Oppression and mismanagement challenge upheld where private management change and share allotment lacked valid corporate approval.

Shareholder oppression and mismanagement proceedings were held maintainable where the petitioners held the requisite shareholding on filing and the authorisations in favour of the lead petitioner constituted effective consent; the objection based on section 399 and alleged defective authorisation failed. An agreement to change management, together with later resolutions, appointments and share allotments, was held invalid because it lacked demonstrated shareholder and competent-authority approval and was unsupported by valid corporate meetings or lawful continuance of the concerned directors; the arrangement was not binding on the company or its shareholders.

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Issues: (i) Whether the company petition under sections 397 and 398 of the Companies Act, 1956 was maintainable in view of the objection under section 399 and the alleged defect in authorisation by shareholders. (ii) Whether the agreement dated 09.10.2003 and the subsequent resolutions, appointments and allotment of shares in favour of respondents 3 to 5 were valid and binding on the company and its shareholders.

Issue (i): Whether the company petition under sections 397 and 398 of the Companies Act, 1956 was maintainable in view of the objection under section 399 and the alleged defect in authorisation by shareholders.

Analysis: The petitioners were found to have held the requisite shareholding on the date of filing, and the authorisations executed in favour of the lead petitioner were treated as effective consent for instituting proceedings. The challenge based on subsequent developments and alleged want of intelligent consent was rejected. The prior orders of the CLB and the High Court also supported the petitioners' right to pursue relief against alleged oppression and mismanagement.

Conclusion: The petition was maintainable and the objection under section 399 failed.

Issue (ii): Whether the agreement dated 09.10.2003 and the subsequent resolutions, appointments and allotment of shares in favour of respondents 3 to 5 were valid and binding on the company and its shareholders.

Analysis: The agreement to change management was entered into after the company had already invoked the SICA regime, and no approval of the shareholders, BIFR, or other competent authorities was shown. The record did not establish valid general body meetings, valid continuance of respondents 3 to 5 as directors, or lawful allotment of the impugned shares. The later resolutions and share issuances were treated as backdated and unreliable, and the agreement between respondents 2 and 3 was held incapable of binding the company or the shareholders.

Conclusion: The agreement, resolutions, appointments and share allotment in favour of respondents 3 to 5 were held invalid and not binding on the company or its shareholders.

Final Conclusion: The appeal failed, save for a limited modification clarifying that the agreement was not binding on the company and shareholders, and the relief granted by the tribunal was substantially upheld with costs.

Ratio Decidendi: A change in the management or constitution of a company under sickness proceedings cannot be validly effected by private arrangement or unilateral resolutions without shareholder approval and without compliance with the governing statutory regime.

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