TMI Blog2002 (7) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of ₹ 10 each. Prior to the incorporation of the respondent company the respondent No. 2 was already running a proprietary concern under the name and style of Supertronics with similar objects as the respondent company. On 27-4-1998 the said Supertronics and the respondent company entered into a memorandum of understanding (MoU) by which the entire business of Supertronics was completely taken-over by the company with effect from 1-4-1998. On the same day another MoU was signed between the petitioner and the respondent No. 2 by which the petitioner was appointed as the marketing director stationed at Bombay to market the products of the company and the respondent No. 2 was responsible for management and accounts and general administration of the company. According to the petitioner, the respondent company functioned for about three months. However the respondent No. 2 completely sidetracked the petitioner from the management, did not submit any accounts when called for and it came to the knowledge of the petitioner that the business of the company was being channelled to Supertronics and money from the company was being siphoned off by the respondent No. 2. The petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent No. 2 by which the operation of the company s account was frozen by the bank and the credit facilities had been called off. Consequently, it is not a case of oppression and mismanagement but a clear case of deadlock in the management of the company and winding up of the company on just and equitable ground was the only alternative. 4. The petitioner has filed a rejoinder reiterating the allegations made in the petition and has stated that despite the deadlock in the management the company could not be wound up till the respondent No. 2 renders accounts of the respondent company and brings back the amount mis-appropriated from the company. It has been further stated that the deadlock in the management of the company is a result of the mismanagement and oppression of the respondent No. 2 who has siphoned off the earnings of the company for the benefit of his personal business run in the name of Supertronics. 5. Before hearing this petition finally taking into consideration the nature of the company and the facts of the case we had suggested to the learned counsel for the parties to settle the matter amicably. The counsel had taken time to consult their respective cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner as there were only two shareholders and the board also comprised only of the petitioner and respondent No. 2. It was, therefore, contended that a clear case of oppression and mismanagement was made out and the reliefs prayed for in the petition be granted. 7. The learned counsel for the respondent has on the other hand contended that the present petition alleging oppression and mismanagement is misconceived inasmuch as the petitioner being a 50 per cent shareholder and a director of the company cannot allege oppression and mismanagement as he is equally responsible for any alleged acts of omission or commission of the company. Besides the petitioner was under obligation to provide specific instances of oppression and mismanage- ment which he has failed to give and has mainly pointed out certain alleged isolated acts. That apart it has been contended that in the petition the petitioner has primarily raised a grievance regarding the return of loan and also claimed his remuneration from the respondent company which cannot be agitated in a petition under section 397/398. So far as siphoning away of funds the allegation has been made in air without any basis or evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner, while dismissing the petition or ordering winding up. 8. We have considered the respective submissions made by the learned counsel for the parties. As noticed above one of the main grievances of the petitioner is that he had paid ₹ 1.5 lakh towards equity whereas no share certificates were issued and further he had given short term loan to the company which was not returned nor any interest paid thereon. 9. As regards the refund of the short term loan given by the petitioner to the respondent company we find that besides the petitioner, the respondent No. 2 and some other parties had also given unsecured loans. The company however, during the period of five months during which it operated incurred operating losses to the tune of more than ₹ 1.79 lakhs as evident from the statement of account filed before us. In view of the precarious financial position of the company it cannot be faulted if the loan amount has not been repaid. Besides remedy for the same does not lie in these proceedings before us. It was held by the Division Bench of the Calcutta High Court in the case of Bagree Cereals (P.) Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp. Cas. 465 that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tronics and respondent company that a sum of ₹ 17.5 lakhs were to be transferred by the respondent company as consideration for the fixed assets, and the current assets would be listed as raw material as on 31-3-1998 and the respondent company will pay the entire cost of current assets to Supertronics in suitable instalments within one year. Further the receivables of Supertronics as on 31-3-1998 shall be transferred to the bank account of the respondent company as soon as they are received. In view of the aforesaid agreement between the parties if the bank statement shows transfer of any amount to Supertronics from respondent company or vice versa it cannot be levelled as siphoning off funds. Besides in the petition except alleging that respondent No. 2 is siphoning off the funds of the company and channelling the business of the company to Supertronics no other details have been furnished to substantiate the allegation, on the basis of the bald allegation, therefore, we cannot, as held in the case of Mohta Bros. v. Calcutta Shipping [1969] 2 CLJ 157, adjudicate this allegation without some concrete materials. 10. As regards the allegation that the petitioner has incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner submitted to the respondent for preparation of the balance sheet of the respondent company. Consequently in our view the respondents cannot be held responsible for non-preparation of the trial balance for the relevant year. So far as inspection of the accounts of the respondent company by the petitioner is concerned the stand of the respondent is that the petitioner was never denied inspection and as a matter of fact he did inspect the accounts in the office of the company s Chartered Accountant which stands corroborated by respondents letter dated 26-12-1998 (annexed as Annexure F to the respondents reply) which letter was replied by the petitioner. 13. The learned counsel for the petitioner has strongly urged that the respondent No. 2 had inducted one Harshad Bhai Patel as Director of the company on 27-8-1998 behind the back of the petitioner and without holding any AGM or Board meeting. As regards this submission it is true that the respondent No. 2 could not singly appoint the said director as the company had only two shareholders and the Board consisted of the petitioner and the respondent No. 2 and there would be no quorum in case the petitioner was absent. Provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 397/398, under section 402 of the Act very wide powers have been given to us (CLB) for regulating the conduct of the companies affairs in future and to pass upon such terms and conditions, any order which may be just and equitable in all the circumstances of case. 17. The Supreme Court in the Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298 even while holding that the charge of oppression was not made out had held that technicalities cannot be permitted to defeat the exercise of equitable jurisdiction conferred by section 397 and further that the Court is not powerless to do substantial justice between the parties, therefore, ordered sale and purchase of shares. 18. Normally in a closely-held private limited company in the nature of quasi-partnership or a family company where promoters are also permanent directors holding equal shares, once mutual trust and confidence between them is lost, we (CLB) in many such cases despite holding oppression has not been proved, have taken the view one of them going out of the company is the only way, which would protect the interest of the company and directed one of the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X
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