2010 (8) TMI 772 - HC - Companies Law

Oppression and mismanagement - Petitioners and respondent Nos. 2 to 6 had contributed equally in purchase of land by respondent-company

Summary

Issues:
Appeals arising from Company Law Board order under sections 397, 398, 402, 403, and 406 of the Companies Act, 1956.

Detailed Analysis:
1. Allegations of Oppression and Mismanagement:
The appellants filed a petition under sections 397, 398, 402, 403, and 406 of the Companies Act, alleging oppression and mismanagement by the respondent. The case involved the sale of company land to relatives without notice to petitioners, unauthorized share capital increase, and illegal allotment of shares. The petition sought various reliefs, including declaring transactions null and void, winding up the company, and redistributing assets.

2. Company Law Board Order:
The Company Law Board passed an order directing the petitioners to continue as directors, setting aside illegal share allotments, and requiring compensation from respondents. The order also mandated rectification of the register of members and distribution of sale proceeds among shareholders. The Board's decision was based on lack of evidence from both parties and the admitted facts of the case.

3. Challenges to the Board's Order:
The respondents challenged the Board's order, arguing that no opportunity was given to present evidence, and the order exceeded the Board's jurisdiction under sections 397 and 398. They contended that a separate application under section 543 was necessary for penal consequences. The legality and basis of the compensation directive were questioned.

4. Counter-Arguments by Petitioners:
The petitioners defended the Board's order, stating that the respondents did not deny the allegations and no further evidence was required. They cited section 406 of the Act and Schedule XI for relief under section 543. They argued that the Board's decision was justified based on admitted facts and legal provisions.

5. Judicial Review and Remand:
The High Court reviewed the case and found that the respondents had not admitted the petitioners' claims. The Court emphasized the need for specific allegations under section 543 for misfeasance or breach of trust. It concluded that the Board's decision lacked a proper legal basis, as no evidence was adduced, and findings were based on insufficient grounds. The Court set aside the order and remanded the matter to the Board for framing issues, allowing evidence, and conducting a trial to reach a decision based on merit and legal evidence.

6. Final Order:
The High Court allowed the appeals, set aside the Board's order, and remanded the case for a proper trial with evidence and cross-examination. The parties were directed to appear before the Board for further proceedings, emphasizing adherence to legal procedures and completion within a specified timeframe. Each party was ordered to bear its own costs.