2004 (11) TMI 597 - Board - Companies Law

Company Petition Dismissed: Pursue Settlement Breach in Civil Court, Claims Don't Meet Mismanagement Grievance Criteria.

R. Balakrishnan and Ors. Versus Vijay Dairy and Farm Products Private Limited and Ors. And Vice-Versa

The CLB dismissed the company petition, denying interim reliefs, and directed the petitioners to pursue remedies for the alleged breach of the settlement ... Oppression and mismanagement - Removal of the Managing Director and Director - Exclusion of the petitioners from the day-to-day affairs of the Company - Non-payment of the balance amount under the agreement - breach of the contractual obligations arising out of the agreement - Whether the present company petition satisfies the ingredients of sections 397 & 398 - HELD THAT:- The releifs sought by the petitioners seeking directions against the respondents (a) to purchase the shares of the petitioners in terms of the agreement dated 24.10.2003 or at a value which may be determined by an independent valuer; and (b) to discharge the petitioners group from the personal guarantees furnished in favour of the bank are directly arising out of the alleged breach of the agreement dated 24.10.2003 on the part of the respondents group. The prayer for amending the Articles of Association of the Company entitling the petitioners group for the proportionate voting rights in a general meeting of the Company and for the proportionate representation in the Board of the Company is incidental to the main reliefs claimed in the company petition. The grievances and reliefs undoubtedly flowing from the agreement dated 24.10.2003, in my considered view, must be agitated in a competent civil court having jurisdiction over the matter. Any remedy for the alleged breach of the agreement and consequential reliefs do not lie before the CLB. Since the alleged acts of oppression and mismanagement do not make out any cause of action under the provisions of sections 397 & 398, neither the inherent power of the CLB nor the decision in State of Orissa v. Klockner & Co. (supra) would go to the aid of the petitioners. These past acts, forming part of the agreement reached between the disputed parties and the remedy under section 397/398 being of a preventive nature, as borne out by several decisions cited supra, the CLB cannot take cognisance of such acts under the provisions of sections 397 and 398. The company petition, to my mind, is intended for the purpose of recovering the money due by the respondents under the settlement agreement, which is not an object contemplated in section 397. Thus, the company petition is dismissed, without going into the merits and the interim reliefs are declined, however, with liberty for the petitioners to enforce the agreement dated 24.10.2003 in a competent court of law. With these directions, the company petition and the company applications stand disposed of. Issues Involved:1. Removal of the first petitioner as Managing Director.2. Removal of the second petitioner as a director.3. Non-payment of the balance amounts under the settlement agreement.4. Allegations of oppression and mismanagement u/s 397 and 398 of the Companies Act, 1956.Summary:Issue 1: Removal of the First Petitioner as Managing DirectorThe petitioners alleged acts of oppression and mismanagement in the affairs of M/s Vijay Dairy & Farm Products Private Limited, particularly focusing on the removal of the first petitioner from the office of Managing Director. The respondents argued that the removal was accepted and formalized through a mutual settlement agreement dated 24.10.2003, which included the resignation of the first petitioner from the Board on 28.10.2003.Issue 2: Removal of the Second Petitioner as DirectorThe second petitioner was removed from the post of director at an extraordinary general meeting held on 05.03.2004. The respondents justified this removal as being in accordance with the settlement agreement, which the petitioners allegedly breached by not transferring their shares and refusing to resign from the Board.Issue 3: Non-payment of Balance AmountsThe settlement agreement stipulated that the petitioners would exit the Company and sell their shares for Rs. 135 lakhs in four installments. The respondents paid Rs. 50 lakhs but withheld the remaining Rs. 85 lakhs, claiming the petitioners breached the agreement by starting a competing business and refusing to transfer shares.Issue 4: Allegations of Oppression and Mismanagement u/s 397 and 398The petitioners claimed that the respondents' actions constituted oppression and mismanagement. The respondents countered that the grievances were resolved through the settlement agreement and that any breach of this agreement should be addressed in a civil court, not u/s 397 and 398. The CLB found that the petitioners' grievances stemmed from the alleged breach of the settlement agreement and did not constitute ongoing acts of oppression or mismanagement. The CLB emphasized that the provisions of Sections 397 and 398 are preventive and not intended to remedy past acts, as supported by precedents like Shanti Prasad Jain v. Kalinga Tubes Ltd. and Palghat Exports Private Ltd. v. T.V. Chandran.Conclusion:The CLB dismissed the company petition and declined the interim reliefs, directing the petitioners to seek remedies for the alleged breach of the settlement agreement in a competent civil court. The petitioners' claims did not meet the requirements of Sections 397 and 398, as the alleged acts were past grievances related to the settlement agreement and not ongoing acts of oppression or mismanagement.