TaxTMI 
TaxTMI 
2009 (8) TMI 698
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....ts and materials which had been placed by the appellants-petitioners before the Company Law Board; that even without any worthwhile opposition to the company petition on the part of the respondents in the petition, the Company Law Board has erroneously dismissed the petition, that the Board has failed in its function in not taking into account and examining the various acts of mismanagement and oppression which had been committed by the majority shareholders of the respondent-company and against which the appellant had complained of; that even without a proper intimation and notice to the appellants, they had been virtually thrown out of the company by the differential treatment meted out to them as preference shareholders, more so when, apart from the preference shareholders, the only other shareholder of the company was M/s. MSP Investments Ltd., and, therefore, the uneven treatment meted out to the appellants-petitioners did constitute an act of oppression and the Company Law Board holding otherwise is not tenable in law. Various other grounds have also been urged in support of the appeal. 3. The appeal, which had been originally filed and numbered as M.F.A. No. 5457 of 1998 (f....
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....ce shares as per the resolution at the extraordinary general body meeting of the company held on 30-3-1992 and thereafter the only equity shareholder of the company was M/s. MSP Investments Ltd., which held 5 equity shares of Rs. 1,000 fully paid-up, which were the five equity shares that had been transferred by the second respondent in favour of this company prior to the resolution of the extraordinary general body meeting held on 30-3-1992 and though in terms of the resolution, the preference shares were redeemable by 1998, the understanding was that it was to be treated for all practical purposes as equity shares only; that the preference shareholders will continue to have voting rights on par with the equity shareholders and ultimately instead of redeeming the shares, it should be reconverted into equity shares, etc. 7. Insofar as the management of the company is concerned, it is averred that the initial directors of the company were the second and the third respondents; that the first appellant, who had returned from USA after acquiring a masters degree in international management, was appointed as the managing director of the company on 11-2-1987; that the second respondent ....
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....as per its earlier resolution dated 20-12-1995, was proof of this mala fide intention, as in terms of the resolution dated 9-3-1996, it was indicated that while 455 numbers of preference shares in the company are to be redeemed and 245 numbers of equity shares of Rs. 1,000 each were to be allotted in favour of the second respondent and 10 such equity shares were to be allotted in favour of the third respondent; that these shares were allotted in place of the same number of preference shares by redeeming them with effect from 9-3-1996, by redeeming 245 preference shares held by the second respondent, 100 preference shares held by the first appellant, 100 preference shares held by the second appellant and 10 preference shares held by the third respondent. 11. It is the further version of the appellants-petitioners that the removal of the first appellant from the directorship of the company and the subsequent redemption of their preference shares and throwing them out of the company, while allotting an equal number of equity shares in favour of respondent Nos. 2 and 3, in lieu of the preference shares which they had also held in the company earlier, are all part of the same sinister ....
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....mpany in a truly professional way and in conformity with the provisions of the Act and if the second respondent and other shareholders of the company had used their majority shareholding for their benefit and to the detriment of the appellants, which is a well-recognised right of the majority shareholders even under the Act and if the appellants-petitioners had lost their position and directorship of the company due to the permitted legal methods adopted by the respondents, they neither can complain of it before the Court of law or the Tribunal, like the Company Law Board, nor can get any relief in law, more so as sought for in the company petition and prayed for dismissal of the petition. 13. The appellants-petitioners, in fact, had filed a rejoinder statement. It was sought to be asserted in the rejoinder that the company itself was started essentially to manage it as a family business in developing coffee estates and export of coffee, which, in fact, was a family tradition and the brand name "MSP", having a great brand value and the initials "MSP" representing the name of the father of the second respondent Sri M.S. Periyasamy Nadar and that it was run only as a family business....
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....esolution of the shareholders at an extraordinary general body meeting of the company held on 20-12-1995, which, in fact, had been attended by the appellants-petitioners, cannot be faulted in a petition filed under section 399 of the Act on the grounds available under sections 397 and 398 of the Act, unless the principles of partnership were applied to the company and as the principle of partnership being not attracted to the present company, with the petitioners having become shareholders only subsequent to the incorporation of the company and there being nothing on record to indicate that the earlier conversion of 455 equity shares to preference shares was with an intention to reconvert them into equity shares, redemption of the 455 preference shares on 9-3-1996, was a valid action being in conformity with the provisions of section 80 of the Act; that the mere factum of the second respondent and the first petitioner-appellant-being father and son-cannot by itself attract the principles of partnership for the management of the company, particularly as while in the partnership, there should be utmost goodwill, co-operation and understanding between the partners, whereas the first p....
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.... totally misunderstood the scope and application of the law laid down by the Company Law Board itself in the case of Vijay Krishan Jaidka v. Jaidka Motors Co. Ltd. [1996] 23 CLA 289, but also has failed to follow its own earlier ruling in the said case; that the Company Law Board has also not properly applied its earlier ruling in the case of S. Ajit Singh v. DSS Enterprises (P.) Ltd. [2002] 109 Comp. Cas. 597 , which squarely covered the case of the appellants-petitioners insofar as the mismanagement and oppression of minority shareholders is concerned, but also failed to appreciate and apply the ratio of the judgment of the Supreme Court in the case of Dale & Carrington Investment (P.) Ltd. v. P.K. Prathapan [2004] 122 Comp. Cas. 1611 ; particularly to test the legality of the resolution of the general body held on 20-12-1995 and the board meeting held on 9-3-1996, in the matter of non-allotment of equity shares to the appellants-petitioners with a view to oust them and on the other hand, allot equity shares in favour of respondent Nos. 2 and 3 in lieu of preference shares, which was a mala fide and uneven action only with an intention to oust the appellants- petitioners from the....
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....rity shareholding power and managerial position and as to whether it resulted in either oppression of the minority shareholders or mismanagement of the affairs of the company; that in the instant case, both sections were very much attracted and while the Company Law Board could have granted the relief under either sections and in the instant case, both the statutory provisions being attracted, the Company Law Board should have allowed the petition for the relief sought for in the petition and, therefore, submits this appeal should be allowed, impugned order of the Company Law Board set aside and the company petition allowed in terms of the prayer. 19. Appearing on behalf of the respondents, submission of Sri Vivek Holla, learned counsel is that the preliminary objection raised on behalf of the respondents is very tenable and the Company Law Board has rightly dismissed the petition. The conduct of the appellants-petitioners, who had earlier questioned the legality of the resolution of the extraordinary general body meeting held on 20-12-1995, by filing O.S. No. 8382 of 1995 and the suit having been dismissed on 1-10-1996, not only disentitled them to seek for any relief before the ....
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....the following : (1)V.M. Rao v. Rajeswari Ramakrishnan [1987] 61 Comp. Cas. 20 (Mad.); (2)Hanuman Prasad Bagri v. Bagress Cereals (P.) Ltd. [2001] 105 Comp. Cas. 4931 (SC); (3)Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd. [1962] 32 Comp. Cas. 207 (Cal.); and (4)Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 (SC). 23. In reply, Sri A. Murali, learned counsel for the appellants-petitioners has sought to distinguish the ratio of the case in Hanuman Prasad Bagri (supra), relied on by Sri Vivek Holla, learned counsel for the respondents and by referring to paragraph 3 of the very judgment, submits that the question of the Court examining the oppressive conduct of the other shareholders or the affairs of the company being conducted in a manner prejudicial to public interest arose in that case and was entirely on the sole premise that the shifting of the registered office of the company to another place and bring it back to the earlier place, while in fact did not amount to any demonstrable financial loss to the company and even cannot be characterised as an act of mismanagement and, therefore, no case of oppression had been made out on facts; ....
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....and, therefore, the so-called redemption/conversion of preference shares in the year 1996 was only a method adopted by the second respondent to throw out the appellants-petitioners from the membership of the company. 26. Sri Murali would also submit that the dismissal of the civil suit is of no consequence, for the reason that the suit was not dismissed on its merit, but on technicalities and as the plaintiff had not pursued the matter further. 27. We have perused the order impugned, looked into the records and bestowed our attention to the submissions made at the Bar and the authorities relied upon by learned counsel for the parties. 28. The main grievance of the appellants-petitioners is that their grievance and the grounds raised in support of the petition before the Company Law Board under section 399 of the Act complaining both oppression and mismanagement in terms of sections 397 and 398 of the Act have not received proper attention at the hands of the Company Law Board; that the Company Law Board has thrown out the petition on irrelevant consideration and by calling in aid authorities which are not applicable to the facts of the present case. 29. The questions that arise....
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....ose and by oppressive methods, dismember the minority share-holders and leave them with no remedies, as the dismembered minority shareholders technically do not qualify for maintaining a petition under section 399 of the Act, being not a member at all. As the minority shareholders will be complaining only after the acts occurred and when they have been removed from the membership of the company, the understanding and interpretation to be given to section 399 is only so as to further the object of relief to be given in a situation governed by sections 397 and 398 of the Act and not to foreclose the options to an aggrieved person and to deny the very relief sought to be extended to a complaining minority shareholder/s envisaged under sections 397 and 398 of the Act. 33. The Company Law Board has also proceeded on the premise that the appellants-petitioners were not able to make out a case that the company being carried on as a family concern to invoke the principles of partnership and to examine the activities of the company on such basis about the manner of management of the affairs of the company. Here again, the Company Law Board has totally misconceived the circumstances and sit....
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....s development being the complaint on the part of the first appellant that the funds of the company have not been properly managed; that the second respondent has been taking unilateral decisions in the matter of investment of funds of the company in other private concerns and such information being obtained by the first appellant through the bank in which the company had its transactions and immediately thereafter the second and third respondents calling for a general body meeting, wherein to initiate the change of directorship in removing the first appellant from the directorship of the company and induct respondent Nos. 3 and 4 as directors, which, in turn, would lead to the board of directors taking a decision to redeem the shares and in an uneven manner, only indicates the tendency of oppressive acts on the part of respondent Nos. 2 and 3. We are of the clear view that the Company Law Board has not examined the real grievance of the appellants-petitioners as envisaged in the petition, but has declined to examine the same on incorrect and erroneous presumptions; that the conduct and developments with reference to which the petitioners have complained of cannot be examined on the....
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....king an investment of Rs. 18 lakhs in a private company by name M/s. Sanco Trans Ltd., by raising a loan for such investment on the security of the fixed deposit of the company with M/s. Tamil Nadu Mercantile Co-operative Credit Bank; that the investment was in a company where one of the personal friends of the second respondent was a director; that it was more to appease and in conside-ration of the friendship of the second respondent and the particular director of M/s. Sanco Trans Ltd., the investment was made and not keeping in view the interest of the company; that as the second respondent was unable to explain such acts which clearly amounted to mismanagement of the affairs of the company, had resorted to offensive conduct to cover up his act of mismanagement, by first requisitioning a special general body meeting on the strength of the majority shareholding and in the general body meeting again using his majority shareholding, to get a resolution passed not only to remove the first appellant from the directorship of the company but also for nominating the third respondent, who held only 10 shares as a director and also a non-member like the fourth respondent as director of th....
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....eing held not either as an oppressive act or not as a mismanagement also does not arise for the reason that a mere compliance with the requirement of section 81 of the Act in itself is not an issue, but the manner in which even the power under section 81 for issue of capital is utilised. 41. The complaint was precisely that even if the issue of equity shares in favour of respondent Nos. 2 and 3 was in compliance with the requirement of section 81, even then it amounts to an act of oppression for the reason that the series of acts leading to redemption of preference shares attri-butable to section 80 of the Act and issue of capital attributable to section 81 of the Act, have all been used only for the purpose of ousting the appellants from the membership of the company. Such acts of oppression having its origin to the complaint of mismanagement levelled by the first appellant against the second respondent, the complaint of oppression is not one which is required to be examined in isolation or independently, but in combination of the complaint in terms of section 398 and the series of actions are to be viewed in its entirety. 42. While it is true that one of the requirements for ap....