2010 (9) TMI 891 - Board - Companies Law

Oppression and mismanagement - family company - Petitioners were daughters of one of sons of KN and respondent 2 was son of other son of KN - representation in management of company - Petitioners pleaded that real structure of company was partnership and therefore equitable consideration was to be taken Held that - There was nothing on record as to that each branch of family would be given directorship permanently; as to that there was a basic understanding between parties for equal participation in management; and further since appointments were done in accordance with articles of company principle of legitimate expectation were not applicable to facts of instant case - principles of dissolution of partnership could not be invoked Oppression and mismanagement representation in Board Held that - directorial complaints were no grounds to allege oppression against respondent 2 and other respondents - grievance of petitioners was nothing but personal which had nothing to do with oppression of minority shareholders Oppression and mismanagement petitioner want to exit the company - petitioner want rights in the assets of the company - dispute is between cousins - Held that petitioners have an alternate remedy to invoke the provisions under the articles to get their shares transferred if they have a desire to exit from the company - no justification for a division of asset of company which was in any case against interest of company - petitioners case under section 397/398 was rejected it was to be held that they failed to make out a case of equity under section 402 to compel respondents to purchase their shares in order to bring an end to dispute - petition was to be dismissed

Summary

Issues Involved:
1. Whether the first respondent is a family company to which principles of quasi-partnership apply.
2. Whether the petitioners have established a case of oppression and mismanagement of the affairs of the company by the second respondent and his associates.
3. Whether the fourth respondent is entitled to any reliefs sought for in C. A. No. 28 of 2009.
4. To what reliefs and costs.

Detailed Analysis:

1. Whether the first respondent is a family company to which principles of quasi-partnership apply:

The first respondent, Tirupur Textiles, was incorporated on January 19, 1956. The company's shares were initially held predominantly by family members, with only 500 out of 7,500 shares held by an outsider. The articles of association and the history of shareholding and directorships indicate that the company was managed by family members and professionals over the years. The petitioners argued that the company is a family company due to the predominant family shareholding and management. However, the respondents contended that the company was professionally managed and that directorships were based on merit rather than family representation. The court found merit in the respondents' arguments, noting the absence of any provision in the articles of association for family representation on the board. The court concluded that the principles of quasi-partnership do not apply to this company.

2. Whether the petitioners have established a case of oppression and mismanagement of the affairs of the company by the second respondent and his associates:

The petitioners alleged several instances of oppression and mismanagement, including exclusion from management, non-receipt of meeting notices, improper sale of assets, and financial mismanagement. The respondents countered these allegations by providing evidence of proper management practices, including the issuance of dividends, modernization of the plant, and compliance with statutory requirements. The court found that the petitioners failed to prove specific acts of oppression or mismanagement. The court noted that the petitioners had not actively participated in the company's affairs and had not raised their grievances in a timely manner. The court also observed that the company had been professionally managed and that the petitioners' interests were protected through dividends and share transmissions. The court concluded that the petitioners had not established a case of oppression or mismanagement.

3. Whether the fourth respondent is entitled to any reliefs sought for in C. A. No. 28 of 2009:

The fourth respondent, who initially supported the petitioners, later sought to withdraw his counter statement or be transposed as a petitioner. The court dismissed his application, noting that there were no grounds to grant the reliefs sought by the fourth respondent. The court observed that the fourth respondent's grievances were similar to those of the petitioners and that he had not established any independent basis for relief.

4. To what reliefs and costs:

The petitioners sought various reliefs, including appointment as directors, amendment of articles, declaration of subsidiary status, appointment of an auditor, and appointment of an administrator. The court found that the petitioners failed to establish a case of oppression and mismanagement, and therefore, the reliefs sought under sections 397 and 398 of the Companies Act were not warranted. The court also declined to direct the company or the second respondent to purchase the petitioners' shares or to spin off one of the company's units. The court suggested that the petitioners could seek an exit by invoking the provisions of the articles of association for share transfer. The court vacated all interim orders and disposed of the company petition without awarding costs.

Conclusion:

The court concluded that the first respondent is not a family company to which principles of quasi-partnership apply. The petitioners failed to establish a case of oppression and mismanagement. The fourth respondent was not entitled to any reliefs sought in C. A. No. 28 of 2009. The petitioners were advised to seek an exit through share transfer provisions in the articles of association. The company petition was disposed of without costs, and all interim orders were vacated.