2012 (5) TMI 496 - Board - Companies Law

Court dismisses company petition, upholding respondents' actions as legitimate and in shareholders' interest.

P. Radhakrishnan Versus Madurai Hosieries Ltd.

P. Radhakrishnan Versus Madurai Hosieries Ltd. - [2012] 106 CLA 59 (CLB - CHENNAI), [2012] 113 SCL 58 (CLB - CHENNAI), [2012] 172 COMP. CAS. 529 (CLB - ... Issues Involved:1. Non-filing of returns and non-holding of AGMs.2. Absence of a Board of directors.3. Validity of the sale of land to the second respondent.4. Legality of the second respondent's offer to buy-back shares.5. Validity of the EGM held on 1st March, 2007.6. Petitioners' request to sell the company's assets and distribute proceeds.7. Petitioners' request to convene a general meeting based on the 2000 shareholders list.Detailed Analysis:1. Non-filing of Returns and Non-holding of AGMs:The petitioners alleged that no returns were filed nor AGMs held, constituting a violation of sections 159, 166, 210, and 220 of the Companies Act, 1956. The respondents contended that these lapses do not amount to oppression or mismanagement as the company was not functioning during this period. The court noted that the company's non-compliance with statutory filings from 2001 onwards was condonable and did not amount to oppression or mismanagement. The real intention of the petitioners was to challenge the sale of land and seek winding up of the company.2. Absence of a Board of Directors:The petitioners claimed that there had been no Board of directors since 2003 due to the lack of AGMs. The respondents argued that the petitioners were aware of the company's affairs and had participated in an EGM in 2007. The court found that the petitioners' contention lacked bona fides as they had requisitioned an EGM and participated in it, thereby acknowledging the existence of the Board.3. Validity of the Sale of Land to the Second Respondent:The petitioners sought to declare the sale of 2.96 acres of land to the second respondent as invalid, alleging it was done without shareholder consent and at an undervalued price. The respondents explained that the sale was a bona fide act to benefit the entire industrial estate and was ratified by the shareholders in the EGM held on 1st March, 2007. The court held that the sale was genuine, ratified by the shareholders, and did not amount to oppression. The petitioners failed to prove any misappropriation or undervaluation.4. Legality of the Second Respondent's Offer to Buy-back Shares:The petitioners argued that the second respondent's offer to buy-back shares was illegal under section 77A, which allows only the company to buy-back shares. The respondents clarified that the offer was an independent action by the second respondent and not a buy-back under section 77A. The court agreed with the respondents, stating that it was up to individual shareholders to decide on the offer and it did not constitute oppression or mismanagement.5. Validity of the EGM Held on 1st March, 2007:The petitioners sought to declare the EGM held on 1st March, 2007 as invalid. The respondents contended that the EGM was validly convened and the sale of land was ratified by the shareholders. The court found no justifying reasons to declare the EGM invalid, noting that the petitioners had participated in the EGM and were estopped from challenging it.6. Petitioners' Request to Sell the Company's Assets and Distribute Proceeds:The petitioners sought permission to sell the company's assets and distribute the proceeds among shareholders. The court held that shareholders cannot claim a share of the company's assets as of right and that the petitioners' intention was not in the interest of the company but for personal gain. The court declined this relief.7. Petitioners' Request to Convene a General Meeting Based on the 2000 Shareholders List:The petitioners requested to convene a general meeting based on the 2000 shareholders list. The court found no necessity to issue such a direction as the petitioners had already requisitioned and participated in an EGM. The court declined this relief.Conclusion:The court dismissed the company petition, finding it devoid of merits. The court held that the petitioners failed to establish a case of oppression and mismanagement, noting that the company's revival was in the interest of the majority shareholders. All interlocutory orders were vacated, and interim applications dismissed.