1977 (11) TMI 114 - HC - Companies Law

Court intervenes in company management deadlock, allows elected members to continue, emphasizes temporary nature of order.

The court refrained from deciding on the validity of conflicting executive committee meetings and elections due to a pending civil suit. Acknowledging the ... Oppression and mismanagement –Power of Tribunal on application under sections 397 and 398 Issues Involved:1. Validity of the executive committee meetings and elections.2. Deadlock in the management of the respondent-company.3. Jurisdiction of the court under sections 397, 398, 402, and 403 of the Companies Act, 1956.4. Interim arrangements for the functioning of the association.Detailed Analysis:1. Validity of the Executive Committee Meetings and Elections:The judgment highlights the issue of conflicting elections held on 30th August 1977 and 31st August 1977, resulting in two sets of office-bearers. The petitioner claims the first meeting is invalid, while the respondent asserts the second meeting is invalid. The court noted that both groups have filed replies supporting their respective claims, leading to a deadlock. The court refrained from deciding the validity of the meetings, acknowledging that it is not the competent court for such disputes and that a separate suit regarding the election of office bearers is pending in a civil court.2. Deadlock in the Management of the Respondent-Company:The existence of two warring groups within the executive committee has led to a complete deadlock in the management of the association. The court observer, Mr. A.L. Joshi, attended both sets of meetings, further complicating the situation. The court recognized that the deadlock is causing significant operational issues and financial losses to the members of the association. The court emphasized the necessity to take action to prevent the collapse of the association's functioning.3. Jurisdiction of the Court Under Sections 397, 398, 402, and 403 of the Companies Act, 1956:The court considered whether it should exercise jurisdiction under section 403 of the Companies Act, 1956, to address the situation that developed during the pendency of the petition under sections 397 and 398. The court concluded that it has the power under sections 402 and 403 to regulate the management of the company during the hearing of the petition, especially to protect the interest of the company and prevent its collapse.4. Interim Arrangements for the Functioning of the Association:To ensure the orderly functioning of the association, the court decided against superseding the entire executive committee. Instead, it allowed the 18 elected members to continue as executive committee members while withholding the appointment of office bearers until the civil court resolves the election dispute. The court directed that the executive committee meetings be chaired by an elected chairman from among the members, and meetings be called by the secretary upon the request of any three members. The court also ordered the formation of new sub-committees, with each executive committee member nominating one person to each sub-committee. Additionally, the court acknowledged the need for two additional members as previously ordered and indicated that further directions would be provided later.The court concluded that the executive committee would function without office bearers temporarily, with the paid secretary handling most executive functions. The court emphasized that the order is interim and subject to future modifications based on further applications by any party. No order as to costs was made.