2006 (12) TMI 540 - Board - Companies Law

Summary

Issues Involved:
1. Non-holding of annual general or board meetings.
2. Non-filing of annual accounts or annual returns with the Registrar of Companies.
3. Non-transmission of shares of the deceased father of the petitioner in favor of his legal heirs.
4. Illegal lease and sale of the properties of the company for a meager amount and siphoning off of the rentals as well as sale proceeds of the property.
5. Reconstitution of the board of directors of the company.
6. Appointment of an administrator to manage the affairs of the company.
7. Investigation into the affairs of the company by the Central Government.

Detailed Analysis:

1. Non-holding of Annual General or Board Meetings:
The company failed to conduct any general or board meetings and defaulted to file annual accounts and annual returns with the statutory authorities since 1989. The third respondent's defense for non-compliance due to ongoing litigations and custody of statutory records by the High Court was considered, but the court noted that nothing prevented the third respondent from obtaining the necessary records to maintain statutory compliance.

2. Non-filing of Annual Accounts or Annual Returns with the Registrar of Companies:
The company did not file annual accounts or returns for over 15 years. The court acknowledged the defense of ongoing litigations but emphasized the need for compliance, noting that the third respondent, who was prima facie managing the company, should have taken steps to ensure statutory compliance.

3. Non-transmission of Shares of the Deceased Father of the Petitioner in Favor of His Legal Heirs:
The petitioner, holding 150 shares and entitled to one-fifth of the deceased father's shares as per intestate succession, claimed entitlement to 2,760 shares. The court found the petitioner had an indefeasible right to get his name registered in the register of members, thus meeting the minimum requirement stipulated in Section 399. However, due to pending probate proceedings contesting the will of the deceased, the court deferred the decision on transmission of shares until the probate proceedings were concluded.

4. Illegal Lease and Sale of the Properties of the Company:
The sale of the company's property in Maduravayal was challenged. The court found that the property was sold pursuant to board resolutions passed on January 12, 1996, February 10, 1996, and November 27, 1999. The court noted that the resolutions were valid and binding, and the property was sold at a rate higher than the prevailing market rate. The court dismissed claims of undervaluation and found no merit in the allegations of fraudulent sale. The court directed the company to deposit the entire available sale proceeds with a nationalized bank and not to deal with the principal amount until the determination of shareholding in the pending probate proceedings.

5. Reconstitution of the Board of Directors of the Company:
The claim over directorship and chairmanship by the petitioner and the second respondent was not considered due to pending civil suits. The court noted that any direction to reconstitute the board would conflict with the findings of the High Court and pending civil suits.

6. Appointment of an Administrator to Manage the Affairs of the Company:
The court found no sufficient ground for appointing an administrator, noting that the company had stopped its activities since 1976 and was shrouded in litigations. The court emphasized that the relief under sections 397 and 398 is an equitable relief and would not be granted unless the petitioner approached the court in good faith.

7. Investigation into the Affairs of the Company by the Central Government:
The court found no sufficient material to form a prima facie opinion that the circumstances would satisfy the requirements of Section 237(b) of the Act, which would justify an investigation into the affairs of the company. The court noted that the family members were fighting over the properties held by the company, and the main grievance regarding the sale of the property was already found to be devoid of merit.

Conclusion:
The court directed the company to deposit the sale proceeds with a nationalized bank, distribute the interest among members, and appointed an independent chartered accountant to verify the accounts. The court dismissed the petitioner's claims regarding the sale of the property, reconstitution of the board, and appointment of an administrator, emphasizing the need for the petitioner to approach the court in good faith. The court also found no grounds for an investigation by the Central Government.