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2015 (10) TMI 2326 - COMPANY LAW BOARD CHENNAI

2015 (10) TMI 2326 - COMPANY LAW BOARD CHENNAI - TMI - Oppression and mismanagement in affairs of Company It is case of Petitioner that Respondent has not conducted any business since year 2000 nor has been regular in filings with ROC 2nd Respondent filed various forms with ROC using digital signature of Petitioner which was not permitted and has taken advantage of CLS Scheme No approval of shareholders taken in doing such acts - Whether petitioners have any locus to file the present petit .....

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It is a clear case of ulterior motive and as such petitioners have no locus standi - Issue answered against petitioners.

Further,petitioners are no longer shareholders thus cannot question allotment of shares and as such at this belated time have no locus standi to question the same - Petition is an abuse of process of law as petitioners have exited the Company, there cannot be any acts of oppression against them and in so far as mismanagement is concerned, when there is no business a .....

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r of Respondents. - CP No.21,2014 - Dated:- 22-6-2015 - SHRI KANTHI NARAHARI, J. For The Petitioners : Shri. R. Murari, Sr. Advocate, Shri. R. Rajesh, Advocate For The Respondents : Shri. D. Peruman Saranyan, Advocate The present petition is filed under sections 397, 398, 402 and 403 of the Companies Act, 1956 alleging certain acts of oppression and mismanagement in the affairs of the company and sought reliefs as prayed in para 6 of the petition. 2. Shri R. Murari, learned senior counsel leadin .....

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each holding 100 shares. The shareholding pattern of the 1st respondent company as on the date of incorporation is as follows: Sl. No. Name of the shareholders/subscribers Number of equity shares 1. Sundar Iyer (P1) 100 2. Vanaja Sundar Iyer (P2) 100 3. J. Chandramouli (R2) 100 4. Shobana Chandramouli (R3) 100 5. R.A Ravichandramouli 100 6. Nirmala Ravichandran 100 7. E.Y Rangoonwala 100 Total number of share 700 3. It is submitted that during the incorporation of the 1st respondent company it h .....

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nd also it was irregular in filing the forms with the ROC. The petitioners came to know recently that the 2nd respondent has committed various acts of manipulations and oppression and mismanagement which led to the petitioners to suspect about the 2nd respondent's acts and deeds in managing the affairs of the 1st respondent herein. In order to ascertain whether any similar acts were committed by the 2nd respondent in the affairs of the 1st respondent company an inspection of the records was .....

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l advantage of the situation to convert the 1 respondent as its own fiefdom. The petitioners came to understand that in the year 2010 under the Company Law Settlement Scheme (CLSS) the 2nd respondent misusing the position as a director in the company has filed several forms with the ROC without any authority and also without the knowledge and consent of the other directors and shareholders of the company. The petitioners object to all the illegal and incorrect documents filed after the year 2000 .....

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the 2nd respondent in the year 2010 it came to the knowledge of the petitioners very recently after the inspection of records with the ROC as stated above and the petitioners have immediately approached this Hon'ble Bench without any delay. In tact the 1st respondent company purchased a land from 3 persons who held 1/3rd share each at Banjara Hills, Hyderabad in the year 1996 by sale deeds dated 15.02.1996. (1) Doc. 389/96 reg. on 16.02.1996 - A premises, 1/3rd share being 33.33% of the und .....

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plot no.8 in Plot no.344 in Survey No. 129/77 on a plot of land admeasuring 1196 sq. yards, situated at Road No. 12, Banjara Hills, Hyderabad. (3) Doc. 391/56 reg. on 16.02.1996 - A premises, 1/3rd share being 33.33% of the undivided share of land to the extent of 398.66 sq. yards equivalent to 333.33 sq. metres in total land area of 1196 sq. yards bearing sub-plot no.8 in Plot no.344 in Survey No. 129/77 on a plot of land admeasuring 1196 sq. yards, situated at Road No. 12. Banjara Hills, Hyder .....

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n the company and he is holding only 100 shares right from incorporation of the company similarly the 2 respondent also did not hold 350 shares in the company at any given point of time. As per the said document the total number of shares in the company remains to be same i.e. 700 shares but indicates only 2 shareholders i.e. P1 & R2 which is false. None of the shareholders of the company have made any share transfer in the company till date and hence it is not possible or the lst petitioner .....

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e paid up share capital. The lst respondent is a public limited company and any further issue of shares must be in accordance with Section 81 of the Companies Act. 1956 hence in the absence of any special resolution passed by the shareholders of the company it is a clear violation of law on the part of the 2nd respondent in allotting shares to himself without offering the same to other existing shareholders of the company and this has resuIted in conversion of the 2nd respondent into a majority .....

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s filed only on 09.08.2013 i.e. after almost a period of 2 years and 7 months. Even this document is disputed and the 2nd respondent has clearly acted independently and has acted highly detrimental to the interests of the company and its shareholders. The 2nd respondent has committed a serious fraud by aItering the paid up share capital allotment of shares to himself and another selected shareholders to the exclusion of other shareholders i.e. Petitioners, aItering the shareholding pattern etc. .....

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No.1 of 1st respondent as director nor any process followed for his removal. This act of vanishing and removing the name of 1st petitioner as a director is by taking advantage of CLSS scheme is nothing but falsification and manipulation of ROC records for illegal personal benefit. Upon inspection of the company's records filed with the ROC. the following were shown as the director of the 1st respondent company as on 16.08.2013. Sl. No. Name Designation Date of Appointment 1. A.V. Meenakshis .....

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Tummala Director 15.03.2004 3. Shubhashini Kancharla Direcior 15.03.2004 4. Janki Ram Sarma Kandanur Director 15.03.2004 It is submitted that how and when the Board was reconstituted and how the aforesaid persons were appointed as directors on the Board of the lst respondent company and how the 1st petitioner and Mr R.A Ravichandran were removed from the board without any Board meetings and general meetings held in the company particularly when the 1st petitioner is both a director and a shareho .....

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no amount is so far repaid by 1st respondent to M/s Twenty First Century Management Services Ltd. The 2nd respondent has clearly acted highly detrimental to the interests of the company and the shareholders which caused serious prejudice to the interests of the company and its shareholders. The acts of the 2nd respondent clearly show that they have uIterior motive of grabbing the valuable assets of the company. In support of the contentions the learned senior counsel relied upon the following de .....

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oresaid reasons he requested the Bench to allow the petition as prayed for. 6. The respondents 1 to 5 filed a detailed counter to the petition. Shri Peruman Saranyan, learned counsel appeared for the respondents denied the allegations and averments made by the petitioners. He submitted that the 1st respondent company was promoted by the 2nd respondent and one Mr R.A Ravichandran (now deceased). The petitioners along with respondents 2 & 3, Mr R.A. Ravichandran (now deceased). Mrs Nirmala Rav .....

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holding 350 shares each and incumbent directors were appointed at that time. The annual return filed upto 2010, it has been inadvertently mentioned as Mr J. Chandramouli and Mr Sundar Iyer holding 350 shares each but it should be Mr J. Chandramouli and Mrs Shobana Chandramouli holding 350 shares each. The 2nd respondent was previously holding the position of Managing Director of M/s. Twenty First Century Management Services Ltd. (wherein Mr Sundar Iyer (the 1st petitioner) is the Chairman of Tw .....

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f Twenty First Century Management Services Ltd.'s Chennai office. The said Mr K. Krishnaswarny was privy to all actions, all the documentation and decisions taken by the 2nd respondent in his official capacity The Digital Signature Certificate Key of the 2nd respondent was in the custody of one Mr A.V.M Sundaram the Company Secretary of M/s. Twenty First Century Management Services Ltd. Subsequent to the resignation of the 1st respondent from M/s. Twenty First Century Management Services Ltd .....

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roval. For applying the digital signature Mr K. Krishnaswamy has fraudulently created a new email id as jcmouli@yahoo.com. The 2nd respondent further states that it is not the 2nd respondent email ID. The 2nd respondent email ID is moulijc@yahoo.com. Mr. K. Krishnaswamy appointed himself fraudulently as additional director and director by creating false DIN No. The appointment is an act of fraud on the company and its directors, Mr. K. Krishnaswamy fraudulently appointed Mr. A.V.M. Sundaram as D .....

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.V.M Sundaram to Mr. K. Krishnaswamy consenting to apply for a post of Additional Director of the 1st respondent company. Immediately on coming to know the above facts, the 1st respondent company has taken necessary action in removing Mr K. Krishnaswamy and Mr A.V.M Sundaram from the Board of the 1st respondent company by passing necessary resolutions in the EGM held on 29.08.2013 by the 1st respondent company. The relevant Form 32 and along with the said resolution has been filed with ROC. The .....

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complaint. On the knowing of it. Mr. K. Krishnaswamy approached and gave an affidavit accepting the wrong done. The respondents further submit that on the basis of which the Board of directors of the 1st respondent company has decided to withdraw the complaint. After withdrawing of the complaint against Mr. K. Krishnaswamy and Mr A.V.M Sundaram on 14.12.2013 the 1st respondent came to know that Mr. K. Krishnaswamy was involved in activities against the 1st respondent company acting through Mr. .....

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rue that during the incorporation of the 1st respondent company it had issued and paid up share capital of ₹ 7000/- comprising of 700 shares of ₹ 10/- each. As per the audit report for the year ended 31.03.2010 the 1st respondent company had not been engaged in any business activity. The 1st respondent company has held board meetings and general meetings. The petition is absolutely silent when and how the petitioners came to know recently that the 2nd respondent has committed various .....

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iled various forms thereby changing the composition of the Board and shareholding pattern of the company without due notice to any of the petitioners, directors or shareholders of the company. It is submitted that since the petitioners are not the present directors/shareholders of the 1st respondent company no notices were served upon them. The 1st respondent company is taking necessary steps to compounding of offence for violation of sections 12, 45 and 433 of the Companies Act, 1956. The respo .....

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ies Act, 1956. The necessary special resolutions have been duly passed by the 1st respondent company in accordance with the Companies Act, 1956 and as such there is no violation of law as alleged by the petitioners. The allegations that the 2nd respondent in allotting shares to him without offering the same to other existing shareholders of the company and this has resuIted in conversion of the 2nd respondent into a minority shareholder and the other shareholders into a minority are all invented .....

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that there is no resignation by the 1st petitioner of the 1st respondent company as director nor any process of this removal is followed as per the act. Further, it is false to state that this act of vanishing and removing the name of the 1st petitioner as a director is by taking advantage of CLSS Scheme is nothing but wilful falsification and manipulation of ROC records for illegal personal benefit. The respondents submit that without filing of the Form 32 with ROC the name of the 1st petitione .....

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orm 32 and Form 23 along with the said resolution have been filed with ROC. It is true that as on 23.09.2013 the 2nd, 4th and 5th respondents are the directors of the 1st respondent company. The respondents further submit that in the Annual Return filed for the year 2002 made upto 30.09.2002 under CLSS Scheme inadvertently mentioned the date of appointment of the directors as 15.03.2004 instead of 08.10.2001. The respondents further submit that in page No. 16 of the petition in column box in whi .....

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he respondents further submits that since, second filing is not permitted by the Ministry of Corporate Affairs, the respondents undertake to rectify the mistakes in the future in the annual returns to be filed by the 1st respondent company. All other allegations and averments are all invented only for the purpose of the petition and put the petitioners to strict proof of the same. The 1st respondent company has not received any loan amount from M/s. Twenty First Century Management Services Ltd. .....

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y First Century Management Services Ltd. The 1st respondent company had its registered office at No.123. IV Street. Abhiramapuram, C.P. Ramasamy Road. A1warpet. Chennai - 600 018 and shifted its registered office to 158, Eldams Road, Alwarpet, Chennai - 600 018 and presently its registered office situated at 2A, Ramcons Rajam, No.90, Bazullah Road, T. Nagar, Chennai - 600 017. The respondents further submits that necessary board meetings were held by the 1st respondent company and necessary form .....

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& Another Vs. K.R.S. Mani & Others. 2. (2010) 158 CC 594 (CLB) in the matter of Bharamgouda Adguda Patil & Others Vs. Sanjay Founders Pvt Ltd. 8. Heard the learned counsel appeared for the respective parties perused the pleadings, documents and citations relied upon by them. After analysing the pleadings the following issues are felt for consideration and the same are needs to be addressed : i. Whether the petitioners have any locus to file the present petition? ii. Whether the peti .....

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n were the promoters of the R1 Company. The main objects of the company is to invest, buy. sell and deal with the property including dry or wet land, housing plots buildings and lease hold properties. The company was not carrying any business activities. However, the Company purchased a immovable property on 15.02.1996 by way of three registered sale deeds in Hyderabad. The petitioners have filed the copies of the sale deeds along with the petition. From the perusal of all the sale deeds, it is .....

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nual return filed after 2010, it has been inadvertently mentioned that the 1st petitioner and 2nd respondent herein were holding 350 shares each. The respondents vehemently contended that the CP is barred by limitation and is an abuse of process of law with an intention to grab the property of the company. It is contended that the petitioners have transferred their shares and do not have any locus to file the present petition. The petitioners in the petition at Para 5 of the petition under limit .....

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ng conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members including any one or more of themselves may apply to the CLB for an order under this Section provided such a members have a right so to apply in virtue of Section 399. According to Sub-Section (2) of Section 397, if any application under Sub-Section (1) , the CLB is of opinion that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppres .....

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ion 399 of the Companies Act, 1956. According to the above provisions of the Act, the burden lies on the petitioners to establish that the affairs of the Company are being conducted in a manner prejudicial to the interest of the public or in manner oppressive to any member. Further, the petitioners have to establish that the acts complained of in the affairs of the Company must be in continuous in nature. The petitioners must come to the Bench with clean hands. From the perusal of the petition, .....

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e 1st petitioner ceases to be a director and the petitioners transferred their shares. If the petitioners were of the opinion that they have not transferred the shares and the 1st petitioner had not resigned from the Board of Directors, they could have approached the proper forum for redressal of their grievances. The petitioners maintained a stoic silence for almost all more than 15 years. Moreover, the petitioners in their petition at Para 6 stated that the petitioners came to know recently th .....

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ction. Further, it is an admitted fact that the company is having one immovable property at Hyderabad, however, the petitioners contended that the Company is having properties which reflects that the petitioners are not aware even whether the company is having any property or properties. Moreover. there are no business activities in the R1 Company and therefore, the allegation regarding oppression in the affairs of the Company is completely misleading. This Bench is of the view that since, there .....

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st petitioner is a director have not made any grievance with regard to non-issue of notices for the general meetings and non-issue of notice for the board meeting in respect of petitioner No.1. This Bench comes to a conclusion that the petitioners exited from the company and the 1st petitioner resigned from the board, therefore, the petitioners have not complained with regard to non-issuance of notices for the general and the board meetings and have not shown any interest in the company. Maintai .....

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cision of CLB in Smt. Vijay Khanna (supra). On perusal of the order, the CLB is of the view that the CLB is a Court of equity and the equity does not fix a specific lime limit but considers the circumstances of the each case and determine whether there has been such delay as to amount to laches. In the above case, the CLB was of the view that there is a small delay in that case, however, it was held that "it depends upon the case to case". In the present case the facts are different an .....

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petitioners had not come with clean hands before the CLB which exercises equitable jurisdiction there was no explanation for diversion of funds to the petitioners sister concerns. The petitioner failed to make out a case for winding up of the Company or that the conduct of the respondents was harsh, burdensome and wrongful. Procedural defects or irregularities could not be held to be oppressive to the petitioners. In the present case, the petitioners have not come to this Bench with clean hands .....

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oner resigned from the Board and not continuing as director of the Rl Company seen from the 27th Annual Report for the year 2012-2013 of Twenty First Century Management Services Limited. The Board of directors of that company consists of the petitioner as non-executive chairman and the 2nd respondent as managing director who resigned w.e.f. 31.05.2013 and one Mr. AVM Sundaram, Company Secretary. At Page 18 of the Annual Report of that company, the lst petitioners profile shows that he is the Cha .....

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n that he is not a director of the RI Company. Further. 1st petitioner is not a stranger to the 2nd Respondent to make the allegations as if that the 2nd respondent is not known to him. The 1st petitioner and the 2nd respondent were the Chairman and the Managing Director of M/s. Twenty First Century Management Services Limited for quite long time. Hence it is ruled out that they do not know each other and they do not meet regularly. The petitioner cannot claim ignoramus about the R2. Therefore. .....

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uous cause of action in the petition. Accordingly, the issue is answered against the petitioners. 11. Now I deal with issue No. (ii) For filing a petition before this Bench, the petitioners have to establish a prima facie case of oppression or mismanagement in the affairs of the Company. As stated in issue No (i) supra, the company is having only one property i.e. at Hyderabad and do not have any other business activities. The petitioners in their petition have alleged mainly with regard to the .....

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that 49300 shares were allotted to the 2nd respondent on 15.05.2010 and filed Form No.2 showing the allotment of said shares. It is also stated that the Company increased its paid up share capital from ₹ 7.000/- to ₹ 5,00,000- and necessary resolutions were passed. This Bench as held supra. since the petitioners no longer shareholders of the Company cannot question the allotment of shares. The respondents categorically stated that the petitioners have transferred their shares along w .....

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sed any objection with regard to their transfer of shares to the respondents No.2 and 3. If the transfers are illegal the other shareholders are also would have questioned the transfer of shares. However, the other shareholders have not questioned/challenged the transfer of shares to the respondents herein. Even the petitioners have not made the other shareholders as respondents to this petition. It is unequivocal that the petitioners have 'acquiesce', the transfer of shares and resigned .....

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etitioner, the name of the RI Company is not reflected to show that he is a director, whereas he was shown as director of other four companies. Except these averments, there are no other acts of oppression and mismanagement. Even though the petitioners have no locus standi to file the petition, however this Bench in order to complete the enquiry even on the merits intend to deal with the same. Section 397/398 confers a right on the shareholder/member to file petition before this Bench complainin .....

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his Bench under Section 397/398, alleging purported acts of oppression and mismanagement is concerned. I am of the view that the petition is an abuse of process of law for more than one reason that when the petitioners have exited the Company, there cannot be any acts of oppression against petitioners. In so far as mismanagement is concerned, when there is no business activities in the company there cannot be any allegation of mismanagement in the affairs of the Company. Section 397 specifically .....

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ard a beneficial reference is drawn from the judgment of Kerala High Court reported in (1994) 79 CC 213 in the matter of M/s palghat Exports Private Limited. The Kerala High Court held at para 31 and the said para is extracted hereunder : "31. Counsel for the appellants further submitted that the company court can take action under Sections 397 and 398 of the Act only on the pleadings of the petitioners. Obviously, in the pleadings the complaints highlighted are of the year 1985-86. The lea .....

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olling shareholders. When once an act even if it is an oppressive one has been done, it becomes a fait accompli and thereafter remains to be past act and in such cases the operation of Section 397 of the Act is not recommended". 12. In the present case, the petitioners alleges regarding the transfer of shares and removal of 1st petitioner, the acts pertains to the year of 1997-98 and the petitioners filing the petition in the year 2014. Therefore, the petitioners cannot allege that the affa .....

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linga Tubes Ltd. 1956 CLJ Page 193, wherein the Hon'ble Supreme Court held that "as has already been indicated, it is not enough to show that mere is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of Section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation, but as a part of a consecutiv .....

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any's affairs and such oppression must involve at least an element of lack of probity or fair dealing to a member in the mailer of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to section 397". 14. In the present case the petitioners have failed to establish that the conduct of majority shareholders was oppressive to the minority and failed to prove that it is a continuous act on the part of .....

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urance Company, wherein the Hon'ble Supreme Court held that the "directors of a company are in a fiduciary position vis-à-vis, the company and must exercise their power for the benefit of the company. If the power to issue further shares in exercise by the directors not for the benefit of the company but simply and solely for their personal aggrandisement and to the detriment of the company, the Court will interfere and prevent the directors from doing so". The said judgment .....

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d that the shares issued in favour of Ramanujam without informing other shareholders about it and without offering them to any other shareholder, the action was totally mala fied and the sole object of Ramanujam in this was too gain control of the company by becoming a majority shareholder thus the Hon'ble Supreme Court held that it is clearly an act of oppression on the part of Ramanujam towards the other shareholders who has been reduced to a minority shareholders as a result of this Act. .....

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pany by any act of the company or by its Board of Directors mala fide, the said act must ordinarily he considered to be an act of oppression to the said member. The member who holds the majority of shares in the company is entitled by virtue of the majority to control, manage and run the affairs of the company. This is a benefit or advantage which the member enjoys and is entitled to enjoy in accordance with the provisions of company law in the matter of administration of the affairs of the comp .....

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learned Senior Counsel are not applicable to the facts of the present case. 17. A beneficial reference is drawn from the judgment of the Hon'ble Supreme Court in the matter of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad and others Vs. Shantadevi P. Gaekwad reported in AIR 2005 SC 809. The Hon'ble Supreme Court defined the word of oppressive. At para 183, the Hon'ble Court held that "the expression 'oppressive', it is now well settled, would mean burdensome, harsh an .....

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mplained of may either be designed to secure pecuniary advantage to the detriment of the oppressors or wrongful usurpation of authority ". 18. It is now a well settled law that an isolated incident may not be enough for grant of relief by the CLB. There must be continuous course of oppressive conduct on the part of the majority shareholders and necessary to be proved. In the present case, no acts of oppression were established by the petitioners, not even a single or isolated act. Thus the .....

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d action to cause prejudice to the minority shareholders, whose interests are prejudiced thereby. The relevant paras are extracted hereunder: Para 140 "It will be evident that in order to pass orders under Section 397 of the Companies Act, 1956. the CLB has to be satisfied that the Company's affairs are being conducted in a manner oppressive to any member or members and that the facts would justify the making of a winding-up order on the just and equitable principle, but that such an or .....

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shareholder. This, in fact, is the golden thread of the various decisions in relation to petitions under Sections 397,398 and 402 of the above Act. All the various decisions cited by the learned Counsel for the various parties are ad idem on this issue and applying the said principles, each complaint under Section 397 will have to be judged on its own merit for the CLB to arrive at a conclusion as to whether the ingredients of Section 397 when satisfied and pass appropriate orders thereafter&qu .....

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