TMI Blog1990 (7) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... alleging oppression and mismanagement and praying for a declaration that respondents Nos. 2, 4 and 5 (appellants Nos. 2 to 4 in O.S. No. 39 of 1984) in C.P. No. 18 of 1979 are not shareholders or directors of the first respondent company, that the second respondent is not the managing director thereof and that the purported transfer of the two buses, MDE 5902 and MDH 2209, belonging to the company with their respective route permits to the sixth respondent (appellant in O.S.A No. 61 of 1983) is illegal and for a direction to the sixth respondent to redeliver the same to the first respondent company and for the appointment of an administrator to carry on the business of the company. The grounds on which C.P. No. 18 of 1979 was resisted by the appellants need not be set out in extenso and it would suffice to refer to the same in the course of this judgment, while dealing with the contentions of the parties urged in these appeals. On a consideration of the materials placed before the court, the learned company judge found, inter alia , that though the records of the company prior to May 20, 1978, were in the possession of respondents Nos. 2 and 3, they had suppressed them, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstituted O.S. No. 252 of 1978 in the Sub-Court, Erode, against the company, the third respondent as well as the second petitioner for a declaration that the third respondent ceased to be the managing director of the company and for an injunction restraining the third respondent from posing himself as the managing director of the company. In the course of the order in C.P. No. 18 of 1979, the learned company judge found that since the incorporation of the company, with the exception of the annual general meeting held within six months after its incorporation, no other annual general meeting was ever held and this finding was also not challenged in the course of these appeals. In O.S.A. No. 61 of 1983, the principal submission of learned counsel for the sixth respondent (the appellant in O.S.A. No. 61 of 1983) is that the company court has no power, in a petition under sections 397 and 398 of the Act, to set aside the transfer of the buses and the route permits and the learned judge fell into an error in concluding that such a power is available under section 402( a ) of the Act or at any rate under the residuary clause ( g ) of section 402 of the Act. Referring to Sheth Mohanlal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the termination of the agreement and the sale of the assets of the mill were acts of oppression and mismanagement, prejudicial to the interest of the company and claimed that the sale should be set aside. It was in that context, after referring to sections 397, 398 and 402 of the Act, it was held that though the power of the court under sections 397 and 398 of the Act was very wide, it was conditioned by the purpose for which it could be exercised, viz ., "with a view to bringing to an end the matters complained of" in a case under section 397 of the Act and "with a view to bringing to an end or preventing the matters complained of or apprehended" under section 398 of the Act and that sections 397 and 398 of the Act postulate that on the date of the application, there must be a continuing course of conduct of the affairs of the company, which was oppressive to any shareholder or prejudicial to the interest of the company. It was also further held that a past and concluded contract between the company and a third party could not be set aside on an application under section 397 or 398 of the Act and that section 402( f ) of the Act was not a provision which derogates from the gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing clauses found in sections 397(2) and 398(2) of the Act respectively : "with a view to bringing to an end the matters complained of" and "with a view to bringing to an end or preventing the matters complained of or apprehended" ; and on what is contained in section 402( f ) of the Act to hold that the company court had no power to set aside such a sale that took place in the circumstances referred to earlier. We are of the view that the factual background presented in this case is totally different from that in Sheth Mohanlal Ganpatram s case ( supra ) and we are of the view that that decision cannot have any application. With reference to most of the factual findings rendered by the company judge, there was no serious attack by learned counsel for the appellant in o. S.A. No. 61 cf 1983, but the attack was confined to a point of law based on the principle laid down in the decision in Sheth Mohanlal Ganpatram s case ( supra ) referred to earlier and also the interpretation to be placed on section 290 of the Act and the applicability of regulation 75 of Table 'A' under the Act, which we shall presently advert to, after drawing attention to certain factual aspects which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erated that he had sold away the company buses. It has also to be borne in mind that while the plea of the appellant in O.S.A. No. 61 of 1983, in his counter was that the sale became final on December 3, 1978, RW-1 (the second respondent) deposed that the sale took place on December 4, 1978. To a further question, "for selling the buses of the company, did you advertise in any paper ?", he replied : "I had intimated the brokers at Erode. No advertisement was made in any newspaper." He also answered subsequently that he did not receive offers in writing. To another question, "Did you consult the board for selling the buses of the company ?", he answered : "We held a meeting and decided to sell the buses.", but he did not give the particulars of the alleged meeting. RW-2 (the third respondent) deposed that Senniappan, the second respondent, and himself and others sold away the buses. This is inconsistent with what RW-1 had stated regarding the person who brought about the alleged sale. Even so, RW-2 also did not refer to the passing of any resolution by the board of directors for the sale of the buses. To a specific question, "For the sale of the buses, have you got any records in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take over the bus service as managing director, but he in turn told him that he was an illiterate and unable to run the buses, to which Rasool told him that in running the buses, he would assist him. It is further significant to note that no general meeting of the company was held after the incorporation of the company in 1967. As per section 255(2) of the Act, in the case of a private company, as the present one, the directors generally shall, in default of and subject to any regulations in the articles of the company, be appointed by the company in the general meeting and in the present case, the articles of the company do not say anything contra. In the face of the abovesaid admission by the third respondent that there was no general meeting of the company at all after the incorporation of the company and in the absence of evidence to show how the third respondent actually became the managing director of the company, at least subsequent to 1972 and prior to the alleged meeting on May 20, 1978, he could not be treated as having acted as a director or managing director of the company at all. From the facts and evidence referred to earlier, it is clear that the third responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the route permits continued to remain only with the company. We agree with the learned company judge that a careful consideration of the evidence of RW-3 leaves the court with the impression that he does not know anything about the transfer or even about the buses and that he also did not care to know whether there was any resolution of the board of directors authorising the sale of the buses, at least before the finalisation of the alleged transfer. Even according to RW-3, there was no written offer for the purchase of the buses. He was also unaware whether their sale was ever advertised. The learned company judge was, therefore, right in inferring that the alleged sale was nothing but a pure adjustment between the two relatives, viz. , the second respondent and his brother's son, the sixth respondent, to subserve their own interest, unmindful of the interest of the company. RW-3 deposed that he came to know of the sale of the buses through a broker and this cannot be accepted in view of the relationship between RWs-1 and 3. RW-3 also accepted that he was not a motor mechanic and he was not familiar with bus operations. Yet, he claimed that he alone inspected the buses before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e office of director and managing director. Section 290 of the Act would not cover cases where there is a total absence of appointment or a fraudulent usurpation of authority. Our attention has not been drawn to any provision in the Act or any decision holding that even in the absence of appointment or usurpation of the office of director or managing director, the provisions of section 290 of the Act would apply. Viewed in the light of the facts and circumstances referred to earlier, the decision relied on by learned counsel for the appellant in O. S. A. No. 61 of 1983 in Sheth Mohanlal Ganpatram v. Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [1964] 34 Comp. Cas. 777 (Guj.) cannot have any application at all and also cannot enable the appellant to claim that the transfer of the buses and the route permits is valid and cannot be questioned in proceedings arising under sections 397 and 398 of the Act. We have already noticed the factual features in this case and therefrom it is clear that certainly there was oppression and mismanagement as envisaged under sections 397 and 398 of the Act. The third respondent as RW-2 accepted that the second respondent and himself were not att ..... X X X X Extracts X X X X X X X X Extracts X X X X
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