TaxTMI 
TaxTMI 
2007 (11) TMI 416
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....o. 3, who is a chartered accountant of the company, is the brother of respondent No. 2. The purpose of floating this company was to expand and diversify the business activities in the field other than the business of the partnership firm. Insofar as the partnership business is concerned, it was considered that the same be carried and continued as it is. It is alleged that respondent No. 2 was controlling all accounts and finances, as well as records, etc., of the company. It was realised after sometime that respondent No. 3, in collusion with respondent No. 2, had been manipulating the accounts, etc., and conducting the affairs of the company in a manner oppressive to the petitioners. 2. Mainly, two types of grievances are mentioned in the petition, namely:- (i)the petitioners had not been getting intimation of the Board meetings, business activities and annual general meetings at least since 1983. Likewise, no minutes had been maintained of the working of the company and they are manipulated and created as per the conveniences of the respondents; and (ii)the shareholding of the company had been increased from time to time without any notice to the petitioners or giving them the....
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.... may also be stated at this stage that though in the petition specific instances of mismanagement and oppression, etc., are not given, learned counsel for the petitioners made submissions on the basis of the aforesaid accounts and records filed by the respondents, to which I shall advert to at the appropriate stage. 7. Respondent No. 2 has contested the petition by filing reply, inter alia, stating that the company was not floated with the funds of the petitioners and his relations and friends, as alleged. His explanation is to the following effect: in the year 1980, respondent No. 2, who is an engineering graduate from IIT, Kanpur and has experience as structural engineer, having worked at Texmaco Ltd., Belgharia, Calcutta, started a proprietary firm by the name and style of Noida Fabricators and Engineers at D-16, Sector-7, Noida, for manufacturing of structural and process plants. He also held a plot bearing No. B-8, Sector-7, Noida, on which he built a shed for expanding this business. Later on, he floated a company by the same name, i.e., Noida Fabricators and Engineers (P.) Ltd., simply because "company" and "director" was thought to be more fanciful as compared to the "firm....
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....ner No. 1 held 10 shares out of 40 allotted shares. So, in the year 1980, the petitioner's share was 25 per cent. Respondent No. 2 wanted a helping hand to look after day-to-day working of the company and in 1982 financed the petitioner to purchase 110 shares out of 465 allotted on 24-2-1982. So, petitioner No. 1's share became 120 shares out of 505 paid-up, i.e., 24 per cent. The authorised capital was Rs. 1 lakh and the paid-up was Rs. 50,500 as on 24-2-1982 : the same period in which the petitioner agreed that he was kept informed. This shows that petitioner No. 1's holding was not more than 24 per cent. In 1983, the company decided to implement the project of mustard oil, instead of structural engineering and to implement the same the authorised capital was raised from Rs. 1 lakh to Rs. 2.50 lakhs on 3-4-1983, as per the requirements of financial institutions and on 29-6-1983, the company allotted 1495 shares out of which 390 were allotted, again financed by respondent No. 2 to the petitioners' relatives and his holding became 510 shares out of 2000 paid-up shares, i.e., 25 per cent. On March 26, 1984, the company again raised the authorised capital from Rs. 2.50 lakhs to Rs. 4....
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....s of respondent No. 2 of Noida Entrepreneurs' Association and had abandoned the company terming it as a "sinking ship" and focused all his efforts and energies for ousting respondent No. 2 from the partnership firm by fudging the accounts while respondent No. 2 was busy keeping the company afloat and hence could not give any time to the accounting matters and the partnership firm. 12. Respondent No. 2 has denied any misappropriation of funds and has stated that the company was still in implementation stage and in continuous requirement of capital to make the project a success. It is a known fact that every new project of every first generation entrepreneur, who is always short of capital, has to overcome innumerable hurdles - financial, technical and commercial or marketing - before it can stabilise. And the entrepreneur has to beg, borrow or steal and play various roles single handedly to make the project a success. Respondent No. 2 did not even take salary for his labour and the question of misappropriation does not arise. Had misappropriation taken place, respondent No. 2 could not have sold his shares and those of his family and friends at face value when company's unit was cl....
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.... of oppression and/or mismanagement warranting interference. My reasons for coming to this conclusion are as under :- (a)The petition does not contain any specific instances of alleged acts of oppression and mismanagement. The allegations are of general nature. No doubt, the respondents filed certain documents, like minutes of the board of directors as well as copies of the ledger, etc., and the petitioners tried to project their case on the basis of these documents. However, the petitioners never chose to amend the petition or lead any evidence in this behalf. If certain discrepancies are sought to be pointed out, in the absence of pleadings and evidence, no proper opportunity is given to the respondents to explain the same. It may be added here itself that during the arguments the respondents have, otherwise, given their clarifications to the points raised. The fact which is emphasized is that the petition suffers from proper pleadings. (b)The first allegation of the petitioners is that petitioner No. 1 was not given notice of the meetings. In this behalf, it is also contended that in two alleged meetings decision was taken to increase the authorised capital and shares were all....
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....mplementation of its project and the petitioners were not very hopeful about the success thereof, they did not show any interest in buying those shares. (d)Material placed on record also shows that petitioner No. 1 had been participating in financial transactions and was signing the cheques and, therefore, he cannot say that he was not aware of the functioning of the company which was allegedly managed by respondent No. 2 alone and his brother, who was a chartered accountant. From this, one can also draw further inference, coupled with the aforesaid evidence, that the petitioners were having the knowledge of the meetings as well as the decision about increase in the authorised capital. (e)There are certain other discrepancies pointed out by the petitioners in the accounts filed by the respondents, which are explained. Respondent No. 2 has stated that in the balance-sheet dated 30-6-1983, the authorised capital has been shown as 20,000 shares of Rs. 10 each instead of 2500 shares of Rs. 100 each. This could be a clerical typographical error. However, the subscribed capital is given correctly as Rs. 2,00,000. Thus, the result of the balance-sheet is not altered. The increase in aut....
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....p. Cas. 351 (SC), the court expressed the legal position in the following terms :- "...It is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of the petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members...." (p. 366) 17. In order that the court may make an order under section 397 of the Act, the court must be satisfied, firstly, that the company's affairs are being conducted in a manner oppressive to any member or members, secondly, that the facts would justify the making of a winding up order, on the ground that it was just and equitable that the company should be wound up and, thirdly, that a winding up order would unfairly prejudice the applicant or applicants. 18. On an analysis of the j....