1999 (12) TMI 875 - Board - Companies Law

Board Disposes Company Petition: No Investigation or Director Removal Ordered

Allianz Securities Ltd. Versus Regal Industries Ltd.

The petition under Section 397/398 of the Companies Act, 1956, alleging oppression and mismanagement in the affairs of the company was disposed of. The ... - Issues Involved:1. Allegations of oppression and mismanagement under Section 397/398 of the Companies Act, 1956.2. Non-holding of Annual General Meetings (AGMs) and non-presentation of annual accounts.3. Non-supply of annual reports and falsification of books of account.4. Diversion of funds and violations of various statutory provisions.5. Non-compliance with sponsorship agreement terms.6. Allegations of non-issuance of notices for Board meetings.7. Request for special audit, investigation, and removal of directors.8. Allegation of forged document submission by the petitioner.9. Contempt application against the 2nd respondent for non-compliance with inspection orders.Detailed Analysis:1. Allegations of Oppression and Mismanagement:The petitioner-company, holding about 44.70% shares in Regal Industries Ltd., filed a petition under Section 397/398 of the Companies Act, 1956, alleging acts of oppression and mismanagement in the affairs of the company. The petitioner claimed that the company failed to hold AGMs, present annual accounts, supply annual reports, and falsified books of account. Additionally, there were allegations of diversion of funds to sister companies and violations of various statutory provisions.2. Non-holding of AGMs and Non-presentation of Annual Accounts:The petitioner alleged that no AGMs were held, and annual accounts were not presented. The respondents denied these allegations, claiming that all statutory meetings, including general body meetings, were conducted regularly, and notices were sent to the petitioner.3. Non-supply of Annual Reports and Falsification of Books of Account:The petitioner contended that annual reports were not supplied, and books of account were falsified. The respondents argued that the petitioner was aware of the company's affairs and that the allegations were baseless.4. Diversion of Funds and Violations of Statutory Provisions:The petitioner alleged that funds were diverted to Khurana Foam Sales and Esteem Capital and Management Services Ltd., both controlled by the 2nd respondent. The respondents countered that these were trade advances and investments made in compliance with statutory provisions. The petitioner also claimed violations of the Income-tax Act, Central Excise Act, and other statutes, but the respondents pointed out that proceedings were already initiated by relevant authorities.5. Non-compliance with Sponsorship Agreement Terms:The petitioner and the 2nd respondent had a dispute regarding the terms of the sponsorship agreement. The petitioner claimed to have invested in 6.75 lakh shares, while the respondents alleged that the agreement was for 12.87 lakh shares. The Board decided not to adjudicate this issue, as both parties had already filed civil suits regarding the same.6. Allegations of Non-issuance of Notices for Board Meetings:The petitioner alleged that notices for Board meetings were not issued to its nominee directors. The respondents argued that notices were sent regularly, but the nominees did not attend the meetings. The Board directed the company to issue notices for general body meetings by registered post and to send Board meeting notices and agendas to the petitioner's nominees at least seven days before the meetings.7. Request for Special Audit, Investigation, and Removal of Directors:The petitioner sought a special audit, investigation into the company's affairs, and removal of the 2nd respondent as a director. The Board found no substantial evidence to warrant an investigation or removal of directors. It noted that the dues from Khurana Foam Sales had significantly reduced, and the investment in Esteem Capital was disclosed in the draft prospectus. The Board rejected the prayer for investigation, stating that it would result in duplication of ongoing proceedings by other authorities.8. Allegation of Forged Document Submission by the Petitioner:The respondents filed an application alleging that the petitioner had submitted a forged sponsorship agreement. The Board decided not to address this issue within the Section 397/398 proceedings, as it was beyond their jurisdiction and both parties had already initiated civil suits.9. Contempt Application Against the 2nd Respondent:The petitioner filed a contempt application against the 2nd respondent for not complying with inspection orders. The Board had already directed the 2nd respondent to pay Rs. 2,000 to the Legal Aid of Delhi High Court for non-compliance, which he did. No further orders were deemed necessary.Conclusion:The petition was disposed of with directions to the company to ensure proper notice issuance for meetings and no order as to costs. The Board declined to order an investigation or removal of directors, finding no substantial evidence of mismanagement or oppression.