1969 (11) TMI 46 - HC - Companies Law

Court dismisses petition under Companies Act, citing lack of evidence, delay, and insufficient grounds.

The court dismissed the petition with costs, finding that the petitioners failed to establish a case for relief under sections 397 and 398 of the ... Investigation of company’s affairs in other cases, Oppression and Mismanagement Issues Involved:1. Allegations of mismanagement and embezzlement by the managing directors.2. Improper maintenance of accounts and alleged collusion by auditors.3. Legality of salaries and managerial remuneration.4. Legality of the election of directors.5. Claims of petitioner No. 1 as a former employee.6. Reliefs sought under sections 397 and 398 of the Companies Act.7. Justification for a winding-up order.8. Delay in filing the petition.9. Request for an investigation by an inspector.Detailed Analysis:1. Allegations of Mismanagement and Embezzlement by the Managing Directors:The petitioners alleged that Har Swarup Mathur, Kishan Swarup Mathur, and Jagroop Swarup Mathur controlled the affairs of the company and engaged in mismanagement, misappropriation of funds, and embezzlement. Specific allegations included illegal drawing of salaries and improper handling of company funds. However, the court found these allegations to be vague, unsupported by particulars, and lacking substantial evidence. The court noted that previous suits regarding these claims had been dismissed, and the petitioners failed to provide new evidence to substantiate their claims.2. Improper Maintenance of Accounts and Alleged Collusion by Auditors:The petitioners claimed that the company's accounts were not properly maintained during the tenure of the managing directors and that the auditors colluded with the directors to conceal irregularities. The court found no audit report supporting the allegations of embezzlement and corruption. The court also noted that the petitioners failed to provide specific details or evidence of such collusion.3. Legality of Salaries and Managerial Remuneration:The petitioners argued that the salaries and managerial remuneration paid to the directors were illegal as they were not sanctioned by the Central Government or the company. The court found that the company had either obtained the required approvals or refunded the excess payments. The court also noted that the petitioners did not provide sufficient evidence to challenge the legality of these payments.4. Legality of the Election of Directors:The petitioners challenged the election of directors at the general meeting held on September 30, 1965, alleging that proxies were not allowed and that the minutes of the meeting were fabricated. The court found the petitioners' objections to be baseless and unsupported by evidence. The court also noted that the petitioners waited nearly two years before filing the petition, during which another general meeting and fresh elections had taken place.5. Claims of Petitioner No. 1 as a Former Employee:Petitioner No. 1 claimed compensation for loss of pay due to illegal termination of his service and sought reinstatement and gratuity. The court found these claims to be concluded by previous orders in other proceedings and noted that such claims were misplaced in proceedings under sections 397 and 398, which are open only to shareholders of the company.6. Reliefs Sought Under Sections 397 and 398 of the Companies Act:The petitioners sought the removal of the managing directors, appointment of petitioner No. 1 as the managing director, and an investigation into the company's affairs. The court noted that sections 397 and 398 are primarily intended for preventive action against continuing wrongs and not for punitive actions for past misdeeds. The court found that the petitioners failed to establish a case for any order under these sections.7. Justification for a Winding-Up Order:The court emphasized that to justify a winding-up order under section 397, it must be shown that the company's affairs are being conducted in a manner prejudicial to public interest or oppressive to any member. The court found no evidence of such conduct and noted that the company was carrying on a profitable business.8. Delay in Filing the Petition:The court noted that the petitioners filed the petition nearly two years after the alleged mismanagement, during which another general meeting and fresh elections had taken place. The court held that the considerable and unexplained delay was enough to defeat the equities and justify a refusal to exercise discretionary powers.9. Request for an Investigation by an Inspector:The petitioners requested an investigation by an inspector under section 237(a)(ii) of the Act. The court held that such a declaration should not be given where proceedings under sections 397 or 398 do not appear to be sustainable. The court suggested that the petitioners could apply to the Central Government for an investigation or take other proceedings available under the law.Conclusion:The court dismissed the petition with costs, holding that no order under sections 397 or 398 of the Companies Act could be made. The court found that the petitioners failed to establish a case for relief under these sections and noted that the petition was primarily a catalogue of charges for past alleged misdeeds, which were not sufficient to justify the relief sought.