the company was a family company with equal shareholding between the contesting groups and had been managed based on personal relationships for over 15 years.2. Non-reappointment of a director (Petitioner No. 3):The petitioners claimed there was an understanding that Petitioner No. 3 would be re-elected as a director, which did not happen. The CLB observed that the AGM was validly held, and the decision taken was lawful. The petitioners were aware of the non-reappointment and did not agitate it immediately, indicating no element of oppression in this regard.3. Appointment of an additional director (Respondent No. 4):The appointment of Respondent No. 4 as an additional director was challenged by the petitioners. The CLB held that the mere appointment of Respondent No. 4 could not be considered oppressive, especially since it was regularized in the next AGM.4. Failure to issue notice for Board and general body meetings:The petitioners alleged that no notices for certain Board meetings and the AGM were received. The CLB found that the petitioners could not establish non-service of notice, and the respondents could not effectively rebut the allegations. However, the CLB noted that the company had been sending notices for meetings regularly, and the petitioners had prior notice of the AGM and Board meetings.5. Allotment of 4,000 additional shares to Respondent No. 6:The CLB scrutinized the allotment of 4,000 additional shares to Respondent No. 6 and found no valid reason for issuing shares exclusively to him, as the company had previously offered shares on a pro-rata basis. The CLB rejected the plea of financial emergency and pressure from bankers, noting that the company could have raised funds through unsecured loans. The CLB held that the allotment of additional shares tilted the balance in favor of the respondents and deprived the petitioners of their right to block special resolutions, thus constituting oppression. The allotment was set aside.6. Direction for bidding of shares between the contesting groups:The CLB ordered both groups to bid for the shares in the company, with the highest bidder taking control. This decision was challenged by both parties. The appellants argued that the oppressor should be allowed to buy the oppressed's shares, while the respondents contended that the CLB should have restored the original shareholding. The High Court upheld the CLB's decision, noting that the CLB exercised its discretion justly and lawfully, considering the family nature of the company and the need for an equitable solution. The court directed both groups to submit their bids in sealed covers, with the CLB to open the bids and determine the highest bidder.Conclusion:The High Court dismissed both appeals, upholding the CLB's decision to set aside the allotment of 4,000 shares and directing both groups to bid for the shares in the company. The court found that the CLB had exercised its discretion fairly and lawfully, considering all relevant aspects and providing an equitable solution to the dispute.