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S. James Fredrick and Anr. Versus Mrs. Minnie R. Fredrick and Ors.

1999 (12) TMI 874 - COMPANY LAW BOARD NEW DELHI

C.P. No. 18 of 1998 - Dated:- 16-12-1999 - S. Balasubramanian and A.K. Doshi For the Appellant: Arvind Datar, Chitra Narayan, D.B. Saxena, Lakshmi Subramanian and R. Senthil Kumar, Advs. For the Respondents: V. Achuthan, Adv. for respondent Nos. 1 and 2 and S. Ravi, K. Madhusudhan and Gupta, Advs. for respondent Nos. 4, 5 and 6 ORDER S. Balasubramanian, Vice-Chairman 1. Indag Finance and Guarantee Company Limited (the company) in the affairs of which this petition under Section 397/398 of the Co .....

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hem were the first directors of the company not liable to retire by rotation. As per Article 39(a), the petitioner was to be managing director and chairman of the company for life. The two sons were inducted as directors some time in 1993. Due to some family disputes/ differences, now the first petitioner and the first respondent are living separately for quite some time. Now the second petitioner is with the father and the second and fourth respondents with the mother. Thus, the petitioner grou .....

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undischarged insolvent by the High Court of Madras. A copy of this letter was addressed to all the shareholders of the company as well as the subsidiary. Further, the respondent shareholders also requisitioned an extraordinary general meeting to transact various businesses and the same was held on April 21, 1998. In this meeting, the second petitioner was appointed as the managing director for a period of five years and two employees of the company were also appointed as directors. These two we .....

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ent, with a view to take over the control of the company, first engineered a letter to be written to the first petitioner that he had disqualified himself for being a director in terms of Section 274(b). In fact the IP petition filed against the first petitioner was dismissed by the High Court, the fact of which was fully known to the respondent. Since the articles name the first petitioner as the managing director for life, the only way by which the first petitioner could be removed from his po .....

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mily shareholders is by itself an act of oppression, justifying the winding up of the company on just and equitable consideration. The very fact that the company is not doing any business other than controlling the affairs of the subsidiary, there is no need to appoint two outside directors. He further submitted that even convening the extraordinary general meeting was in violation of the provisions of the Act. When the notice of requisition was received, the same should have been considered in .....

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ased to be directors on the day on which the general body meeting should have been held. In the same meeting, the second respondent was also appointed as managing director for a period of five years. In view of the illegalities in the appointment of the second respondent as the managing director, the petitioner filed a criminal case against the second respondent under Sections 205, 406 and 500 of the Indian Penal Code and the matter is pending before the metropolitan magistrate. He referred to V .....

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ng of any extraordinary general meeting and status quo ante that the first petitioner as the managing director be restored. 3. Achuthan, appearing for the respondents submitted that the petitioners have unnecessarily brought in the name of the subsidiary which is not relevant to the facts of this case. He submitted that when the shareholders exercised their rights to convene an extraordinary general meeting and take appropriate decisions, the same cannot be considered to be oppressive. According .....

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uisitioning a general body meeting. He further stated that in the case of requisitioned meetings, there is no need for an explanatory statement as decided in Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 (SC). He further submitted that the petitioners have not made out a case for winding up of the company on just and equitable consideration since it is a closely held company, no public interest is involved and as such invocation of provisions of Section 397 is unwarr .....

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cribed by the articles to become a director. Since there could be a deadlock in the board meetings in view of two directors representing each group, to avoid deadlock in the board meetings, two more directors were appointed. The two employee-directors were appointed only with a view to give the employees a representation on the board. In other words, he submitted that whatever was done was only for the benefit of the company and as such he prayed for dismissal of the petition. He further pointed .....

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the disputes amicably and accordingly an order was passed on July 6, 1998, as follows : "in view of the family nature of the company and that there are other family disputes between the parties, we have advised the counsel for both the sides to resolve the disputes amicably by which they part ways. Both counsel are agreeable to explore the possibilities of amicable settlement. Accordingly both will exchange, within a week from today their proposals and later discuss among themselves to arr .....

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sed. Unfortunately, the parties could not come to any settlement and accordingly the petition was heard on the merits on September 15, 1999. 6. There are only two main allegations in the petition. One is about the stand of the second respondent that the first petitioner had vacated his office in terms of Section 274(b) and the other, on the various resolutions passed in the extraordinary general body meeting held on April 21, 1998, more particularly, with reference to induction of two employee d .....

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ad been dismissed by the High Court. If that be the case, the petitioner has not attracted the provisions of Section 274(b). Since as per the articles, he is the managing director for life, he will continue to function as the managing director. 7. In regard to the legality or otherwise of the convening and holding of the extraordinary general meeting on April 21, 1998, it is to be noted that in a Section 397/398 petition, it is not the legality or otherwise of an action which is normally examine .....

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be managed. After the induction of the two directors, there was parity in the board-two of the petitioners and two of the respondents. Any disturbance in the board resulting in marginalisation of one group has to be considered as an act of oppression in a family company like the respondent-company. Therefore, irrespective of the fact whether the extraordinary general meeting was properly convened and held, the complaint of the petitioners that the appointment of two additional directors in that .....

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on any business has to be declared as invalid and accordingly we do so. Since as per our directions, the resolutions passed on the extraordinary general meeting have not yet been given effect to, we direct that these resolutions, having been declared as invalid, will not be given effect to. 8. We are conscious of the fact that the above directions which would result in the board having two directors from each group is likely to result in a deadlock. In a Section 397/398 petition one of the basi .....

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