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2014 (7) TMI 224 - Board - Companies LawOppression and mismanagement in the affairs of the Respondent Company - diversion of the rights issue funds - refund of the capital contribution made in the firm from the firm's account to the company account - Held that:- Admittedly, the scheme of rights issue was brought for the purpose of discharging the liabilities of the Company and to improve its net-worth. There is nothing on record to show that the liabilities of the Company stands discharge or its net-worth has improved by making investment/utilization of the rights fund by the then Directors. Therefore, the fund received under the rights issue has not been invested for the purpose for which it was meant. - it is also not disputed that the other object of the letter of offer which inter alia states that "besides the present rights issue, the company also needs to redeem its existing preference shares having nominal value of ₹ 50 lakhs for which the company proposes to reissue the said shares to the existing shareholders in future" has not been complied with. Major subscribers to the rights issue wrote a letter to the then Directors to maintain status quo in respect of all immovable and movable assets of the company, yet they did not pay any heed to it. It is pertinent to note here that earlier directors knowing fully well that they are being removed from the Board of Directors constituted their own partnership firm and diverted the entire rights issue funds of the shareholders. It is, also undisputed fact that son of the one of the erstwhile Director is also a partner in the partnership firm which supports the case of the Petitioners that the diversion of the funds of the company has been solely for the personal gains of the erstwhile Directors. Answering Respondents have not even given any data to show that the company is getting the profits, if any, earned by the said partnership firm in which the investment has been made. It will not be out of place to mention here that the Ld. Counsel appearing for the Answering Respondents, upon a query raised by the Board, had answered that the total annual return on the said investment in the partnership firm is approx. 6% p.a which in my considered view, is absolutely inadequate. Therefore, in the absence of any material on record and in direct contravention of the purpose and object for which the scheme of rights issue was issued, making investment by the erstwhile Directors of the Company in the partnership firm-in-dispute is patently mala fide. - Decided in favour of petitioner.
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