TMI Blog2003 (8) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... idating the staff and customers and other persons dealing with the Company, thereby bringing about a material change in the management and control of the Company causing prejudice to the interests of the Company and its shareholders. With a view to bring an end to these illegalities, the petitioners have sought the following reliefs: (i) to declare that the second respondent has ceased to be the Managing Director of the Company as and from 02.03.2002, and that all the actions taken in his capacity as the Managing Director are not valid and binding upon the Company; (ii) to direct the second respondent to transfer 100 equity shares of ₹ 10/- each of the Company held by him in favour of the first petitioner; (iii) to direct the second respondent to make good the losses suffered by the Company due to his illegal acts; (iv) to declare that the seventh respondent has never been a director of the Company; (v) to declare that all the resolutions passed by the second respondent along with the seventh respondent are invalid and not binding on the Company; (vi) to declare that the second petitioner, respondents 2, 3 to 6 continue to be directors of the Company; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in accordance with the Arbitration and Conciliation Act, 1996. With the above understanding between the parties, the Company was incorporated in June 2000 as a private limited company with the petitioners as the shareholders together holding 8,600 equity shares of ₹ 10/- each and respondents 2 3 holding each 100 equity shares of ₹ 10/-. The second petitioner and respondents 2 3 are the subscribers to the Memorandum and Articles of Association of the Company. However, the MOU was not adopted as part of the Articles of Association of the Company. As per the Articles, the second respondent who became the Managing Director, continued upto 02.03.2002 and the second petitioner the technical director of the Company. At present, the third respondent is the Managing Director of the Company. The respondents 4, 5 6 are directors of the Company. The first petitioner being a nominee of TCL has infused funds to the tune of ₹ 5.29 crores (at the time of filing petition) and at present the same exceeds ₹ 7 crores, whereas the stake of the second respondent is only of ₹ 1,000/-. The first petitioner has invested huge amounts in the Company on the assuranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterim order of the Bench passed on 27.03.2002 04.04.2002 enabled the management of the Company to carry on its business without interference of the second respondent and further the Company could reduce substantially the operating losses. During the pendency of the company petition an extraordinary general meeting was hold on 20.04.2002 and necessary resolution was passed under Section 284 removing the second respondent from the office of director. The appropriate form-32 was also filed with the Registrar of Companies. In the meanwhile, the Company had filed a civil suit in OS No. 1981 of 2002 before the City Civil Court, Bangalore for an order of permanent injunction restraining the second respondent from acting as the Managing Director of the Company and from interfering with the day-to-day affairs of the Company. The said suit has now been dismissed as withdrawn. There is, therefore, no impediment for the petitioners, being shareholders, to claim appropriate reliefs from the CLB, for the acts of mismanagement in the affairs of the Company. The first petitioner infused funds even upon the failure of the second respondent, in fulfillment of his obligations under the MOU, on his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the management and control of the Company, which may result in the affair of the Company being conducted in a manner prejudicial to the interests of the Company and its shareholders. The dispute arises out of the termination of the MOU, which is required to be remedied in terms of Clause 9 of the MOU. Accordingly, the parties are to be referred for arbitration in accordance with the Arbitration and Conciliation Act, 1996. The Company has filed a civil suit prior to the Company Petition in OS No. 1981/2002 before the City Civil Court, Bangalore against the second respondent seeking reliefs similar to the reliefs made in the present proceedings, which was subsequently withdrawn by the Company on 12.04.2002 without liberty. The said suit having been withdrawn and the present Company Petition filed subsequent to filing of the suit is not maintainable and liable to be dismissed. Shri Edwin Prabakar, while arguing the Company Petition on merits has pointed out that the disputes between the parties have arisen on account of the non-fulfillment of the requirements of the MOU dated 09.06.2000. By virtue of Clause 2 of the MOU, TCL ought to have infused in first phase funds to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratified and approved by the Company at its first Board meeting and the same had been reflected in the Board Meeting held on 02.03.2002 as borne out by the minutes of the said Board meeting (Page 78 of petition). As no formal agreement between MPL and TCL has been drawn till date as contemplated in Clause 8 of the MOU, the first petitioner is entitled for refund of the balance amount infused by TCL under Clause 2.1 subject to its transferring back the shares held by the nominees of TCL. For these reasons, Shri Edwin Prabakar prayed for dismissal of the company petition. 5. We have considered the pleadings and arguments of learned counsel for the petitioners as well as the second respondent. The issues that arise for our consideration are whether the petitioners have made out a case under Section 398 of the Act and if so, whether they are entitled for the reliefs claimed in the company petition. Before hearing the matter on merits we suggested that the parties could attempt at settling the disputes amicably, in response to which the petitioners expressed their willingness to buy the interest of the second respondent in the Company or they would go out of the Company provided the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be observed that in terms of this section, the complaint of the member has to be that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the Company or a material change has taken place in the management or control of the Company whether by an alteration in its Board of Director or in the ownership of the Company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever and by reason of such change, it is likely that the affairs of the Company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the Company. The grievance of the petitioners is that the second respondent has altered the composition of the Board by induction of the seventh respondent, withdrawal of the second petitioner as well as the nominees of TCL on the Board of Company as borne out by letter dated 16.03.2002 of the second respondent (Annexure M of petition) and such alteration is likely to affect the Company as a whole. The entire basis of this argument is found to be baseless. It appears that in terms of the MOU, MPL had nominated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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