2016 (3) TMI 929 - HC - Companies Law

Court affirms Company Law Board decision on appeal dismissal, orders appellants to exit by selling shares.

RAJ KUMAR BHATIA AND ORS. Versus M/s. AV LIGHT AUTOMOTIVES LTD. AND ORS.

RAJ KUMAR BHATIA AND ORS. Versus M/s. AV LIGHT AUTOMOTIVES LTD. AND ORS. - TMI Issues Involved:1. Dismissal of the petition by the Company Law Board.2. Direction for appellants to exit the company by selling their shares.3. Alleged oppression and mismanagement by the respondents.4. Increase in share capital and issuance of rights shares.5. Removal of appellants from directorship.6. Maintainability of the appeal under Section 10-F of the Companies Act, 1956.Issue-wise Detailed Analysis:1. Dismissal of the Petition by the Company Law Board:The Company Law Board dismissed the appellants' petition and directed them to exit the company by selling their shares to the respondents at a value determined by a valuer. The appellants contended that the respondents neglected them, did not issue notices for Board Meetings or AGMs, and did not provide copies of balance sheets. They claimed this amounted to oppression and mismanagement.2. Direction for Appellants to Exit the Company:The Company Law Board directed the appellants to sell their shares to the respondents to resolve the impasse. The appellants challenged this, arguing that their shareholding was unfairly reduced from 33.33% to 15.87% due to the issuance of rights shares without their knowledge or consent.3. Alleged Oppression and Mismanagement:The appellants alleged that the respondents increased the company's share capital without following due process, violating Section 81(1A) of the Companies Act, 1956. They claimed the respondents issued rights shares to themselves and their associates, reducing the appellants' shareholding. The respondents countered that the share capital increase was necessary for the company's growth and was done following due process.4. Increase in Share Capital and Issuance of Rights Shares:The appellants argued that the issuance of rights shares was illegal as no resolution was passed under Section 81(1A) of the Act, and they were not given an opportunity to subscribe. The respondents contended that the rights shares were issued following due process and the requisite forms were filed with the ROC. The Company Law Board found that the appellants were aware of the rights issue and did not respond, raising the issue as an afterthought.5. Removal of Appellants from Directorship:The appellants challenged their removal from directorship, claiming they never resigned. The respondents argued that the appellants had orally resigned to facilitate a loan from Citi Bank, which required directors not to be defaulters. The Company Law Board found that the appellants voluntarily resigned and did not raise any complaints for years, indicating acceptance of their removal.6. Maintainability of the Appeal under Section 10-F:The respondents argued that the appeal raised only disputed questions of fact, which the Company Law Board is the final authority on. The court agreed, stating that an appeal under Section 10-F is permissible only on questions of law. The court found that the issues raised by the appellants were primarily questions of fact, and the findings of the Company Law Board were reasoned and plausible.Conclusion:The court dismissed the appeal, finding no merit in the appellants' arguments. The Company Law Board's findings on the issues of oppression, mismanagement, and the issuance of rights shares were upheld. The court emphasized that the appellants failed to raise timely objections and their claims appeared to be an afterthought. The decision to increase share capital and the removal of the appellants from directorship were found to be justified and in the company's best interest.